The power of pessimism: Could positive thinking be holding your startup back?
Monday, November 19, 2018/
Startup land is something of an optimists’ club, with entrepreneurs all over the country living off little more than positive thinking and instant noodles.
However, research from a trio of UK universities is dispelling the power of optimism, suggesting entrepreneurs of a positive persuasion are actually less successful than those that lean towards negativity.
The research paper, titled Curb your enthusiasm: Optimistic entrepreneurs earn less, from researchers at Bath University, the London School of Economics and Cardiff University, analysed the earnings of optimists and pessimists.
Optimists who are employees tend to earn about 30% more than their pessimistic peers, the paper found. However, optimists who are self-employed earn 30% less, on average.
“Self-belief may enhance performance but also result in participation in activities doomed to failure,” the report said.
Optimists “overweight the upside”, and so are more likely to lean towards a life of entrepreneurialism. However, they may also see potential for opportunity where there actually is none, and “tend to switch too soon and into objectively poor products”.
The study draws a similar conclusion on marriage. Through analysing data gathered over time, researchers found married people who would later divorce were more optimistic than those who would stay married.
It’s not that pessimists are intrinsically more monogamous, but that they’re less likely to “overestimate match quality”, and may not anticipate any marital troubles on the horizon.
“It could be argued that the difference is due to unlikely negative income shocks triggering divorce, rather than intrinsic optimism,” the report says.
The same goes for startup founders. It’s not optimism that causes them to fail — in fact, many would argue you have to be an optimist to get going in the first place — it’s that they’re more likely to see only the up-sides and fail to acknowledge the very possibility of failure.
Evan Wong, co-founder and chief executive of regtech startup Checkbox is somewhat taken aback by these findings. He considers himself an optimist with no question, along with his co-founders and most of the entrepreneurs he knows.
“We’re all quite optimistic people,” he says.
“I thought that was part of the DNA of being an entrepreneur.”
In fact, optimism is ingrained into Wong’s business. Checkbox’s top company value is “practice positivity, master empathy”, he says.
“It’s very important to us,” he adds.
But not all founders feel so boundlessly upbeat.
Girl Geek Academy co-founder and chief Sarah Moran says she considers herself an optimist for the most part.
“However, there are things that I’m pessimistic about, which include money.”
While Moran can usually see the potential in something, she never puts all her eggs in “one optimistic basket”, she says.
“I never assume everything will work. I assume everything will go terribly, and if terrible is still okay, then that’s a good outcome,” she says.
“You’ve got to know the best- and worst-case scenarios to be able to make a decision, and you’ve got to be realistic about what the worst-case scenario actually is,” she adds.
Specifically, Moran says if things start to go seriously wrong at Girl Geek Academy, she knows exactly how long she has, based on current revenues and cash in the bank, before “the day my company will die”.
But, that’s not to say she’s pessimistic about it. She’s optimistic this disaster scenario will not come to be, and the hypothetical time period between business disaster and business death will only increase.
“If I wasn’t optimistic to think I could change that, then we may as well shut up shop now,” she says.
For Wong, also, being an optimist and being sensible about business decisions are not mutually exclusive. There are two concepts at play here that can easily become blurred, he says.
It’s not a good idea to blindly follow what feels like a good idea, he says, “especially when a lot of them are crap”.
However, “they start crap, and it’s actually through a process that they become something of value”.
Optimism could be misconstrued as not thinking things through, Wong says. And, on the flip side, thinking things through is not necessarily the same as being pessimistic.
Another of Checkbox’s company values is to “say yes before we say no,” Wong says.
“It’s about being open to the opportunity first, rather than seeing the barriers.”
If they follow an idea, go through a due diligence process and really consider any down-sides, “if it ends up being a no-go, that’s fine”, Wong says.
“It’s a case of what you want to default to,” he adds.
Investing in optimism
From an investor’s point of view, there’s an awareness the statistics for startup success are not encouraging. However, according to Samantha Wong, partner at Blackbird Ventures, there’s still little room for pessimism.
