Entrepreneurs and Calculated Risks

Over the summer I have been re-reading the new Smarta Business book which is packed full of practical, real-life advice on starting a business from 100 top entrepreneurs.

I came across a whole section on a topic which we were discussing with students at our revision workshops recently - the need for entrepreneurs to take “calculated risks”. The term calculated risk actually appears in the excellent Edexcel GCSE Business (Unit 1), but students don’t all find it easy to understand what it means.

The section is well worth reading. I picked up the following points which might help us explain the concept of calculated risk with students:

1. Risk is an alien concept to many people: it is a term associated with danger (which should normally be avoided!)
   
2. Entrepreneurs see opportunity in risk (where others see danger)
   
3. Smart business people understand the difference between “stupid risks” (where the downside is far greater than the upside) and “calculated risks” (where there is more of an upside than a downside)
   
4. Calculated risks are about ensuring you have as much control as possible over the outcome (e.g. being able to take decisions about how the opportunity is exploited)
   
5. Entrepreneurs never “bet the farm”; an opportunity which risks everything simply isn’t worth it
   

Some of these points are developed in this video interview with Theo Paphitis: