Episode 2

The Start-up Cycle Podcast: Risk

Shari Hughson, director of the Master of Entrepreneurship & Innovation program, knows a thing or two about risk-taking. We also hear from Smith entrepreneurship coach and mentor JP Shearer on the risks every entrepreneur needs to be aware of when starting a business.
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Episode 2

The essentials

Shari Hughson was already a seasoned entrepreneur when she gave it all up to pursue her dream of living off the land in the Canadian wilderness. Unsurprisingly, she knows a thing or two about risk-taking. Now the director of the Master of Entrepreneurship & Innovation program at Smith School of Business, she shares some of what she has learned along the way, along with the mantra she believes every young entrepreneur ought to know when it comes to risk. We also hear from Smith entrepreneurship coach and mentor JP Shearer on the risks every entrepreneur needs to be aware of when starting a business (like the risk of becoming complacent!) and hear insights into how risk perception impacts entrepreneurial success. Your host is Meredith Dault.

This episode refers to the following research:

M. Boermans and D. Willebrands, "Entrepreneurship, risk perception and firm performance” in Utrecht University School of Economics Discussion Paper Series 17-04

E.S. Dolarslan et al, “Bats are blind? Cognitive biases in risk perception of entrepreneurs" in Journal of Developmental Entrepreneurship (2017) Vol. 22, No. 3

O. Thomas, "Two decades of cognitive bias research in entrepreneurship: What do we know and where do we go from here?” in Management Review Quarterly (2018) 68:107–143

Transcript:

 

00:01 Meredith Dault (narrator): Shari Hughson and her husband had been living off the land in the BC wilderness for two years when they started having serious muscle cramps. Shari, who'd been trained as a nurse, knew that it meant they were seriously low on sodium, but where do you go for salt when your nearest neighbor is a five hour walk away? For the couple who'd only been living on what they could hunt or gather, the only answer was to bushwhack to the ocean, and that meant a 15-day hike over the coast mountain range. Shari remembers a grueling journey. She remembers feeling alone and incredibly vulnerable, knowing that there was nobody around for hundreds of kilometres, but they made it. Arriving at the ocean they fished and gathered seaweed, drying everything they would need to sustain themselves for the months ahead. And then, their mission accomplished, they hiked again. What else would you expect from an entrepreneur with a vision?

[theme music]

00:51 MD: Shari Hughson is the consummate entrepreneur and she's going to tell us more of her amazing story as part of the second episode of The Start-up Cycle, which just so happens to be about risk. I'm Meredith Dault and I'm your host for this podcast series, which is coming to you from the Smith School of business at Queen’s University in Kingston, Ontario. Coming up, we'll also be hearing about the risks that entrepreneurs sometimes find they aren't sufficiently prepared for, and we'll look at research about how entrepreneurs perceive risk - and how their businesses fare as a result. Stay tuned.

1:54 MD: Let me tell you a few things about Shari Hughson. The first is that she has started numerous businesses over the course of her career. To date, some have been tremendously successful. Others not so much, but you also need to know that she has never shied away from risk: from buying her first house using credit cards, to selling everything she owns in order to spend seven years living off the land in an ecologically sound home that she and her husband built themselves in the middle of the BC wilderness. Shari Hughson landed at Queen’s in 2016, becoming the Director of the Master of Management, Innovation and Entrepreneurship program at the Smith School of business. She's with me in the studio. Shari, welcome to the show. 

2:34 Shari Hughson: Thank you for having me. 

MD: When did you first realize that you were an entrepreneur? 

SH: I think actually it wasn't until I took this job, because entrepreneurship wasn't something that was used until it became a fairly faddish word about 10 years ago. So it wasn't something identified with, um, so I didn't self-identify as an entrepreneur until recently, but all my life, I have known that I have been different in a certain way. So, I've always had different ideas. I've always sort of stood out from what everyone else was doing. I always tried new things, challenged new things, problem solved things. So, I knew that I was somewhat different, but I didn't label it as entrepreneurship, but I now know that entrepreneur is a mindset. It's a lifestyle, it's a way of living. And I have lived that my whole life. So, I've started to realize that yes, I've been that all along. 

