The cult of risk taking and social learning: a study of
Irish entrepreneurs
Keywords
Risk, Performance, Entrepreneurs,
Strategy, Perception, Ireland
Abstract
The focus of this research was on Irish economy, old, begrudging attitudes
exploring how entrepreneurs think
about risk and deal with it in the
strategy formation process.
Suggests that risk taking is
related to several factors: innate
personality traits; learning;
experience of crisis; as well as
business-related factors such as
the type of venture founded and
the nature of the industry
environment. The analysis is
supported by a number of case
study examples based on field
work conducted between 1994
and 1997. The adoption of a
longitudinal-processual approach,
which is still rare in the literature
on SMEs, suggested that the
entrepreneur's perceptions of risk,
and capacity to bear risk, evolved entrepreneurs think about risk and deal with
over time. The main proposal of
this exploratory study is that risk
taking is not just a static
personality trait forged by nature
or nurture, but seems to reflect
learning in a business context.
Also discusses whether risk-
taking behaviour helped or
hindered venture performance.
The paper concludes with a brief
assessment of the implications of
these findings for future research
and practice.
Management Decision
38/8 [2000] 563±574
# MCB University Press
[ISSN 0025-1747]
Breda McCarthy
Marketing Department, NUI, Galway, Ireland
Introduction
A cultural shift seems to be unfolding in
Ireland. In parallel with the growth of the
towards entrepreneurial success are slowly
dissipating. The high profile nature of
companies such as Iona Technologies, Green
Isle and Cuisine de France has helped raise
consciousness of the role played by
entrepreneurs in society who are prepared to
assume the risks of business start-up and
growth. The growing interest in
entrepreneurship is also reflected in the
academic world and there has been a marked
increase in the number of books, articles,
case studies and conferences on the subject of
entrepreneurship.
The aim of this study was to explore how
it in the strategy formation process. The
main research questions were as follows:
1 Is risk a function of personality or is it
shaped by contextual forces over time?
2 How is risk managed by entrepreneurs
during the process of forming a business
strategy?
Given that existing theoretical knowledge
plays a role in steering the research process,
a brief summary of the literature will be
given.
A literature review: the risk
construct
The risk construct dominates the literature
on entrepreneurship and the ability to bear
risk has been identified as the primary
challenge facing entrepreneurs (Knight,
1921). The term ``risk'' has a very specific
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meaning in the literature. Dermer (1997)
identified three components of risk:
1 conceptual;
2 administrative; and
3 environmental risk.
Dermer (1997) defined conceptual risk as the
imperfect formulation of an issue or problem,
such as using an incorrect model, making the
wrong assumptions about an issue and
choosing incorrect decision criteria. It
reflects a distortion in sense making. Over-
estimating the size of the market or growth
rates is a common instance of conceptual risk
for entrepreneurs. The second element is
administrative risk which is defined as the
risk that even a well conceptualised issue or
plan may not be implemented properly. For
instance, the failure to manage cash-flow can
be cited as an administrative risk for
entrepreneurs. The final element is
environmental risk which suggests that the
environment can change in unanticipated
ways even after well-conceived and well-
implemented actions have been taken.
External factors such as changing demand
conditions, competition and technological
change are often cited as factors that pose a
threat to company survival. Liles (1981)
defined risk as the probability of a negative
outcome occurring from some course of
action. He proposed that entrepreneurs faced
four types of risk:
1 financial;
2 career;
3 family and social; and
4 psychological.
Furthermore, Liles (1981) suggested that the
social and psychological aspects of risk
associated with business failure were more
difficult to bear than financial risk.
Naturally, different types of risk have
different implications for the decision maker.
For instance, Gibbons and Hong Chung (1995)
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Management Decision
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point out that intelligence gathering and
planning may help reduce conceptual risk.
