How to give birth to more entrepreneurs: tweak the perception of risk.

Jun 10, 2016Entrepreneurship, Startup

It all started when I stopped. At the end of last year I made the decision of leaving my company and I had to decide what to do next. It wasn’t a simple decision already to leave the company so I didn’t have much energy left to spend on thinking more about the future.

Still it took few months of work and testing different ideas and talking with tons of people.

At the core of those discussions there was always the same topic: after having been an entrepreneur for 5 years I really found it hard to think of going back being an employee somewhere. The value of my contribution versus the gain I could have gotten from it in terms of experience, salary, connections just didn’t seem to cut it through. I knew it, I felt it in my veins.

When talking about this with other friends I noticed a stark contrast between those who were or had been entrepreneurs and those who weren’t or hadn’t been.

I started digging deep down that rabbit hole, both inside myself and inside others, and what I started finding out was that for the non-entrepreneurs the uncertainty related to being self-employed and self-led trumped many times the potential rewards from becoming one.

Those potential rewards were not real for those who had never been entrepreneurs and the “fear” of the uncertainty was much more real and close.

For the entrepreneurs it was completely the opposite: they were sure that the potential rewards could have been (pay attention to the conditional tense) much higher than the uncertainty and were almost dismissing the potential risks associated with being an entrepreneur and starting a new venture.

While historically the theory has been that entrepreneurs have a lower perception of risks there is some interesting research on the topic that actually confirms my feelings and points to the effect that cognitive biases such as the illusion of control bias and the belief in the law of small numbers might have on the perception of the risk associated with starting a new venture.


What is it so?

Still what is a bit unclear to me is how those biases start to manifest.

I can certainly say that I walked that bridge long time ago and I am now on the other side. I am now one of these guys that will tell you:

“Start a company! Become an entrepreneur, there’s never been a better time.”

But then I know that it doesn’t matter what I tell you or if you hear it from Elon Musk or Jeff Bezos: you won’t act upon it unless your perception of risk is the one of that guy that crossed that bridge. And it is very hard to put that bug in someone else’s head. You can’t walk in someone else’s shoes.

I had the chance to spend few minutes with Gil Penchina, renowned SV entrepreneur and investor. I was struck by the words he used on stage at Arctic15 conference: “In U.S. we think that you are stupid if you don’t take risks, in Europe it’s the other way around”.

I asked him later if he thought that the perception of risk that we had over here in Europe could be changed, tweaked or somehow taught. His opinion was that you just have to take the plunge and try because there are things you just can’t educate people about. His comment pointed to a cultural attitude which is present in US and not here.

And here’s the catch 22: you won’t take the plunge unless you have a lower perception of risk and you won’t have a lower perception of risk unless you took the plunge. How do we break this cycle? What can be the reason why one has a lower perception of risk and what is the way (or ways) to lower this perception?


Environmental conditions

I believe that the environmental conditions (either long or short term, local or widespread) can be a catalyst for the formation of those biases.

Create an environment :

  • where there are enough entrepreneurs, hopefully successful, that can serve as role models and advocates of entrepreneurship
  • where failure is culturally seen as learning and not as a stigma
  • where there is abundant access to financing
  • where talent is available

And then under these conditions some individuals may lower the perception of risk just enough to jump and create a new venture. And they will pull more into the vortex, regardless whether their venture goes wild or not.

Looking back I came to realise that for a little brief moment this happened to me when we started Jolla: Rovio and Angry Birds was at the top of the world in 2011 and the guys there where strongly advocating for entrepreneurship. Slush was starting to be an event that gathered enough attention. Nokia was on the brink of a major revolution, closing down our unit but (and this was key) they made available some capital and especially some support network for people to start new ventures. Nokia literally pushed people to open new companies. There was massive talent available, huge amount of highly skilled people were leaving the company.

I clearly remember thinking:

“If we don’t do it now, we never will”.

I didn’t even think at the risks, I of course knew that there were plenty and it was a very difficult decision but in the end those risks were all things we could work on and try to minimise (or so I thought).

I still don’t think that Finland (or Europe for that matter) is embracing the role of learning from failure as it happens in US but I can feel that the atmosphere now is way better than 5 years ago. Though I still don’t think that there is enough capital easily available I do think that the tide is changing and I believe that Europe can rediscover a force within itself that can set it on a different course in any location when the four conditions mentioned above are consistently met.

I wonder what does it take at a political level to realise that investing in making more entrepreneurs is ultimately benefiting the growth of a nation… Anyone out there listening?


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