Why Being Too Negative OR Too Positive is Bad for Business
Current news is a perfect example of why being overly negative or overly positive in business is a bad idea.
Take the COVID-19 outbreak for example. For weeks, it seemed like every other post I saw was either the world was coming to an end and if you stepped outside you were going to die, or it's all a hoax. If you know anyone personally who's had the virus, you know it's not a hoax, and hopefully, you've figured out by now that you're not going to die if you take a step outside of your house.
I wrote an article a few months ago about how to stay healthy during the outbreak and did the exponential math showing a million cases by the end of March and a billion cases by May. I also noted that “Before you panic, let me reassure you that we will get this under control. It is highly unlikely that we'll hit those numbers I mentioned earlier.”
April 2nd we passed a million cases. My math on that low-end figure was only off by two days.
Cue the doomsday prediction based on the exponential math that everyone kept throwing around.
Surprise surprise, it didn't happen.
June 27th, we passed 10 million cases. That's still a lot, but nowhere close to the numbers that the doomsday prophets were proclaiming by applying exponential math to the problem.
How does that apply to business?
Many business owners apply things like exponential math to their business. They're either overly optimistic or overly pessimistic, and both will hurt their business.
Take for example starting a new business.
Too Much Optimism Leads to High-Risk Action
Ms. Optimistic does the math. Ok, the local population is 1,000,000. No one else is selling this unique product, so with no competition, I can surely get at least 10% of them to buy. If I can get just 10% of them to buy my product at $100 each this year, that's $100 * 100,000 = 10 million dollars!!!
Oh my, I'm going to be rich!
Ms. Optimistic quits her 9-5 job with little savings and starts up her business. In the first month, she creates her product and makes 50 of them. Unfortunately, she finds that no one wants to buy her product (which of course is why there wasn't any competition). Six months later after optimistically holding onto the idea that people will buy her product if she pushes it hard enough, she is tens of thousands of dollars in debt and the business dies.
Too Much Pessimism Leads to Inaction
Ms. Pessimistic does the math. Let's see here. We need an office building, employees, marketing, software, inventory, trucks… Ok, it's going to cost me $1.5 million to start my business. Oh my, how could I ever do that? Even if I could get the money, I'm going to go bankrupt!
Ms. Pessimistic keeps her job and never starts a business.
Realism Leads to Low-Risk Action
Ms. Realist does the math. Ok, I can probably sell my product for $250 per widget. It'll cost me $150 per widget to buy them and market them, so I can make $100 on each. I'd need to sell around a thousand each year to make $100k which will get me close to what I'm making in an office job.
That sounds iffy, let's try it out.
Ms. Realist puts a small amount of money into her business but sells nothing her first month.
“Well, that sucked, I lost money.”
She tries a different product the next month, and sells three items, netting $300 in profit.
“Well, I'm glad I didn't quit my job, but it has potential.”
Ms. Realist notes that a lot of the people she was talking to were asking if she sold an accompanying item when they bought. She decides to add that and suddenly doubles the profit she makes on each sale. Month three, she makes $900, and she's still got her full-time job.
Month four, she decides to invest in her business with advertising. Suddenly, people start buying more and more stuff, and she has to make a decision. Does she quit her full-time job with a safe salary and all the benefits and go full time with this?
Eventually, she decides to move forward with the business. By year three money isn't a problem anymore but she's so busy she calls me to figure out how to get her life back.
Find The Balance
Overly optimistic people can get themselves into tough situations. Ms. Optimistic was a little too optimistic and jumped in with both feet instead of trying things out on a small scale first. While some optimism is required, too much can be devastating to a business.
Overly pessimistic people tend to do nothing. They say no to every idea instead of trying it out and also no one wants to be around someone who is always negative, which can also be devastating to a business. Some pessimism is required, as you need to identify risks to the business, but too much will lead to ruin.
More realistic leaders and owners analyze ideas neither dismissing nor embracing them immediately. They realize that neither the worst-case or best-case scenarios are likely to play out, and are willing to try new things. That means they are likely to move forward with ideas, but will also not bet the farm every time a new idea comes along as they understand that there is risk involved.
To be an effective leader or business owner, understand that there is risk involved with every move. Do what you can to minimize that risk, but don't let it paralyze you.
Stay positive yet realistic, and you'll do well.