Overconfidence Entrepreneurship

Last Updated: May 23, 2019

What is Overconfidence Bias in Entrepreneurship?

Entrepreneurship is a challenging journey. As an entrepreneur, you need to be confident in your knowledge, skills, and abilities. Confidence allows jump from employee to entrepreneur, start a company, and take risks that result in massive action.  

In fact, as an entrepreneur, you have to make decisions with limited time, resources, or people to ask questions.

But, you must be aware of overconfidence. Overconfidence bias can KILL your company.

Overconfidence bias definition

in relation to an entrepreneur’s risk of failure this definition states that “Overconfidence is overestimation of one’s accuracy, or, alternatively, an overestimation of ability relative to others, and links with increased failure risk of firms (Hayward et al., 2006).” 

As a coach and consultant to entrepreneurs, I see this all the time. Often, my clients overestimate their ability to find high-paying clients without developing a systematic approach to marketing.

If you have an overconfidence bias, often you'll wholeheartedly "believe" your assumptions are facts.

And, assumptions make an ASS out of U and ME.

You don't try to improve your understanding of a challenge, risk, or market. You don't crosscheck perceived "facts" or seek alternative perspectives.

How Does Overconfidence Impact an Entrepreneur? 

When you are overconfident, you use hindsight to reinforce your decisions. You look back at previous successful results and automatically assume a positive outcome without considering the full spectrum of possibilities.

You overestimate your talent and underestimate the risks. Your mind forms an answer that seems right, and you take action without the facts.

The problem with this mindset, you eliminate any notion of activities that were out of your control, but positively impacted the previous outcome. 

What if your previous decision was successful due to luck?

Maybe, the stars aligned and you correctly guessed the timing of the market. In hindsight, your mind turns that “guess” into a fact. The worst part, you won’t even know it’s happening.

Hindsight, coupled with overconfidence, is a dangerous activity.

Overconfidence Bias Example 1:

Research shows that overconfident entrepreneurs tend to ignore the strengths of their direct competitors (Moore & Cain, 2007). Next thing you know, your competitor disrupts the market and steals your customers.

Overconfidence Bias Example 2:

Overconfident entrepreneurs spend months and resources working on the most amazing product. They go through an awesome launch and bam, the product fails.

Why? They relied heavily on their knowledge and experience without verifying product market fit or asking for advice, help, or and feedback from others (Hayward et al., 2006).

Overconfidence Bias Example 3:

Overconfident entrepreneurs seek out the highly-familiar option while neglecting to evaluate any other options (Winston Sieck, Ed Merkle, & Trish Van Zandt). Any of these mistakes can be fatal to your business. 

How to Reduce the Risks of Overconfidence  


Self-awareness is the first step to reducing the risk of overconfidence. Reading this article and thinking through your decision-making process is a positive action.

You need to set up counterbalancing or self-regulatory mechanisms (Hmieleski & Baron, 2008).

Guess what, you don’t have all the answers. Welcome to the club! neither do I! Check yourself. 

Before you crush your dreams because of overconfidence, try these tips:

1) Take some time to seek out alternative perspectives

Assign one or two people from your team to be the skeptic or devil's advocate. During a short discussion, have them sell or present other options.

If you don’t have a team, how long does it take to phone a mentor? Consider finding an experienced mentor that understands your business. Develop a network of diverse advisors, people outside your area of expertise, market, or niche.

Example: I’m a Coach and Consultant for Entrepreneurs. But, some of my best advisors don’t know anything about Entrepreneurship, Coaching, or Business. They ask questions that completely challenge my assumptions out of pure curiosity and and aren’t afraid to call me out. Hire a coach to bounce ideas off. 

How much longer will seeking alternative perspectives take? Maybe, an hour or two. I’m willing to bet you can wait an hour before coming to a final decision, especially when it’s a high-risk decision. 

2) Consider conducting a more research 

Seriously, I shouldn’t have to tell you this. You can find anything on the Internet. You’ll discover a ton of information on blogs, downloadable white papers, and on your competitor’s websites.

It is crazy how much information I find conducting competitive intelligence. As long as it’s public information, you are good to go. 

3) Reach out to experts

Consider reaching out to a few experts. I’m sure you’ll find experts happy to share their knowledge with you. For my business, I interview experts all the time. Some experts may ask for payment, while others will speak with you for free.

Either way, let’s say the right answer will generate or save you $10,000. If you pay eight experts $200 for an hour of their time, was the $1600 investment worth it? Yep!

4) Hire based on diversity of thought

Hire employees (and contractors) based on diversity of thought. Teach your employees the skills they need. Don’t build a culture of “Yes” people.

Encourage alternative perspectives that challenge you and the status quo. But, find a balance. You’re the leader, when you make a decision it’s go time! Your employees know it’s time to work together, act fast, and execute at the highest level. 

Final thoughts

Maintain a high level of confidence. Go out there and build the company of your dreams. Fulfill your entrepreneur dreams. But, increase your self-awareness. Use the techniques above to create a simple process to keep yourself and/or your team in check. I’ll leave you with this quote: 

"If I should really WANT to answer the foolish question you have just asked, or any of the other questions you have been asking me, let me remind you that I have a row of electric push-buttons on my desk, and by pushing the right button, I can summon to my aid men who can answer ANY question I desire to ask concerning the business to which I am devoting most of my efforts. Now, will you kindly tell me, WHY I should clutter up my mind with general knowledge, for the purpose of being able to answer questions, when I have men around me who can supply any knowledge I require?" – Henry Ford

I hope you found this information useful. If you have any questions or comments, please let me know. 

- Stewart 



Hi. I’m Stewart Swayze, I’m a Career Transition and Marketing Coach for Entrepreneurs. I release new videos every week on those topics. If your interested in developing your career or marketing your business, view my YouTube Channel  below.