The gamblers who benefit us all

What would you think of someone who mortgaged his family's home to make a bet?

I remember a friend of the family doing that when I was a teenager. No one thought less of him.

What would you think if that person lost the bet? Well, our friend did that too. The bank let him keep his house, but he had to start the payments over from scratch.

That friend was not betting his house on lottery tickets, or even on volatile stocks. He was taking a flyer on his own small business, which was going through a bad patch.

He was sure the company would survive. He was right. It survived. But it wasn't his anymore. The bank had moved in and called his loans.

Starting a small business is risky. According to a 2005 Canadian government report, between 100,000 and 150,000 new small businesses appear every year. Thenumberthat survive range from about 20,000 in a good year to about zero in a bad year.

In other words, most small businesses fail.

But the ones that succeed pay us all back enormously. Small businessescreate half of all private-sector jobs in Canada. And, perhaps most importantly, small businesses grow into big businesses.

So if small businesses are good for us, how do you teach peoplethe best ways to create small businesses? And how do you persuadethem to bet the house?

No alternative

Traditionally, small businesses often arose because there was no alternative. Some Chinese-Canadians set up restaurants across the Prairies because no one would hire them. Historically, European Jews got similar treatment. Even today in Canada, many recent immigrants have more opportunities starting their own businesses than finding professional work.

But how would we persuade young Canadians to take a small-business risk?

To find out, I visitedScarlett Heights Entrepreneurial Academy, a Toronto high school that specializes in business.

Led by former banker Doug Ritchie, the Grade 11 class is planning a Halloween extravaganza, running up big bills for security, food and entertainment. The students have to persuade150 students each to buy an $8 ticket just to break even, and there are only about 550 students in the school. The event had better be good, or the group will lose a fortune.

And there's a personal risk too, Ritchie says, because each student must buy six tickets and get rid of them or be left holding the bag. That's why the students work so hard to do market research on their planned events, and work to keep costs down.

There is a lot of conflicting research about risk. Some say people take risks as entrepreneurs because they are sick of working for someone else. Some say people who take business risks are happier.

Self-confidence is key

But what may be the most interesting study shows that the crucial thing Ritchie and his entrepreneurial academy should be passing on to budding entrepreneurs is self-confidence.

In a paper called Entrepreneurial Risk and Market Entry, two researchers at the Wharton School of Business conclude that entrepreneurs are not by nature risk-takers at all. In fact, they hate risk more than other people.

To us, entrepreneurs may appear to be taking risks. But from their point of view, they aren't.

The Wharton team says they overestimate their own abilities. They are supremely self-confident. They honestly believe that, while others would fail, they will succeed.

The Wharton researchers point out that overconfidence does not guarantee success. But without overconfidence, they would never have tried to begin with.

And as the midway barkers say, "If you don't play, you can't win."

So next time you meet some slightly brazen entrepreneurs, make allowances. They are the ones who take the risks, whilethe rest of us benefit.