3:34 MD: So, the earliest, earliest steps into this world were what?

SH: Uh, I just knew that I did not want the job that I had and did not want to work for somebody else. So, my driving motivation was to be independent. So independence was what really motivated me strongly to start that first business when I was 25. So, um, but it didn't again, I was at the time, you're a small business owner, you start a business. There weren't a lot of females in business. It was um, it just wasn't a word that was thrown around a lot. 

4:06 MD: So you just stepped into it. 

SH: I did.

4:08 MD: To me, the thing that resonates for me through your whole story is that is a sense of fearlessness - that you have never shied away from taking risks. Who buys a house on a credit card as a young woman? Who drops everything and goes and lives in the most remote part of the Canadian wilderness, an hour and a half drive from your neighbours? Where did you develop that fearlessness? 

SH: Um, again, I've never identified as being fearless. So it's, it's almost inside me. I'm afraid all the time. Everything, every decision I have fears just like anyone else. Every step I take, every challenge I take on. I have those fears. But I think what happened all my life is I have a personality that overrides that fear. So, I have this huge curiosity, this huge need to try new things, to feel new things, to experience new things. Um, and so I can't go very long before I've got to do something adventuresome, exciting, different, in every aspect of my life. So that fear is there and it's almost a challenge. I love challenges. So, it's like bring on that fear, give me that great challenge, because the rest of my personality loves to push it down, love to succeed over it.

5:22 MD: And for people that don't know your story, are you be able to give us the Coles notes version? I mean, you have had a remarkable journey, but, you've started and then had many successful and also many businesses that have not been successful. Tell us a little bit about that if you could. 

5:36 SH: So yeah, I started my first business when I was 25. I was a nurse originally. I had no business experience and, and that business was wildly successful. So, uh, I sold that in my mid-thirties out of boredom and uh, got involved in two other start-ups. Both of those rapid fire failed over the next few years. And then I had a fourth business that I purchased with several partners that was very successful as well. That business itself is, is growing rapidly still. I'm still part of that, involved in it. But that was sort of that fourth business was when I made that transition of ÔI had a dream since I was a kid to live off the land. And my husband had also had that dream. And so, we went and we spent seven years living off the land in remote British Columbia. 

6:25 We built an earth ship and we lived as hunter-gatherers for almost two years. Um, and then through that journey we, in hindsight, realized we'd live through the evolution of civilization because we were living, by the end, in a more futuristic way than the current society does. So, we came back to help my aging parents here in Kingston and took on this new journey of a new challenge of doing intrepreneurship within Queen’s, starting something within a bureaucracy and something that's completely different and innovative from any other programs. So, new challenge, new excitement. So, I've just constantly gone from, from new exciting challenges. 

7:01 MD: Yeah, it's a remarkable path. That willingness to take risks: How critical is that to having an entrepreneurial approach to living? 

SH: And I again, don't identify as a risk taker. Everyone else does say that to me. Everyone else thinks I'm fearless and brave and take all these risks, but I don't see them as risks. So, I see them as, I have a goal in mind to have a vision and a dream of where I want to get to and - or accomplish or achieve at the time. And, it's a calculated risk. It's very thoughtful, very planned out. I know what the worst-case scenarios of what could happen. I'm willing to live with whatever that worst case is. So, I don't see it as risk taking. I see it as calculated decision making, understanding fully what could happen. 

7:50 MD: So how do you know what a good decision is then? I mean, how does one make a wise entrepreneurial decision? 

SH: So, I don't know good decisions, until I've already done them. So I make the best decisions with the info I've got. Um, I'm not someone who has to have every duck in a row and need everything in order. That is one of those personality traits that I think, um, has helped me in that I just make the decision, I go with it. And if things go great, excellent, good decision. If they don't go well, um, if something's gone wrong, then I just make a new decision. So, to me it's just another decision. It's not it didn't lead to a catastrophe. It's just, okay, all right, let's make a new decision to fix that old problem or that old decision. And so, it's just another series of decisions. So, I've always just moved from, okay, now what do we do? Okay, now what do we do? Plan B, Plan A, plan C, um, and I just keep moving forward. 

