Q."Entrepreneurs undertake 'moderate' risks." Elaborate this statement.

The statement means that entrepreneurs take calculated risks, not reckless or excessively high ones.

Although an outsider may see quitting a secure career to start a venture as a high risk, the entrepreneur has actually weighed it carefully and does everything within control to de-risk the business — for example, by entering into prior contracts with customers or suppliers. What risk-taking really implies is that the realised profit may be less than the expected profit.

The statement that entrepreneurs undertake moderate risks can be elaborated as follows:

1. Not reckless, but calculated. It is popularly believed that entrepreneurs take very high risks, but in practice they take calculated risks. The possibility of absolute ruin is rare, because the entrepreneur does everything within control to reduce risk.
2. Active de-risking. For example, an entrepreneur may enter into prior contracts with the customers of the production, or even act as a contract manufacturer or marketer of someone else's products, thereby limiting exposure.
3. They avoid extremes. Entrepreneurs are said to thrive on roughly even (50:50) odds, converting a 50 per cent chance into success through their capabilities. They avoid situations with very high risk because they dislike failure, and dislike very low risk because then business ceases to be challenging.
4. The real meaning of risk. What risk-taking implies is not the danger of ruin but that the realised profit may be less than the expected profit — and the stake is as much personal as financial.

Thus, entrepreneurs undertake moderate, calculated risks.