Overconfident Entrepreneurs: The Good and the Bad

The action which follows an opinion depends as much upon the amount of confidence in that opinion as it does upon the favorableness of the opinion itself – Knight (1921)

“Overconfidence is ego. In my experience, overconfidence leads to dumb mistakes that you otherwise wouldn’t make if you managed your ego. When you don’t manage your ego, you lose focus, attention to detail, and become complacent. Confidence is great, overconfidence is never good. In the industry I work in, overconfidence will get you or someone else seriously injured or killed.” – u/ChooChooBuckaroo, a Reddit Entrepreneur.

What is Overconfidence?

Overconfidence can be defined simply as “overestimating the probability of being right” (Busenitz & Barney, 1997: p. 2). Evidence suggests that entrepreneurs, compared to managers, are more likely to be overconfident (Busenitz & Barney, 1997). Not surprisingly, three factors that make entrepreneurs more likely to exhibit overconfidence are: youth, being the founder of the venture, and having less education (Forbes, 2005). Yet, these are just averages: any entrepreneur may experience times of overconfidence. As a result, it may be worth considering the possible upsides and downsides to overconfidence.

The Upsides of Overconfidence

Overconfidence can have positive aspects. Entrepreneurs oftentimes need to persuade others to join their cause, and a confident attitude could help to generate the enthusiasm necessary for that persuasion to work. For example, entrepreneurs may need to inspire co-founders, investors, and the first employees to take substantial risks on something that may very well fail. How likely would you be to join a firm if the entrepreneur was not confident in its success, despite the odds?

In addition, entrepreneurs often experiences many small, medium, and large failures on their way to success. Indeed, stories abound on Podcasts like “How to Start a Startup“, and others like it, where entrepreneurs find themselves pitching to over 100 investors before getting just 1 yes. Overconfidence may be a necessary ingredient to this continual pursuit despite the seemingly never-ending failures to get there.

The Downsides of Overconfidence

However, overconfidence can have negative ramifications. Just as overconfidence can serve to facilitate support from those around an entrepreneur, it can also be a turn-off. Indeed, if one is too overconfident and does not deliver on expected results, soon available social networks will start to realize that the entrepreneur is indeed overconfident, and likely not taking the necessary actions to support that overconfidence. If you are always very confident that you will succeed, but you spend more time thinking about how confident you are than you do actually working towards a tangible goal, then overconfidence is holding you back!

Entrepreneurs, in addition to building their ventures, need to make strategic decisions that may reap great rewards or result in failure. When making such strategic decisions, an overconfident entrepreneur may not adequately assess the external environment, causing the firm to pursue a supposed opportunity that never really had a chance. Or, perhaps worse, overconfidence may lead an entrepreneur to be blind to alternatives that would be better, if only the time was taken to look. A Similar logic applies to the pursuit of the business opportunity to begin with.
As Albus Dumbledore once said: “Entrepreneurial opportunities can be found in the darkest of times, if one only remembers to turn on the light.”

In closing, overconfidence is prevalent in entrepreneurship, and can be used for good or bad. How are you using it?

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