If you are an entrepreneur, you are already a risk-taker and an optimist rolled into one. You have confidence in your actions and faith in your own judgment. The ability to control events is ingrained in you. You also get a lot of validation from your peers, which contribute, to your confidence and optimism.
That was the good side. The other side of the coin tells a radically different story. Entrepreneurs tend to underestimate risks they could face. Psychologists term it “entrepreneurial delusion”. This has been proved to be true by a number of studies where entrepreneurs calculated their chances of a successful outcome at 70 percent or higher, but facts state that only 33 percent of all businessmen achieve what they wanted in the first place.
In their own world
It can be argued that entrepreneurs are acutely involved in what they do and so emotions get in the way of good judgment. But that is only a fraction of the reason why entrepreneurs tend to underestimate risk. A more valid explanation could be found in the cognitive bias of the entrepreneur. To put it simply, they create their own universe – a distortion of the actual world around them – and one that is not consistent with the facts. The often-repeated phrase is “ there is no competition”, “ we are the only providers of this product or service”.
Here are some bad habits you should avoid as an entrepreneur.
- Do not fail to plan: Many entrepreneurs forget they have no boss and do not structure their days. Many entrepreneurs are incapable of managing themselves. They arrive at different times to work each day. Many entrepreneurs hold the belief that a structured company will destroy their creativity. But what they fail to understand is that structure gives more freedom when it is set correctly.
- Do not get fixated on a plan: Never assume only the best option scenarios where there are a number of ways for a plan to ground to a failure. You should not assume that you might achieve the goals in the exact same way you have planned.
- The illusion of control should be avoided: If you try to predict your future, or try to analyze the past, do not downplay the influence of luck. It is seen to play a major role in the successes of many notable individuals, which is far beyond the talent of the persons involved. Numerous times the success of business decisions are influenced by factors that are beyond your control.
- Do not concentrate only on the known: Try to learn new things and have an open mind. Focusing on only what you know will result in overconfidence that will blind you to factors you never thought of to begin with.
- Avoid halo effect and outcome bias: If a business fails, then people claim that the founder did a few things wrong, like he or she hired wrong personnel, had inadequate strategy and so on. But it is important to remember that the outcome of a business does not depend solely on the founder. When a business fails, people feel the need to blame someone and the head of the company is a logical target. As the founder of a business you are indeed responsible for the results, but try not to be too hard on yourself. It is possible that you encounter failure, despite your best efforts. Take it in your stride and learn from your mistakes.
- Failing to solve employee attrition: You can never stop an employee from leaving. The best way to tackle attrition is to build a system of redundancy where people train counterparts and their replacements. The aim is to permit them to transfer smoothly into more challenging and new roles. If you do not focus on the development of a team, you are not creating a business.
- Doing business with friends: When a friend is your client or customer, you can be pretty sure that the stakes are higher. If everything happens as planned, then it is fine. But in the event of a glitch, like a bad product, less than ideal customer service or worse, a heated argument over the issue of payment, your friendship will suffer. Remember that money comes and money goes, but friendship is meant to last.
- Use time wisely: Do not waste your valuable time or the customers by explaining in unnecessary detail the product features nobody cares about. Instead, it will lead you to sidestep real issues. In such a scenario, the best thing to do is to step back and take a look at how you spend time.
The best thing you can do as an entrepreneur is to create meaningful job opportunities so that people can learn new skills, advance careers and earn sufficient wages to enable them to go on with their lives. Work closely with your team and put the interest of the business before your personal gains.