8:52 MD: Our culture isn't always very good at talking about failure. And yet we hear increasingly about how important failure is and what an important piece it is when you're talking about success: that you can't actually achieve success unless you have failed. And so, what does failure mean for you? 

9:07 SH: Um, failure like anything else and it's been glorified now, and I don't think that's a smart way to think of failure. Um, failure is learning failure is devastating. Every time that I've messed something up royally - and it wasn't just the two business failures, there have been many things in my life that, you know, you've messed up or things have gone wrong and it's as long as I can turn that failure into something that I've learned something from, or into a great story about how I ended up getting out of it, or how I ended up turning that awful circumstance or situation into something that actually either improved my life or someone else's life or changed it into something good. But I also think people need to live within that failure, live within that pain, live within that, that the feelings that come when things don't go where you wanted them to go. Because if you don't, those feelings won't let you go. You can't escape out of it unless you actually live in it. Feel all those feelings, um, that most people label bad, but they're actually great things because you learn from them and you don't want to end up there again. That is how I deal with it, is to turn it into something I can use for great story. Um, and people are like, oh my God, I can't believe you did that. Um, because if you can come out the other end with something better, even if it wasn't what the original issue, like the failed business wasn't what I planned. I have come out with a great story. Great learning. 

10:46 MD: Did the failures catch you off guard? 

SH: Um, yes and no. Of course, I never have ever thought I was going to fail at anything. Um, I just thought I would make a different decision next: oh, that decision worked, didn't work onto the next, and it's a slow arrival to this is dead, I’m bankrupt. The business is done. Um, so you see it coming, you know, it's coming. And the only thing I did that was great is as I saw all the signs lining up as that and it happened quickly as well. So, it feels slow at the time - you're in slow motion - but it is actually fairly quick. I pulled the pin on those businesses as soon as I recognized there is no recovery from where we were. And then very quickly just moved on. We have to shut this down, we've got to do this, we've got next steps, we've got to do the midnight move and get out of this place. We've got to get the lawyer involved. We've got to just step, step, step and then you’re into the next phase. 

11:44 MD: Right. I think part of what makes your story so remarkable is these extreme highs and lows. I mean midnight moves that’s a rock bottom feeling I'm sure. But also, incredible highs! The things you've been able to achieve and the companies you've seen thrive. 

SH: Um, absolutely. In my twenties, I used to be jealous of people that just had this steady-state life and they were content and they seemed content to me. I don't know if they are or aren't, but they seemed fine, and there were times, as I went through every one of these highs and lows in the journey, that I would wish for that. And then I would realize like, no, I love these highs. I love these moments of “I did it”. I've done something that other people thought was crazy or I've done something interesting that has created these amazing experiences in my life. And so I can't not take those lows if I want those highs. And so how you manage those lows is I constantly say to myself, the worst-case scenario, what is the worst-case scenario here? Can I live with it if that happens? Yup. I can. If I'm bankrupt again, I'm okay. I've always had this inner feeling that I am okay no matter what happens. And I've always had the sense that everything is temporary and it's the mantra that I use over and over and over again. I'm okay. I'm okay. Even when I'm on the high, when I've been successful, because it's also temporary. Every decision's temporary until you make your next one. Everything you are involved in is temporary. Every awful place that you end up in is temporary. Every great place is temporary. So, don't think you're God. Don't think everything's wonderful. It's I'm okay, and everything is temporary, that has kept me through everything. 

13:39 MD: So, one might even call that an entrepreneurial mindset if one were going to label it [laughter].  

SH: Absolutely. 

MD: In retrospect, I suppose. Okay. So do you have any regrets then? Any missed opportunities, things you would do differently? 

SH: I personally don't. Um, there's lots of people who tell me I should have regrets: that I sold too soon, didn't get all the value out of something that I should have, regret that I walked out of society for seven years. Um, they're the same people that told me not to do something, not to start the business, it won't succeed. That same group. And so, regrets are often a reflection of what other people think you should have done. 

