Entrepreneurs usually lean toward one of two business mindsets – they’re either optimists who remain exceedingly positive about outcomes or they’re realists who downplay the good and see the bad as inevitable. When starting and running a business, does one inherently serve you better?
While studies show a strong link between successful entrepreneurs and optimism, having too sunny of a disposition can lead to delusions of success. It can spur people to overestimate the market and their abilities to execute, while being unaware of crucial facts or possible setbacks.
Entrepreneurs must learn to balance their inner cheerleader and realist, and it isn’t always a clear-cut line down the middle. Some business situations require more optimism than realism, while others call for a different ratio.
Here are some instances that outline when it’s best to have a glass-half-full or glass-half-empty mindset:
Leading a company – While realism should dominate a leader’s business viewpoint, a dash of optimism is required to move forward and stay upbeat about the future.
As a startup founder and CEO, my leadership philosophy is to be 60% realistic and 40% optimistic. My dominant realism allows me to stay humble and make decisions based on facts, rather than on gut feelings or aspirations. However, I also recognize that entrepreneurs don’t achieve success without taking risks, and my optimism enables me to take those risks and move forward despite uncertainties. It’s important to trust that all of your blood, sweat and tears will pay off, and what’s where optimism best serves weary startup entrepreneurs.
Allotting company resources – This requires equal parts optimism and realism. On one hand, you must be practical when setting a budget so you can allocate your resources effectively, negotiate better agreements with vendors and partners, and only shell out money when needed.
That said, you have to spend money to make money, and being too practical can hinder your growth. I’m still learning to take this advice myself, as I tend to be a little too economical with company resources. My investors regularly remind me that I need to spend more when building a business. I have to invest first before seeing a return and have faith those investments will deliver a return.
Correctly deciding where and how to spend your money calls for both rationality and optimism. You have to be generous but not reckless, practical but not stingy, and level-headed while also open-minded. It’s a tricky balance that can be achieved through market research, consulting with advisors and self trust.
Market testing your product – Entrepreneurs should be extremely realistic—even critical—when testing their product in the market. You may think that you’re solving a problem and convinced others will love your business, but don’t let your biases and wide-eyed optimism get in the way of evaluating your “baby.” In every instance, product development and design calls for critical thinking. Listen to feedback. Ask yourself if your product truly is making an impact. Actively look for flaws and holes, then iterate accordingly. Leave optimism out of this process.
Selling and marketing the business – Conversely, entrepreneurs can benefit from optimism when selling and marketing their products or services. Getting others to care or buy into what you’re doing is tough, and it’ll be downright impossible if you don’t have a positive, can-do attitude. I had zero sales experience before becoming an entrepreneur, and dealt with constant rejection as the first salesperson in my company. That’s why my approach to selling today is 90% optimist and 10% realist (for actually figuring out the logistics of closing a business deal).
Even the biggest businesses have built a case for prioritizing optimism. In the 1980s, life insurance company MetLife spent millions training salespeople, only to see a significant number quit after a few years. The company brought psychologist Dr. Martin Seligman on board to improve its hiring process, and Seligman suggested that
MetLife then hired 15,000 consultants in two categories: one group was hired using the company’s standard screening tests, while the other group was comprised of those who failed the screening process but had high levels of optimism. The result? The optimists outsold the regular group by 21% in the first year, and by 57% by year two.
Managing your employees – Instead of managing people with an iron fist, I contend that keeping the team enthused unlocks their potential and helps them become the best versions of themselves. I try to remain optimistic, even when my team falls short of expectations. I always want to give them the chance to improve first.
This isn’t to imply that I overlook their mistakes. I expect that my employees will not make the same ones twice and, when I see them underperforming, I invite them to meet so I can learn more about their personal situations before taking a more drastic corrective action. So, when comes to managing employee performance, I’m 80% realistic about what they’ve demonstrated and 20% optimistic about the potential they can further achieve.
Dealing with failure – About half of all small businesses fail in the first year. If and when your endeavor gets derailed, take an extra high dose of optimism to move forward. As cliché as it sounds, treat those failures as learning experiences and don’t allow your positivity to get bogged down by too much realism or even pessimism.
Prior to Retention Science, my co-founder and I started two companies that were not huge successes. If it hadn’t been for our ridiculous optimism (often questioned by friends and family), we wouldn’t have tried again, we wouldn’t have built our third company, and we would have never gotten the opportunity to work with some of the most amazing people that we have the privilege of sitting next to now.
Or take a look at the story of Ole Kirk Christiansen, founder of the LEGO group. Christiansen had to deal with a lot of major setbacks, from losing his job during the depression to losing his wife and being left to raise four sons. When he started his own toy company, a fire broke out at the workshop, destroying all their drawings and models. In spite of that, he still found the strength to rebuild, and his company bought its way back to the market. If Christiansen had given up hope, the world would’ve missed out on one of the greatest toys of all time.
Handling success – It may seem counter-intuitive, but when dealing with success, a reality check never hurts. I’m not telling you to rain on your company’s parade. If you deserve it, go ahead and rejoice. Just don’t rest on your laurels for too long and always evaluate how you can do better next time.
As Psychology Today put it, “When we've been successful before and have a realistic expectation of being successful again, we may be lulled into laziness and overconfidence.”
At Retention Science, my current company, we’ve had our share of wins and we make a point to celebrate them. But we go back to work the next day, and it’s business as usual in our office. By doing so, we prevent complacency and we continue to challenge ourselves to do better.
Every entrepreneur is different, and my personal style might not match your personal preferences, but it is important to remember that the right entrepreneurial mindset is a moving target, so you must carefully assess your business, yourself, and your environment to determine the right outlook – whether it’s looking at it with an optimistic or realistic point of view.
What do you think – is it inherently better to be more optimistic or realistic when running a business?
