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Malcolm Gladwell Punctures the Risk-Taker Myth

Posted by: John Tozzi on January 13, 2010

Malcolm Gladwell’s piece in this week’s New Yorker (subscription required) deflates the conception of entrepreneurs as risk-takers. The entrepreneurs who succeed, he says, get ulcers worrying about potential losses and do everything they can to minimize their risk.

Gladwell writes that successful entrepreneurs are

businessmen whose insights and decisions have transformed the economy, but their entrepreneurial spirit could not have less in common with that of the daring risk-taker of popular imagination. Would we so revere risk-taking if we realized that the people who are supposedly taking bold risks in the cause of entrepreneurship are doing no such thing?

He focuses on two dealmakers — Ted Turner’s acquisitions and hedge fund manager John Paulson’s now famous bet against the housing market that earned his fund $15 billion in 2007. Both recognized profitable opportunities with minimal risk. Paulson paid pennies on the dollar to buy credit default swaps — essentially insurance policies that would pay off if mortgage-backed bonds soured — only when he was certain that housing prices were inflated. Instead of being gamblers, entrepreneurs are “predators” who recognize opportunity and act on it, Gladwell writes, citing research by Michel Villette and Catherine Vuillermot.

We explored entrepreneurs’ attitudes toward risk in two posts over the summer. From the comments and my discussions with business owners, I don’t think Gladwell’s conclusion will surprise people who actually run their own businesses. When people have their own livelihood on the line, they’re obviously going to be concerned about managing the downside.

One interesting nugget from the piece: While entrepreneurs want to minimize their financial risk, they’re often more willing to take social risks. During the housing bubble, people thought Paulson was crazy — including the people on the other side of his trades. Sam Walton, another of Gladwell’s examples, borrowed money from his in-laws rather than go to a bank. The willingness to risk reputation and social standing is “just another manifestation of their relentlessly rational pursuit of the sure thing,” he writes.

Reader Comments


January 13, 2010 1:01 PM

Ordinary conclusion about the entrepreneurs. I do feel it is a correct understanding of the entrepreneurs (who reside in the US and bet big) , but what about small business people. They have invested their capital, their time, their opportunity to beef up the resumes, into their business. Now, if that is not risk, I am not sure what is. Of course there is going to be social risk. Why print it into italics to make it sound like a theory or original piece. It is common sense that there is going to be a social pressure (or risk if you fancy it) when you tread uncharted waters.Now two american examples dont make the entrepreneurs docile and calculative.

Susan Martin

January 13, 2010 3:15 PM

As a life-long entrepreneur myself and someone who's in the business of coaching entrepreneurs, my attitude has always been that I'm taking less of a risk by investing my efforts in something I can control, my own me that's not half as risky as depending upon others for a "job".

aaron wall

January 13, 2010 3:20 PM

And in covering a few cherry-picked examples, he fails to highlight how many who have failed?

Mark Riffey

January 13, 2010 3:59 PM

I think Gladwell confuses risk management with risk aversion / fear.

Doing all things possible to make sure you succeed isnt risk aversion, nor is it fear.

Is it fear that causes an all-time-winning NFL quarterback to take a knee in the last seconds of a very close game when his team is ahead?

John Tozzi (BusinessWeek reporter)

January 13, 2010 4:14 PM

Thanks for your comments, everyone.

@MCFlurry I agree that small business people take on risk with their own capital, time, etc. I think the point is that successful entrepreneurs work very hard to minimize downside risk -- they don't disregard it just because the potential reward may be big.

Michael Weiksner

January 13, 2010 6:53 PM

Umm, I think that Gladwell would make a great Monday morning quarterback. Totally bunk theory apparently backed up with silly post-hoc analysis of two hand-picked cases.

Tipping Point was a classic no doubt; beginning to wonder if it was just a flash in the pan, though...

Jim Flowers

January 13, 2010 8:22 PM

Anne Clelland, who offers us and other good stuff insisted that I define entrepreneur.

Here's what I told Anne.

In general terms, an entrepreneur may be defined as an independent participant in the marketplace, taking personal responsibility for his or her own financial survival and well-being. More specifically, a “true” or “complete” entrepreneur is someone who conceives, organizes, and leads a new, independent commercial venture at significant personal cost and risk, both financial and emotional. It is not someone who does only part of that set of jobs. So, for example, someone who opens a new coffee shop, or buys a car wash franchise, while definitely a risk-taker, is not a “complete” entrepreneur, since he or she does not conceive or fully organize the venture. The same can be said of an inventor who licenses an invention to someone else who then exploits it for their mutual gain.