MD: Oh, interesting. 

SH: And, so I, I don't have regrets. There's certainly always decisions you second guess later, but in the end, I've ended up still with incredible experiences. And so, it's never felt, felt like if it wasn't the way it should have been, 

MD: you don't feel you have missed anything. 

SH: I've not missed anything. And there's so many more things to do, and so many more adventures. And so it just I still stay excited for that. Next, the next, the next, the next…

14:35 MD: So finally, if you were going to offer a young person, perhaps yourself a couple of decades ago, who knows, starting out, what's the single biggest piece of advice that you wish you'd been given and that you would give somebody? 

SH: And I think it's that mantra.

MD: Truly.

SH: it truly is. So everything is temporary and it's okay to just be okay. Um, I don't have to be perfect. I don't have to have everything figured out - just make the decisions that feel right for you at the time with the information you have, and move ahead. It's just temporary. Then once you've moved ahead, something good or bad is gonna happen. And then you make a new decision, and just keep moving. But if you don't take that step forward because you're worried about the consequences, you'll never experience these great adventures in life. So, everything is temporary. Living on the land could have been temporary, it could've been three months, we could have been back. That would have been fine. We tried. So always think everything is temporary and it's all a choice and a decision next. 

MD: It sounds like the key to being a good entrepreneur is also the key to being a healthy human possible?  

SH: I don't know. They're related possibly. Um, I do know it definitely it's a mentality and a lifestyle of, of loving, problem-solving, loving challenges, loving to try new things, pushing your limits and then dealing with whatever falls out of it. 

16:23 MD: So I should ask you then, are entrepreneurs born or are they made? 

SH: I think it's a bit of both. 

MD: Of course you do! 

SH: I know I'm taking the middle road on that one. Um, because I do have a certain personality that pushes me a certain way, um, that motivates me a certain way. But I also had many factors as a child that shaped who I ended up being. So, I had a parent, very, very afraid in life. Um, I had two brothers who made me be a much more adventuresome, outgoing, outdoorsy person. We lived in a cottage every summer without electricity and without plumbing. So it pushes you into some new limits. And um, as a child I was very shy, very bullied with no friends and so you end up making your own fun. Those things shaped who I ended up becoming. But I also had a personality that said, bring it on. 

MD: Amazing. 

SH: Let me try new things. Bring it on. New I love new things. I love being open to whatever: new thoughts, new ideas, new ventures. And that's, that's wired. 

[end of interview] 

[music] 

17:51 MD: today we're talking about risk. Let’s talk about risk. Some people spend their whole lives avoiding it. Entrepreneurs are, generally speaking, not those kinds of people. Rather than playing it safe by doing the same thing day in and day out, entrepreneurs understand that doing something new means getting comfortable with the idea of risk. In fact, it may even be a pre-requisite at least according to JP Shearer. He spends his days working with student and alumni entrepreneurs as the associate director of the Centre for Business Venturing at the Smith School of Business. He is also a coach and mentor with the Master of Management, Innovation and Entrepreneurship program, and an academic advisor on four MBA programs offered at Smith. I talked with JP about the specific risks that entrepreneurs need to be ready to contend with. Here's some of what he had to say.

18:38 JP Shearer: There's a great quote just to kind of frame this. It's from Frederick Wilcox who spoke about progress has always involved risk. Um, and you know, to use a baseball analogy. Um, you can't steal second base without taking your foot off first. So, when you think about, you know, entrepreneurs, when you think about risks, there's two sides: the traditional risks and the traditional risks - we're living in a very uncertain, a very volatile, very complex and very ambiguous market at the moment. We get that from the US, even Canada's feeling that, you get it in the Asia. Uh, you know, the world is very fragile. Um, so there are those traditional risks that entrepreneurs need to look, there’s the economic risks, the political risks, societal risks, technological, legal, environmental these are all traditional risks that people should be looking at, whether they are a corporate business or whether they're an entrepreneur. Um, the risks, I want to talk about today are the disruptive risks. Um, those are some of the risks that, you know, from a founder's perspective, that they're probably not as aware of going into being an entrepreneur. 

