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How Entrepreneurs Succeed in the Face of Risk and Uncertainty


How Entrepreneurs Succeed in the Face of Risk and Uncertainty

Peet van Biljon shares an article on managing risk and uncertainty for the entrepreneur. 

Uncertainty in all its forms is a constant companion of the entrepreneur. How well entrepreneurs manage multiple risks and uncertainties determines the success or failure of their new offerings and businesses, and whether their investors will make or lose money. Good entrepreneurs understand the crucial interplay between risk, uncertainty and innovation, and use the best techniques to manage or even harness the inherent uncertainty involved in creating the new and the innovative.

Expertise in dealing with uncertainty is needed not only by innovators in both startups and established firms, but also by anyone whose business may be affected by the release of innovative new products or services elsewhere. Some innovations have impacts well beyond their originating firm, to the industry, and potentially to the whole economy. It is the very nature of transformative innovations that they create cascading risks and uncertainties for other economic actors and organisations. Think about the transformative impact to businesses across all sectors of smartphones, e-commerce, the digital revolution and our current transition to clean energy (the latter of which is only in its initial stage). Or think about the unexpected shock to the financial system created by the rise of bitcoin and other cryptocurrencies.

The early 20th-century economist, Joseph Schumpeter, placed the entrepreneur at the heart of his theory of capitalism, recognising innovating entrepreneurs as the driving force behind economic progress. His famous term, ‘creative destruction’, literally means the creation of the new and the destruction of the old. It is a rather cruel, survival-of-the-fittest view of how the entrepreneurial economy works. The owners of businesses who made splendid horse-drawn carriages until about a century ago would no doubt agree with this assessment, if they were still around to ask. Schumpeter was quite callous about the consequences, even acknowledging that creative destruction might lead to economy-wide recessions when whole industries are destroyed.

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