Category: Entrepreneurial Psychology

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Information abounds online, in-print, and through face-to-face meetings that can tell you how to be an entrepreneur. If you look long enough, you will find “the 10 steps to starting a business,” “how to do a feasibility analysis,” and essentially anything else you could possibly need to know to make your dreams a reality. Before you seek these out however, perhaps you would benefit from better defining what your “dreams” really are.

What are the consequences of poorly defined “dreams”, or, goals? Let’s consider a hypothetical University student whose goal in college is to “earn a degree.” If the students goal is to earn a degree, they will only be motivated to do the bare minimum to earn a grade that will allow the attainment of a first job. This ultimately makes them less intellectually curious, hindering their work ethic and decreasing the extent to which they learn how to teach themselves things.

However, if their goal was to “enjoy learning”, or to “master their area of study”, or something similar, the motivation to pursue new challenges would be entirely different. In this scenario, challenging but open-ended assignments from Professors would not feel like hurdles to be overcome but opportunities to learn something new. The student would develop personal areas of interest and realize that through effort they can learn and apply almost anything that they choose to.

This concept also applies to starting a business. Due to the tendency for media to show successful entrepreneurs (as opposed to failed ones), a variety of thought leaders who discuss how to automate business (e.g., the 4-hour work week), and other reasons, many people initially want to start a business because they believe it will make them a lot of money. Unfortunately, entrepreneurs, on average, don’t make much more than the typical employee (Shane, 2008), even though the low percentage of extremely successful entrepreneurs do make much more.

Perhaps more importantly, though, is that being an entrepreneur to make a lot of money inevitably will set you up to fail, just like the University student who is only in school to earn a degree. Why? Because entrepreneurship is rife with failures, dead ends, twists and turns, etc. It is extremely rare for an entrepreneur to achieve the glamorized success that is often portrayed, and even when they do, it tends to be after years of extreme sacrifices. In a University setting in America, you can get by with only putting in half the effort and doing the bare minimum to get a good grade. However, in a competitive entrepreneurial environment this is not the case. You need the self-discipline, motivation, and resilience to persist through the difficult times. If you go into it “for the money”, I contend that you will find it difficult to display these qualities consistently.

If you shouldn’t start a business with the dream of making it big, then why should you? There are many possible motivations, but I would contend that one essential goal is adding value to someone. For example, a new dry cleaning business may seek to “make University students comfortable and confident for their first interviews.” This can involve sub-goals, too. For example, a restaurant owner, in addition to providing delicious food, could see their establishment as a way to “teach high school students how to feel empowered through their work” or to “instill the value of teamwork and unity to employees.”

Each of these goals has inherent motivational value. Why do you persist when the going gets tough? Because it will facilitate purposeful goals: adding value, improving lives, giving back to the world, etc. If you are finding yourself lacking motivation, ask yourself: why am I doing what I’m doing?

P.S. For a related reading, check out this article from Jayson DeMers on Entrepreneur.

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A student of mine came to me after class today. He is a bright student pursuing what I believe to be an interesting idea. Specifically, he is interested in opening an Urban Lounge. This student spent the last five weeks attending a weekly meeting of entrepreneurs which culminates in all attendees giving a 90-second elevator pitch for cash ($500 / $1,000 / $1,500 for 3rd, 2nd, and 1st place, respectively). Yet, he told me that despite preparing to pitch his Urban Lounge he now wanted to pitch a new idea altogether.

After talking over his second idea, it was clear it hadn’t been thought out as well as the first. Further, something seemed fishy about the sudden change of heart. After probing into the logic behind moving away from the first idea, I found that the only reason he switched was because he was afraid that the judges weren’t interested in Lounge concepts! He was willing to give up on his dream, despite never pitching this idea even once, purely because of the fear associated with sharing his idea. If this isn’t prove of the power behind fear, I don’t know what it is. Thankfully, when I noted to him that this was not a good reason to avoid pitching his Lounge, he stepped up to the challenge and decided he would pitch his Lounge after all. If I would have let him back down from his pursuits, I would not be doing an adequate job as his teacher and mentor.

Despite my capability to help my student with his fear, I am struggling with my own. With my dissertation defense quickly approaching (March 15th!), stress levels are at an all-time high. Everyone things I shouldn’t be stressed given that I am meant to be an “expert” on stress; however, we have all seen overweight doctors, haven’t we? Unfortunately, this is no different. I can understand the stress process, but it doesn’t necessarily make me immune to its effects. I am human, after all.

Fortunately, two things happened today. First, Nick, an entrepreneur that I have had the pleasure of working towards my PhD with, gave me some strong words of encouragement. Second, I happened to stumble upon an intriguing Facebook post. It was written by an entrepreneur who I once had the great pleasure of working for:

“Some of you have and are probably working through ideas yourself. If I can do anything for you, I hope that I can encourage you to believe in the unbelievable. Work on your idea. Spend time with it. If you don’t have time then MAKE TIME. No idea is too crazy. Like I told [my son] last night. Nearly Everything that you see around you was once just an “idea”. Some crazier than others. But they all share one thing in common. They started as just an idea. And I’m damn thankful that they didn’t give up. Get the most of yourself. Surround yourself with people who make you better. And play with your ideas. Someday people you don’t even know may be as thankful as I am for what you’ve done!”

Both my conversation with Nick and this Facebook post were therapeutic for me. They’ve given me atleast a temporary sense of calm in what has been a stressful period. Namely, it has helped me to see that while my dissertation is not perfect in any way, it is the kernel of an idea that could grow into a respectable idea someday. Although my expectations for myself are high, and I have lofty goals, it is okay that I’m not there yet. As I told my student through an email later in the day: “Overall, I think you have a good idea and you are a good writer! Confidence is something that is built by persisting through struggles. Nobody has ever been confident who did not struggle beforehand. You are going to do well at the pitch, but, the fact that you are doing the pitch at all is what really matters! “

So don’t forget to do your put to help those that are below you; and don’t forget that those ahead of you will share their help in kind!

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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?