The Key Component For Small Business Success
Can you identify the essential component for small business success? No, it is neither financing nor a business plan. It’s assurance. A intriguing recent study by Kabbage found that small business owners, in particular, struggle with underconfidence. According to the study, most small firms think their revenue growth underperforms that of their competitors. In particular, 60% of respondents rated their revenue growth as being below the 50th percentile for businesses of similar size. However, the statistics shows that the vast majority of respondents had strong revenue performance when compared to the study derived from the Kabbage Small Business Revenue Index.
The question is: What causes these business owners to feel pessimistic about the performance of their organization, and what effects does it have in decision-making?
Why entrepreneurs in tiny businesses lack confidence?
Underconfidence is described as “a cognitive bias characterized by an underestimation of one’s ability to perform a task successfully or by an underrating of one’s performance relative to that of others” by the American Psychological Association (APA) Dictionary of Psychology. Typically, underconfidence causes people to pass up opportunities that could result in small business success. Or even worst, give up. Don A. Moore, a professor of management at UC Berkeley-Haas, claims that there is a reason why these small business owners tend to minimize their performance. “Having studied the effects that confidence levels have on decision-making for over 20 years, I’ve found entrepreneurs are often overconfident,” Moore said. “However, this study shows the potential for small business owners to err on the side of under-placing their performance when comparing themselves to others. The likely reason for this is that people tend to rate themselves below average on difficult tasks. Simply put, people assume they’re worse than others when a task is hard. Both running a small business and benchmarking performance without solid data are difficult tasks, and respondents showed underconfidence despite sharing similar struggles.”
How low self-confidence impacts judgment?
Making decisions is also impacted by lack of confidence. According to Moore, “People who display underconfidence are more likely to opt-out of or choose to depart a competition when, in fact, they would have succeeded had they continued.” In other words, self-confidence is the key difference between those who persevere and those who give up. The good news for small business entrepreneurs is that you can boost your self-confidence. All you need are determination and focus. Fostering self-confidence has other advantages. According to Albert Bandura’s social cognitive theory, persons who are more self-assured are less stressed, exert more effort, stick with things longer, and have greater resilience in the face of adversity.
The solution for lack of confidence
Overconfidence is not the greatest cure for lack of confidence; rather, you should look for more reliable and correct information. Giving small firms access to major organizations’ equivalents of benchmarking tools and analysis may enable them to more precisely predict their performance. According to Kabbage Chief Revenue Officer Laura Goldberg, “There is no doubt that technological improvements will provide small businesses with smarter systems to better assess and understand their business performance.” The possibility that technology will boost entrepreneurs’ and their companies’ confidence and provide them motivation to keep expanding is what excites me the most.
The message is obvious, even though these data imply that small business owners can harbor unwarranted self-doubt about the viability of their enterprises. To measure and assess their cash flow performance in comparison to their competitors, small businesses must have the necessary tools. The secret to a successful small business is to combine data, confidence, and persistence in equal measures.