| Blog

Newsletter: The Fundamental Entrepreneur

Oct 15, 2009 5:50:00 AM / by Tim McCarthy

Entrepreneurship is not about big ideas or flamboyant personalities – It’s about managing risk successfully.   [more]

Our professor started the class by asking us to give our best definition of the word "entrepreneur."

It was 2007. There were 45 of us in the "experienced" MBA cohort at the Fisher College of Business at Ohio State and so the answers were varied and interesting. The professor wrote them up on the board as we gave them and 45 minutes later he had all six boards filled with definitions and we'd had a very lively discussion.

Words of description you would expect were used in defining a successful entrepreneur:

Passionate salesperson

Charismatic leader

Risk taker

Genius innovator

Aggressive competitor

And some perhaps less expected terms were also found in our descriptions:

Perfectionist

Micromanager

Loner

Mercurial (one even said bi-polar!)

After we had exhausted ourselves of every definition we could think of, the professor's lesson began.

He said, "Not one of you got it, though the person who said 'risk taker' is closest.

The successful entrepreneur," he said, "is a 'risk manager.'

She doesn't take risks, she manages them."

Moreover, our professor (Tony Ricci) said most of our other definitions are legends, or at best "tendencies," not facts about entrepreneurs.

That is, he's worked with some entrepreneurs who are quiet and some who are charismatic; some who are measured and some who are passionate; some who created copycat businesses and some who innovated; some who were competitive to a fault and others who were focused solely on their own work.

But in the end, no matter the personality traits, the entrepreneurs he's witnessed who succeeded had only one common trait - they all risked wisely. The decisions they made, particularly on things such as capital expenditures, considered the "worst case."

By contrast, unsuccessful entrepreneurs passionately pursue dreams - the best case.

Often these folks have a truly innovative idea. Often they present it with passion, which was why this lesson was particularly revealing to me. I had to ask myself, "How many times had I been sold on an idea or business that ultimately didn't work?"

Many, many, many times. I realized I'd thought too much about the reward and not enough about the risk.

In fact, with my tongue firmly planted in my cheek, I will tell you I've many times sold myself ideas that were too risky!

What does this mean to people doing the business of good?

Well, entrepreneurs in my view come in many forms. They are not only people who own their own businesses, they are people who operate with entrepreneurial mindsets in whatever business they do.

All three of my children are entrepreneurs and only one of them is in business for himself. They just think differently than others in their businesses and social circles, working around the edges to see if there's a better way to do things. And yet none of them has yet fully learned the lesson of risk management. (I'm pretty sure I'm still learning the lesson, too.)

I met with a woman from a troubled non-profit the other day who struck me as a big-time entrepreneur. She would appear to be anything but a "classic" entrepreneur. She runs a very small operation that only nine months ago appeared as if it were going to close.

As I interviewed her, it became clear to me that she was a risk manager.

Since she took over at the bottom of the curve, she was delicately taking one dysfunctional piece of their "business of good" and seeing what she could change.

Cost savings of course ranked high, but in each case she was measuring what they would lose for what they gained in savings.

She and I are then going to pick apart each one of their revenue streams. We will measure what they are gaining for the effort and cost being put in. She told me in one case of traditional marketing (direct mail), she has found that their cost exceeded their income. Who knew?

She's asking herself some very fundamental questions: What are my essential costs? What are my most effective sources of income? And what's my risk with each?

Or as my mentor Jim Johnson would say when I'd get myself caught up in complex thinking: "Business requires arithmetic, McCarthy. Not algebra, not calculus - arithmetic."

And Tony Ricci taught me another fundamental lesson about entrepreneurs.

That is, it's not the person with the best idea, the most passion, the best salesman or the most competitive maverick who wins.

It's the entrepreneur who most effectively measures the risk and reward of each decision they make.

Tags: Newsletter, Risk Management, Discipline, Entrepreneur, Entrepreneurship, Measurement

Tim McCarthy

Written by Tim McCarthy

Subscribe to Email Updates

Lists by Topic

see all

Posts by Topic

See all

Recent Posts