Back the mid-to-late 1980s, I was with a public relations firm in Boston that worked almost exclusively with real estate developers. In the early part of that period, the residential market in Eastern Massachusetts was red hot. It seemed that at least once a week, we had a new business meeting with a developer (often someone new or nearly new to the real estate game) who was building a condo project aimed at the empty nester market. In each of these meetings the developer expressed great confidence that their projects would sell out in no time. “Build it and they will come” was the mantra.
After a while, I began to wonder exactly how many empty nesters there were going to be in the Greater Boston area to take up these hundreds of condos. Yet not a single developer we talked to had actual market projections. With no market research to prove their proposition, everyone was still 100% convinced that hoards of empty nesters would be interested in downsizing over the next few years. This was the preferred market segment for these developers because, unlike first-time buyers, empty nesters would have developed significant equity in their homes and would be able to afford higher priced, more profitable units. (The banks, of course, were complicit in all of this; why they weren’t demanding market data remains a mystery to me.)
Talk about overconfidence! And here are some synonyms for overconfidence that fit many of these developers: cocksure, brash, arrogant, reckless, heedless. Personally, I mostly thought of them as delusional thinkers.
From boom to bust
By 1989, it was becoming clear that the condo market in the region was ridiculously overbuilt and over the next few years, the area experienced one of its worst real estate-led recessions ever. A number of the developers I had sat across the table from went bankrupt. It took the market until roughly the middle of the 1990s to absorb all the empty units and for housing values overall to return to their pre-recession levels.
This story represents the greatest and most economically damaging example of overconfidence I’ve seen in my career, but it is far from the only example I’ve witnessed. People who are overconfident have such a strong belief in their own idea and their ability to judge the market for that idea that they neglect to do the research required to actually test whether their idea holds water.
I’ve walked away from many potential clients because they were totally sold on their business idea but had nothing other than their own self-assuredness to back up their notion that the idea was going to be hugely successful. I’ve seen this both with start-ups and with established companies that are thinking of taking a new direction (often because their old direction wasn’t working that well).
Cluelessness is not a virtue
These were people who were guessing at who would want their product or service; they loved it, so they assumed everyone else would, too. They had no idea how much business they’d need to do to turn a profit. They, in fact, had no idea what their own costs would be for operating a business. In short they had done no real market research and had no realistic financial projections. And yet here they were putting the cart way before the horse, trying to hire a publicist to promote their new gizmo.
The folks in the overconfident crowd invariably did not like answering the types of questions I would ask as I tried to determine how realistic their assurances of great things to come actually were. Any pushback they might hear was quickly dismissed. For example, if asked who their competitors were, you were invariably told they had no competitors. Well, get a grip, people; everyone has competitors! They might not have the exact same product or service you do, but there are other companies out there fighting for that same consumer dollar.
Confidence is a good thing. Overconfidence can be fatal. Make sure you’re not overselling yourself on a business idea without first doing the necessary homework to prove its viability. Be open to hearing input from people who have a solid basis for asking you tough questions, such as people who have experience in your field and who know the market perhaps better than you do. Reach out to a variety of advisors and listen carefully to what they have to say. Don’t dismiss a naysayer as just being someone who is jealous that they didn’t come up with your idea first.
Being passionate about your business is one thing. Being arrogant about it is another. Failing to learn the difference is something no small businessperson can afford.