Since entrepreneurship is a ``unique
occupation characterised by risk taking''
(Cromie, 1994, p. 64), numerous attempts have
been made to measure the risk-taking
attribute of entrepreneurs (Palmer, 1971;
Brockhaus, 1980; Sexton and Bowman, 1983;
Begley and Boyd, 1986; McGrath et al., 1992;
Ray, 1993). Ray (1986), in a study of risk
taking, discovered that self-esteem was
closely associated with, and might have
driven, risk-taking propensity. Those with
very low self-esteem take either no risks or
very high risks ± each action reinforces their
initial premiss that they are unworthy
individuals. Those with a healthy level of
self-esteem are able to take risks appropriate
to various situations that arise. Some studies
refer to entrepreneurs as ``moderate risk-
takers'' (Brockhaus, 1980, 1987), suggesting
that entrepreneurs are not gamblers and tend
to avoid situations involving extreme risks.
However, Ray (1993) argues that this phrase
has been invented by academics, and is
unrelated to how entrepreneurs actually
think about risk or cope with risk. According
to Ray (1993) risk is related to strategy and
context and is not just a function of
personality. For instance, today's
entrepreneur has recourse to a wide range of
mechanisms designed to reduce business
risk, such as strategic alliances, joint venture
and licensing arrangements (Deakins, 1996).
Researchers are divided as to the risk-
taking propensity of entrepreneurs. A study
by Sexton and Bowman (1983) could not
provide conclusive evidence of a causal
relationship between entrepreneurs and risk-
taking propensity. The findings appear to
vary according to the entrepreneur's sex
(Birley, 1989; Sexton and Bowman, 1990),
cultural background, stage of business
development and type of business owned as
well as to the research method used
(Brockhaus, 1987). For instance, the life cycle
approach to business development (Kimberly
and Miles, 1980) suggests that the risk-taking
propensity of the entrepreneur may change
over time; when the entrepreneur makes a
transition to business manager then, by
definition, he/she becomes less of a risk
taker and instead assumes a caretaker role.
Several researchers in the typology field
(Smith, 1967; Birch, 1987; Westhead, 1990;
Chell and Haworth, 1992; Miner et al., 1992;
Cooper, 1997) have distinguished between
different types of entrepreneurs and the
implicit assumption in these studies is that
risk-taking propensity varies according to
personality type. This line of enquiry was
probably started by Smith (1967) who
described two main types of entrepreneurs:
the craftsman and the opportunist. The
craftsman was motivated to set up a business
in order to do the type of work that he
enjoyed whereas the opportunist focused on
profit, growth and building a large
organisation.
The shortcomings of personality trait
theory have been well documented in the
literature (Sarason, 1972; Sandberg and
Hofer, 1987; Stevenson and Jarillo, 1990;
Hobbs, 1991). Critiques have drawn attention
to its lack of specification of the various
elements of the entrepreneurial character,
conceptual and methodological problems in
measuring traits (Kilby, 1971), its
reductionist nature (Sandberg and Hofer,
1987) and its stereotypical portrayal of
entrepreneurs (Hobbs, 1991). Lau and Chan
(1994) claim that the traditional approach has
``come to a limit since it could not be
applicable to the dynamic nature of
entrepreneurship development''. Inherent in
much of the personality trait literature is
that risk taking is a relatively enduring or
static property of the individual; in other
words, ``entrepreneurs are born and not
made''. While criticisms of trait theory
deserve to be taken seriously, acceptance of
critiques does not imply a rejection of the
role played by enterprising individuals in
setting up new businesses.
