Interesting Statistic RE: Overconfidence and Entrepreneurs

In my experience, heightened confidence or overconfidence has typically been viewed as a mostly positive attribute of an entrepreneur with the theory being that they are more inclined to take an initial risk.  I read an interesting statistic in my ADR book that has a different perspective. The passage points out that “overconfidence leads us to discount small probabilities, assume luck runs in our favor, and distort unattractive consequences…. Over 80% of interviewed entrepreneurs described their chances of success as 70% or better, and 33% described them as ‘certain.’ This compares to a five-year survival rate for new firms around 33%.” The book goes on to highlight the fact that this type of confidence prevents us from seeing the “range of potential outcomes.” The moral of the story is that while entrepreneurs exuding confidence may help them take the initial leap, it can impede actual success,  because one is not prepared to handle/adapt to different hurdles and outcomes.

Menkel-Meadow, Love, Schneider, and Sternlight. Dispute Resolution, Beyond the Adversarial Model. 2nd. New York: Aspen Publishers, 2011. 178. Print.

2 thoughts on “Interesting Statistic RE: Overconfidence and Entrepreneurs

  1. It is interesting to look at entrepreneur’s confidence as perhaps detrimental to their ultimate realization of success. While it is their risk-taking behavior and excitement toward pushing into unchartered territory that set them apart from standard businesspeople, perhaps they are often unprepared to achieve success. This is why classes such as this and the teaming up of business schools with entrepreneurship studies is a major step in the right direction.

    At Chapman University in Orange, California, they have created an entrepreneurship program that has teamed up with local business Chicklabs (this is a mildly shameless plug for my mom’s company). They help people take simple ideas or innovations, and give them the business and legal tools to succeed. Because entrepreneurs often break into newer, less established markets, there isn’t often a standard business model for them to look at. Companies like Chicklabs provide the tools for being a successful entrepreneur. It honors the risk-taking and confidence required to be an entrepreneur with the business knowledge to achieve success.

    You can check out their model here:

  2. If these findings hold, perhaps those with an entrepreneurial mindset would be best served by surrounding themselves with those that think about things differently. Entrepreneurs, after taking the initial risk, might be able to benefit from more conservative managers that will plan for potential potholes.

    I guess the study just proves that the more perspectives you can bring to a challenge, the more likely you will find a solution. If everyone in a company thinks the same way, it’s a recipe for a boom/busy cycle.