The Risk Concept for Entrepreneurs Reconsidered: New Challenges to the Conventional Wisdom

Abstract

The goal of this study is to discover why entrepreneursperceive risk contexts differently than their non-entrepreneurial peers do.First, the definition of "risk" in entrepreneurial contexts must beclarified. After a discussion of risk as variance, risk as downside loss, andrisk as opportunity-driven, it is argued that risk as downside loss is the mostappropriate perspective on risks associated with new ventures. Next, it is suggested that entrepreneurs who identify an opportunity soonerappear to tolerate greater degrees of risk because others lack the knowledge toassess the opportunity properly. Knowledge asymmetries thus lead to differencesin risk perception. Finally, it is argued that many entrepreneurial resources, especially socialcapital, are not adequately emphasized in the literature on risk. Entrepreneurscan be embedded in knowledge-sharing communities that increase the likelihoodfor engaging in entrepreneurial activity and diminish the costs of failure.Failing to identify this embeddedness can also lead to erroneous riskperceptions. (SAA)

Keywords: Startups, Risk assessment, Opportunity recognition, Information asymmetry, Social capital, Knowledge transfer, Debt financing, Equity financing, Opportunity costs