19:37 MD: Okay. Like what. 

JPS: So, some of those maybe, you know, the first one that comes to mind is a founder risk. Um, there's a lot of stuff written on whether I should be a solo founder, meaning I run my business myself and I have full control of that business, or a co-founder. And co-founding doesn't necessarily mean, you know, two people. It could be three or four people, and each while having, uh, an equity stake or a stake in the business. But founder risk is very much about, you know, co-founding a business without understanding the person you’re founding that business with. You know, typically two friends come together, they don't have complimentary skills, they’re actually conflicting skills, they are sometimes the same skills. So, it leaves a gap in the business. Um, and really the founder risk is not doing that due diligence on who you're working with to co-found that business, to set it up for as best success. The founders should really it’s like building a relationship. I should understand what my core competencies are and my skillset is and then I've got to offset that with a complimentary skillset so that I'm starting to build, almost like a whole brain of thinking around the business. Typically, the founder risk is: I'm only one quadrant of that brain and the other three quarters are left untapped. 

MD: Right? You hear about that kind of risk a lot actually - those amazing partnerships that just devolve and, and fail. Other kinds of risks? 

20:55 JPS: So the other kind of risk is the financial risk. There's two sides to the financial risk: There's the giving up the paycheck. Um, you know, because typically there are some entrepreneurs who want into the market right away. They want to be an entrepreneur. They're driven to be an entrepreneur. They don't want to work for anybody else. And then there are the ones who, you know, I've worked with entrepreneurs before who have maybe come through some of our programs at Smith School of Business and have typically then spent two or three years in the corporate world and then went into entrepreneurship. Um, giving up that paycheck is a huge risk. It puts a huge financial burden on the entrepreneur. Um, entrepreneurs have started businesses and you know, again, the calculated risk is, is the calculation of that has gone. So they start to, you know, spend their savings. People have lost their house. You know, they jump into the financial side of, of chasing capital right away. And whether that's through angel funding or venture capital funding, uh, they jump in and the give away equity of their business, premature dilution of the business. And that's not good either. So, the financial risk and giving up that paycheck is a huge thing for an entrepreneur.

22:03 MD: Yikes. Sort of daunting. It sort of makes you go, hmm, maybe I shouldn't do this after all? Are there more that we're not thinking about? 

JPS: Yeah. You know, the other, the other part of it is a, there's a, the kind of the scaling of business and the failing to innovate. If I take two of those, um, you know, kind of separately, uh, kinda those entrepreneurs suffer from, um, the inability to scale. That's partly I think in my own personal opinion, resorts to: Canadians or are very good at the research, the pre-commercialization, the building the minimum viable product and then commercializing, but the commercialization of that particular product or service, you know, is a lot slower. And the US it is known that they are more risk takers. They, they will do fast track research. And then they'll commercialize very quickly and get out to the market. So Canadian entrepreneurs do suffer from the ability to be able to scale a business. And scaling is, you know, scaling to new market scaling and employees. Um, in fact, one of the fundamental risks that the actually is tied to the financial side where the, we, we maybe have received some angel funding or some VC funding, but they have no strategy or no understanding of how they're going to spend that money and they end up, you know, spending on stuff that's not building their business. 

23:16 The other part is failing to innovate. They get complacent. They think their product is the best in the market, and they fail to innovate, given the market. Because we need to be empathetic with the customer. We're not building a product for life. We're building it for the pain point or the opportunity that those customers may have - and they shift. It's a very disruptive world. We're digitizing and modernizing a speed of change that nobody has ever seen. Um, and if entrepreneurs aren't willing to keep up with that, then the risk is that they're going to go out of business very, very quickly. 

23:45 MD: That’s a lot to contend with. I mean, you're are a person who's already starting with a brand new business. They're trying to get their head around it and then there are all of these walls up against them. How do you coach people to get to arm themselves, to prepare themselves for those various risks?  

