Overconfidence and Business Success

Feb 23, 2011
This article is part of a series called Editor's Pick.

Recently, an article by Kimberly Weisul called Why It’s Okay to Have a Delusional CEO ran on This article brought research conducted by Timothy Simcoe of Boston University’s School of Management and Alberto Galasso of the University of Toronto on how companies run by overconfident CEOs were more successful.

To start, let’s take a look at two strikingly different definitions of “overconfident”:

  • From WordNet: certitude: total certainty or greater certainty than circumstances warrant.
  • From Wiktionary: presumptuous, cocksure, rude and disrespectful.

Since a great deal of our readership are CEOs, Presidents, Managing Partners, and business owners, this article brings up some interesting characteristics that are certainly applicable to the Fordyce community. For example:

Most CEOs have very strong incentives to diversify their sources of wealth, especially after their company has had a period of very strong stock price performance. It follows that CEOs who choose not to diversify either have a very high risk tolerance or an unreasonably sunny outlook on their firm’s prospects. CEOs who fit this description tend to do more deals and are less careful with cash flows than their peers, yet their companies don’t seem to suffer from this.

Lots of you focus almost solely on contingent work, retainers, or contract placements. In a recent poll we put forth on combining different external recruitment business models, one responder said, “They are really…separate businesses. To be really good at one almost dictates that you won’t be really good at the other.” While there certainly is the argument that putting all your eggs in one basket is risky business, there’s the other (optimistic?) side to that argument that if you truly believe in your product, you need to go big or go home.

Simcoe’s and Galasso’s research also found that firms run by overconfident CEOs seemed to be better at innovation:

  • Invested about 15% more in research and development
  • Generated 20% more patents per dollar of R&D spending
  • Won patents that were about 20% more likely to be cited by their peers

Henry Ford is a great example of this type of entrepreneur. He produced the single casting V-8 motor in 1932. When he first presented his engineers with the task of creating a V-8 engine in one block, every one of them agreed that it was impossible to do so. Ford said, “Produce it anyway.” They reiterated again that it was an impossible task. “Go ahead,” Ford responded, “and stay on the job until you succeed no matter how much time is required.” The result: the world’s first V-8 engine in one block, affordable to the average American, from the mind of a man who once said, “Whether you think you can, or you think you can’t — you’re right.”

While most of you are not out seeking patents, you are exploring innovative new approaches to recruiting that build on experience and tried-and-true methods. In your minds, the best recruiters are the ones who bend and adapt to their changing markets — those who innovate to stay relevant.

It has been said that without risk, there is no reward. However, overconfidence, while often bordering on arrogance or conceit, can be both an asset and a hindrance. In a 2009 New Yorker article written by Malcolm Gladwell, he states that “when we become overconfident…we start to blur the line between the kinds of things that we can control and the kinds of things that we can’t.” Experience is often the culprit of overconfidence as well. Gladwell says, “As we get older and more experienced, we overestimate the accuracy of our judgments, especially when the task before us is difficult and when we’re involved with something of great personal importance.” This doesn’t always necessarily mean chronological age, either — this could mean age as it pertains to professional experience.

On the same hand, studies in human psychology suggest that overconfidence, and belief that good things will happen, can and do actually lead to favorable outcomes. In the book What To Say When You Talk To Yourself, by Dr. Shad Helmstetter, he states that the brain will believe what you tell it most — whether what you tell it is right or wrong. Consequently, the brain will engage in thought processes to attempt to confirm what it is being told — thus, your brain will seek to find ways to make what you tell it come to pass. If you believe that something is not worth trying, your brain will come up with reasons to confirm this thought. Consequently, if you believe that your business will see its most profitable year ever, you will both consciously and subconsciously begin coming up with ways to make that happen. So, having confidence (or overconfidence) in yourself, your business, or anything else in life in these terms will help you to make your endeavors successful, by these psychological findings.

So recruiters, which one of these overconfidence definitions and/or assessments best resembles you? Are you:

  • the CEO who many think is a few fries short of a Happy Meal when it comes to making ‘prudent’ business decisions, yet your business keeps seeing more and more success because you are unwilling to accept failure,
  • the recruiter who believes that because you’ve found success from one particular method of recruiting, it’s your way or the highway, or
  • the business owner who self-talks success and victory and is constantly looking for physical confirmations for positive mental processes?

Any of these pictures of overconfidence can lead to success. Overconfidence does not have to have a negative connotation. Just remember, at the end of the day — before you attempt to ‘beat the odds,’ be sure you could survive the odds beating you.

This article is part of a series called Editor's Pick.
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