An alternative perspective for the study of
entrepreneurship is the sociological (see
Garavan et al., 1997) or behavioural view
(Gartner, 1985) of entrepreneurship. This
school of thought subscribes to the view that
the entrepreneur interacts with the
environment and both shapes, and is shaped
by, the environment. Social learning theory
emphasises the environmental rather than
personal determinants of behaviour
(Garavan et al., 1997). Some behaviour
patterns are learned through direct
experience ± the individual is rewarded or
punished for behaving in a certain manner ±
and others are acquired through observation,
by observing the actions of others and noting
the consequences of this behaviour
(Atkinson et al., 1983). For instance, the links
between the development of a preference for
an entrepreneurial career and factors such as
parental role models, education, work
experience, age of the would-be entrepreneur
and family life cycle, socio-cultural and
economic factors, have all been explored in
Breda McCarthy
The cult of risk taking and
social learning: a study of Irish
entrepreneurs
Management Decision
38/8 [2000] 563±574
the literature (see Garavan et al., 1997 for a
review). According to social learning theory,
risk-taking behaviours can be viewed as
learned behaviour often transmitted by
parents and other influential individuals,
and are shaped by the socio-cultural
environment. Trait theorists would also
recognise that the environment is a
determiner of behaviour as well as traits;
psychologists are not ``hard determinists'',
they are ``soft determinists'' (Low and
MacMillan, 1988).
Risk can also be understood as a strategy
variable (Ray, 1993). Mintzberg (1978) loosely
defined strategy as a ``pattern in a stream of
decisions'' and proposed that strategy is not
always deliberate and formal in nature but
may emerge over time. Within the strategy
school of thought, various studies have
emerged dealing with networking, the
financing of new businesses, entry strategy,
degree of ``fit'' between environment-strategy
(Roure and Maidique, 1986; Birley, 1987;
MacMillan and Day, 1987; Sandberg and
Hofer, 1987; Covin and Slevin, 1990); all these
studies suggest that the entrepreneur
requires certain skills and competencies in
dealing with the business environment and
that traits alone are insufficient to explain
new venture success. As Drucker (1985) has
pointed out, entrepreneurship is a practice, a
``doing'' that ultimately determines
performance. Gartner (1985) outlines
common behaviours or tasks to be performed
by the entrepreneur:
. locating a business opportunity;
. accumulating resources;
. producing and marketing the product/
service;
. building an organisation; and
. responding to government and society.
All of the above activities involve risk and
strategies can be put in place to minimise the
risk involved. However, Deakins (1996, p. 11)
has noted that: ``issues such as the extent to
which the small business owner assesses,
accepts and transfers risk have not yet been
explored in research''.
This study aims to address this gap in the
literature by exploring how entrepreneurs
think about risk and deal with it in the
strategy formation process.
To summarise, the personality trait
approach has been the major approach to the
study of risk in entrepreneurship.
Traditional thinking has embodied an
essentially static view of entrepreneurs by
focusing on traits or typologies. Behavioural
researchers subscribe to the view that risk is
not just a psychological property of the
individual but manifests itself through
behaviour. Strategists take the view that risk
is a strategy variable. Social learning theory
may be one way of integrating the trait,
behavioural and strategy perspectives on
risk within one complete framework. Social
learning theory recognises that
entrepreneurial risk taking does not occur in
isolation and that people both influence, and
are influenced by, the business environment.
Although numerous studies have explored
the factors that influence the decision to
become an entrepreneur, few studies have
explored risk taking over time after the
commitment to business start-up has been
made. One limitation of studies in the
strategy field is the focus on the early
business start-up period rather than on
businesses with a long and rich history. This
bias is present in the literature, probably
because of the high failure rate of new
businesses or the tendency of successful
firms to be taken over. This study seeks to
remedy this deficiency in the literature by
selecting companies with long and rich
histories and then exploring the impact of
risk taking on the formation of strategy over
time. Figure 1 provides a conceptual
framework on risk and it incorporates the
time dimension that is often missing from
current studies on entrepreneurial risk
taking.
Research methods
The research method chosen was the
longitudinal, inductive case study method.
The advantages of using this approach are
numerous.
Case study research is governed by what
is referred to as the grounded theory
approach (Glaser and Strauss, 1967) or
hermeneutic paradigm rather than by the
positivist paradigm (Brannick et al., 1997).
This tradition (Brannick et al., 1997) allows
the research question, the conceptual
framework and data collection techniques
to proceed and develop simultaneously.
