The Three Principles that Entrepreneurs Use to Control their Risk

How do entrepreneurs manage risk? A persistent and widely shared belief is that entrepreneurs are risk seekers; that they like taking risk. Ask anyone in the street or in a classroom, and they will tell you, “An entrepreneur is someone who is courageous, who likes to take risks.” But nothing could be further from the truth. Entrepreneurs don’t like risk; no study has ever shown that. What studies show is that while entrepreneurs are willing to take risks, because they recognize that it is necessary, they try to control them. To do that, they use three principles that are at the core of the entrepreneurial theory called effectuation, proposed twenty years ago by Darden professor Saras Sarasvathy.

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Entrepreneurship for all: the beautiful story of Madame Tao

Overwhelmed by stories of fundraising, pitches, startups, incubators and the frenzy of hackathons, we often forget that the vast majority of the entrepreneurial phenomenon is in fact fairly mundane and banal. Well banal, in a way. Let’s say that the heroism of some entrepreneurs is far from the kind we hear and read all the time in the media. Nothing illustrates this better than the story of Madame Tao Huabi, which seems to have come out of a fairy tale.

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Effectual leadership: How to (really) transform organizations by learning from entrepreneurs

In 1934, a visionary General De Gaulle explained how the massive use of tanks in time of war could give a decisive advantage. The tanks were known since the First World War, but they were only used as reinforcement of the infantry. De Gaulle proposed to revise this conception completely and place it at the center of the military effort. He was not listened to except by the German general Guderian who put this idea into practice successfully a few years later … against France.

The same is true for the transformation of organizations: the importance of integrating entrepreneurs has long been recognized and organizations have made efforts in this direction, but only in order to become more entrepreneurial. It is this conception that must be revisited: entrepreneurs should not just come to reinforce the existing management, but contribute to transform it by their principles of action. Let’s see how.

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Effectuation: How Entrepreneurs (Really) create new products, new organizations and new markets.

How do you create a company? Very simple! Start with a vision based on a great idea. Write a business plan, raise money from an investor, create the company, assemble a great team and implement the plan, to conquer the world. Successful entrepreneurs are creative and visionary, ambitious, persevering, dynamic, courageous, real leaders, charismatic, but also caring and open to others, and many other things. In short, superheroes. It’s simple… but it’s not true! Or at least it rarely happens that way. Time to dispel a few myths.

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