Many businesses fail when an owner has too much self-belief

(2 minutes to read)

Failing to grasp the true value of an idea can lead a business to be run on poor selection decisions, miss out on great opportunities or to make costly investments, which could threaten their survival.

According to a new study, being too optimistic about one’s ability and future prospects could be one reason why a business venture might fail.

The report, compiled by Professor Fabian Sting and a team of interdisciplinary co-authors, found that businesses could be failing because managers might see their own innovation abilities and future more optimistically than they actually are, affecting how they view their ideas.

Professor Sting, explained, “There is an optimistic illusion rooted in the human need to maintain, defend and promote a positive self-view, which explains why so many entrepreneurs and CEOs take overly big and risky strategic shifts that could potentially harm their business.”

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The study found that a person’s self-belief can be affected by the environment that they are in, such as an organisation, as it can manipulate identities through cues contained in job role definitions – employees that are higher up in the organisation may become overconfident in an instinctive attempt to conform to their role expectations.

Sting added, “As employees move up the career ladder, they usually acquire a stronger belief in their own abilities to accomplish tasks, particularly when this belief is reinforced in their daily work. For example, having a separate office, wearing more formal clothing and taking part in leadership meetings.”

It’s worth noting that having optimism is not all bad as the authors say that entrepreneurs and CEOs need to be sufficiently optimistic about their abilities to set up a business, otherwise they would not take such action.

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