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Can Confidence Harm Entrepreneurs?

By: Mark Crawford | Photo By: Camilla Klyve

Chad Navis

Chad Navis, assistant professor of management and human resources

With so much on the line, why do many startup companies fail? According to research by Chad Navis, assistant professor of management and human resources at the Wisconsin School of Business, new ventures often fail when their entrepreneurs possess a critical personality flaw—hubris.

"Hubris is defined as a trait of exaggerated self-confidence and pride that individuals can acquire over time when they occupy powerful leadership positions," says Navis. "This overconfidence reflects a belief of having superior knowledge, predictions, or abilities compared to one’s peers."

Although most entrepreneurs are not hubristic, the link between hubris and poor venture performance should be on the radar of potential partners or venture capitalists who might find themselves working with startup entrepreneurs who display this trait.

Navis indicates that hubristic entrepreneurs tend to be drawn toward startup ventures that pose new-to-the-world challenges, because they see these opportunities as an exciting stage on which they can perform and gain praise for new accomplishments. In contrast, they tend to shun more familiar opportunities, where standard business concepts make it harder to show off and feed their narcissistic personalities.

"This creates a mismatch between the type of ventures where hubristic entrepreneurs tend to be found and the type where they have the highest chance of success," says Navis. "Familiar ventures have relatively clear recipes for success, and thus stand to benefit most from the passion, competitive drive, and laser-like focus that hubristic entrepreneurs can bring. Novel ventures call for far greater learning, flexibility, and ongoing adaptation, demands that run counter to the natural tendencies of hubristic entrepreneurs."

Navis calls this the Hubris Paradox.

"Whenever I give presentations on this topic, people often come up afterward and say, 'I totally understand this, because I've seen it in my own experience,'" says Navis. "In many ways, hubristic entrepreneurs dig their own graves by pursuing the type of novel ventures where they are least likely to be successful, and by avoiding the type of familiar ventures where they are most likely to be successful."

The best approach to change or moderate hubris may be to hold hubristic people accountable to "ego checks" or to reduce their power.

The overconfidence and charisma of hubristic entrepreneurs impact investors as well. It increases the likelihood they will convince partners and team members to pursue questionable ventures, seek fewer resources than needed, and dismiss or suppress valuable data in decision-making. This means that the relatively high failure rates in entrepreneurship may often have less to do with the inherent product or services of the startup, or the skills and experience that entrepreneurs bring to the table, and more to do with the cognitive biases and emotional makeup of the entrepreneur.

Hubris is an acquired trait, "triggered by moving into a position of power and the resulting lack of constraints on the individual’s behavior," says Navis. That means it is possible to mitigate or even neutralize hubris. This is, however, difficult to do, because hubristic people believe they are above others and already know everything they need to know.

Instead, the best approach to change or moderate hubris may be to hold hubristic people accountable to "ego checks" or to reduce their power. For instance, investors should insist on more control over the structure of the business and the management team, especially if the project is highly innovative or untested.