The Role of Motivation, Risk, and Reward in Entrepreneurship - Essay Example

? The Role of Motivation, Risk, and Reward in Entrepreneurship THE ROLE OF MOTIVATION, RISK, AND REWARD IN ENTREPRENEURSHIP The entrepreneur is one of the most essential players in any economy and the free market. This is because the skills, as well as the risks, that the entrepreneur is willing to take are an advantage for both consumers and producers alike (Carsrud & Bra?Nnback, 2009: p35). However, in order for the entrepreneur to take these risks, he has to be motivated to do business. In addition, the rewards from his risks must also be sufficient to make it worthwhile. Therefore, it is clear that these three aspects; reward, risk, and motivation, play an important role in entrepreneurship. Entrepreneurship exists in various forms. It may involve developing new ways of doing things and distributing products, starting a new business, as sources of information, and market middlemen. An entrepreneur is characterized by his search for opportunities that are unseen or ignored by others and taking risks on them in order to get a profit reward (Carsrud & Bra?Nnback, 2009: p35). With all the three factors seeming to play a role, the question is then raised as to the extent to which risk, reward, and motives contribute towards an entrepreneurs goals. This question was put to successful entrepreneur Sir Richard Branson. According to Branson, “The financial risks and rewards of being an entrepreneur have significant meaning in an entrepreneur’s motivation to open a business” (Personal Communication, 2013). There are several reasons for this, including the fact that over 50% of new start-ups fail in their initial four years (Roth, 2010: p67). Entrepreneurs, on average, he contends, will achieve less success over ten years in terms of income than they would have if they would have been employed. In addition, there does not seem to be any proof that entrepreneurs get better rewards if they start a business as compared to invest in stocks with the most likely result being that, from a risk perspective, they do not as much as they would have in the stocks market. However, Branson further says, even with these statistics, it is imperative to note that entrepreneurs account for 66% of British millionaires, despite making up only 20% of the entire labor force, while 80% of the millionaire entrepreneurs are “self-made”. From these statistics, it is possible to argue that the high risk in financial terms, coupled to the potentially high rewards, enhance the importance of intrinsic motives to an entrepreneur (Roth, 2010: p67). These intrinsic motives include purpose for entrepreneurship, for example, the ability to better the world, the freedom, and autonomy that entrepreneurship will give an individual, and the reward of overcoming challenges and becoming a master. Branson says that, it is possible to think of the results of a hypothetical proposition, to show the enhanced role of motives over risk and reward. In order to gauge the tolerance to risk of entrepreneurs, three options are given to potential entrepreneurs. “They can earn a $10 million profit with the chance of success placed at 20%, $5 million of profit and a 50% chance they will be successful, and q $1 million profit for an 80% chance at success”, Branson posits (Personal Communication, 2013). While there is a general perception that entrepreneurs are all profit and risk seeking business people and that they would go for the first option, it is indicative that it is most likely that they will go for the 3rd choice (Casson & Buckley, 2010: p29). Entrepreneurs seek to go into business with the option of getting a higher profit but less of it. Therefore, for successful entrepreneurs like Sir Richard, reward is not as important to entrepreneurs in starting a new business. The creation of a new enterprise carries a lot of risk and uncertainty, which indicates that the entrepreneur’s motives carry more importance than financial rewards. For example, Richard contends that entrepreneurs want autonomy and fulfillment, which entail having a vision for the business behind which is the ultimate motive. However, since an employer will not be willing to give this to them within the structure of the company, they are motivated to go for entrepreneurship (Casson & Buckley, 2010: p29). However, Branson claims that it is unwise to downplay the important role that reward also plays. Entrepreneurs take risks when they seek to make services and products by organizing productive resources (Kuratko, 2013: p78). Profit rewards, therefore, are an important incentive in the decision-making by entrepreneurs to accept to take on the risks of failure in the business since profits are the reward for a successful businessperson. Branson sought to innovate in order to introduce a missing link into the market that had economic value, in this case, introducing a budget airline. He also compared the benefits that are expected from the starting of a new enterprise with the costs they expect to incur, while also accepting the risks present in the organization of resources if their hope of rewards is high (Kuratko, 2013: p78). “Risk is only entertained if the entrepreneur sees potential in the enterprise’s ability to turn a profit”, he is quick to add the above. This means that the risk is only qualified by profit and affects the decisions of individuals to become entrepreneurs to the lowest extent compared to profit rewards. However, as Branson already mentioned, the motives for starting the business are what lead the potential entrepreneur to consider taking the risks in the first place (Kuratko, 2013: p79). Absence of motivation will make it difficult to surmount the challenges required, in overcoming risk, to get financial rewards. While the extent to which risk plays a role in entrepreneurship is not as significant as reward or risk, it has an important role to play, as well. According to Branson, “one important role of risk involves management of capital allocations by guiding the entrepreneur on where to invest resources and capital and get the most gains” (Personal Communication, 2013). The entrepreneur will always seek to invest his/her capital in the venture that displays the nest traits of risk and rewards, which gives the more desirable innovation against less desirable innovations because of the decreased risk to reward potential (Ashmore, 2008: p45). Risk also plays a critical role in minimizing the wastage of resources on ventures that are not desirable in society. The choice to embark in a high-risk venture, which has lower risk-to-reward potential, will lead to failure of the business. Without risk, the entrepreneurs would have numerous ventures to pick from, for which a significant number would not move the society forward in offering a product or service it needs (Ashmore, 2008: p45). This is where motivation comes in for entrepreneurs like Branson with regards to the reason why they get into entrepreneurship. While the risk and reward ratio is important for him, their motivation to start a business will have significant influence into how they allocate their resources, following which they consider the risk/reward potential. Once an entrepreneur knows what their motives to start an enterprise are, it is possible for them to take the bold step and consider the risk/reward potential of the business venture. It is only then that they are able to make the difficult decisions and surmount the challenges, which come from entrepreneurship’s difficult starts. Once the entrepreneur has the right motives to start a business, they have more clarity and less chance of losing their focus and forgetting why they started the business in the first place. While rewards could be one of the reasons, poor returns in the initial stages could derail an entrepreneur without the right motives. References Ashmore, M. C. (2008). Risks & rewards of entrepreneurship, Saint Paul, Minn, EMC Pub Carsrud, A. L., & Bra?Nnback, M. (2009). Understanding the entrepreneurial mind: opening the black box. London, Springer. Casson, M., & Buckley, P. J. (2010). Entrepreneurship theory, networks, history. Cheltenham, UK, Edward Elgar. Kuratko, D. F. (2013). Entrepreneurship: theory, process, practice. Mason, Ohio, South-Western Cengage learning. Roth, C. (2012). Entrepreneur equation: evaluating the realities, risks, and rewards of having your own business. Dallas, Tex, BenBella Books Read More