24:00 JPS: The one thing is remaining consistent, but not becoming complacent with it. Um, you know, it's the sounding of inconsistently perfect. Uh, you know, when they're being consistent for a certain period of time and then they become inconsistent at keeping an eye on, you know, back to the traditional risks: it’s the economy, the environment, the political, you know, risk is particularly in a geographical area, whether it's provincial or federal or US or Canada, um, you know, but been able to keep an eye on some of those things. Um, so, you know, my, my goal with the entrepreneurs is always to have a check in with themselves and to check in with the business. They should be looking at, you know, where were we in the last seven days? Where are we going in the next seven days? You know, what are we doing today, and what should we be aware of? So there's always a strategy, a strategic element to focusing on the future state of business and not just becoming complacent with what is great today, who cares about tomorrow? 

MD: Right down to the week though? You're not talking, like people should be mitigating risk thinking, okay, what are we doing this week, not just years from now? 

25:01 JPS Well, it can be a week, it can be a month, depending on what type of business you're in. But you know, if we take a technological business, you know, AI is sexy at the moment, you know, machine learning, data analytics. And that's it's interesting because that’s another risk that entrepreneurs take, it’s that they are not focused on the ability to provide a great product and service to our market. They’re focused in becoming a sexy business and sometimes sexy businesses, you know, aren't the revenue generators there are some unsexy businesses out there that certainly people can, can drive. Um, but yeah, I mean I think it's, it's really about being focused on what are we doing? How are we doing it? Where have we been and where are we going? Technological businesses are changing rapidly. Um, so we really, in terms of that weekly, monthly, biweekly, it should be a check-in but that's up to the business and the entrepreneur as to the frequency and duration of that. 

25:54 MD: But how about mitigating those other risks? I mean the financial risk, for example, how does a person know whether they should jump in with two feet and quit their job, or work in a corporate sector, learn skills, transition into it? Like how does one make that call and mitigate the risks associated? 

26:09 JPS: Yeah, I think it's, mitigating the risk is having a stronger, the strongest possible understanding of the market and the opportunity. Uh, you know, if we take a design thinking approach, it goes back to having empathy with the customer. One of the things that I often talk to entrepreneurs about is product-centric thinking versus consumer-centric thinking. Product-centric thinking is where most businesses fail because they have a product and really, it’s the best product in the market and why wouldn't people buy it? I haven't done any due diligence. I've just developed as great product and I'm good to go to market with it. That's the big risk and failure because you're, you're trying to build a product that doesn't fit a market or you're perceiving or assuming that it fits a market. The consumer-centric thinking or finding the empathy with the customer and framing questions around them is asking the customers what their pain points are, what the opportunities are, and then building a product and service around it that fits the market. 

That then allows me to be able to say with a certain degree of certainty that this market is ripe and I know that IÕm going to be successful. The jump from no paycheck to a paycheck is then going back to the funding part, is that, you know, there's a couple of stages before we get to angel funding and maybe before we get to VC funding, which everybody wants. But equity, being your biggest asset, you don't want to give that away and you want to keep it as long as you can. The other part that comes before that is bootstrapping. So, if you're in a corporate role and you're making that jump, save up, create savings, create saving account, know what your start-up costs and what your burn rate - meaning how much are you spending per month for the next three to six months. And if you can figure that out, you know what your savings should be in order to have a safety net. The other part after that is then family and friends. People have to depend on family and friends. It may be, you know, it may be zero cost in terms of them lending you money with a note that says, I'm going to give you this back. So, there's two stages before we get to the angel and the VC world, um, that allows us to be able to, you know, launch our business, but the core is: understand what your start-up costs are, understand your burn rate for the first three to six months, and then build your savings around that so that you're ready to jump. 

28:15 MD Okay. So then what's the best way for an entrepreneur to brace themselves then for the inevitable risks that are going to come along? 

