It seems that starting a business has never been easier. Social media and crowd funding are just a couple of the developments that have eased the way for entrepreneurs. With online tools, an entrepreneur can now set up shop and reach millions of potential buyers, worldwide, in an instant, and with some initial sales traction, an entrepreneur might feel like they’re on their way to a sustainable business. But if they aren’t careful, entrepreneurs quickly fall into the trap of wishful thinking — and that can be treacherous for their business.
Entrepreneurs are overwhelmingly optimistic when they launch their businesses. Surveys of new entrepreneurs have found that they are more than 80% confident that their business will increase profits over the following year. And yet many new businesses fail. How many? There are lots of statistics out there: the numbers depend upon the timeframe and how the data was analyzed. A comprehensive fact check article from the Washington Post looked at the various studies and determined that about 50 percent of new businesses only survive four or five years. It’s fair to say that most entrepreneurs start their businesses with the expectation of a longer run than that.
To increase the odds of success, business gurus have plenty of advice. Many of the articles, podcasts, and videos targeted at entrepreneurs encourage them to play to win, to be committed, to be “passionate,” and to “never give up.” And that is a good thing, when things are good. But a dogged stubbornness when things aren’t going well can be dangerous.
When we become inflexible in our beliefs, we can easily develop what’s known as a confirmation bias, in which we seek out and give credence to evidence that supports our belief while disregarding information that contradicts our belief. This means that when someone wants something to be true, they wind up believing it to be true. It’s a type of wishful thinking. According to Jonathan Ellis, a professor of philosophy at the University of California, confirmation bias can be thought of as “reasoning with an agenda.” Although subconscious, Ellis notes that “when we have a lot at stake, we find that these subconscious processes distort our reasoning.”
We’ve seen this type of reasoning over the last few years, as our political parties have become more polarized and people seek news channels and websites that confirm their beliefs and support their individual points of view. It’s now possible to immerse ourselves in silos of information, without ever considering outside information. Confirmation bias causes us to stop seeking information that doesn’t support our assertions, and it creates self-deception and false optimism. It can also take over our decision-making processes.
We may not even realize we are becoming less objective. A brain-imaging study conducted in 2006 by psychologist Drew Westen and researchers at Emory University showed that the development of confirmation bias is unconscious, and is largely driven by emotions. “Everyone from executives and judges to scientists and politicians may reason to emotionally biased judgments when they have a vested interest in how to interpret ‘the facts,’” said Westen.
Entrepreneurs can be particularly susceptible to confirmation bias. The product or service idea that launched their company is often a reflection of the entrepreneur’s best thinking, and it can be painful to learn that it might not succeed. I know of an entrepreneur who was told by potential clients that his software product was “a hammer looking for a nail.” In other words, there was no apparent market need. Convinced that he was right, and that the problem could be solved with better marketing, the entrepreneur doubled down, invested more…and eventually went out of business.
Entrepreneurs are especially vulnerable to confirmation bias because there’s often little separation between their business and their own personal identity. Entrepreneurship is a 24/7 job that involves an extraordinary investment of time. It can also require an investment of an entrepreneur’s own funds, or money from friends and family. Saving face is certainly a motivating factor behind confirmation bias.
So what should entrepreneurs do to make sure they don’t fall into the trap of wishful thinking? There are several things that can help. Wherever possible, seek outside input and opinions. And when you do, ask questions that will give you useful information, even if it’s information you don’t want. For example, instead of asking, “how am I doing?”, ask “what opportunities have I missed?” or “what could I be doing better?” Surround yourself with alternative points of view, and if they aren’t readily available, find them in local groups or online communities. Seek out people who will tell you the unvarnished truth or point out the pitfalls that you can’t see for yourself.
It won’t take you much time or effort to do these things, and you’ll see that it’s worth it. After all, it’s your business, and you have a lot at stake.
By Denise Gifford