Simply put, if you dream up a business, put it together, run it, and depend on it financially, you are an entrepreneur.

Talking about Ted Turner and John Paulson is enteretaining; but it has almost nothing to do with mainstream, middle-market entrepreneurship.

See also

Steve King

January 13, 2010 8:45 PM

Paulson and Turner identified opportunities others didn't see.

They ignored advice telling them they were wrong.

They aggressively pursued their opportunities, and they did so in a way that minimized their risks.

Sounds pretty much like what all successful entrepreneurs do.

The myth as described by Gladwell and the book he references exists. My question is, where did it come from?


January 13, 2010 10:21 PM

Gladwell offers a perspective of the obvious that we tend to overlook. I rather love his work, and find him to be a most brilliant thinker.

As for the etymology of the word, "entrepreneur", one finds that it means to engage.


January 14, 2010 12:00 AM

This is nothing but tactics hoping to create controversy, and hence more sales of his book. If nothing is controversial, then there is no buzz.

It is just plain logical and straight forward to me that the better one is at managing risk, he/she is more likely to become successful. It doesn't make sense that the more risk you are exposed to, (and not knowing how to manage them) could offer lasting success. By confusing "risk-taking" and "risk management", he may be successful at making more sales in the process...

Bruce Philp

January 14, 2010 1:55 PM

The simplistic risk bad/risk good debate is something that could only be conducted between people who have never run a business. The truth is that risk is algorithmic. An entrepreneur takes the ones that are strategic, manageable and attach to disproportionately positive results. He avoids risks that are non-strategic, and/or unmanageable, and/or never going to produce results that justify them. My own business has enjoyed 14 healthy years, and this is partly owed not to risk taking or to risk avoidance, but to being conscientious about risk.

Sandhya Mendonca

January 15, 2010 6:04 AM

We did not have much money, only our professional skills, energy and a desire to have fun while doing something innovative. Did we take risks? yes, a steady salary vs the uncertainty of the project coming through. six years on, scaling up the value chain, we have been taking calculated risks - how much can we afford to lose ? - is the only question we ask ourselves before we begin something new.

Shanda Barrett

January 16, 2010 8:46 AM

Gladwell chooses examples of entrepreneurs who no doubt invested a tremendous amount of their own time or their own money to gather market intelligence and transform that intel into innovative business opportunities.

I doubt we would be talking about them at all if their gut insticts had not panned out.

There are a number of lesser known businessmen and women who do this exact same thing everyday. I challenge everyone who has made a post here to visit their local business incubator. Or better yet, do a Dun and Bradstreet search for the companies in your town that added greater than 5% new employees last year. These will be guaranteed examples of success.

While lesser known than Paulson, Turner, and Walton, these folks are also reassuring examples that there is always room to innovate... always a need to make a better shovel, in the words of the late Peter Drucker. And isn't that the role of the entrepreneur.

Nick Sparagis

January 23, 2010 10:16 AM

Without having read the full article, I suspect that timing is another important variable that impacts success. This is a big part of Malcolm's book in "Outliers".

Just b/c the odds are against an entrepreneur does not necessarily mean that they're not holding the best hand at the table.

Geri Stengel

February 2, 2010 1:56 PM

Malcolm Gladwell's article in The New Yorker paints an unfair and untrue picture of entrepreneurs and their motives. To read my comments in their entirety go to

Susan Woodward

March 2, 2010 7:00 PM

Gladwell is all anecdotes, no data. I study the venture data. About 2/3 of entrepreneurs that get venture funding walk away from their efforts with nothing. About 50% of venture-funded companies are total failures for the venture investors. Full paper to appear in the AER soon, or find it on Robert Hall's site at Stanford.

VC entrepreneurs are either much less risk averse than the average bear, or far wealthier, or crazy optimists. I know which hypothesis I favor.


March 3, 2010 11:57 PM

Could someone explain to me the primary points Gladwell was trying to make. Truthfully, I found this article a bit confusing. ALthough, I'm young and have virtually no experience, so that doesn't help. However, my class is analyzing this article, and I would appreciate ANY insight. Thanks!

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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