Entrepreneurs and Risk Taking Capacity – Explained

The entrepreneur is the person who takes the risks or uncertainties of the business. In other words, an entrepreneur is a person who undertakes business activities and faces uncertainties or risks.

Entrepreneurs and Risk-Taking Capacity
Entrepreneurs and Risk-Taking Capacity

The source of risk-taking inherent in production is called an entrepreneur. Enterprising class is a special group of persons, who take risks and manage uncertainties.

Entrepreneurs and Risk-Taking Capacity

In every business, there is a risk of uncertainty.

Today’s production is based on the demand for tomorrow. If the forecast of demand for the future becomes true, the entrepreneur or producers will earn profits, otherwise, it will incur losses.

In every business, big or small, the deal to take risks for profits or loss, or uncertainties are known as ‘Enterprise’, and the person taking or bearing risks and uncertainties is known, as ‘Entrepreneur‘.

The following definitions of the entrepreneur, as risk-taker are noteworthy define risk-taking in entrepreneurship:

The entrepreneur is that Businessman, who carries out the trade of the goods of the country and faces the uncertainties in prices.

Thus, it is evident that an entrepreneur is a person who takes risks and uncertainties. 

Related: 21 Role and Importance of Entrepreneur (With Examples).

Functions of Entrepreneur as Risk Taker

An entrepreneur is a person or group of persons, who faces uncertainties and has the capacity to take risks.

The entrepreneur is a rational risk-taker. He takes pleasure in the challenges but does not enter into gambling. He remains away from the low-risk situation because that has no challenge.

The entrepreneur also makes efforts to save from the situation of Excessive risks, because he wants to be successful and likes achievable challenges”.

Related: 59+ Important Functions of an Entrepreneur (With Examples).

So, it is said that risk-taking is the basic function of the entrepreneur, Besides, an entrepreneur also performs the following functions relating to risks taking:

  1. The entrepreneurs do not believe in high and low risk-taking. They like moderate risk-taking.
  2. The entrepreneurs do not believe in luck or chance. They have faith in their efforts and make efforts to reduce risks by forecasting of future risks.
  3. The entrepreneurs minimize the risk of natural calamities and prepare plans for taking risks arising out of economic, social, political challenges by ensuring the risks. In other words, the function of the entrepreneur is also to get protection against risks and to take the unknown risks.
  4. The entrepreneur invests his own energy and capital in the business risks in the initial stage of the enterprise.
  5. The forecasts the prevailing uncertainties in the business environment.
  6. The entrepreneur explorers the changes and new opportunities and then responds them favorably, by advancing the process of development.
  7. The entrepreneur does not feel contended only by exiting techniques. He develops new techniques of production and puts them into use.
  8. The entrepreneur takes the risks of new developments and the innovations of the enterprise.
  9. The entrepreneur takes various decisions for setting up the new industry, on the basis of foresightedness and forecast.
  10. The entrepreneur always believes in difficult tasks and challenge full risk.
  11. The entrepreneur takes risks after evaluating every situation suitable to him.
  12. The entrepreneur has the skill to manage risks through his intelligence, foresightedness, and ability to plan.

So, the importance of risk-taking in entrepreneurship is very essential.

Related: 15 Characteristics of Social Responsibilities of Entrepreneurs.

Elements of Risk-Taking Efficiency of Entrepreneur

An important characteristic of an entrepreneur is his risk-taking efficiency. Although the entrepreneurs do not have faith in taking excessive risks they like to take only the moderate ones.

Entrepreneur as a risk-taker
Entrepreneur as a risk-taker

They forecast the prevailing uncertainties in the business environment.

Following are some important and practical facts regarding risks taking the efficiency of the entrepreneur:

1. The entrepreneur has to take various types of risks right from starting of the business to its operation. In modern business, the risks and complications have substantially increased. Hence, the functions of risk-taking have become all the more important.

2. Innovation is an inner instinct and desire for taking innovations, capacity of an entrepreneur, perceiving the situations, these may be subsequently corrected.

3. The capacity for taking risks by the entrepreneurs depends upon their past experiences. They will be able to bear the risks to the extent determined by their experience.

4. Entrepreneurs always like to live in risks. Inclination towards risk-taking is the real characteristics of the entrepreneur.

5. An entrepreneur has a deep relationship with creativity. He always remains alert to his competitor. He makes changes in his products, production methods, and raw materials to provide new to society.

So, he remains alert for giving new ideas and thoughts to the managers.

6. The entrepreneur combines various new ideas, which has an effect on the feelings of employees and managers working in the institution.

The creativity is not related only in respect of various ideas, researches, notions, etc., but also involves establishing new combinations of thoughtful expressions.

7. The entrepreneur takes risks at all steps. He has to take the risk even in allotting duties to his subordinates and colleagues. Under such conditions, he delegates his work and powers to them.

8. The entrepreneur uses his foresightedness, to minimize risks and will not be able to bear

Related: 7 Risks Every Entrepreneur Must Take.

9. The entrepreneur always remains alert and takes balanced decisions, past, present, and future events considering all issues.

10. The entrepreneur uses risk analysis techniques or processes for taking decisions in respect of risk-taking. This process has six steps:

  1. Assessment of risks.
  2. Objectives and goals of the enterprise.
  3. The search for alternatives.
  4. Assessment of alternatives.
  5. Reducing the risks and.
  6. Execution of methods of reducing risks, etc.

‘Risk-Taking’ is a perceived activity of an entrepreneur and attitude towards risk is the outcome of entrepreneurial behavior.

So, the decision making is a critical activity of an entrepreneur which requires a brainstorming as well as foresightedness.

Thus, now you know the entrepreneurs and risk-taking capacity.

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