“Statistically, we know that most startups will fail. But we are looking for the ones who believe that they’ll succeed.”
Optimism is often used as a synonym for naivete, “and maybe sometimes that’s a good thing”, she says.
“You need to be naive and you need to be ridiculously optimistic to get started, because everything is hard. You don’t have anything, you’re promising something that doesn’t exist yet. It’s a faith-based activity,” Samantha Wong says.
However, she stresses in order to secure VC backing, that optimism must be matched with a logical and defensible plan.
“Blind optimism alone won’t get you there, you be able to abstract or distil that out into a plan of workflows and tangible, real milestones,” she adds.
Samantha Wong also recognises being an investor requires a good deal of positivity.
“I call it magical thinking,” she says.
“You cannot do this business if you’re a pessimist at heart.”
To be a successful investor, you have to not only be right about a business, you have to be right where everyone else is wrong, Samantha Wong says.
“That necessarily means you need to believe something that maybe the majority of the market doesn’t believe.”
Investors must exercise the level of optimism the founder does, “all the while knowing that statistically 50% of your portfolio won’t return capital, or will die”.
Faith in humanity
For those startups trying to make big changes, with potentially global ramifications, there’s often even more optimism required.
For example, according to Girl Geek Academy, women make up only 12% of engineers. The startup is on a mission to change that, bringing more women and girls into science, technology, engineering and mathematics careers.
When you’re taking on such a huge challenge, “you need more optimism, but you also need more pragmatism”, Moran says.
Girl Geek Academy is constantly creating new products, with no guarantee anyone is going to want to pay for them.
“I have to be practical about how I get someone to pay for it, and be realistic that if someone won’t pay for it yet, that idea just has to sit on the backburner,” she adds.
“I’m always optimistic that there is something I can sell, and that there’s something the market will demand from us.
“Whether or not that’s the thing that in my dream optimistic bubble I would go and create is another story. We do the best we can with what we’ve got,” she adds.
For Samantha Wong, however, this kind of ‘big picture’ mission is exactly what she’s looking for.
“Optimism alone can only survive so much bad news, and so much disappointment,” she says.
If an entrepreneur’s goal, and their optimism, has an external grounding, as well as an internal one, “that’s often what pulls people through these prolonged periods of bad news and bad times”, she adds.
In this case, the optimism is not rooted in the startup idea itself, it’s rooted in the change that could be brought about. Perhaps the optimists in these businesses — although still more likely to dive into a bad idea — may also be more likely to adapt to make the changes they seek.
“You’re removing the ego from the equation a little bit more,” Samantha Wong says.
For any founder launching a business, Evan Wong considers a positive disposition to be a prerequisite.
“When you start a business, especially a startup, everything is against you,” he says.
“It’s ridiculously challenging — you have to be quite optimistic and a little bit crazy,” he adds.
Moran isn’t so sure. On the one hand, a chief executive’s job is to set the company vision, she says.
“If your vision is that the world is going to be a worse place, who is going to buy your product?”, she asks.
On the other hand, however, if you’ve tested the market and found a real need or demand for your product or service, “then the market has given you the optimism — you don’t actually need that yourself”.
The traditional, out-of-the-box advice for startup founders is to believe in yourself absolutely, to plug away at the product you believe in, and to dismiss the naysayers that lurk inevitably at every juncture.
And often, Samantha Wong says, this is good advice.
“Sometimes, exactly what you need to do is ignore the naysayers and keep going. History is littered with examples like that,” she says.
“Equally, there are times when ignoring persistent feedback is actually preventing you from unlocking the next great decision or the next potential move,” she adds.
The trick is to pair unwavering optimism with “a rational, defensible answer back to the naysayers”, Samantha Wong says.
If your only defence is ‘I believe’, then you’re doing something wrong, in your role as chief executive, she adds.
“You can believe something different, but you have to be able to defend it,” she adds.