Various writers have pointed out that case
studies are useful for descriptive,
exploratory and explanatory purposes. Case
studies can be a fruitful way of
investigating causal relationships in real
life settings which would be too complex for
the survey methods to address (Yin, 1993).
Several researchers in the strategy process
school of thought have advocated the use of
the ``inductive'' case method (Glaser and
[ 565 ]
Breda McCarthy
The cult of risk taking and
social learning: a study of Irish
entrepreneurs
Management Decision
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[ 566 ]
Figure 1
A conceptual framework for the study of risk in entrepreneurship
Strauss, 1967; Bower, 1970; Mintzberg et al.,
1976; Burgelman, 1983) since it allows the
researcher to be ``theoretically sensitive''
(Miles and Huberman, 1994) to many
different concepts and to remain open to
new, surprising findings. Induction
involves the movement from the particular
to the general (Pettigrew, 1989) and the
central thrust of this approach is to ``let the
data speak for themselves'' as far as
possible; the theory should therefore
closely mirror reality. This approach
emphasises the relativistic nature (Burrell
and Morgan, 1979) of the social world; in
other words social entities can only be
understood from the point of view of the
individual not the observer.
The methodology adopted has its
limitations. This study was an instance of
grounded theory development, and findings
were based on a small sample size. While
interesting data were obtained on the nature
of risk taking, it should be followed by
quantitative studies using statistical
analyses. There is the risk that theory from
cases describes a very idiosyncratic
phenomenon, or that the theorist is unable to
generalise from case study research (Yin,
1993). In order to overcome this limitation,
nine cases were chosen for investigation.
Interviews were held with different people in
the same organisation which fulfilled the
need for the research to be both accurate and
pluralist, e.g. it provided a check on internal
validity. Interviews were conducted over a
three-year period which allowed the
researcher to track change in strategy over a
certain period. Over 30 interviews were held
with the entrepreneur, managers, company
employees and, in some cases,
representatives from industry. The firms
ranged between seven and 20 years old, with
Breda McCarthy
The cult of risk taking and
social learning: a study of Irish
entrepreneurs
Management Decision
38/8 [2000] 563±574
two to 120 staff. Since the literature review
indicated that entrepreneurs respond and
adapt to their environments, firms were
drawn from several industry sectors
(software, graphic design, packaging,
biscuits, soap and toothpaste). Having a
cross-section of cases helped introduce
diversity to the sample. As Pettigrew (1989, p.
1) noted: ``it makes sense to choose cases such
as extreme situations and polar types in
which the process of interest is transparently
observable''.
Regarding data analysis, within-case and
cross-case analysis was carried out using the
guidelines set out by Eisenhardt (1989).
Results
The adoption of a processual perspective was
useful in exploring the nature of risk taking
in the strategy formation process.
The findings suggest that risk taking is not
just a function of personality but seems to
reflect organisational context and
organisational history. It is possible to
conceptualise risk as being composed of two
main elements:
1 risk propensity; and
2 risk capacity.
The entrepreneur may be predisposed to
take risks throughout strategy formation
process, but intentions to take risks may or
may not be realised depending on other
factors. The capacity of the entrepreneur to
take risks seemed to be enabled or
constrained by extrinsic factors such as
crisis, presence of partners in the
organisation, the dilution of ownership
over time, changing business strategy and
the business environment. The research
findings are summarised in Figure 2, which
presents a framework of changes in risk
perception over time.
The entrepreneur
Traits and typology
The case studies, which were based on nine
entrepreneurs, suggested that there were two
main types of entrepreneurs:
1 the charismatic type of entrepreneur; and
2 pragmatists (see McCarthy and Leavy,
1999 for full review).
The former tended to be risk prone while the
latter tended to be more risk averse. This risk
profile of the entrepreneur was based on the
entrepreneur's goals and vision for the
enterprise, financial commitment made to
the venture over time, type of strategy
pursued and the characterisation of the
entrepreneurs given by themselves and by
organisational stakeholders.
