Given that half of new businesses fail in the first five years, it's a given that you have to be at least a bit of an optimist to become an entrepreneur. A healthy dose of cheerful overconfidence also helps you be perceived as a leader, influence others, and shake off failure. No wonder so many business owners are inveterate optimists. 

But new British research suggests you shouldn't take that tendency to look on the bright side too far. The grumpy but enlightening study showed that entrepreneurs who are more optimistic than average actually earn 30 percent less than their more pessimistic peers.

Optimism can cost you

When the researchers out of the University of Bath, the London School of Economics, and Cardiff University combed through 18 years of data on household wealth in the U.K., they discovered a pattern that will shock exactly nobody -- over-optimistic folks are more likely to start ill-conceived businesses that are doomed to failure from the start.

"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," was co-author Chris Dawson's downer of a comment on the results.

But while these findings threw cold water on overeager would-be entrepreneurs, they also offer a route to greater success for business owners who are willing to dial their natural optimism down a notch. If optimistic entrepreneurs earn 30 percent less, it follows you can plausibly make something like a third more by taking off your rose-colored glasses.

Why you should break free of the cult of positivity  

Why might that be so? A heap of other studies suggest that while our culture celebrates can-do optimism, pessimism and even anxiety (at least in reasonable doses) have serious upsides. Worrying keeps us alert to danger and wards off complacency.

"When we've been successful before and have a realistic expectation of being successful again, we may be lulled into laziness and overconfidence. Pessimism can give us the push that we need to try our best," explains a great Psychology Today roundup of the benefits of a little strategic pessimism.

Entrepreneur and author Tim Ferriss is also a proponent of pessimism. He points out that worrying about worst-case scenarios both helps you prepare for them and conditions your emotions to handle negative events, so if trouble happens you don't freak out. Bad news, in other words, isn't as horrible when you see it coming.

Finally, recent research even shows that worrying improves your memory, and what frazzled entrepreneur couldn't use a little help remembering the 8,000 things business owners need to juggle each day?

All of which flies in the face of much of the advice entrepreneurs are usually given. "In America, optimism has become almost like a cult," psychologist Aaron Sackett tells Psychology Today. The call to be forever determined, hopeful, and impervious to negative feedback is particularly strong among entrepreneurs.

This new research quantifies the downside of that over-optimistic thinking, and it's high. Feel free to use the study as a permission slip to resign from the cult and start to think more pessimistically -- and more critically -- about your business. (Here are some specific strategies.) Your bank account will probably thank you.

Published on: Oct 4, 2018
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