Annie Duke, the brilliant decision strategist and author of How to Decide, introduces a concept that hits entrepreneurs right in their self-confidence: the inside view versus the outside view. The smarter you are, she argues, the more likely you are to fall into the trap of the inside view — over-relying on your own experiences and judgments, rather than looking at broader trends. In other words, your brain is basically saying, “I got this!” while the universe quietly giggles in the corner.
Now, imagine our bold entrepreneur. Let’s call her Emily. She’s got a thriving cupcake empire, a killer instinct for business, and a self-belief so strong it could bend spoons. Emily’s retirement plan? Simple: “I’ll just rely on my business for income. After all, who needs a boring old pension when you’ve got a money-making machine?” Well, Emily, let’s take a moment to consult the outside view before you start mixing your retirement savings with buttercream.
The Cold, Hard Stats: Business Survival Rates
First, let’s talk survival. Businesses, like cupcakes, can crumble. According to the U.S. Bureau of Labor Statistics, 50% of small businesses bite the dust within the first 5 years, and by year 10, 66% have gone kaput. In South Africa, the numbers are even more sobering: 70% to 80% of small businesses fail within the first five years, according to the Small Enterprise Development Agency. Over in Europe, Eurostat data reveals that 40% of new businesses do not survive beyond five years. So, while you might think your bakery is destined to become the next Starbucks, the statistics suggest you should maybe hold off on naming your yacht "Cupcake Queen."
Diversification: Don’t Put All Your Eggs (or Profits) in One Basket
There’s a reason financial advisors keep harping on about diversification. It’s like spreading your risk across multiple cookie jars. Entrepreneurs who pour all their resources into their business are essentially baking one big cake and praying it doesn’t fall flat. Traditional retirement accounts, like pensions or Unit trust savings, offer a way to hedge your bets. Think of them as your financial backup plan—or the sprinkles on top of your cupcake empire.
Overconfidence: The Double-Edged Whisk
Entrepreneurs tend to be an optimistic bunch. It’s what makes them risk-takers and go-getters. But there’s a downside: overconfidence bias. This is the brain’s sneaky way of convincing you that your future is entirely under your control. Research shows this bias can lead to poor decision-making, especially when the stakes are high. Remember, Emily, even the best bakers burn a batch now and then.
The Grim Reality: Liquidity and Retirement Woes
Here’s another kicker: Businesses aren’t liquid. No, that doesn’t mean they’re swimming in margaritas. It means they can’t easily be turned into cash when you need it. If Emily plans to sell her bakery to fund her retirement, she might face challenges finding a buyer. Worse, she could end up selling at a discount if she’s desperate for cash.
Why You Need a Plan B (and Maybe a Plan C)
Self-belief is great, Emily. It’s why you’re an entrepreneur in the first place. But let’s balance that confidence with some data-driven decisions:
-
Save on the Side: Contribute to a traditional retirement account. Your future self will thank you when you’re sipping piña coladas on a beach instead of baking under the stress of late-life financial woes.
-
Diversify Like a Pro: Treat your savings like your cupcake menu. Offer a variety of options to spread the risk.
-
Get a Financial Coach: Think of them as your personal recipe tester. They’ll make sure your financial plan is foolproof.
Final Thoughts: A Sprinkle of Humor
Relying solely on your business for retirement is like putting all your chips on a single roulette number. Sure, it could pay off big. But statistically, you’re more likely to end up eating stale bread in your golden years. So, Emily, keep baking those cupcakes. But while you’re at it, whip up a diversified financial plan. After all, retirement is a time to relax and enjoy the fruits of your labor—not worry about whether your next batch will sell.
As Annie Duke would likely remind us: the smarter you are, the stronger your inside view. But the wiser you are, the more you’ll respect the outside view. So, entrepreneurs, take a step back, embrace the data, and make decisions that will keep your retirement sweeter than any cupcake.
Atomli: Your Partner in Smart Retirement Planning
At Atomli, we understand that entrepreneurs need more than just numbers—you need a strategy that aligns with your unique goals. Our team has the skills to guide you with sound financial advice and, through neuroscience coaching, help you put your thinking cap on. Whether it’s diversifying your portfolio or shifting your mindset, we’re here to make sure your retirement plan is as solid as your business dreams.