Over-confidence doesn’t make entrepreneurs successful, nor does it cause them to fail. Instead, it's what makes them entrepreneurs in the first place. Such is James Surowiecki's argument in the most recent issue of The New Yorker.
Surowiecki isn't writing about the mom-and-pop shops or slow-and-steady businesses. He's talking about the entrepreneurs that are chasing venture capital, acceptances in exclusive accelerators, and 10x returns. Of them, he writes, "The fundamental characteristic of entrepreneurs isn’t risk-seeking; it's self-confidence." But not just any self-confidence: an over-the-top, unreasonable, unrealistic belief in your ability to prevail.
Surowiecki’s reasoning holds a clue as to why the world of startups and high-growth entrepreneurship is so overwhelmingly male. Women, as a group, don't have such bulletproof self-regard. They tend to be more realistic, more grounded in reality. In the world of business and entrepreneurship, that's currently a bit of a handicap.
Here's Surowiecki, explaining entrepreneurs' optimism -- or craziness:
A 1997 study in the Journal of Business Venturing found that entrepreneurs are overconfident about their ability to prevent bad outcomes. They're also overconfident about the prospects of their business. A 1988 study in the same journal of some three thousand entrepreneurs found that eighty-one percent thought their businesses had at least a seventy percent chance of success, and a third thought there was no chance they would fail--numbers that bear no relation to reality. A recent paper called "Living Forever" notes that entrepreneurs are more likely than other people to overestimate their life spans.
That's right. Not only are their businesses going to last forever, but they are, too.
At least the guys are. Although "Living Forever" didn’t find big differences between men and women, other studies find a chasm. Way back in 2003, Cornell University's David Dunning and Washington State University's Joyce Ehrlinger showed that men rate themselves as higher in ability than women--even when their actual performances are the same. Worse: the less competent a study subject was, the more he or she tended to overestimate his or her abilities. That’s right: The folks who are the least capable are the ones who are most convinced of their abilities.
Assessing the 'Confidence Gap'
The knee-jerk reaction to the so-called "confidence gap" is to proclaim that women need to become more confident, and we've got a whole cottage industry endeavoring to make this happen. After all, who wants to take a stand against self-confidence and its cousin, self-esteem--even when the evidence suggests that women are being more realistic, and many hyperconfident men are, in fact, blowhards? You can rail against "participation trophies" for the team that takes eighth-place in junior league soccer, but when it comes to women and business, confidence is having its moment.
You can trace this back at least to Sheryl Sandberg’s Lean In and then through The Confidence Code, more recently published by veteran journalists Katty Kay and Claire Shipman. Kay and Shipman went on to write a cover story for the Atlantic on the same topic. Even American Express OPEN has published a booklet for female entrepreneurs on how to be more confident. It’s hard to imagine making a similar splash by arguing that men need to stop puffing themselves up.
When it comes to women, entrepreneurship, and confidence, you’ve got a chicken-and-egg problem, at best. There are a host of social and economic structures that make it harder for women to be successful in business. It's a whole lot harder to change any of those than it is to rail at women to put on their game face, already. Think about it: Do women get only five percent of venture capital funding because they’re less confident? Or are they less confident in their ability to start a high-growth company because they know their odds of raising crucial financing are super-low? In this situation, any rational woman, no matter how talented, would be less confident if they knew their odds of getting financing, versus a similarly-qualified guy, were laughably low.
Surowiecki says over-confidence, while often harmful to entrepreneurs, their bank accounts, and their families, is good for the rest of us: "In the delusions of grandeur are the seeds of technological progress," he writes.
As a society, we surely want to encourage entrepreneurship. Let's just find a way to do it without encouraging insecure women to become blowhards, too.