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The entrepreneurial edge: balancing growth and risk
2025-03-18
By Professor Mathew Hughes, Professor of Innovation and Entrepreneurship, University of Leicester
Entrepreneurship is often synonymous with business growth, but what does it truly mean to be entrepreneurial?
Traditionally we think of an entrepreneur as one visionary figurehead who leads or founds a business, but relying too much on one individual for innovation is often a risky strategy. Instead, fostering an entrepreneurial mindset across the organisation is key to sustainable growth.
Entrepreneurship is a double-edged sword: while it unlocks opportunities, it also introduces risks that can destabilise a business if not managed strategically.
How entrepreneurship drives growth – and its risks
Having an entrepreneurial founder or leader can be great for a business – they can be the face of the brand, drive innovation, and spot opportunities for growth. But this also comes with its own risks.
Without a strategic mindset, businesses can overextend themselves and increase their chances of failure, which is what my co-authors and I describe as ‘entrepreneurial entropy’. It’s the idea that when a firm is too entrepreneurial, it can become chaotic – burning through resources, and swinging between big wins and costly failures. Growth for growth’s sake can be dangerous, and it can stretch a business too thin.
Balancing innovation and stability: the role of ambidexterity
One of the biggest challenges businesses face is balancing innovation with keeping their operations running smoothly. In my research, I explore the concept of ambidexterity – the ability to simultaneously optimise existing operations (exploitation) while also exploring new opportunities (exploration).
The challenge is that these two approaches compete with each other. If a firm focuses too much on efficiency and streamlining, it risks cutting off the very resources needed for innovation. But if it leans too heavily into exploration, it can burn through resources without a stable foundation to support it. That’s where firms can fall into either a ‘competency trap’ – becoming so good at what they currently do that they can’t adapt when the market shifts – or a ‘failure trap’, where one failed innovation creates pressure to take even bigger risks, leading to a downward spiral.
The key is to create the right conditions for both. Some companies manage to strike that right balance – BMW, for instance, rewards its employees for creative thinking with initiatives like ‘Creative Editor of the Month’, and other large organisations set aside 20% of their employees’ time for creativity and exploring new ideas. Many businesses can’t afford this, especially small firms. But the point is that the initiatives you put in place to support people to be explorative and entrepreneurial are important to the long-term health and viability of business, if it is well-managed.
Ultimately, managing both sides effectively is what keeps a business competitive in the long run.
How family businesses innovate differently
Businesses are not the same – and context matters. Take family businesses. Family businesses, which make up a significant portion of the UK economy, often take a unique approach to entrepreneurship. They balance financial success with socio-economic wealth – non financial goals such as preserving control, protecting assets, heightening family bonds, and ensuring business continuity for future generations.
Family businesses tend to innovate from tradition, gradually evolving their business models. This ties to legacy and heritage, and the opportunity to use that history as a source of competitive advantage. However, this approach can create longer-term risks; by prioritising stability and gradual improvements, they may struggle to adapt to major market changes and shift gears in their innovation strategies in good time. Nevertheless, their unique balance of tradition and steady innovation makes them a vital part of the business landscape.
Digital transformation and the role of AI
Emerging digital technologies, particularly AI, can be powerful tools for entrepreneurs. They enable small businesses to identify new opportunities, optimise operations, and streamline tasks. However, AI should be seen as an enhancement tool rather than a replacement for human decision-making. While AI can enhance creativity, human oversight is needed to refine its outputs. When used properly, it has great potential, but it should assist rather than dictate business decisions. After all, airplanes have had autopilot for decades – but the ultimate arbiter and decision maker is still the pilots, and for a good reason.
The values and risks of social capital in business growth
Networking and social capital – the trust and goodwill built through relationships – are essential for business success. A strong network provides access to resources, industry knowledge and growth opportunities vital to entrepreneurs and entrepreneurial firms. It is important, though, that businesses actively manage these relationships, as social capital can erode if trust is not maintained.
A key lesson from the COVID-19 pandemic was that businesses with strong relationships fared better in times of crisis. Suppliers prioritised long-standing partners, demonstrating that well-maintained networks can provide a crucial safety net.
Businesses must also recognise that relationships are held by individuals, which makes succession planning essential. If key individuals leave, for example, their relationships (and associated capital) may go with them. How would losing those bonds affect your business?
Entrepreneurship as a strategic imperative
Ultimately, being entrepreneurial is not just about taking risks – it’s about taking the right risks. By embedding entrepreneurship across an organisation, balancing efficiency with exploration, and leveraging digital tools responsibly, businesses can harness the full potential of innovation while mitigating the risks of entrepreneurial entropy.
In today’s fast-moving world, those who fail to innovate risk stagnation, but those who innovate without strategy risk collapse. The key to long-term success lies in striking the right balance between ambition and control.