Psychologists traditionally viewed risk-taking as an abnormal behavior, associated with disorders such as substance abuse and a variety of personality disorders. Typically it was associated with unpredictability and arguably no right-minded individual would want to go into partnership with a rash, risk-taker.
However, scientists at the University of Cambridge claim that impulsive, risk-taking people make the best entrepreneurs. Studies show that entrepreneurs show an adapted type of impulsive risk-taking which is the ability to make risky decisions combined with an enhanced flexible problem-solving process - i.e. the ability to make decisions/take opportunities under intense stress.
The risk in business study
The study is based on cognitive tests completed by 16 entrepreneurs and 17 managers from Silicon Fen, a cluster of high-tech companies around Cambridge. On decision making that concerned 'cold' processes which are real-life tasks such as planning and hiring, both entrepreneurs and managers performed similarly.
The interesting results occurred when the entrepreneurs and managers were asked to make “hot” decisions such as financing a risky business with high potential. Whilst both entrepreneurs and managers made good quality decisions, entrepreneurs were significantly more inclined to make "risk decisions". Entrepreneurs also had far higher ratings on questionnaires which measured impulsivity.
So, it seems, you are more likely to become a successful entrepreneur if you are more inclined to make risky decisions.
Are risky decisions good for business?
Entrepreneurs didn't only show a predisposition towards risk-taking. They also displayed superior cognitive flexibility when it came to decision making. These cognitive processes are intimately linked to brain neurochemistry, particularly to the chemical released in our brains, dopamine.
Professor Barbara Sahakian, lead author of the study which was carried out at the Behavioural and Clinical Neuroscience Institute, said: "This study has shown that not all risk-taking is disadvantageous, particularly when combined with enhanced flexible problem-solving. In fact, risky or 'hot' decision-making is an essential part of the entrepreneurial process."
Therefore, it seems, that entrepreneurs have a very particular risk-taking skill they combine risk-taking with cognitive flexibility allowing them to take calculated risks - as opposed to reckless risks and make opportunities under intense pressure.
Differences between entrepreneurial risk-taking and other types of risk
It’s no secret that for entrepreneurs, taking risks and doing business goes hand in hand. The difference, however between successful entrepreneurs and reckless risk takers are the following;
Entrepreneurs take calculated risks
Calculated risks are quite different from being rash but they do a require a degree of impulsivity to follow through with. Business owners need to take calculated risks if they want to grow. However, as with all risks, there is a potential for loss, so if you don't have the impulsive spirit of entrepreneurs, you may never take the leap.
Risk helps to distinguish leaders
As the Cambridge study displayed, the difference between managers and entrepreneurs is the risk-taking tendencies found in entrepreneurs. Risk also diversifies businesses from their competitors. Those who are willing to risk and do some a little different, position themselves as leaders, while others get left behind.
It’s a form of self-development
Without risk, entrepreneurs would not experience failure. Failure and the opportunity to embrace it is an extremely powerful resource – one many entrepreneurs would say defined their success. Of course it is possible to learn from positive experiences too, however, failure has a "mountain-moving" motivating impact on determined entrepreneurs. Further, taking risks teaches us how to better calculate such risks in the future.