Society, 30% Success, and the Danger of Risk

Society, particularly in America, has a somewhat romanticized view of risk.  We tend to extol "risk takers" as those who dreamed big!  Be ridiculously irrational!  Don't be a follower satisfied with the status quo!  Thrive on innovation!  (All of those pulled from top search articles on "risk takers")

And yet… when you dig into the details, the risks that society plays up are not necessarily what they appear.  Consider some names we think of in today's world as risk-taking entrepreneurs lauded for their innovation.  Richard Branson.  Elon Musk.  Bill Gates, who famously dropped out of Harvard to start Microsoft.  All indisputably successful at starting businesses and building new business models.

But what risks were taken?  Dropping out of Harvard implies the educational background and societal support to gain admittance to Harvard in the first place.  Starting businesses like Virgin Records or eBay implies access to startup capital.

Popular perception of risk and success implies that one begets the other, and that those who are successful somehow grabbed life by the horns, took a major chance others did not, and reaped the rewards.  That is often not how change actually happens.

In the excellent Working Identity: Unconventional Strategies for Reinventing Your Career,  Herminia Ibarra covers this phenomenon.  When you talk to people who have made significant changes in their lives, often they do not get there the way we think they do.  They get there more incrementally.  Small steps, not giant risks.  There's a great story in Working Identity about an accomplished Buddhist monk who started out as a psychiatrist, and gradually learns more about Buddhism through reading, small interviews, and incremental encounters.

Consider what career advice you often hear: go up to the mountain and think about what you truly love to do, then prepare a plan and just go out and do that.  Great energy is spent on figuring out your destiny.  What Color is Your Parachute? devotes many pages to self-inventory, and it sells a lot better for it.  Many of us have tried that.  It's harder than it sounds.

Great entrepreneurs do take risks, but they take measured ones.  Microsoft did not start out looking to dominate personal computing; they wanted to sell programs to manufacturers of equipment, starting out with Altair BASIC.  Elon Musk started SpaceX with a broad vision but a limited initial goal that was achievable with his then-current funding.  Entrepreneurs take small risks repeatedly over time, and learn from failure via iteration.  Microsoft, Apple, Tesla, SpaceX all have had flops over their development but they learn their lessons and make the next version better.  Risk becomes something to harvest, not something to avoid.

We also often completely ignore the role of luck. Being in the right place at the right time matters.   For every successful entrepreneur there are at least ten others, just as smart and hard-working, for whom the circumstances didn't work out in the same way.

Your typical small business owner, successful or failing, has put at least as much on the line as the icons of American business – a much higher percentage of their net worth, most likely, as 68% of small businesses are funded by personal debt.  In the US, 70% of them fail within ten years. Well-funded new enterprises tend to have higher success rates, but many start out on a "wing and a prayer" and take massive risks.  Looking at failure rates, maybe entrepreneurial risk needs to be better calibrated.

Our societal view on risk is colored by this sort of survivor bias.  Did the ones who succeeded take more risks and therefore were more successful?  Were the failures not risky enough? Maybe not so.