There was little doubt in the minds of
employees that the charismatic
entrepreneurs had a decisive impact on
company success. Invariably, they were
described as a ``driving force'' in the
business, ``a brilliant entrepreneur'', ``an
opportunistic risk taker'', a person prepared
to support the organisation ``at great personal
risk'' to himself and his family, a person who
succeeded due to ``his tenacity, his risk
taking, his entrepreneurial spirit''. A
``bullish'' approach to risk taking seemed to
be a characteristic of the charismatic
entrepreneurs. They seemed to act mainly on
``gut feel'' for the market rather than on hard
data, proven facts or plans. One employee
remarked that the market research that
justified the need for the product tended to
come from the founder:
. . . from his hunches, his experiences of
talking to people, of using existing products
which he reckoned were hard to use.
The following quotation from this
entrepreneur captures the spirit of the
charismatic entrepreneur:
A manager has to be a very disciplined,
analytical type of person, who can look at
things and weigh them up very carefully.
Managers are more careful people. An
entrepreneur is not a careful person. Careful
people write the history, they don't create it.
Simple phrases used by managers in
interviews revealed a great deal. One founder
was described as being ``hell bent'' on growth,
± his attitude was ``let's go for that, let's try to
run 100 yards in ten seconds as opposed to 15
seconds which will take longer''. In another
company, the phrase ``gung ho'' was used to
describe the early posture of the firm.
Another entrepreneur, with wisdom of
hindsight, made the comment that ``there was
no point in trying to be IBM when in the
garage style of operation''.
The case studies suggested that five of the
nine entrepreneurs were pragmatists by
nature. The approach of the pragmatic
entrepreneurs to strategy formation seemed
to be more calculated, more down to earth,
planned and rational. The pragmatic
entrepreneurs seemed to make a realistic
assessment of the marketplace; their aim was
to set up a business that would have a good
chance of succeeding. Pragmatism and a
conservative or ``bearish'' approach to risk
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[ 568 ]
Figure 2
Changes in risk perception over time
taking seemed to be key factors in the
strategy formation process. For instance, the
founders of a graphic design firm decided to
set up their own design firm after
accumulating several years' experience in
the design field. They employed a consultant
and spent a great deal of time on the original
business plan in order to achieve success.
The founders remarked that: ``we go through
decisions, like employing another person,
very very carefully''. Their aim was to set up
a professionally-run, well organised
organisation which was not really a feature
of start-up firms in the design industry. The
owners pointed to their previous
employment skills, their knowledge of the
industry, the months of planning and
preparation that were designed to minimise
risk and ensure business success. Although
they were keen to grow internationally,
management made a decision to concentrate
on the home market due to the risks involved
in expansion. Another founder remarked
that he would never ``wish to become huge''
and that the company would have to ``remain
relatively small in a niche market if we are to
succeed''. His ultimate aim was to build a
profitable company and either sell the
business or pass it on to his family. The
pragmatic entrepreneur seemed to be more
driven by tangible goals such as the desire to
make a living, earn financial reward, or
opportunity to sell the business at a profit
than by a grand vision. Unlike the
charismatic entrepreneurs who tended to be
more emotionally attached to the venture,
the pragmatic entrepreneurs were not as tied
to their organisations. On account of their
more down to earth approach to strategy
Breda McCarthy
The cult of risk taking and
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entrepreneurs
Management Decision
38/8 [2000] 563±574
formation, ceding control of the venture did
not seem to be a major problem for them.
Risk taking seemed to be a function of
personality but the study also suggests that
risk-taking behaviour reflects organisational
context and history. In interaction with the
business environment, the entrepreneur
began to perceive risk in a different way and
there was a change in risk-taking behaviour
even within the same personality.
Organisational history
The role of crisis
One of the most striking themes to emerge
from the case studies was the presence of
crisis or defining episodes which featured in
eight out of nine companies under study.
Crisis was caused by three groups of factors
such as:
1 Inadequate product planning. Such as
being late to the market with a product
and having to bear unanticipated costs in
new product development.
