Can you guess what the key ingredient is for small business success?
No, it’s not funding, and it's not a business plan.
In a word... it's confidence!
We look after a lot of small businesses and the word we hear over and over is 'confidence'. Some have it in abundance and others, particularly those just starting out need a bit of hand holding.
A fascinating study by Kabbage revealed that entrepreneurs, specifically small business owners, are battling with under-confidence. The research shows that the majority of small businesses believe their revenue growth under performs their peers. Specifically, 60% of respondents ranked their revenue growth below the 50th percentile of similarly sized companies. Yet, when comparing their actual cash flow and revenue data with the analysis drawn from the Kabbage Small Business Revenue Index, the information indicates that the vast majority of respondents actually have a healthy revenue performance.
So, the question is, why are these business owners feeling so pessimistic about their company's performance and how is it impacting their decision making?
Why do small business owners feel under-confident? Under-confidence leads individuals to avoid opportunities that could lead to small business success. Or even worse, to give up. 80% of small businesses fail in their first year, so it takes guts to back yourself and confidence is key.
There's a well known phrase among professional airline pilots that "your attitude determines your altitude" and this can also be said for small businesses. Although with their feet firmly on the ground of course.
According to management professor Don A. Moore, there is a reason small business owners tend to downplay 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 under-confidence despite sharing similar struggles.”
How does under-confidence affect decision making? Under-confidence also affects decision making. Moore states that “People who demonstrate under-confidence are more likely to opt-out of or choose to exit when, in fact, they would have succeeded had they persisted.”
In other words, the primary distinction between those who persist and those who give up is self-confidence.
The good news for small business owners is that self-confidence is something you can improve upon and develop over time. Resilience, focus and determination are key traits of successful entrepreneurs. There are additional benefits to fostering self-confidence. According to Albert Bandura's social cognitive theory, people who exhibit more self-confidence also experience less stress, expend more effort, persevere longer and are more resilient when facing adverse situations.
The cure for under-confidence Whilst there is no magic cure to instill confidence in an individual, the best remedy for under-confidence isn't overconfidence.
It's the ability to bend the ear of a trusted professional makes a significant difference. Impartiality, expertise and first hand knowledge in small business growth is the game changer for small businesses owners and their chances of success. It can be lonely starting up a new business, so access to accurate, reliable, insightful information in a timely manner will help a small business owner feel in control and move forward rather than retreat.
Providing small businesses with access to benchmarking systems and analysis similar to what is available to large companies may help them more accurately estimate their performance. Technology advancements such as XERO empower small businesses to better analyse and understand their business performance in real time with their trusted advisor. This potential for technology in unison with expert advisor will fuel greater confidence in entrepreneurs and their businesses, providing the encouragement to keep going...and growing.
While these findings suggest that small business owners may carry self-doubt about the financial health of their businesses, the message is clear. Small businesses need appropriate resources and expertise to analyse and compare their cash-flow performance.
It's the combination of one 1 part self-confidence, 1 part expert support and 1 part technology that makes the ultimate perfect recipe for small business success.
If you're a small business owner and would love some help, get in touch today with Purple Accounts for a no obligation chat. If you like us, we'd be very happy to help you and your business.
Perhaps you don't get the service you need from your current provider - switching to Purple Accounts is easy peasy. Read more about switching here: https://www.purpleaccounts.co.uk/switchingaccountant