Risk and Return: How Entrepreneurs Outperform Bankers

When it comes to risk and return, entrepreneurs and bankers take polar opposite approaches. But surprisingly, not in the way conventional wisdom suggests.

We saw an interesting study about the difference between corporate thinking and entrepreneurial thinking.

Corporate thinking is what we learn in business school. It’s exemplified by bankers in this study.

2 ways to approach risk and return

The results were surprising – when it comes to risks and returns, the bankers and the entrepreneurs approached decisions from two different directions:

The corporate way tries to maximize the rewards.

Entrepreneurs seek to minimize the risks.

Corporate-thinkers select an outcome based on the returns. Then, they live with the risk.

Entrepreneurs select an outcome after driving the risks as low as possible, perhaps even eliminating them. Then, they accept the returns.

It allows them to proceed forward with no fear of loss. They may be able to take on projects which corporate-thinkers wouldn’t. But along the way entrepreneurs gain resources. It helps them spiral upward.

Which one should you use?

Both of them can be valuable tools in your toolkit.

Corporate thinking works optimally in stable, established situations where you can predict the future with reasonable accuracy.

The entrepreneurial way is best suited for times when you’re trying something new or you need to think creatively to find something new to try. The entrepreneurial-minded people in the study generated eighteen times more money-making ideas than the corporate thinkers.

In addition, the entrepreneurial way is ideal in volatile environments where the future is difficult, if not impossible, to predict. In these situations, you have to create your future.

Since we live in a fast-changing world, learning to think like an entrepreneur has become a necessity for professionals and firms who want to get ahead.

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