Thursday January 2, 2025
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This ambiguous word is popular in the business world and is the focus of a recent publication by an Oklahoma State University faculty member.
What is “risk”?
While carving out a niche for himself as an entrepreneurship researcher, Dr. Matthew Rutherford constantly heard the buzzword that simultaneously instills fear in rule-followers and inspires thrill-seekers. Often, punchy phrases like “it’s worth the risk” and “risk and reward” appear in articles and motivational speeches without precise definition or context, leaving aspiring entrepreneurs wondering what risks they actually face.
Rutherford, the Johnny D. Pope Professor of Entrepreneurship at OSU, teamed up with three doctoral students from the Spears School of Business. alumni to clear up the confusion.
The result is their paper“What exactly is risk? Reviewing Construct Heterogeneity Across Business Fields and Implications for Entrepreneurship Research,” published in the Journal of Management, an A-plus journal on the Spears School of Business list.
Spears Business Professor Rutherford worked with lead author Dr. Jorge Arteaga-Fonseca, Dr. Duygu Phillips, and Dr. Aaron Hill to classify risks and identify under-researched types in entrepreneurship research . Their ideas not only provide a useful framework for fellow researchers, but can also help entrepreneurs understand risks and take steps to manage them.
“Risk is arguably more central to entrepreneurship than any other discipline, but there doesn’t seem to be a consensus on what exactly risk is in entrepreneurship,” Rutherford said. “Without a deep understanding of risk, it is difficult to gain a deep understanding of entrepreneurship. »
Arteaga-Fonseca, who received his Ph.D. from OSU in the summer of 2024, began this study in a seminar with Department of Finance Associate Professor Dr. Shu Yan. With a background in finance, a field in which risks are more clearly defined and measured, Arteaga-Fonseca wonders why definitions of risk are often confusing in entrepreneurship.
He knew who to turn to to examine this mystery.
“I worked closely with my advisor, co-author and friend, Dr. Matthew Rutherford, to turn this idea into a research project that could be published in a top management journal,” said Arteaga- Fonseca. “It was not an easy project. It took many hours of coding and writing, multiple iterations, and the uncertainty of publishing it, but Dr. Rutherford taught me how to lead the project, which made things much easier.
The subject is personally important to Rutherford, whose loved ones have navigated the twists and turns of entrepreneurship. His father is a chartered accountant who opened his own business, while Rutherford’s brother is the founder of an auto parts sales company.
A family scholar, Rutherford earned his bachelor’s degree in entrepreneurship and small business management from Ball State University in 1993 before receiving his doctorate in management from Auburn University in 2001.
Although entrepreneurship research has proliferated since then, it remains a relatively new field. His youth was evident when he and his co-authors examined thousands of articles containing the word “risk,” comparing articles on entrepreneurship to those in other business disciplines. The oldest economics article in their sample was published in 1893 – the year of OSU’s third anniversary – but no articles on entrepreneurship predate 1985.
The researchers approached their work as if they were sorting objects into labeled bins, making sense of a cluttered room. This method allowed them to identify risk-related trends in 275 articles on entrepreneurship published in three leading journals.
Researchers identified risks at different levels: individual, business and environmental. They also categorized risks according to a 2013 study by Canadian risk management expert Dr. Georges Dionne, whose typology includes pure, operational, liquidity, default and market risk.
After a broader analysis of articles in business disciplines ranging from economics to marketing, the team’s risk classification revealed gaps in entrepreneurship research. Rutherford said he was surprised to find that only about 3 percent of the risk concepts studied across disciplines appear in entrepreneurship-specific articles. With its roots in management and psychology/sociology, entrepreneurship research focuses little on financial risks. These include default risk, or the likelihood that a borrower will be unable to repay their debt, as well as liquidity risk, more commonly known as “cash flow issues.”
When an entrepreneur strives to build a business, capital is a major concern, otherwise THE primary concern. What is the best way to finance a startup? Is it financially viable to sign a lease and open a store? What liquidity is available? Because of this real-world importance, Rutherford said he would like to see academics focus more on financial risk in entrepreneurship.
The study also revealed communication problems between business disciplines.
“Despite some overlap in the types of risks studied in different fields, in many situations the same type of risk has different meaning in distinct fields,” Arteaga-Fonseca said. “So there may be situations in which two people are discussing the same type of risk but have very different definitions of that type of risk. »
Sometimes they don’t want to talk about “risk” at all.
Although the word “risk” is closely associated with entrepreneurship, Rutherford said people often misuse it to replace “uncertainty.” Risk is measurable, he explained, meaning entrepreneurs can work with professionals to manage specific risks. Uncertainty, on the other hand, cannot be resolved. Because it is impossible to accurately plan for the future, every entrepreneur faces uncertainty.
However, the unknowns of entrepreneurship become a little less daunting when the known risks are properly managed. Managing risk requires clear and consistent communication, an ongoing effort on the part of Rutherford and his colleagues as they navigate a young and evolving field of research.
“There’s so much we don’t know,” Rutherford said. “This presents challenges when trying to locate and expand on existing research. This presents opportunities, as the possibilities are virtually limitless. This document is a perfect illustration of these challenges and opportunities.