At some point in our lives most of us will have heard someone say, “don’t be so pessimistic,” or “Stay positive. Be optimistic.” And well, in some cases you might need to hear that and even abide by it. But as it turns out, a recently published study has found that an optimist might not be cut out for becoming an entrepreneur.
The study published in European Economic Review was conducted by the University of Bath, the London School of Economics and Political Science, and Cardiff University. They tracked people who went from paid employment to setting up their own business venture, and found that business owners who had above average optimism earned 30% less than those with below average optimism.
But why? Optimistic people are setting up business that in reality have no possibility of making money and achieving financial success. And other research from the UK supports this. Only 50% of businesses survive their first five years.
Studies report that 80% of people are overly optimistic. Which is great, for the most part, especially considering it will most likely enhance performance, increase ambition and motivate other people to co-operate with you.
If you are a realist or a pessimist though, you are less likely to dive into ventures that are unpromising. And if you thought the bad news was over, you’re wrong. According to ScienceDaily, on average, entrepreneurs earn less, work longer hours, and take on more risk than those in paid positions.
“Our results suggest that too many people are starting business ventures, at least as far as personal returns are concerned. As a society we celebrate optimism and entrepreneurial thinking, but when the two combine it pays to take a reality check,” said Dr. Chris Dawson, an Associate Professor in Business Economics at the University of Bath’s School Management.
“Every episode of the BBC’s Dragon’s Den provides examples of such wishful thinking. Pessimism may not generally be seen as a desirable trait, but it does protect people from taking on poor entrepreneurial projects.”
So next time you’re watching Dragon’s Den and you think you’ve got the next best thing cooking in your brain, think again. When you overestimate your probability of doing well and underestimate your risk of failure, you inevitably set yourself up for the latter.
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