Kevin Jenkins: Wishful thinking could kill your business

Believing things will be okay doesn't mean they will, writes Kevin Jenkins.

Boy bands from the 1990s don't feature big on my playlist, but one song was a bit of an earworm for me. Secretly, I never minded the big chorus from King of Wishful Thinking by Go West. And I like how the singer reflects on how he might manage to pull the wool over his own eyes, when he sings "Maybe I can fool myself" and "I'll pretend my ship's not sinking".

For most of us, the idea of wishful thinking is not likely to be a stranger. But I've learned it's also definitely a thing in the world of psychologists, researchers and business advisers. Translated into issues that are often on my own desk, wishful thinking connects with some important questions for entrepreneurs and managers, like "How can I be confident I'm not delusional with my great new business idea?".

There's no shortage of stories about wildly successfully digital start-ups that grow exponentially into global behemoths. In Aotearoa, we're backing Xero, Vend, and lots more to keep following that path. But what about the start-ups that fail – or even worse, the ones that are still limping along, teasing the founders and investors with an ever-receding prospect of a take-off in sales?

US data shows that while 80 per cent of small firms founded there in 2014 lasted 12 months, only about half (56 per cent) made it to four years. The reasons for failure are fascinating, with some of the common ones being "No market need" (42 per cent), "Ran out of cash" (29 per cent), "Not the right team" (23 per cent), "Got outcompeted" (19 per cent), "Pricing/cost issues" (18 per cent), and "User-unfriendly product" (17 per cent).

Tech commentator Neil Patel used different data several years ago to argue that 90 per cent of all tech start-ups fail. He cited a Fortune report that also identified "No market need" as the top reason for failure – that is, no one wanted the particular product or service.

With those kinds of stats in the background as you embark on your business venture, how do you get the right mindset to maximise your chances of success – positive and energetic on the one side, but realistic and attentive to data on the other?

A little bit of optimism goes a long way

As I talked about in a previous article, "optimism bias" is a pitfall that's been well-researched and documented. But equally, some optimism can be a key ingredient when you're starting a business.

The Huffington Post recently featured a listicle of the wider benefits of optimism – like having better immune systems and better cardiovascular health. Homing in next on business, Huffington quoted Intel founder and inventor Robert Noyce, who considers optimism to be essential to innovation. Says Noyce, "How else can the individual welcome change over security, adventure over staying in safe places?".

Some optimism can make you a better leader too. As Winston Churchill said, "The positive thinker sees the invisible, feels the intangible, and achieves the impossible". A further dimension of optimism that can be invaluable when it comes start-ups is "emotional contagion" – basically, happy people spreading happiness.

Art Markman, Professor of Psychology at the University of Texas, notes that people's motivation to pursue a goal rests on two factors: how important the goal is to them, and how achievable it is. Overconfidence in their ability to achieve the goal can spur them to overachieve. Says Markman, "you may actually delude yourself into success".

Markman points out other benefits too. Most goals aren't all or nothing, so even if you miss the original goal, you may still accomplish a lot. You'll also learn lots for your next challenge, and others may notice your talents and hard work, opening up other opportunities for you.

There's also some neurological evidence that being more upbeat can help us be more focused and analytical. Cerebral activity seems to increase when we daydream about the future, meaning we focus more on the problems and goals. This sounds similar to ideation or "imagineering" – innovative thinking about the future.

Healthy optimism – or just wishful thinking?

So optimism can definitely be harnessed for positive results. But you don't need a tenured professorship in psychology to know that too much of it can cause problems. The trick, clearly, is finding the "just right" line.

Distinguishing between two very different mindsets, online business guide Simplicable describes "wishful thinking" as the evil twin of healthy, constructive optimism. Optimism creates and improves, they say, whereas wishful thinking wastes and destroys – and has "spelled doom for fine entrepreneurs and professionals".

There's a fine line between wishful thinking and optimism. Photo / Getty Images

Getting specific, Simplicable says that whereas the optimist seeks validation and advice, is curious and is good at listening, the wishful thinker avoids data or cherry-picks it.

Whereas the optimist is adaptable and open-minded, and experiments to see what works, the wishful thinker's approach is static, deciding on what works and stubbornly sticking to it despite the evidence.

