The Small Business Confidence index is looking good, up the highest it’s been since December 2007. However, this gain was the same as in February 2011, proving a year with no real gains. Small business owners are feeling better about the future but are having trouble committing to this ideal wholeheartedly. This makes sense, as the economy is showing mixed signals for growth. However, looking past the numbers behind small business optimism, it still appears that small business owners are the ones really taking the lead in having hope for our economy. Exploring the psychology that drives small business ownership provides an answer as to how they are able to take these positive steps.
Why Optimism Pays: The Psychology Behind Small Business Confidence
Success is measured by fluid standards
Each small business has its own benchmarks and success is not measured by any single yardstick. Instead of a standard measure, reports MSNBC, small business performance is often gauged by expectations. In other words, a company that does better than expected will still appear successful, even if any actual accomplishments were minimal. This “anchoring” psychology may contribute to small business confidence. Provided the uphill climb out of recession, any sign of economic recovery may be enough to surpass expectations and bolster optimism.
Planning means better business success
Published in the Journal of Developmental Entrepreneurship, a study of small businesses in the developing country of Namibia came up with a fascinating conclusion: entrepreneurs who planned extensively were more successful than those who took on a reactive stance. In today’s unpredictable economy, many small business owners have had to plan their next steps very carefully. With the credit freeze, even simply obtaining capital has become a more difficult gauntlet, requiring comprehensive business plans.
From cash flow projections to retirement plans, small business owners have been creating intensive designs for the future. Strategic control creates confidence, and confidence in your own plan could translate to confidence in the economy in general.
Optimism is its own capital
Insofar as capital helps businesses keep running, it turns out optimism could actually increase a business’ success all on its own. University of Pennsylvania researcher Peter Shulman states the premise perfectly in the Journal of Personal Selling and Sales Management: “Expectations of success or failure are often self-fulfilling prophecies. The belief that one will succeed is the engine that inspires the efforts needed to overcome obstacles and achieve goals.”
Confidence pushes a company in the right direction, and this shows in the numbers. According to Shulman’s research, optimistic salespeople sold 35 percent more insurance than pessimists. After over 500 studies, the report shows that optimism benefits salespeople in virtually any industry. (However, some high-risk positions like pilots and stock brokers may be better served by pessimism, according to Businessweek).
How to be more optimistic
Any business can make the most of this optimism capital. Cognitive behavioralists argue that optimism can be a learned behavior. Optimism begins with letting go of self-defeating beliefs and considering positive and constructive alternatives to a problem. Shulman’s study supports a “flexible optimism,” which does not adhere blindly to optimism. For example, overly optimistic cash flow projections could get a business into a lot of trouble, particularly if there are debts to consider. Flexible optimism means assessing the circumstances realistically, and when faced with an ambiguous situation, choosing the optimistic point of view. With small business confidence on what seems to be a rise, it appears the nation’s entrepreneurs are making the most out of positive thinking.