Study: When starting a new business, you’ll earn more by being a pessimist

Researchers followed people moving from working from someone else to starting their own businesses, using 18 years of data.

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If you have a brilliant new product or innovation you’re convinced will make millions – don’t get your hopes up. Inflated confidence may work while pitching “Shark Tank,” but in reality, maintaining a measured air of pessimism could be the edge that increases your chance of success as an entrepreneur, says a new UK study.

Business owners who begin their ventures with great expectations earned about 30% less than conservative-minded entrepreneurs, according to the research.


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“Pessimism may not generally be seen as a desirable trait but it does protect people from taking on poor entrepreneurial projects,” says Dr. Christopher Dawson, lead author, and associate professor at the University of Bath’s School of Management, in a release. He worked with researchers from the London School of Economics and Political Science and Cardiff University on the study.

Researchers followed people moving from working from someone else to starting their own businesses, using 18 years of data from the British Household Panel Survey – a major longitudinal study.

In the UK, only half of new businesses survive for five years. Optimists “tend to self-select into self-employment, as an increasing number of studies find,” wrote the researchers.

It’s a crowded field, full of hopers and dreamers, said Dawson, and new entrepreneurs would be wise to hold on to their expectations.

“Our results suggest that too many people are starting business ventures, at least as far as personal returns are concerned,” he said. “As a society, we celebrate optimism and entrepreneurial thinking, but when the two combine, it pays to take a reality check.”

The study was published in the European Economic Review.


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Sheila McClear|is a reporter for Ladders and can be reached at smcclear@theladders.com.