2 Inadequate financial planning. Under-
capitalisation at start-up, failing to
monitor costs and budget for marketing
expenditures, poor credit control leading
to bad debts, adverse currency
movements.
3 Inadequate marketing planning. Over-
dependence on a key customer,
distributor or market; inability to respond
to change in customer tastes, inability to
deal with competitors.
The underlying cause of the crisis seemed to
rest with the entrepreneur. Although the
risk-taking propensity of some entrepreneurs
helped drive the company forward, it also
contributed to crisis. In their urgency to
expand, many entrepreneurs neglected
financial planning and control procedures
and did not plan for contingencies. Crisis
resulted in some loss of credibility for the
entrepreneurs since it was linked to
mismanagement and it exposed their areas of
weaknesses. Crisis had widespread
ramifications for the company, it constrained
the entrepreneur's capacity to take risks and
subtly altered their perception of risk long
after the crisis episode had abated.
Organisational context
Partners and dilution of ownership
Five companies were set up by more than one
individual and the lead entrepreneur (i.e. key
decision maker) stressed the benefits of team
ventures. The presence of partners seemed to
have some impact on the capacity of the
entrepreneurs to assume risk. The
entrepreneurs sometimes had to defend their
plans and modify them. One entrepreneur
described his partner as a rational and
analytical thinker, whereas he was more
intuitive in nature. Over time, he realised
that his enthusiasm for new ideas and
eagerness to diversify into new growth areas
would not always serve the interests of the
company. His partner was an accountant
who had a ``controlling influence'' on the lead
entrepreneur. In another company, a
manager remarked that, while the founding
entrepreneur was a prolific source of new
ideas, these ideas were not always practical
in nature. In retrospect, the entrepreneur
suggested that starting up the company with
a team of people would have brought a
balance of skills to the company and
prevented him from trying to do everything
on his own. In many cases, crisis resulted in
a change in ownership structure which
reduced the capacity of the entrepreneur to
take risks. For example, the new owners of
one company claimed that they were more
prudent in relation to growth, and an
employee described them as a ``. . . controlling
factor on our risk taking''.
Changing business strategy and
environment
The nature of the business environment
seemed to have an impact on how risk was
assessed and managed by entrepreneurs.
Two import substitution firms benefited
from free publicity and the level of goodwill
that existed towards Irish-made produce. One
entrepreneur managed to obtain grant-aid
which reduced the risks of business start-up.
Many founders in the software industry
talked about the positive and negative
aspects of setting up a technologically-based
venture in Ireland. On the one hand,
founders benefited from high market growth
rates at start-up but faced challenges in
growing the business. All software
entrepreneurs talked about huge costs
associated with software development and
the high rate of technological change. One
company entered into a licence agreement on
account of the financial struggles endured in
the early stages of the company's history. The
founder's perception of risk seemed to
increase over time. Another founder believed
that most Irish software companies were
under-capitalised from the outset. He did not
have the resources to develop a new software
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[ 570 ]
product and was obliged to seek a strategic
partner and venture capital which reduced
financial risk. Another software firm
changed from a service strategy to a more
product-oriented one which demanded a
greater focus on R&D. A decision was made
to enter into a strategic alliance in order to
develop a new product. The founders of
knowledge-based companies endured early
years of struggle or changes in business
strategy which seemed to make them more
receptive to the idea of licensing, joint
ventures and collaboration with competitors,
all of which were an alternative to the high-
risk, go-it-alone strategy. The comments of
one entrepreneur illustrate this point:
Those years were a real struggle. We were
making everything ourselves: the software,
all the support, trying to fund the thing.
Because of the struggle, we were very
receptive to the licensing arrangement . . . it
lifted a huge weight. It stabilised the place
financially. It really allowed you to focus on
the development of products rather than on
day-to-day fire-fighting.
