Inspired or Foolhardy: Sensemaking, Confidence and Entrepreneurs’ Decision-Making

The study examines whether new entrepreneurs are more confident than established counterparts and how this confidence affects sensemaking and decision-making under uncertainty. New businesses face liabilities of newness and smallness, limited resources, weaker ties, and lack of experience. Confidence, often stemming from positive affect, can simplify judgments but may bias decisions and lead to overconfidence. The research problem is framed around differences in how novice versus experienced entrepreneurs perceive risk, interpret environmental signals, and act. The paper explores how experience may temper confidence, potentially shifting decision-making from optimistic, intuitive approaches to more cautious, market-aligned responses.

The literature highlights higher failure rates among young firms due to liabilities of newness and smallness, limited funding, skills, and knowledge, and challenges in uncertain environments. Entrepreneurial cognition and sensemaking shape perceptions of risk and actions. Self-efficacy influences start-up and proactive decisions, while overconfidence can distort perceptions and lead to optimistic bias. Entrepreneurs often react flexibly under uncertainty, relying on intuition rather than formal planning. Overconfidence is linked to entrepreneurial entry and innovation, yet may harm survival if market conditions are misread. Two focal areas are developed: perceptions of risk (how confidence influences risk assessment and whether risk-related decision-making changes with experience) and belief in individual ability (whether newer entrepreneurs are more optimistic about their firm’s capabilities). The study poses two questions: (1) Does entrepreneurial decision-making in relation to risk change with experience? (2) Are newer entrepreneurs more optimistic in decision-making regarding the firm’s ability?

A mixed-method design was used. The primary data collection was a survey of approximately 60,000 members of the Federation of Small Businesses (FSB) in the UK, yielding 6289 completed questionnaires (10.5% response rate) during the latest economic recession, a critical incident emphasizing risk and uncertainty. Quantitative analysis employs Pearson Chi-Squared tests to assess differences across categories; findings are descriptive rather than causal or generalizable. Open-ended questions provided qualitative narratives to explain patterns and illustrate confidence in action. Respondents were categorized by firm age: <1 year; 1–3 years; 4–5 years; >5 years. A follow-up telephone interview was attempted with 2300 consenting participants, but few were ultimately interviewed due to difficulties tracing newer firms. The sample spanned 11+ sectors, with 64% operating >5 years, 5% <1 year; business forms included sole proprietors (41%), partnerships (18%), limited companies (39%). Gender: 72% male, 28% female. Age distribution skewed to 41–55 years (51%). Analysis reports rounded percentages and focuses on perceptions of performance (past, current, future), pricing decisions, and operational changes (staffing, cost management) as manifestations of confidence.

Perceptions of performance and future outlook:

• Before recession, 70% of all firms reported growth; older firms more frequently reported prior growth (Table 2; χ² = 186.161; df = 6; p < 0.001).
• Current performance: 42% of novice firms (<1 year) reported doing well/very well vs 35% overall; older firms (5+ years) reported worse current performance more often (43% badly/very badly) (χ² = 53.383; df = 6; p < 0.001).
• Current sales vs up to 3 years prior: 52% of new firms reported decreased sales vs 57% of 5+ years; only 32% of new firms reported increased sales vs 47% in 1–3 years (χ² = 105.882; df = 6; p < 0.001). New firms’ optimistic self-appraisal sometimes contrasted with declining sales.
• Future expectations: 42% of new firms expected improvement in next 2 years vs 26% of established firms; 27% of established firms expected worsening conditions vs 13% of new firms (Table 3; χ² = 98.083; df = 6; p < 0.001). Closure likelihood: 70% of new firms saw closure as unlikely vs 76% of older firms (χ² = 40.871; df = 6; p < 0.001). Pricing actions:
• Price reductions in last year: 47% of new firms reduced prices vs 35–36% of older firms (Table 4; χ² = 49.254; df = 6; p < 0.001).
• Level of reduction (among those reducing): >10% cut reported by 49% of new firms vs 37% (4–5 years) and 41% (5+ years) (χ² = 16.585; N = 2315; df = 6; p < 0.05).
• Customer support confidence: 71% of new firms confident vs 79% of 5+ years; 20% of new firms did not know if customers would continue support (χ² = 27.655; df = 6; p < 0.001). Operational responses:
• Staffing reductions (numbers/hours/pay): 19% of new firms vs 32% (1–3 years), 37% (4–5 years), 41% (5+ years) (Table 5; χ² = 81.706; df = 3; p < 0.001).
• Operational changes: 41% of new firms vs 50–53% of older firms (χ² = 12.644; df = 3; p < 0.05).
• Strategic focus in downturn: 67% of new firms focused on increasing sales vs 41% of 5+ years; maintaining sales: 15% new vs 26% 5+ years; reducing costs: 6% new vs 17% 5+ years (χ² = 198.146; df = 12; p < 0.001). Synthesis (Table 6): Newer entrepreneurs are more optimistic and more likely to use price cuts to drive sales, often making larger concessions, while older entrepreneurs show greater caution, restructure operations and staffing, and emphasize maintaining performance and cost reductions.

Findings indicate that experience tempers confidence and reshapes sensemaking. More experienced entrepreneurs exhibit greater calculation, aligning decisions with market realities, retrenching and restructuring to manage recessionary risks. New entrepreneurs maintain optimistic views of performance and future prospects despite declining sales, consistent with confidence-driven sensemaking and belief in abilities. Their actions—aggressive price cuts, pursuit of sales growth, minimal operational cost adjustments—reflect confidence in existing configurations rather than adaptive restructuring. While such optimism may foster innovation and forward-looking perspectives, it can be ill-judged in downturns, increasing vulnerability. Conversely, experienced entrepreneurs’ risk aversion may constrain innovation and growth. Thus, confidence operates differently across experience levels, influencing how entrepreneurs interpret risk and decide on pricing and operations.

The paper connects confidence to tangible decision-making under uncertainty, showing heterogeneity between novice and experienced entrepreneurs. New entrepreneurs’ higher confidence manifests in optimistic performance perceptions, aggressive price reductions, and a focus on sales growth, whereas experienced entrepreneurs adopt defensive strategies, restructure operations, and reduce costs. These insights refine understanding of confidence beyond start-up, into day-to-day practices, and highlight how experience alters sensemaking. Practical implications include tailoring entrepreneurship education and support to address risk perceptions and decision biases in novices, while encouraging balanced optimism in experienced owners to avoid excessive conservatism that may hinder innovation. Future research should track confidence and decision-making longitudinally to map their evolution and employ configurational methods (e.g., fsQCA) to unpack complex relationships among context, perception, innovation, and actions.

The study is descriptive and not intended to establish causal, generalizable relationships. Data are self-reported and collected during a recession, which may amplify certain behaviors. Follow-up interviews were limited due to difficulty tracing newer respondents, restricting retrospective insights on how confidence evolves. The mixed-method approach offers illustrative evidence but does not fully disentangle underlying causal mechanisms; further research using longitudinal designs and configurational analysis (fsQCA) is recommended.