Overconfidence in business owners
Somebody up a rickety ladder trying to whack a hornets nest off a building with a broom…
The showboating animal handler placing his head between the jaws of an alligator…
The experienced snake owner who overestimates the striking reach of the pet snake…
I love watching people versus animal videos on YouTube. Invariably, the majority of them tend to be from America or Australia, countries not known for being modest. In these videos, you’ll know that something is about to wrong. The fun is guessing when and that brief feeling of schadenfreude (taking pleasure in the misfortune of others)
So we read the recent statistic that Americans are more confident they could beat an elephant or a lion in a fight that us Brits with a pinch of salt and a knowing eye-roll. (1)
Yes, you read that correctly – 8% of Americans (versus 2% of the UK) believe that they could defeat a lion in a fight unarmed. Or an elephant. Or a gorilla.
Now I’m sure you’re thinking…
Who are these people?
Where and when can I see this fight?
How are these people still alive, and still out there in the gene pool?
Confidence and being confident is an attractive trait – who hasn’t wished they were able to stand up in front of a group of potential clients and talk to them, without feeling scared?
Who hasn’t wanted to be able to answer any and all questions from a large audience?
But the line between confidence and overconfidence is one you as a business owner may not see – here are some of the most common examples we see when talking to business owners:
“Ok, I need to send in my tax return. I’ll definitely make it by the deadline.”
“The project is due in three months but I’ll definitely finish it before then”.
Except you haven’t checked your paperwork for how long. And this is why until people get organised, HMRC still has to remind us months in advance. The same can be said for long-term projects – we tend to underestimate how long it will take and/or how much it will cost us. With no backup or contingency plan to hand in case anything goes wrong.
One famous example of overconfidence you may recall – before the 1997 referendum, the cost of the Scottish Parliament was projected to be between £10-£40 million. By the time it sat for its first session in September 2004, the actual cost was £414 million.(2)
I don’t need to learn XYZ because I know ABC
A lot of small businesses start with the owner taking on a multitude of tasks/activities at the start. However, at some point, especially if business is booming and you’re growing rapidly, you won’t be able to do everything without the overall vision/strategy suffering. So you will need to delegate and appoint others to take on the day-to-day. Know and accept this.
Not making records/notes
Business plan? You do have a business plan, don’t you? Ideally for the next twelve months.
Get out of the mindset of not writing it down as you’ll remember – you have enough to do and invariably, you will forget a detail which will make all the difference.
I know better than you!
I know a lot of random things and am happy to make educated guesses. Sometimes it is something relatively low-level such as small DIY projects. Other times, it can get fairly complex, like replacing and rewiring the fuse box.
Not changing your mindset and recognising that there will be things you inevitably don’t know how to do (or be able to do) affects us all – everyone with a little bit of knowledge or skill inevitably thinks they are the voice of experience. This is why we hear of athletes at Tokyo pushing themselves too far and injuring themselves or why analysts go big on stocks and incur large losses.
I think I can, so I will
Nothing wrong with being confident in yourself or your fledgling business – but 80% of businesses fail within their first year (3). We all dream that our business idea is going to make us rich and someday we’ll float it on the FTSE, but being realistic and planning for the worse should be.
The danger of all these “think positive thoughts as it’s the only thing holding you back” is that people don’t learn that they also need to have everything else in place as well, in order to succeed.
When it hits the fan…
A quarter of all UK businesses had to close due to COVID (4) – and whilst we cannot predict when a pandemic such as this is likely to strike again, we can however prepare a backup or secondary plan, just in case. Create a BAU plan. Do a risk assessment. Check how much money you would need to survive for twelve months as a minimum.
Recognising these pitfalls, three ways to beat overconfidence bias are:
- Consider the pros/cons of your actions and their consequences
- Learn to admit mistakes
- Get regular feedback