To prevent wishful thinking leading us to commercial disaster we obviously need to understand it and the drivers and biases that may be causing it, so that we can know how to counteract it.

The psychologists have been experimenting on us again

One theory is that wishful thinking is driven by anxiety and worry about an uncertain future. Jan B Engelmann and some other psychologists tested this and other theories, using various proven techniques like electric shocks on their subjects (victims?) – going one better than Stanley Milgram's obedience experiments from the early 60s, which featured actors just pretending to get shocks.

Engelman and team did indeed find some evidence to link anxiety and wishful thinking, as they studied subjects struggling to identify a pattern that might indicate when a shock was coming (the shocks were in fact random). Concluded Engelman, "greater ambiguity of the pattern facilitates wishful thinking".

If we're stressed because our business isn't progressing like we planned and we don't know what to do, it looks like one of our responses is to imagine cause and effect where there is no evidence. By sidestepping the facts we can convince ourselves we aren't failing as entrepreneurs.

As well as being a response to specific situations of uncertainty, it appears that wishful thinking or over-optimism may also rest on some general tricksy cognitive biases that lurk in our reptile brain. For example, "attention bias" (or
"confirmation bias") leads us to see – at the lowest level of cognitive processing – what we want to see.

Taking the wishful out of wishful thinking

So what are some concrete ways we can avoid the distorted thinking that could lead us to flog a dead-horse business idea – and to the accompanying depression and anxiety as motivation fades and the next steps remain elusive?

German psychologist Gabrielle Oettingen developed a nifty acronym to describe a technique to go beyond wishful thinking – WOOP, for Wish, Outcome, Obstacle, and Plan.

Picking up on the WOOP idea, Pascal Wallisch from NYU described it like this:
"The way it works is best illustrated by going through the steps involved. First, think of an important but feasible goal that you want to achieve. Then, vividly imagine the best possible outcome that is associated with attaining that goal. Now, contemplate what specifically holds you back from attaining that goal, whatever it might be. Finally, consider one action that would be the most effective in overcoming what holds you back".

The trick is to use fantasising to motivate yourself, but not to get lost in the fantasy. Instead, reframe obstacles as achievable goals. US consultants Chaco Canyon even offer a course on how to prevent wishful thinking and return to reality – they say that wishful thinking "causes delays, rework, and even outright failure".

Getting more concrete

So are there any actions we can take in our outside world to maximise our chances of success?

We need to be cautious about cause and effect versus some other factors in play, but the recent Smallbiztrends US data seems to offer some clear lessons on how to improve your chances of success, even if the data just show correlations.

For example, having two founders, not one, significantly increases your odds because you'll raise 30 per cent more money, have almost three times the user growth, and be 20 per cent less likely to scale prematurely.

Then there's the value of scars on your body. First-time entrepreneurs have an 18 per cent chance of success, but the rate is 30 per cent if you've already succeeded with an earlier business venture.

Co-founders have a better chance of success. Photo / Getty Images

Together, those numbers suggest that if you're striking out on your own, you should think hard about roping in a partner, and preferably one who's been successful before.
In fact, some entrepreneurs argue that ideally you'd have three co-founders: the idea originator, a technical specialist (a coder for example), and a commercial expert. Others would argue having a CX (customer experience) fanatic or marketer in on the ground floor is a good idea too.

But what about after you're under way? My own 30-plus years as a business adviser have certainly taught me that sharing the load with talented people is a great idea.

Making performance data unavoidable helps a lot too, along with remembering to challenge your cognitive biases are frequently. This should also help ensure your creative juices and hard work are directed to the right ends.

I reckon compartmentalising the negative - moving on – also helps you not just to analyse more precisely by seeing specific results in their proper contexts, it may also make you more psychologically resilient.

Be like Benee

I love Benee's EP Fire on Marzz and its definitely on my playlist. On a song called Wishful Thinking, unlike Go West, she's savvy to the risk "Lying around, daydreaming, wanting you now, but that's wishful thinking".

She's recognised that hoping for a reconciliation would be fooling herself and being over-optimistic. Being clear-eyed about the facts is a challenge for the rest of us too.

- Kevin Jenkins is a Founder of MartinJenkins, a professional services firm www.martinjenkins.co.nz . He studied psychology at the University of Otago.