Why Entrepreneurs Underestimate How Much Capital They Really Need - 9/30/2024

Growing up one of my favorite toys was Evel Knievel's stunt motorcycle.  He was always pushing the envelope and really believed he could make his jumps except for jumps like this one where he crashed into the stands in a venue with a landing zone that was too small for a jump this big. 

We can draw many comparisons underestimating running a business with this example.

Excerpt from: Breaking Barriers: Overcoming the Top 5 Financial Myths that Keep You Broke - A Guide for the Small-Medium Sized Business Owner

Entrepreneurs are an optimistic bunch so personalities often lean towards a behavioral economic principle known as optimism bias. Simply it is believing that you are less likely to experience a negative outcome and more likely to have a positive one. This behavioral tendency permeates in all aspects of decision making, including financial planning. It should be no surprise that overconfidence leads to underestimating the true needs of a business.

Business owners who are self-aware of this tendency should delegate to members of their team a license to call them out when need be. This can do wonders for risk management and promote accountability within the company.