Introduction to entrepreneurship/IENT101/Nature/Risk

Anyone thinking about starting a new business or venture of any kind needs to think about possible risks and reward.

• Risk can be defined as the chance of loss. Generally, the higher the risk, the higher the potential for loss.

There are two elements to risk assessment: The likelihood that the bad thing will happen and the impact if the bad thing does happen. So maybe need to unpack 'the higher the risk...'.

• A Reward is a positive incentive that makes people better off. These St Louis references don't take you to a specific page within their site so you can't see the actual source. Also, a lot of their material seems to be aimed at High School students.

There is usually a direct relationship between the risk of a loss and the expected rate of return. The higher the risk of loss, the greater the potential reward. Conversely, the lower the risk of loss, the lower the potential reward.

Is this true? E.g. If the idea is a bad one there is a high risk of loss and not much potential for reward. Isn't this about the person's willingness to take a risk, rather than the level of risk? I.e. if the potential rewards are high, the person is more likely to take a big risk.

Web resources

Read these two short articles to learn more about risk and reward:

• Here's why the risk-reward model works so well inc.com, 14 October 2015
• 4 examples of risks leading to reward entrepreneur.com, 21 March 2015

WEnote

Did anything surprise you in these readings? What do you need to think about in particular in terms of risk and reward?

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References