Chad HurleyIn the U.S., small business (less than 250 employees) makes up nearly half the GDP and accounts for more than half the employment. But with the Great Recession, a number of these small businesses have gone bankrupt. The bets that entrepreneurs put on themselves came up short. But that’s why they are called “bets” — these entrepreneurs are knowingly exposing themselves to risk, and potentially, a great reward. But for many, the reward is less than they had hoped. For every Facebook, there are hundreds of companies that fail, bump along on the bottom of the market, or are acquired for a song and a glass of wine. Drive around Silicon Valley looking for buildings with a blank spot on the wall that used to be a logo. They’re not hard to find.

This leads me to a key question: Are entrepreneurs strategic visionaries or gamblers? Do they have an idea that can change the world? Or are they just folks who don’t happen to live in Las Vegas, and thus are getting their adrenaline fix from economicvagaries instead of cards?

In my opinion, they are a little bit of both. Placing a bet, or starting a business, requires two specific skills to give you a good hand — balancing risk, and creating a culture.

While employees have a substantial bit of their focus on what their boss wants, an entrepreneur tries to predict (a.k.a., guess) what customers will want. And the entrepreneur accepts the risk that they may be wrong.

Balancing the risk, and cost, of being wrong with the value created by being right is the game.  If you risk too much, you are likely to fail. Getting ahead of yourself is a good way to run off the edge of the cliff.  If you don’t push hard enough, a competitor will simply copy what you did correctly and outgrow you — being a “fast follower” is a pretty good business to be in. Winning means betting just enough, and constantly monitoring how much value you have at risk.

 

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