The adjective entrepreneurial is used in a host of varying contexts and embodies a

wide variety of meanings and implications. For instance, entrepreneurial knowledge,

as J.J. Kao points out in The Entrepreneurial Organization, can be referred to the
concepts, skills, and mindset associated with operating large corporations with greater
flexibility, innovation, and responsiveness.
However, for our discussions, entrepreneurial knowledge is restricted to the concepts,
skills, and mindset that individual business owners must employ in the process of
starting and operating high-growth-potential ventures.

Entrepreneurial Management vs. Corporate

Management
In their book, Entrepreneurship, Robert Hisrich and Michael Peters say that managing a
new venture differs from managing an existing operation along five key management
issues:
strategic orientation
commitment to opportunity
commitment of resources
control of resources
management structure
The entrepreneurs born with these management skills come from a rare breed of
people with intelligence, great heart, and creative skills. They are visionary and self-
confident, good communicators with unlimited energy, and have a strong passion for
what they do.
Fortunately for those of you who were not born blessed with these skills running
through your blood, we know that the most critical skills in launching and running a
new venture can be learned. We will teach you some of the most important ones.
Entrepreneurs are directly involved in the dynamic, and very complex, interrelationship
between financial management and business strategy. This is the significant difference
that sets entrepreneurial management apart from all business management practices.
In almost all cases, the person making the decisions has personal risk at stake.
The worst-case scenario for folks at work is getting fired. The worst case for
entrepreneurs is losing their home, personal credit, and lifestyle, as well as the
destruction of family relationships.
Defining Entrepreneurial Management: Peter Drucker remarked that for the existing large
company, the controlling word in the phrase entrepreneurial management is entrepreneurial.
In any new business venture, the controlling word is management. Therefore, for the purposes
of our discussions we lean toward management as a discipline for entrepreneurs. We define
entrepreneurial management as the practice of taking entrepreneurial knowledge and utilizing it
for increasing the effectiveness of new business venturing as well as small- and medium-sized
businesses.
The heart of entrepreneurial management is continually juggling these vital management
issues:
What is this venture about? (mission and values statement)
Where should it go? (goals and objectives)
How will it get there? (growth strategy)
What does it need to get there? (people and resources)
What structure is best? (organizational capabilities)
How much money does it need and when? (financing strategy)
How will it recognize the final destination? (vision of success)

Discussion About Managing Entrepreneurial Risks

It is important to understand the construct of risk and uncertainty. Businesses have
always faced risks. As we discussed in another Article, recent events around the world
in the last few years have provided dramatic evidence that, in todays business world,
risk is now a reality.
How Do We Keep From Failing?
Entrepreneurship, risk, and uncertainty are long-time bedfellows, and they push the
entrepreneur to the limit. Peter Bernstein, in Against the Gods, the Remarkable Story of
Risk, describes that the modern concepts of risk dates back more than 800 years with
the early principles of gambling. According to Bernstein, The revolutionary idea that
defines the boundary between modern times and the past is the mastery of risk.
The period of global exploration and trade during the 1500s and 1600s transformed
these principles into the creation of wealth and the inevitable result was capitalism, the
epitome of risk-taking. Bernstein writes, You do not plan to ship goods across the
ocean, or to assemble merchandise for sale, or to borrow money without first trying to
determine what the future may hold in store. In fact, when the Revolutionary War
broke out, the Americans had to create their insurance industry from scratch and
underwrite maritime business and life insurance policies for sea captains.
Uncertainty means that decision-makers do not have sufficient information about
environmental factors, which increases the risk of failure. For our research we define
risk as the degree of certainty or uncertainty as to the realization of expected future
financial returns in a business venture.

Risks Specific to Entrepreneurial Capitalism

Risk-taking is essential to capitalism. Without risk the free enterprise system cannot
function. Not all risks and challenges can be anticipated, but once identified, they can
be managed by lead entrepreneurs, executives, and boards working together. We all
have some kind of belief that entrepreneurship is risky, but the facts are startling.
Estimates from the SBAs database suggest that of the 850,000 new businesses started
each year, about 60 percent fail in the first six years and more than 70 percent fail in
the first eight years. Risks that are specific to entrepreneurial capitalism are listed here.
Entrepreneurial management is knowing how to manage these specific risks.
Economic Risk
How is the business world today? What is the window of opportunity for this venture?
Includes geopolitical threats, economic cycles, interest rates, and governmental
regulations.
People Risk
What about the venture team? How did they come together? Have they worked
together before? Can they make through the growth stage, or will there be too many
cooks in the kitchen?
Market Risk
How are the dynamics of this industry sector? Is there going to be room for growth in
this market? What about the risks of other competitors?
Technical Risk
Does the product work? What about some technology coming along in the future that
will make this product/technology worthless like a buggy whip?
Strategic Risk
Is there a sustainable competitive advantage? Includes sharing the risk with strategic
alliances and finding the right operations strategy with a viable business model.
Financial Risk
Can this venture or activity get funded now? What about later rounds of financing,
when growth kicks in and it needs fed with cash?
Personal Risk
Can the lead entrepreneurs truly commit? There are many sacrifices, as other priorities
in life, like family, friends, and vacations that will have to come second.

