Gen. Colin Powell said, “Perpetual optimism is a force multiplier.” Would this philosophy improve financial decision-making in an electrical contracting business? It worked in my family’s contracting business, though I didn’t realize it at the time.
On one occasion, two days before payroll was due, I asked my father what to do about our insufficient level of available cash. Dad replied that he had learned not to worry about money—if he needed it to be there, it would be there. Thinking this was clearly the stupidest business philosophy I had ever heard, I shrugged and returned to work.
When Dad bounced into the office the next day waving a sizeable check, I thought it was luck, instead of his optimism, that solved the problem. He had focused on what he needed, called a regular customer and assured him of a place on our rapidly filling schedule in return for a deposit and signed contract on a recently bid project, and he offered to pick up the check and contract personally.
Since researchers find optimism is a valuable business tool, books on the power of intention and the laws of attraction top the bestseller lists. If we attract the object of our focused intent, then preparing for the worst may not be the best financial strategy and, in fact, may drive failure instead of success.
In their book, “The Millionaire Next Door,” authors Thomas Stanley and William Danko divide self-made millionaires into two categories. Prodigious Accumulators of Wealth (PAWs) display the characteristics of optimists, such as persistence and confidence. Under Accumulators of Wealth (UAWs) also earn millions, but tend to worry more, take fewer steps to proactively meet challenges, and are unable to keep their earnings.
In his book “Learned Optimism,” Martin Seligman contrasts optimists and pessimists according to their “explanatory style,” or way of framing negative events, categorized into three dimensions: permanence (time), pervasiveness (space) and personalization. To the optimist, a negative event is temporary, limited in scope and caused by other people or circumstances beyond his control. The pessimist views the same event as permanent, far-reaching and the result of his or her own mistakes or inadequacies.
People strive to gain some measure of control over our circumstances as we mature. Technology provides the illusion of even greater control, but your outlook still affects your decisions and the degree of success you achieve.
As Henry Ford said, “If you think you can or think you can’t, you’re right.” Faced with a challenge, the pessimist gives up more easily, while the optimist tries harder. Optimists are more successful academically, athletically and politically. They regularly exceed expected scores on aptitude tests, have fewer health problems, age well and may live longer than those who view life through a negative filter.
Ironically, stakeholders reward financial decisions based on pessimism. Your banker expects you to meet revenue and profit projections consistently. Salespeople remain motivated only by goals they can achieve. As an entrepreneur, you are a risk-taker, but once your business is successfully established, you tend to stay with what works and become less inclined to take risks, even if the potential rewards are high. In other words, the business world applies pressure to make conservative, or pessimistic, decisions. So, you lower your expectations for revenue and profit, keep customers who pay poorly and are difficult to manage, and settle for employees who are adequate, when you hoped for excellence.
Seligman offers some hope for the business owner who wants to create an “optimism edge,” despite the pressure to act pessimistically. First, measure the optimism level of prospective and current employees, using a quiz such as the one you may find at www.stanford.edu/class/msande271/onlinetools/LearnedOpt.html.
Second, place people in appropriate jobs. For example, pessimistic people see reality more accurately and work better in jobs such as quality control, cost estimating, contract negotiation, financial control or accounting. Optimists are a better fit for high-burnout, competitive or creative jobs that involve rejection or frustration, such as sales.
Finally, implement “learned optimism” training. Using Seligman’s program, you present a problem, identify underlying beliefs that drive solutions, consider the consequences of acting on those beliefs, and then dispute them. Techniques for disputing beliefs include finding evidence that the belief is factually incorrect, seeking alternative causes for the problem, or considering the implications if the belief is correct. For example, a bomb defuser knows there is a risk of explosion, but focusing on the explosion that may occur causes his hands to shake, making that result more likely to occur. So, he must learn to refocus away from the potential explosion.
Ultimately, it is possible to alter negative beliefs and train for optimism. Although judiciously applied pessimism is useful, it may not be the best means of maintaining financial health. Consider optimism as a way to improve your financial decision-making.
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at firstname.lastname@example.org.