Entrepreneurs can often be characterized as indelible optimists, who believe nothing can stand in the way of their groundbreaking new idea and its potential to change the world.  Indeed, you could argue that it’s such unabashed confidence that is required to even venture out on the uncertain path of entrepreneurship in the first place.  Except new research from the University of Bath suggests that such optimism may be harming the chances of your startup succeeding.

The research suggests that excessive optimism is prompting large numbers of entrepreneurs to set up businesses with little to no chance of ever succeeding.  The study tracked individuals who moved from full-time jobs into a life of entrepreneurship, and found that those with above average optimism earned around 30% less than their peers with below average optimism, suggesting that the optimists should really have stayed in their jobs.

The risks of entrepreneurship

The research reminds us that starting a new business is inherently risky, with entrepreneurs usually earning less than their peers in full-time employment, whilst also working longer hours.  The problem is that optimists often underestimate these risks, and place undue faith in their business idea.

The high likelihood of failure means that pessimists probably have a more realistic concept of the startups chances than their optimistic peers.  Such ‘realists’ are in short supply however, with the authors suggesting that around 80% of the population are excessively optimistic.  Whilst this can be a virtue, not least in increasing our ambition and persistence, it can lead us to have an unduly rose tinted view of our chances of business success.

“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. 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,” the authors explain.

It’s tempting, yet dangerous to view entrepreneurship as a journey with only positives attached to it.  Startups are undoubtedly important in generating economic growth and driving innovation, but the high failure rate creates costs, both personally and in terms of wider society, and these costs should not be underestimated.  Equally, the authors urge policy makers not to fall into the trap of encouraging the wrong type of startup.

Whether this is likely to dissuade would be entrepreneurs however is another matter, but it does provide some food for thought.