The entrepreneur
Link with crisis, personal learning and
experience
The study suggested that crisis had
widespread ramifications for the
entrepreneurs and their companies. In the
immediate aftermath of the crisis, the
proactive, risk-taking posture of the
entrepreneur was replaced by a much more
cautious outlook. Learning from crisis
emerged as a strong theme in all cases.
One company was set up to exploit a gap in
the Irish marketplace for a natural whole-
food biscuit product. Sales grew rapidly but
the company entered a crisis situation and
was taken over. The following quotation from
one manager shows how the climate for risk
taking within the organisation changed as a
result of the crisis:
We are prepared to take a risk if the
opportunity comes up. It is a conservative
risk. The negative aspects of going through a
critical period is that you hesitate to bring in
new products unless you are 100 per cent
sure.
In another company, new product
development activities were also constrained
after the crisis experience. On the one hand,
the founder was described as an ``optimistic
risk taker'' but, on the other hand, it was
remarked that operating on a tight budget in
the early days made the founder reluctant to
commit resources to new product
development. The company was described as
conservative in terms of its commitment to
R&D which represented a slight criticism of
the entrepreneur. In the case of another firm,
the experience of crisis forced the
entrepreneur to devote more resources to
planning and become more prudent and more
reflective.
The comments of the following
entrepreneur capture the great sense of
disillusionment that crises and early years of
struggle can bring:
Finance is just not available in Ireland for
small companies . . . The IDA throw up the
same success stories all the time ± five or six
companies. The history of these has broken
the spirits of most of the people involved . . . A
shortage of finance always blocks growth of
companies. It is not a shortage of expertise or
of commitment from the people involved, but
they have always been ``hand to mouth''
situations . . . It is such a struggle for the
people involved, keeping the thing ticking
over. It is hard work.
Likewise, another entrepreneur remarked
that he was a ``total optimist'', although ``that
has been battered out of me''. Clearly, the
psychological ramifications of crisis cannot
be overestimated. Given that the
entrepreneur is likely to have devoted
himself to the venture on a personal level,
business crisis becomes a crisis for the
individual. The entrepreneur described
himself as a ``risk planner'' at this stage;
however, when the author spoke to him again
a year later, he remarked that had become a
``risk taker'' since the company was about to
launch a new product range. The study
suggests that risk-taking propensity can vary
according to experiences gained, and
situations faced, by the entrepreneur.
Contribution to the literature
This paper began by summarising the
literature on risk in entrepreneurial decision
making and a framework of risk taking in
entrepreneurship was developed. In the
following section, the significance of the
study's findings is discussed in relation to
the literature.
In this study risk-taking propensity was
found to be associated with personality traits
and typology (although results are based on a
small sample size). In the literature, risk
taking has been, and still remains, a source of
controversy in the literature. Some
researchers such as Drucker (1985), Sandberg
and Hofer (1987) and Brockhaus (1987) have
Breda McCarthy
The cult of risk taking and
social learning: a study of Irish
entrepreneurs
Management Decision
38/8 [2000] 563±574
suggested that the search for a distinct
entrepreneurial personality is futile.
Numerous typologies exist that challenge the
archetypical image of the entrepreneur as a
high or even moderate risk taker (Smith,
1967; Chell and Haworth, 1992). These studies,
along with the author's study, suggest that
not all entrepreneurs correspond to the
``bold, risk-taking'' hero of organisational life
(Mintzberg and Waters, 1982). Perhaps one
way of reconciling conflict in the literature
over whether entrepreneurs are high, low or
moderate risk takers (Brockhaus, 1987) is to
distinguish between different types of
entrepreneurs and to recognise that risk-
taking propensity may vary with time and
tenure. Various studies have suggested that
risk taking varies with time. Brockhaus
(1987) alludes to this when he claims that
results on risk-taking propensity vary
according to stage of business development.
It has been found (O'Farrell, 1986) that there
is an opportune time for the potential
entrepreneur to set up a new business, and
once past this stage, career and family
commitments become stronger and risk
propensity diminishes. This study suggests
that risk-taking propensity varies with
tenure, being high in the early stages of
business development, then abating
somewhat once crisis and the very real threat
of business failure is encountered. This view
of risk echoes that of Ray (1993, p. 348), who
suggests that risk is not just a function of
personality but largely a ``function of
situations, information, strategy and
decisions''.
