entrepreneursjip

2.  Trait and cognitive approaches cannot differentiate
between the risk behaviors of entrepreneurs and non-
entrepreneurs.
 Entrepreneurial Decision with risk connotation involves
two attributes:
• Risk Horizon
• Individual future orientation of the entrepreneur
 Entrepreneurial trisk behaviour including two critical
personality traits i.e. individual risk propensity and
individual future orientation.

3. Nature of Entrepreneurial Risk Behavior
Trait Approach
 Entrepreneurs have distinctive personality characteristics
and research based on this is know as trait approach.
 Psychological traits distinguishing entrepreneurs and non-
entrepreneurs: need for achievement, locus of control,
tolerance of ambiguity and risk propensity.
 Risk Propensity

4. Cognitive Approach
 “Entrepreneurial alertness which examines entrepreneurs
unique ability to discover and exploit opportunities that
others fail to see.” - Kirtzner
 Understand perceptions, cognitive and decision making
styles, heuristics, biases and intentions of entrepreneurs
affect their behavior.
 “Entrepreneurs risk perceptions tend to be more optimistic,
willing to undertake entrepreneurial efforts which others see
as risky”. – Palich & Bagby’s

5.  Risk & uncertainty are about unpredictable futures.
 Acc. to Lopes, "the temporal element is what gives risk both
savor & sting”.
 Researchers have found out that several risk behaviors are
related to time.
 Discounting in time (Vlek & Stallen,1980) is the tendency of
individuals to undertake risks when possible gains are relatively
immediate & possible losses are relatively in the distant future.
 Strickland, Lewicki & Katz(1966) reported that subjects tend to
be more risk-averse if a gamble is presented in an after-the -
event fashion

6.  Acc. to Drucker, short-range risk refers to variances in
outcomes in near future, while long-range risk relates to
variances in outcomes in the distant future.
 Short-range risk behavior is about taking or avoiding
actions that may cause outcomes to vary significantly in
the near future, from great gains to great losses, eg. Casino
gambling, cheating in a test.
 Long-range risk behavior is about taking or avoiding
actions that may cause outcomes to vary significantly in
the distant future, eg. Long term investment, dropping out
of school.

7.  Dickson & Giglierano(1986) proposed two types of
downside risk:
 Sinking-the-boat risk:
it refers to the probability that the venture will fail to reach
a satisfactory level of performance. It is associated with the
costs of pursuing a false opportunity.
 Missing-the-boat risk:
it is the risk of failing to undertake a venture that would
have succeeded. It is linked with the opportunity cost of
not making a potentially profitable move.

9.  Craftsman Entrepreneur take short-range sinking-the-boat-risk, their
initial performance outcomes will vary more than their goal, as
compared to others.
 Opportunistic Entrepreneur avoid long-range missing-the-boat-risk,
their long term performance outcomes vary less from their goal, as
compared to that of others.
 Non-Entrepreneur avoids short-range sinking-the-boat-risk, their short
term performance outcome will vary less from their goals, as compared
to others.
 Since Non-Entrepreneur take long-range missing-the-boat-risk, their
long term performance outcomes will vary more from their goal, as
compared to others.

11. Near-Future Orientation
 Individuals with a near-future orientation and a risk-averting
propensity are less likely to be entrepreneurs.
 Individuals with a near-future orientation and a risk-seeking
propensity are more likely to be craftsman entrepreneurs.
Distant-Future Orientation
 Individuals with a distant-future orientation and a risk-averting
propensity are more likely to be opportunistic entrepreneurs.
 Individuals with a distant-future orientation and a risk-seeking
propensity are less likely to be entrepreneurs

12. SHORT LONG
RANGE RANGE
LOW RISK LOW RISK
BEHAVIOR BEHAVIOR
SHORT LONG
RANGE RANGE
HIGH RISK LOW RISK
BEHAVIOR BEHAVIOR

13. What is important for the entrepreneurial process?
 Networks – Associations of individuals or groups that
facilitate access to information or resources.
 Strategic Alliances – Integrative forms of inter-firm
cooperation such as joint ventures and joint R&D.
Importance:
It gives access and connections that are not available from
other sources.

14. Formal Networks: Based on business contracts and agreements, with
clear rights and obligations for each involved party.
Example: venture capitalists, banks, accountants, lawyers, creditors
and trade associations.
Informal Networks: They are trust based organizing vehicles which
start with personal relationship.
Example: friends, families and business contracts.
Entrepreneurs primarily use informal networks and then turn to the
formal networks only when their firms are in an established position.
- Birley (1985)

15. A person who tend to take short range risk.
Short range risk: If a person mainly relies on personal
connection (informal networks) to start a new business, since
entrepreneurial risks are internalized and not shared by external
people.
Why craftsman entrepreneurs depend mainly on informal
networks?
 Willingness to take short range risks.
 Incompetence in dealing with a broad social environment.
 Low social awareness and involvement.

16.  A person who tends to engage in long-range low-risk behavior.
 They constantly look for more opportunities untapped by the
market.
 They are highly motivated to minimize their personal risk
through involving outside sources.
 They venture into a business which is highly risk and sharing
of this risk with formal networks makes the enterprise fairly
attractive.

17.  Besides networking, they are another means to access other’s resources and
quickly build up their own operation.
 They are often formed by firms in the same industry and tend to have a
relatively high level of inter-firm integration.
What do they do?
 Opportunities to entrepreneurs in the short run.
 Serve as a stepping stone during the start ups.
Problems:
 Many established firms harbor hidden agendas when they form alliance with
start ups.
 Over the long run the new start up might find it difficult to survive on its
own.
 It is risk taking in the long run for entrepreneurial firms.

18. Entrepreneurial risk behavior has been examined in personality trait
approach and cognitive approach.
 Neither approach, however, has thus far yielded convincing evidence
explaining entrepreneurial risk behavior in a parsimonious manner .
 Not all the entrepreneurial risks have the same temporal context.
(short-range entrepreneurial risk and long-range entrepreneurial risk)
 Developing different entrepreneurial types by employing their
distinct risk behavior in the short run and in the long run. (craftsman
and opportunistic)
 The individuals may have either a risk-averting or a risk-seeking
propensity.