Raising entrepreneurs: Risk tolerance

Published by Lori Pickert on December 4, 2011 at 02:41 AM

When I was in the early years of running my first business, I hung a bulletin board right beside me at my desk. On it I had three things: a graph showing compound interest on savings, a page torn from the Whole Earth Review with a quote by Helen Keller, and a tiny quiz “Could You Be an Entrepreneur?” torn from a business magazine.

I had failed the quiz.

I remember specifically that the accompanying article said I should be very organized and I absolutely was not. Yesterday I took a quiz on forbes.com that would gauge whether or not I should be an entrepreneur. It’s too late for me to heed anyone else’s advice — but I was heartened to get a decent score this time. Apparently, I’m only held back by my disorganization and the fact that I would jump the gun and start working on a project without a signed contract.

Could you be an entrepreneur? Could your child be an entrepreneur? A business owner? A freelancer? There may be natural traits that would lead one in that direction, but there are also skills you can develop by having the right sorts of learning experiences.

Risk tolerance is an oft-discussed entrepreneurial trait, but it’s frequently misunderstood. Risk tolerance doesn’t mean craving risk. It doesn’t mean entrepreneurs are danger junkies, like extreme sports fanatics who snowboard avalanches. Far from it — entrepreneurs want to make good decisions. They’re just willing to take calculated risks when they’re confident those risks have a good chance of paying off.

That willingness to take a risk is key.

Successful entrepreneurs are masters of taking good risks. They’re willing to bet on themselves.

If we accept that our children will be entrepreneurs in the future — CEOs of their work lives, if nothing else — how do we help them develop the confidence to believe in their ideas?

Is your child comfortable marching to the beat of a different drummer? Is he able to break free from the crowd to go his own way?

Investors need to be able to tolerate risk in order to reap rewards. Those who can’t tolerate risk will stick to the safest investments and therefore earn the least amount of return; over time, their nervousness will have a cumulative effect on what they’re able to accomplish. Successful investors — and entrepreneurs — can weigh options and take appropriate risks. They can get in the game — and you can’t win if you don’t play.

Investors must have the mental fortitude to ride out the ups and downs of the market. Likewise, entrepreneurs must have the fortitude to ride out the ups and downs of running a business. The reason that corporations take more of the profit share than employees is because they shoulder most of the risk. When times are hard, the employee who might find himself out of a job — the corporation keeps going. Shouldering the risk and taking on the responsibility gives you the decision power and the control. (Whether corporations wield their power responsibly is a whole other topic.)

Warren Buffett famously advised that an investor should “be fearful when others are greedy and greedy when others are fearful.” The entrepreneur is someone who essentially invests in himself. He has to be willing to take a right when everyone else is going left. When the economy is down and people are most fearful, an entrepreneur will start a new business. He sees opportunity where others only see risk. When the economy swings up again, the entrepreneur is poised to make the most of it. 

How do we help our children develop a tolerance for taking risks?

  1. We let them make mistakes, and we let them know mistakes are unavoidable when you’re doing any kind of significant work. We encourage resilience and confident problem-solving.
  2. We give them time to explore and experiment. We invest in their interests and passions.
  3. We don’t get in the way. We let them own their own work, their ideas, and their successes.
  4. We praise them for being strivers and problem-solvers rather than geniuses.
  5. We help them reflect on their choices and the outcomes. We help them connect the dots: effort, mistakes, persistence, resilience. We develop a family culture that celebrates doing, making, learning, and growing.

The most important thing about risk tolerance is that your child doesn’t let a fear of failure hold him back from working to make his ideas happen. He’s willing to invest in his own ideas. He’s willing to invest in himself.

The quote:

Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing. — Helen Keller


Comment by Deirdre on December 5, 2011 at 09:11 PM

One of your best posts. One I want to print and hang on my bulletin board.

Funny how I've read that last line of the Helen Keller quote so many times, but have never seen the three preceding it.

Even friends in traditional professions---our doctors, teachers, lawyers--- are entrepreneurs today. Fascinating way to look at education vs "job training."

Comment by Lori Pickert on December 5, 2011 at 10:55 PM

thank you, deirdre. yes, that quote is often shortened!

in a way, all "life skills" are job training .. training for the job of being a grown-up.

Comment by Tana on December 6, 2011 at 05:30 PM

This post makes me take a good long look at my own life. I excel in traditional school/work environments. I am really good at tackling any assigment and giving my teacher/employer A+ work. But these are REALLY empty successes. They aren't mine. They don't fuel me or inspire me. I'm simply good at working the system. Even it is still an option for her and the system hasn't totally fallen apart in the next 10 years, I don't want this same life for my daughter.

Along with that, I avoid risk like crazy. I hate adrenaline. Hate anxiety. I never share my ideas. I don't like meeting new people. I like nice safe things like curling up on the couch in front of the fireplace and reading a book.

But I also really want a life with less safe things like travelling and surfing and camping and writing novels and meeting interesting people and making stuff and learning more. The Helen Keller quote is a bit of a kick in the pants, really.

I need to take that list of five things for developing risk tolerance and apply them to my own life. Like now. Really. I can't hope to influence my daughter into taking more calculated risks and designing her own life if I am sitting on my nice safe couch with my nice safe books every evening.

Good stuff, Lori. Thank you.

Comment by Lori Pickert on December 6, 2011 at 10:36 PM

thank YOU, tana.

everything i champion for kids, i champion for us. to me, it's completely inauthentic and meaningless to say you want X for your children but you don't want/need it for yourself. it just doesn't work. our most powerful lessons come through our choices.

i don't think you should consider those empty successes — they're real successes, and they count for something. maybe they aren't meaningful enough to you and you want to succeed at something more meaningful, more personal. but you can own the fact that you rock at those traditional environments — and maybe take those skills and move them into something you care more about!

thank you again!

Comment by shelli on December 9, 2011 at 12:55 AM

Lori, I have finally had a chance to read this series, and I think I need to read it again to really soak it in. You have given me much food for thought, and it makes me want to read more about entrepreneurship for my own sake as well as my children. I also really like your idea of allowances - tracking it on the computer and making them wait one week before they buy something. Love that idea! Thank you.

Comment by Jen @ anothergr... on December 10, 2011 at 12:12 AM

I absolutely agree that risk tolerance is a desirable trait for an entreprenuer. Lately, I have had several friends whose husbands were temporarily laid off due to lack of work. They were extremely afraid! I laugh, because my self-employed husband often is looking for his next job, and we just rejoice in the extra time together as a family. In fact, when he is busy enough that he has to work EVERY day, we complain! We are used to the risk now, but it was difficult when we started. Now I think our children are used to this risk as well, and will probably be risk takers in their own lives.

I especially enjoyed what you said about a family culture that celebrates doing. Our family culture celebrates doing by pursuing outdoor activities, and we talk all the time about what our life if we were sitting around watching other people do (television.)

Sorry, I guess I wrote a book -- next time I'll have to make my own post :-). Thanks for your article.

Comment by Lori Pickert on December 11, 2011 at 07:54 PM

thank you, shelli! :)

jen, i think the key thing that self-employed people realize is that employed people aren't really saved that risk — they're just shielded from having to look at it directly!

i also think facing that risk (which, really, every person has — ask anyone who's lost their job over the last few years) makes you accustomed to risk in the sense that you're accustomed to *preparing* for it. you put money back, you stay alert looking for the next job, you brainstorm new business ideas, etc.

it is funny that our friends felt our going into business was risky, but we feel more secure because we know exactly what's going on with our business/finances//etc.

thanks for your story! :)

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