Entrepreneurs involved in planning or starting firms must engage in a continuing process of appraising prospects for success. These assessments presumably bear upon the preparations they make, as well as, at some later point, whether they decide to make major changes or even to discontinue the business. In this study, data from 2994 entrepreneurs who had recently become business owners were analyzed to determine their perceived changes of success.
Although previous evidence on business survival led to the hypothesis that the entrepreneurs would only be cautiously optimistic, this was not the case. They perceived their prospects as very favorable, with 81% seeing odds of 7 out of 10 or better and a remarkable 33% seeing odds of success of 10 out of 10. In considering the prospects for other businesses like their own, they perceived odds which were significantly lower, but still moderately favorable.
Based upon previous research on factors associated with new business success, it was hypothesized that those who were “more likely to succeed” (based upon their personal backgrounds and the nature of their new firms) would be more optimistic. However, this was not the case. Those who were poorly prepared were just as optimistic as those who were well prepared.
At this point, shortly after having become business owners, the assessment by entrepreneurs of their own likelihood of success was dramatically detached from past macro statistics, from perceived prospects for peer businesses, and from characteristics typically associated with higher performing new firms.
The psychological literature on “post-decisional bolstering” suggests that decision makers, in many settings, tend to bolster or exaggerate the attractiveness of an option after it has been chosen. This, coupled with the tendency of entrepreneurs to believe that they can control their own destinies, implies that the extreme optimism observed here is probably a typical occurrence.
For entrepreneurs the findings suggest that it is probably natural to experience feelings of entrepreneurial euphoria when first becoming a business owner. With the available evidence, it is difficult to judge whether this leads to inadequate preparations or an inability to diagnose problems and make adjustments after the business is started. This extreme optimism probably does contribute to the heavy personal commitments observed here, in which the median entrepreneur devoted more than 60 hours per week to the business. The entrepreneur would seem well advised to form relationships with outsiders, such as board members and professional advisors, who can be objective and detached in diagnosing problems and assessing objectively the prospects for the business in its current form.