In this study, learning was shown to play
an important part in altering the founder's
perception of risk. Social learning theory
suggests that, when pay-offs from different
actions are unknown, people use their own
past experience as well as the experience of
others to guide their decision making (Bala
and Goyal, 1998). Learning theorists state
that learning is constructed in relation to
the context of the individual's life, prior
knowledge and experience (Perkins, 1994).
In other words, learning is context
dependent and socially constructed
(Krueger and Hamilton, 1995). Isabella
(1990) found that it is external events that
appear to trigger a shift in thinking and
move individuals from one interpretative
stage to another. Isabella (1990, p. 33)
pointed out that cognition and emotion
were intertwined and that:
``. . . personalization of trigger events
appears to bring an affective dimension
into play''.
Since crisis is a highly charged, emotive
event, then it would be expected that crisis
would lead to a change in the entrepreneur's
views. In the literature, crisis has been
explored extensively (Hermann, 1969; Miller
and Friesen, 1980; Hedberg, 1981; Nystrom
and Starbuck, 1984; Tushman and Romanelli,
1985; Pitt, 1989; Chowdhury and Lang, 1993;
Hendry et al., 1995). The dominant
personality of the entrepreneur was often
found to be a root cause of crisis (Hendry
et al., 1995) owing to a reluctance to
relinquish control or owing to
mismanagement. The most common
perspective on crisis is to see it as a source of
organisational learning (Nystrom and
Starbuck, 1984; Pitt, 1989; Hendry et al., 1995).
Crisis (Greiner, 1972; Perry, 1986; Hendry
et al., 1995) triggers change in strategy,
ownership structure, power, people or
systems. Hedberg (1981) and Pitt (1989)
argued that it may take trauma or the
experience of crisis to help management alter
culture and so unlearn deeply held beliefs. In
resolving crisis, the firm may create
conditions that subsequently constrain. In
the same way that success breeds over-
confidence, failure breeds excessive caution
(Hendry et al., 1995). According to Hendry
et al. (1995, p. 77) crisis tends to reach
throughout the organisation, providing a
warning about the things that should be
avoided. Similarly, this study suggests that
risk propensity may vary over the tenure of
the entrepreneur.
Conclusion
It can be argued that the research on traits is
extremely important, and cannot be forgotten
in any serious attempt to understand
entrepreneurship. The research on how
entrepreneurs behave is also appropriate
since it provides a clue as to how risk is
managed over time. While there are good
reasons for believing in the primacy of the
founder and the role of risk taking in the
strategy formation process, the findings
suggest that other variables such as social
learning, organisational context and history
also have an impact on risk-taking
propensity. Entrepreneurs may oscillate
between risk-prone and risk-averse modes of
behaviours over time. The study suggested
that the personality trait view of risk taking
is relevant to the study of risk, but it can be
criticised for its static nature and for
[ 571 ]
Breda McCarthy
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entrepreneurs
Management Decision
38/8 [2000] 563±574
[ 572 ]
underestimating the role played by social
learning. Entrepreneurial risk taking played
a key role in getting the business off the
ground but it also contributed to crisis;
although valuable experience was gained,
such learning was achieved at considerable
cost to the individual. Future research
should focus less on answering the question:
``are entrepreneurs high, moderate or low
risk-takers?'' and more on describing how
risk is assessed and managed.
This study did not incorporate robust
measures of risk-taking propensity and
future studies could benefit by using
psychological tests to measure risk taking
objectively. Regression analysis would be
required to test the impact of crisis on
entrepreneurial risk taking. Future studies
would benefit by the adoption of a
longitudinal-processual approach in order to
test the link between crisis, environmental
hostility and impact on risk-taking
propensity in both the short and long term.
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2 How can strategy embrace risk and
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