You can always find a reason to start, or not start, a business. Economic recessions create tough environments for owners. But they also offer opportunities for an organization’s long-term success. The difference between success and failure has little to do with the business climate. It has much more to do with the decisions you make when you’re surrounded by uncertainty.
So you’re going to start a business during these challenging times? Great. You’re going to nail it….maybe.
Economic downturns can clear the way for long-term success: it’s easier to find good employees, interest rates tend to be better, and investors may be looking for better avenues for their money. But you still need to get it right because, as you probably know, success isn’t guaranteed. The Bureau of Labor Statistics reports that 20% of businesses fail in the first year and 45% fail before their 5th.
I know you don’t want to be a statistic. I know you want to get it right.
Success isn’t guaranteed, but failure isn’t inevitable.
How does failure happen? It’s not like guidance is lacking. Over 10,000 business-related books were published on Amazon in just the last year, and business consulting is a $130 Billion market. You can Google any business-related topic and get enough content to keep you busy for years. There’s so much information you’d think that you could easily pinpoint why some business owners don’t get it right.
But you’d be wrong.
Truth is, there are so many variables involved in making a business work that you can’t judge the success or failure of a business by its outcome. Markets change. Consumer preferences change. A powerful competitor could move in next door.
A pandemic could happen.
But let me ask you this: if your business fails, would you rather it be because the world threw you a curveball, or because you made poor choices?
Why you’ll make mistakes.
We make suboptimal decisions in times of uncertainty, when we don’t have enough information to know all our options or fully understand all the trade-offs. COVID-19 introduced a lot of economic and social uncertainty, but even before the pandemic, things weren’t perfect. Remember, unemployment spiked several times last decade. Wages have plateaued since the early 2010s. States and the federal government cut their spending due to unprecedented budget shortfalls.
Uncertainty is certain.
We make bad decisions under uncertainty because we don’t know enough – about our competition, our customers, or the future. We don’t even know what we don’t know. When we’re uncertain, we’re more likely to use mental short cuts, succumb to biases, or be influenced by our surroundings.
To start a successful business in times of uncertainty, it’s not enough to know the basics of business. You need to know how your human glitches will set you up for making mistakes. So here are five ways to avoid making bad decisions when you’re getting your business started during an economic downturn.
First, downplay the small wins.
We love instant feedback. True in life and true in business. We use it to determine if we’re on the right track, and it feels good to get kudos. We want our customers to tell us how we’re doing. We want data to tell us that lots of people are coming to our site. We want our colleagues to pat us on the back. We want likes on social media. We work hard for these things, and there’s nothing wrong with all this. Unless you let it derail you. Little victories feel so good, but the rush they give prevents us from seeing the long-term rewards we really want.
When a decision we make results in immediate positive feedback, we’re likely to make that decision again – or value that decision as good enough to mimic. The next time we make a choice, we are less likely to evaluate pros and cons in terms of our end game and more likely to chase more positive feedback. After several decisions like this, we could be well on our way to getting off track.
Small wins reward the moment. Healthy businesses care about the long-term.
Bottom line: Business experts will tell you to set up a solid strategy and plan, and then follow it. The decision science advice is to downplay small wins. Enjoy them. But if you enjoy them too much, the flattery can derail you.
Second, care about your wellness.
Your physical, emotional, and mental health can determine how successful your business is. If you don’t care about your personal wellness, you could make decisions that will hurt your business.
You may not realize it, but all the stresses, aches, and pains in your life are adding up and compromising your ability to make important decisions. If you’re sleep-deprived, you’re more inclined to make risky choices without thinking of the potentially negative outcomes. If you have chronic pain, you’re less likely to listen to new information that would require you to change direction. And if you’re stressed – and you’re going to be stressed – you may have trouble retaining information that will keep you nimble.
Bottom line: Business experts would tell you to avoid being impulsive by slowing down, asking questions, empathizing, and exploring other options. The decision science advice is to focus on your health. Prioritize sleep and get enough of it. Eat a healthy diet. Manage your stress levels by taking breaks and doing things you love. If you’re dealing with something emotionally heavy, manage it. You can’t avoid being impulsive sometimes, but if you care for yourself, those times will be much fewer and farther between. And if you can’t take care of yourself, go the extra mile to be extra risk-averse in your decisions.
Third, don’t feel yourself too much.
