Despite evidence to suggest otherwise, business owners remain confident
To go into business, you have to be something of an optimist.
You have to believe, with some level of confidence, that you can change your future and make it better.
What happens after you’ve been in business for a while?
The latest Sensis Business Index suggests that we (well, most of us) remain optimists, despite what appears to be significant evidence to suggest that optimism is misplaced.
A glance at the Profitability chart illustrates this clearly.
The pattern of the lines shows that the general direction of business sentiment was borne out by experience (up or down from the current quarter) but there is consistently a 20-point gap between those dimensions. The survey asks questions along the lines of “Do you expect your profit the next quarter to be better, worse or the same than the last quarter?” and then “Was your profit in the last quarter better, worse or the same as the previous one?”. They then compare the number responding with better to the number responding with worse.
Every quarter, year after year, 20% of business owners must be disappointed by their results. Yet, in aggregate, we continue to be optimistic and learn nothing from this. Remember this the next time someone tells you a story about the wisdom of crowds.
One could argue that a business owner has limited control over profitability but the same trends are apparent in other statistics, such as prices.
Business owners have, more often than not, expected to increase their prices in the following quarter. The experience though, is that most of the time far fewer have achieved those increases.
The Sensis survey doesn’t go into the reasons why those expectations weren’t met – it simply asks the before and after questions. It might make a good PhD thesis for someone one day!