Tolerance for Risk in Entrepreneurship
Tolerance for risk encompasses the level to which an investor is willing to withstand the variability of returns. As such, risk tolerance is considered one of the most critical elements in entrepreneurship. Notably, the ability and willingness to take significant risks for an equally higher possibility of higher returns are considered a crucial characteristic of successful entrepreneurs. On the other hand, a high tolerance for risk poses the danger of failure when the plan does not materialize as expected hence diminishing returns and leading to extensive losses. It is crucial for business people to assess their risk tolerance to establish the amount of investment that they would be comfortable to lose in case of poor turnouts. For this reason, an assessment of factors that affect tolerance for risk includes time, future earnings, and asset backup. Simply put, while risk tolerance creates an equal chance of possible success, a small error and unforeseen circumstances can render risk tolerance as the primary cause of failure.
The Relationship between Risk and Success
Low-risk tolerance is likely to yield failure due to the fear to engage in something. However, the inability to risk means that one cannot experience the success that comes with entrepreneurship. In support of this sentiment concerning the relationship between risking and success, (Rosen) mentions that there is no single path to effective entrepreneurship that does not involve risk-taking. This illustration implies that accomplishment is directly proportional to the risk where the higher the risk, the higher the returns. The example of Richard Branson is relevant in highlighting how risk tolerance can yield success. As a thrill-seeking maverick of an entrepreneur, Branson took significant risks which eventually saw his realization of insurmountable business achievements. Similarly, another individual who has made high risks involving the launching of international companies is Dale Turken, and likewise, his accomplishments are incredible. Nevertheless, it is crucial to comprehend that high-risk tolerance must be accompanied by a safe space which is essential especially for first-timers.
The Dangers of Risk Tolerance
According to Mcardle, human nature tends to encourage gambling when the losses are more prominent, even in instances where such a gamble appears unwise (124). This statement illustrates that the root of failure resulting from risk tolerance is entrenched in the need to make significant gains. Unfortunately, these profits come with the possibility of losses. In an example by Mcardle, the declining quality of American automobiles is an example of how risking can lead to disappointment (125). In this example, American car companies risked their establishment in the market by offering cheap, low-quality vehicles in an attempt to maintain customers, a move that proved to be detrimental in the long run. Similarly, risk tolerance, if not well checked, recognized and prepared for by creating alternative strategies can be dangerous. Sometimes, ambition may compel individuals to risk wholly especially where stakes are higher, and if things go wrong, then failure occurs in equal measure. This event mimics the gambling experience where one can either win or lose.
The Rewards and Consequences of Risk Tolerance
In a nutshell, the rewards of risk tolerance involve success, and they are therefore essential obstacles on the road to greatness. As such, avoiding risks limits the capacity to achieve accomplishment. For this reason, high-risk tolerance increases the chances of great success. On the other hand, if unchecked and inadequately planned or given space, failure becomes inevitable. Risk tolerance is, therefore, more of a personal decision either to go all in regarding an idea or lay back and wait for an opportune moment. The best approach, however, is to risk when the odds are in favor of success.
Works Cited
Mcardle, Megan. Up side of down: bouncing back in business and in life. London: Penguin Books, 2015.
Rosen, Amy. "How Much Risk Should First-Time Entrepreneurs Take On?" 24 July 2014. Entrepreneur. https://www.entrepreneur.com/article/235665. Accessed 27 March 2018.
