"Entrepreneurs take Calculated Risks". A Redux.
"Entrepreneurs take calculated risks" is a phrase or quote I hear ever so often in sales, entrepreneurship, or business seminars... but the phrase always confused me. At first, I just took it for what it was worth, never really thinking too much about it. But after some pondering, I feel like this word of advice never really gave me any thing concrete to work off of. I mean, what are am I really supposed to get from it? Can any entrepreneurs even explain this to me? Are entrepreneurs out there calculating the risks on Excel Spreadsheets and Monte Carlo models or are they really just using their intuition? (which could be even better than the mathematical models). I feel like it's the latter... so why even use the phrase? First of all, it holds little meaning, and secondly it's confusing. i would say that a majority (now, I said majority, not all) of entrepreneurs out there aren't even doing any real mathematical simulations out there.
Let me tell you why this is important. If you're saying that Entrepreneurs take risks through intuition, and this is their way of "calculating" risks, then I'm cool with that. Because for one to replicate it would take years of experience in business as well as industry knowledge -- it wouldn't be an easy task. However, if you're saying that entrepreneurs are actually doing calculations out there before taking risks or action, and have some sort of specific method, that can be replicated through perhaps a mathematical model, then it could possible be that anyone out there with that model can become an entrepreneur. Just run the model. It would be that simple.
So, I think I've proven my point that the word "calculated" shouldn't be taken literally and the phrase should really be read as "Entrepreneurs take well thought-out risks using their business experience, industry knowledge, and intuition" -- doesn't quite have the same ring to it, but it's a million times more practically useful for young bucking entrepreneurs out there trying to make it as entrepreneurs than "Entrepreneurs take calculated risks".
But let's get back to this idea of a mathematical model for a second. Let's try to frame this in mathematical terms. The world is probabilistic, that's a given. The likelihood of events happening in this world, let's say hitting a home run in the MLB or winning the lottery, all take some form of probability (e.g. the probability of me hitting a home run in the MLB is 0.00000001%; which is likely the same as winning the lottery). Not to say that these aren't possible, but at this point in my life it's pretty improbable these things will happen to me (and it's important to know the difference between possibility and probability). Which brings me to my next point. Some probabilities are the same for everyone and some are not. Let me elaborate on this. The chance of me hitting a home run in the MLB is 0.00000001%. But the chances of someone like Mark McGwire or Barry Bonds hitting a home run was something like 7 to 9% of times they were at bat. A million times better. So you might be saying "no shit Sherlock"... but here's my point... it was the time, effort they put into improving their athleticism, skill, and knowledge in the game of baseball that led them to the MLB and got them them Home Run percentage. Meaning, the the probability of this event happening (hitting a home run) was in their control and they could improve it by putting in effort (and I could improve mine too, if I put in the effort, not to 7-9%, but at least better than what it is now). However, the probability of wining the lottery, on the other hand, is the same for everyone... Mark McGwire, Barry Bonds, your Aunt, your Grandma, your Cousin, you... and the thing is, no matter how much effort you put in, no matter what you do (other than buying more tickets), you can't improve those chances. It's always going to be that 0.00000001% (one in a million). But regardless, some people do still luck out on that one in a million, and cheers to them (send me a tip). Anyway, let's get back to my point.
So, following from that, what "Entrepreneurs take Calculated Risks" really means is this:
"Entrepreneurs improve their chances of being successful when taking business risks by using their their business experience, industry knowledge, and intuition, which they've honed over years of effort, failure, and repetitive improvement".
Definitely not a short phrase, but so much more intensely helpful for those new entrepreneurs trying to make it out there. So, here's to taking calculated risks... use your noggin and keep learning.
Let me tell you why this is important. If you're saying that Entrepreneurs take risks through intuition, and this is their way of "calculating" risks, then I'm cool with that. Because for one to replicate it would take years of experience in business as well as industry knowledge -- it wouldn't be an easy task. However, if you're saying that entrepreneurs are actually doing calculations out there before taking risks or action, and have some sort of specific method, that can be replicated through perhaps a mathematical model, then it could possible be that anyone out there with that model can become an entrepreneur. Just run the model. It would be that simple.
So, I think I've proven my point that the word "calculated" shouldn't be taken literally and the phrase should really be read as "Entrepreneurs take well thought-out risks using their business experience, industry knowledge, and intuition" -- doesn't quite have the same ring to it, but it's a million times more practically useful for young bucking entrepreneurs out there trying to make it as entrepreneurs than "Entrepreneurs take calculated risks".
But let's get back to this idea of a mathematical model for a second. Let's try to frame this in mathematical terms. The world is probabilistic, that's a given. The likelihood of events happening in this world, let's say hitting a home run in the MLB or winning the lottery, all take some form of probability (e.g. the probability of me hitting a home run in the MLB is 0.00000001%; which is likely the same as winning the lottery). Not to say that these aren't possible, but at this point in my life it's pretty improbable these things will happen to me (and it's important to know the difference between possibility and probability). Which brings me to my next point. Some probabilities are the same for everyone and some are not. Let me elaborate on this. The chance of me hitting a home run in the MLB is 0.00000001%. But the chances of someone like Mark McGwire or Barry Bonds hitting a home run was something like 7 to 9% of times they were at bat. A million times better. So you might be saying "no shit Sherlock"... but here's my point... it was the time, effort they put into improving their athleticism, skill, and knowledge in the game of baseball that led them to the MLB and got them them Home Run percentage. Meaning, the the probability of this event happening (hitting a home run) was in their control and they could improve it by putting in effort (and I could improve mine too, if I put in the effort, not to 7-9%, but at least better than what it is now). However, the probability of wining the lottery, on the other hand, is the same for everyone... Mark McGwire, Barry Bonds, your Aunt, your Grandma, your Cousin, you... and the thing is, no matter how much effort you put in, no matter what you do (other than buying more tickets), you can't improve those chances. It's always going to be that 0.00000001% (one in a million). But regardless, some people do still luck out on that one in a million, and cheers to them (send me a tip). Anyway, let's get back to my point.
So, following from that, what "Entrepreneurs take Calculated Risks" really means is this:
"Entrepreneurs improve their chances of being successful when taking business risks by using their their business experience, industry knowledge, and intuition, which they've honed over years of effort, failure, and repetitive improvement".
Definitely not a short phrase, but so much more intensely helpful for those new entrepreneurs trying to make it out there. So, here's to taking calculated risks... use your noggin and keep learning.
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