THE HUNT FOR DOMAIN-SPECIFIC RISK IN ENTREPRENEURIAL DECISION-MAKING
Terrence
E. Brown, Stockholm School of Entrepreneurship at KTH
Olga Simonova, Stockholm School of Economics
Niclas Carlsson, Founders Alliance
Principal Topic
Though risk plays a central role in most entrepreneurial decision-making, and has been a used to define an entrepreneur from the very beginning, so far there has been little evidence demonstrating significant differences in risk-taking propensity between entrepreneurs and non-entrepreneurs. Our view of this paradox is that although the average risk-taking of entrepreneurs and non-entrepreneurs may be similar, domain-specific risk taking may be significantly different. Thus entrepreneur may be willing to accept a high financial risk, but only a low social risk. This way an entrepreneur may average out the risk he is taking. In this context the challenge becomes to compare domain-specific risk perception.
Method
Our solution of the problem is the use of conjoint analysis. This method requires respondents to make a serious of judgments, assessments and preference choices based on profiles composed of a set of attributes. The premise of the conjoint analysis is that respondents stating their preferences among alternative sets varying in feature reveal the underlying utilities of attributes. This method is successfully used in marketing research since the early 1970s, but its use in the other areas is limited. It has rarely been used in entrepreneurship research. We have used this method to measure domain-specific risk utilities of a group of approximately 150 entrepreneurs seeking second round of venture capital financing. The sample also consists of a corresponding group of non-entrepreneurs as well.
Results and Implications
Initial analysis has shown that risk utilities reflect the entrepreneurs’ background and entrepreneurial orientation and that risk is domain specific, i.e., utilities of different domains differ. Preliminary analysis also indicates that entrepreneurs are more willing to take financial risk and less willing to take career risk than non-entrepreneurs. They are also more willing to accept responsibility for employees than non-entrepreneurs.
We believe that our main contribution is twofold: It identifies and examines domain-specific risk of entrepreneurs. The second contribution is methodological. This study highlights the efficacy of conjoint analysis in entrepreneurial research.
CONTACT: Dr. Terrence Brown, Stockholm School of Entrepreneurship, P.O. Box 6501, 113 83; (T) +46 8 736 1586; (F) +46 8 736 1590; tbrown@lector.kth.se
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