All In Your Head – Cognitive Errors That Can Affect Business Decisions

Small business operators are adaptable, foresighted, and technologically adept. They take advantage of the situation. That’s what allows them to wreak havoc on marketplaces and run laps around their larger competitors.

That’s the concept – and it can be used to lucrative, VC-backed digital businesses with disruption inscribed into their DNA without fear of disagreement. Does it, however, apply to all those small and medium-sized businesses who are just scraping by month to month and trying to turn a profit?

When it comes to adopting new technology, SMB owners and founders are typically reluctant to use solutions that might boost or improve their productivity, according to new research from accounting software vendor Xero.

Xero is likely to have more than a passing interest in selling technology solutions to its target customers. It is now necessary to acknowledge it as a provider of expertise. In this regard, the results should be filtered via a “pores and skin inside reenactment” filter.

The fact that the research was created in partnership with behavioral science firm Decision Design to investigate some of the underlying reasons small business owners make particular decisions adds to the report’s intrigue.

Sonya Dineva, a business psychology professor at the University of East London was one of the behavioural specialists who examined the study’s findings.The epidemic, in her opinion, has unquestionably emerged as a factor. “In stressful situations demanding quick adaptation, we must now choose between struggle, flight, or freeze reactions,” she explains. “Worry and inertia may thwart our capacity to struggle in many situations, such as the current epidemic.”

So, after 1 year and a half of lockdowns and limitations, business owners focus on survival rather than looking forward and/or investing in their future.

You may say that’s a perfectly reasonable reaction to the last eighteen months. If keeping customers on board is your priority, you won’t consider switching accounting software or trying with a new cloud-based CRM system, at least for the time being.

In the small business community, six out of ten respondents were enthused about the promise of modern technology.

So there’s no real disadvantage? According to Sonya Dineva, even computer fans will be held back by deep-seated psychological barriers.

One of them is apprehension about change. “When it comes to life’s constants, “change is the only constant,” she writes. “yet when we experience it, we feel we’ve lost control and are threatened.”

What, then, does this mean for small company owners? Dineva distinguishes between solo traders — those who work for themselves – and those who manage larger businesses.

Making decisions as a solitary proprietor may be a very lonely process. Often, there is no one to discuss options with, depending only on one person’s opinions, preconceptions, and prior experience.

Traps for Thoughts

“There are mental traps you may fall into,” Dineva warns. “It’s possible that you’ll start making cognitive blunders.”

All-or-nothing thinking – the belief that any resolution must be all positive or it will be all bad – and catastrophizing are two of the pitfalls. Cognitive bias is common, or seeing what you want to see in a situation.

Those who work in larger organizations – those with boards and administrative groups – should, in theory, be better prepared to cope with change since there may be a variety of ideas and opinions coming into the mix. At board meetings, for example, the benefits and drawbacks of investing in new technology are often discussed in detail. This might lead to better quality video production.

However, it’s possible that this isn’t the case. “People may level in many instructions,” Dineva explains. “However, what you get in addition is groupthink. People get used to the existing order, which leads to group thinking.

A great deal, it is arguable, is based on established tradition. Founders are more than likely to set the agenda for the businesses they found. They might cling to their lone decision-making role with jealousy until governance becomes more of a problem down the line. Others in the company may just follow suit and be hesitant to promote a different point of view.

Getting Out of the Traps

So, presuming these are concerns in the first place, how can business owners overcome their cognitive mistakes, biases, and penchant for groupthink? Dineva admits that it isn’t quite straightforward. She replies, “People are what they are.” Despite this, she does point to a few significant change factors.

One of them takes the form of the message received by business owners, which is generally from outside sources. This might take the form of a newspaper story claiming that 70% of the most lucrative businesses have embraced a certain skill.

The marketing might also emphasize that a certain stage of knowledge adoption is the standard or default. Regardless, no one should feel left out or as if they are lagging compared to other organizations.

But here’s the problem: who’s doing the nudging? It may be the tech option sellers. It might be trade groups or government agencies. However, if corporations are going to pay attention, they must trust the messenger. Dineva recognizes that pushing must be done with caution. She responds, “There should be no manipulation.”

Although the Xero study focused on expertise, many of the issues stated by Dineva could be applied to a wide range of options. Is it necessary to invest in fresh employees? Is this the right moment to diversify your sources of income? Is the business mannequin up to the task?

Even if you don’t alter anything, you’re still taking a risk. In light of this, it’s reasonable to speculate that psychological influences on decision-making should be considered. As a first step, it’s worth discussing it with others.