Richard Cantillon, the eighteenth-century economist who coined the term "entrepreneur," defined the term as "bearer of risk." Yet research shows that entrepreneurs are just as risk-averse as the rest of us.
"Only when it comes to starting a business are [entrepreneurs] daring," James Suriowecki writes at the New Yorker, and that's "because the fundamental characteristic of entrepreneurs isn't risk-seeking; it's self-confidence."
%VIRTUAL-pullquote-The confidence necessary to beat the odds and sustain a new business seems to verge on delusion.%Indeed, the confidence necessary to beat the odds and sustain a new business seems to verge on delusion. The research on how entrepreneurs overestimate themselves is staggering. Here's a digest:
According to a 1997 study from the University of Houston, entrepreneurs are overconfident about their capacity to prevent bad things from happening to their business.
According to the same study, entrepreneurs are overconfident about their business's prospects.
In a 1988 Purdue University study of 3,000 entrepreneurs, more than 80 percent of participants thought that their business had at least a 70 percent chance of success.
In the same study, 33 percent of entrepreneurs thought they had a 100 percent chance of success.
A 2013 study from Erasmus University Rotterdam found that entrepreneurs think they will live longer than everybody else.
Delusion Is Necessary
Nobel Prize-winning psychologist Daniel Kahneman says that the delusion is necessary, given that a third of American small businesses flame out within the first five years and two-thirds perish within 10.
"A lot of progress in the world is driven by the delusional optimism of some people," he said in an interview. "The people who open small businesses don't think, 'I'm facing these odds, but I'll take them anyway.' They think their business will certainly succeed."
A realist will have a harder shot at success in the world, Kahneman says, since people tend to favor optimists. They rise quicker in organizations because they believe they can.
Selling the Vision
They attract more funding for their enterprises by selling their vision. People will work harder for the optimistic leader because they want to be assured that it'll all be OK. Studies of meetings show that people don't listen to the most informed person in the room; they default to the loudest one.
That's why we say that these people have a "can-do spirit," Kahneman says. "Among other things, a 'can-do spirit' means you think you can do things you cannot do."
And sometimes, it's this semi-delusional thinking and a little luck that makes the seemingly impossible possible.
9 Ways to Live Large
Do You Think Like a Successful Entrepreneur?
From 1945 to 1964, there was a radio or TV program called "Queen for a Day." This is similar, only it's real life, not a game show. Castlerentals.net allows you to rent castles in Ireland, France and Britain. It can be pricey –- at the time of this writing, one castle started at 7,500 euros ($10,300), with no mention of whether this is a daily, weekend or weekly rate. On one hand, if you have to ask, you probably can't afford it. On the other hand, the Chateau de Montfluery, near Vic-le-Comte, France, costs only 1,200 euros for a weekend. For 14 guests, it might not seem too steep.
This isn't buying a dress, wearing it and returning it, hoping nobody will notice the wine stain. At RenttheRunway.com, customers are encouraged to rent (for four to eight days) designer dresses and accessories, like jewelry and handbags, for a big event and then mail them back in a prepaid envelope. How much cheaper is renting than buying it? It depends on the outfit, but a Hervé Léger dress is retailing for $1,950 –- or you can rent it for $200. A dress by Shoshanna that retails for $385 can be rented for $40.
You can buy and rent islands at PrivateIslandsOnline.com. Yes, most are listed as "price upon request," meaning they're out of reach from the typical middle-class income, but you could rent an island for a night, with some listings going for less than $500.
At HighlandTitles.com, you'll discover that 29.99 pounds can buy a square foot of property in Scotland. Then, because you'll be a land owner (albeit a minor land owner), you can call yourself laird, lord or lady. All of the site's profits, according to the website, go toward protecting Scotland's green space.
No doubt about it, hiring a private jet is squarely in the realm of the rich. But the daily deals at JetSuite.com can be attractive. You'll have to hurry since the deals are for the day of, but on the day this was written, there were three flights available from various locations in California and Nevada. If you wanted, for instance, to fly from Reno, Nevada, across the state to Las Vegas, you could have the entire jet for $536. With four seats, for a family of four, that's arguably cheaper than the airlines – and if you split the cost with friends, you could fly into Vegas in style.
In six cities now (and more on the way), KitchenSurfing.com lets you hire a personal chef. Prices start at $50 per person, which seems about on par with what you might spend at a fancy restaurant -– but you're getting the personal chef in your home. For an anniversary dinner, $50 and up per person seems like a deal.
Get your own personal driver for occasional trips. Car services that send a driver to pick you up are becoming more popular. Uber is probably the best-known of the bunch.
You know how when you book some hotels, especially if you want a good rate, you're locked into paying even if something comes up and you can't go? And you know things do come up sometimes. RoomerTravel.com has created a business model around that. Travelers can buy unused hotel rooms at a discount from hapless travelers who can no longer stay there. According to the company, it's typical to get up to 40 percent off the original booking price. Sample deals at the time this was written: a room at the Hyatt Regency Chicago, which regularly goes for $196 a night, was listed at $85, and a $563 room at St. Ermin's Hotel in London was $180.
If you can't live large from a financial perspective, you could approach the concept from a literal perspective and just feel large -– by buying a tiny house. One of the smaller listings on TinyHouseListings.com is just 120 square feet, yet it has "a loft, full-sized bed, working full-sized toilet and shower." You won't feel rich, but you will feel eco-friendly, which along with the price is the selling point for living in such a tiny home (this one's in Knoxville, Tennessee). That said, you'll want to go elsewhere if there is a hurricane or tornado coming. Or maybe any strong breeze.