Every business owner has an idea. Sell your hand-crafted pastries. Become a wedding photographer. Create an app that helps people predict the stock market. But too often we let the love of our idea get in the way of building a thriving business.
We humans tend to over-value what we create simply because we create it. Our dreams are great, but they’re not all made for business. And when we don’t have a lot of information, we rely on the information we happen to have. Sometimes, all we know is that we love what we’ve created – and then we predict that everyone else will love it too. So we risk failing... on a feeling.
It takes more than your excellent idea to succeed. Your business needs to solve a real problem, to offer people something they want but can’t find, whether it’s a product, a service, an experience, or even a brand personality.
Bottom line: Business experts would tell you to offer consumers something they need but that doesn’t yet exist. The decision science advice says to separate your emotions from your idea so you can analyze them properly. Your idea is your baby, but it’s also just an idea, and you’ll have a lot of them. Don’t fall too hard in love or you’ll lose sight of what works.
Fourth, don’t blindly follow norms.
More than once I’ve worked with business leaders who were facing a tough decision about the best way forward. They would ask, “What is our competitor doing?” Or “What’s my buddy’s company doing?”
These aren’t bad questions... unless they’re the only questions you ask.
There’s a tendency among organizations to mimic other organizations. Sociologists call this mimetic isomorphism. If another business is doing well, the assumption is that what they’re doing will work for you too. It’s the organizational version of the bandwagon effect, where people follow the majority because it’s the majority, and not because the majority is actually doing the right thing.
Organizations also mimic others because they want to appear legitimate. If the top tech companies in the world have ping pong tables in their common areas, then as a tech startup who wants to seem legit, you’d feel the need to get a ping pong table too. Even when a ping pong table may have no impact on the success of your business. It might improve morale or lure in the best talent, or it might be irrelevant in the big scheme of things. To know for sure, you have to think things through, not follow trends.
Bottom line: Business experts will tell you to “follow the leader”. The decision science advice is to take time and do the work: where do you need to go, what do you need to know to get there, and how are you going to go about it?
Fifth, don’t buy all the stories.
I was once part of a small team tasked to share insights and advice to small business owners. My job was to share research data. My colleague’s job (let’s call her Amy) was a successful small business owner tasked with to sharing her personal stories of trial, error, and success. The rest of the team thought Amy should take the lead on the presentation. Why? In their words, “You can show people data all day long, but what business owners really respond to is real stories. It’s more exciting to them.”
This isn’t untrue. Stories are interesting. And, I get it, data is boring.
But here’s the deal about stories: sometimes they represent reality and sometimes they’re just intriguing anecdotes. The more interesting, compelling, and memorable they are, the less the human brain cares that they’re true.
If you use one person’s stories to make a decision, you’re succumbing to probability neglect and falling for the law of small numbers. You’re assuming that one person’s experiences reflects the experiences of all people. You are very different from other people. So are your circumstances and your business. What’s true for someone else isn’t necessarily true for everyone, but good stories can make us forget that.
Also, because stories are more memorable than data, they’re easier to recall as evidence of how likely something is to happen in the future. For example, if someone tells you a great story about how they used radio advertising to draw in more customers, you might remember this story months later when an ad agency tries to convince you to create a radio ad. The memory of that story will likely carry more weight than the evidence of hundreds of businesses for whom radio advertising did no good. It’s not the case that radio advertising is useless. Whether or not it’s useful has little to do with how successful it was for someone else. But compelling stories have a way of making us forget this.
Bottom line: Business experts preach the power of storytelling as a way to get your point across. The decision science advice is to start with statistical research and then use stories to illustrate facts, not replace them. If you don’t predict well, you won’t decide well.
You deserve the best shot possible.
The uncertainty that is freaking everyone else out is likely freaking you out too. Uncertainty forces us to take mental shortcuts and rely on biases. It nudges us to follow the crowd just to feel more secure. It makes us lose sleep, feel anxious, and become stressed. All of this leads to poor decision-making.
Good decision-making is hard in good economies. It’s harder in times of more extreme economic uncertainty. So while uncertain economic conditions might be favorable to your budding business, they’re not necessarily favorable to your judgment.
The goal of great decision-making isn’t to avoid failure. It’s to set yourself up for the best chances at being successful. A lot of your success isn’t up to you. You can’t know everything, and you can’t control everything around you. But if you know how to handle uncertainty–and if you have the right decision-making tools–you’ll have a much better shot. And in the big scheme of things, a great shot is the best we’ve got.