Entrepreneurship and Risk Tolerance

A few weeks ago, I wrote that there’s not a lot of empirical research supporting views that the young have an innate advantage as entrepreneurs. Fred Wilson and Clay Shirky were writing about this, and Clay kindly pointed out that he is thinking of a much narrower class of visionary entrepreneurs, about whom the research says little.

I also said that I would post some additional thoughts on entrepreneurship, so here they are: entirely hypothetical, with no empirical backing whatever, and probably perfectly obvious.

1. As we get older, we acquire large mortgages, college savings plans, assisted living expenses, and other things to make us risk averse.

2. At the same time, we acquire skills and expertise by working and going to school. These actually make our ventures less risky.

3. There must be some happy moment when risk tolerance meets skill/risk level, and at that point, we should launch our entrepreneurial ventures. For most people, this seems to happen around 28-34 or so. For really talented programmers, a bit earlier.

4. In fact our learning curves are probably more curved, and our risk aversion curves are probably step functions.

5. So you’ve got to get those skills and real world experiences as soon as possible. If you are in college, I recommend two years of investment banking as a crash course.

This formulation can support Fred’s and Clay’s theory. Their “visionaries” are people who have enormous aptitude and reached the necessary skill level so soon that they have virtually no risk aversion.

Fred’s original point is also very interesting: successful entrepreneurs sometimes don’t know what to do next.

PREVIOUSLY and somewhat related on Zeal and Activity: A series of “Advice” posts – Advice on College, Advice on Getting to Wall Street, and Advice on Banking.

UPDATE: I’m reading Michael Malone’s nifty biography of Bill Hewlett and Dave Packard. Just after publishing this post, I came across a quote on creativity from Hewlett’s 1986 commencement speech at MIT:

Creativity is an area in which younger people have a tremendous advantage, since they have an endearing habit of always questioning past wisdom and authority. They say to themselves that there must be a better way. Ninety-nine times out of a hundred, they discover that the existing, traditional way is the best. But it is the one percent that counts. That is how progress is made. (232)

Hmm.

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One Response to “Entrepreneurship and Risk Tolerance”

  1. Bootstrap business Says:

    Young people really have something for entrepreneurship. The only important thing in entrepreneurship that older people and entrepreneurs have over younger people is experience.

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