JPS: Be prepared. I think it’s back to that understanding of the market, having empathy with the customer and doing as much consumer insight as you can, and whether that's, you know, understanding from consumer reports but the key is to go out and ask the customers. It’s the customers who are going to be buying the product or service. And if they don't understand what you're trying to do and what the opportunity or their pain point is that you're trying to solve or you're trying to sell, you know, you may as well take paint and throw it at the wall and hope it sticks. But it's that due diligence it’s the understanding of the market, understanding the opportunity, understanding of the customers, putting your ego to the side and realizing you're going to have to at some point take a diversion in your desired outcome. And I think for me, and one thing I always say to people is, it's about the pursuit of excellence versus the pursuit of perfection. The pursuit of perfection is what suffocates and kills most businesses. 

[end of interview]

[music]

29:27 MD: And now it's time for an episodic feature we’re calling “Show Me The Evidence”, with Alan Morantz, editor of Smith Business Insight. 

Alan Morantz: Earlier in this episode we heard Shari Hughson talk about the decision she made to go off the grid and start new ventures. She said she didn't perceive those decisions as particularly risky, though most of us would beg to differ. Some people have a tolerance for spicy food, others for violent movies or bungee jumping. Entrepreneurs have a tolerance for risk that others don't share. It's quite amazing to think how many people start a new business despite knowing that one of every two will fail within a year. Thanks to some 20 years of research, we know quite a bit about entrepreneurs and risk. It's been well established that cognitive biases explained much of this relationship. Three in particular: over-optimism, overconfidence and the illusion of control. Overly optimistic people are more likely to assume things will turn out well and to underrate the likelihood of bad events. Overconfident people have inflated faith in their ability to make correct predictions, and people with the illusion of control believe they can master largely uncontrollable events. 

30:48 Since they are super powered by these cognitive biases, entrepreneurs tend to underestimate the amount of risk associated with starting a new business and overestimate the value of the opportunities they discover. This isn't a recipe for success. In fact, many studies have revealed the negative impact of over optimism on venture formation, on business performance and on decisions relating to finances, product lines and other key issues. It's important to understand that entrepreneurs don't necessarily relish taking a risk any more than the next person. It's that they tend to perceive less risk for a given opportunity. This distinction between risk taking and risk perception is often glossed over by researchers and studies that try to connect risk to actual business performance, it's usually risk taking that is measured. The evidence here is ambiguous. 

What about the impact of risk perception on business performance? Social scientists that Utrecht University School of Economics conducted a study to answer that question. They focused on 611 entrepreneurs in Tanzania. They peppered the entrepreneurs with survey questions designed to measure their risk behavior and perception. Questions like how much risk do you associated with betting a day's income on the outcome of a sporting event or investing 10 per cent of your annual income on a scheme that promises a very high return on savings? The researchers found that entrepreneurs who are willing to take a lot of risks, but generally perceived few risks, showed the poorest performance. They earned up to 40 per cent lower revenue than others in this study. Entrepreneurs with a higher perception of risk, in general, earned higher revenue. Now keep in mind that this study was fairly small and based on entrepreneurs in a developing market. That's a very different environment than, say, North America. Still, it does remind us that entrepreneurial risk is complex: when tying risk to business outcomes, it's important to consider not only the willingness to take a risk, but the perception of risk as well. 

33:07 After all, good entrepreneurs excel at managing risk, not taking risk. They put in measures to mitigate the downside. They choose their partners well. They raise money from a variety of investors. They diversify their products. They apply lean concepts to inventory management. Granted, it's not easy for entrepreneurs to think about managing risk. They're not wired that way. But the best of them, like Shari Hughson, are sufficiently self-aware to understand the need to push back against their biases. After all, you don't venture into the wilderness without a map and bear spray and expect to get out alive. We'll put a link to the journal articles in the show notes if you're interested in learning more. I'm Alan Morantz and I have just shown you the evidence. 

34:00 And that's the episode. Next up. We'll look at the question of financing. We'll hear from an angel investor as well as a Smith alumnus who will share some of his experience and insights on building his own business with VC financing. I hope you'll join us. Until then. I'm Meredith Dault at the Smith School of business at Queen’s University. Thanks for listening.

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