Unwinding this Knot of Uncertainty

Left unmanaged, these risks get tightly wound into a knot. When it is wound so tight,
management skills, expert advice, and even hope are passed up as humans go into the
survival mode. In fact, the human organism can tolerate anything except uncertainty,
which causes so much stress that people are no longer capable of thinking in a
cognitive, creative manner. They focus on survival. What makes this knot of
uncertainty so difficult to deal with is that all the entrepreneurial risks interact with
each other.
For surviving the deep, dark canyons of uncertainty we again draw on Bernstein. He
tells us that the essence of risk management lies in maximizing those areas where we
have some control over the outcome while minimizing those areas where we have
absolutely no control.
Unwinding this knot, one risk at a time, starts with keeping your blood cool in the heat
of the battle, or as military experts say, having a sang froid. You need this cool
temperament and a clear head to separate the controllables from the
uncontrollables. Controllables are the elements that management can control like the
cash burn rate, the activities of the venture itself, personnel, finance, and production.
The uncontrollable forces are external forces over which your venture team has no
direct control, although sometimes it can exert influence.

Becoming Risk Technicians

William J. McDonough, president of the Federal Reserve Bank of New York, says that
taking calculated risks is part of any business venture. Each venture needs to have in
place the systems and management processes necessary not only to identify the risks
associated with the business activities, but also to effectively measure, monitor, and
control them.
Identifying and being able to openly discuss the risks inherent in your venture is very
key. It demonstrates your leadership and management skills. It increases the credibility
of you and your venture with investors and strategic partners. It creates confidence
that quickly clears open the channels of communication.
The strategy for dealing with risk and uncertainty includes three key components:
The business plan is the heading that provides guidance even in the roughest seas.
Entrepreneurial knowledge is knowing where the rocks (or risks) are at sea.
Entrepreneurial management is the skill of steering from the rocks.

By reading the content on our Web site and working hard to follow the strategies and
concepts outlined herein, you will become expert risk technicians: experts at identifying
risks, knowing how to manage around risks, and becoming comfortable in high-risk
environments. Developing an effective strategy for dealing with risk and uncertainty
sets apart the winners from those lost at sea.

Venturing into Stormy Seas

Historically, ventures that launched during economic downturns had difficulty in raising
money and had to grow in a step-by-step approach. Tim Draper, a partner at Draper
Fisher Jurvetson, believes that entrepreneurs launching today must find ways to build
revenue and be more capital-efficient than in the past. Ventures that are watertight in
stormy seas will last longer and become market leaders. Examples of great companies
that started in economic downturns are Hewlett Packard, Sun Microsystems, Dell
Computer, Genentech, Palm Computing, Intuit, and even Starbucks. They did not go
out and raise $50 million in venture capital. They became huge, successful companies
because they watched money carefully.
Even large corporations must batten down the hatches and watch each dollar more
carefully. According to T. J. Rogers, founder of Cypress Semiconductors, Weve had
two recessions in seventeen years. They were tough times, but I think Im a better
manager for it.
Don Valentine, founder of Sequoia Capital, has been around since 1972 and helped
launch Apple Computer, LSI Logic, Oracle, and Cisco Systems in economic downturns.
He says, I think a retrospective from 2010 will show that 2001 was the beginning of (a
new) golden era. Some of the great companies of all time have been started in prior
recessions, and my forecast is they will be started (again) in this recession.
Our discussion is not about whether you should write a business plan to help manage a
start-up activity. Our discussion is about planning effectively. As Peter Drucker says,
Entrepreneurship is risky mainly because so few of the so-called entrepreneurs know
what they are doing. They lack the methodology. They violate elementary and well-
known rules. Entrepreneurs, Drucker argues, need a systematic approach for putting
all the pieces of the puzzle together. Business planning helps entrepreneurs work
smarter, stay alert for roadblocks, test new ideas, stay motivated, help align
expectations with stakeholders and investors, and even reduce stress.