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Understanding the herd mentality and maintaining a balanced business strategy
There is a herd mentality present in every aspect of our daily lives as humans. However, as an entrepreneur, you cannot afford to enter crowded markets or follow trends mindlessly without a well-thought-out strategy. One may contend that imitating what others have shown to work is a surefire method to get into the market, but doing so also limits your own creative possibilities.
That being said, this does not imply that you should actively defy accepted wisdom and act carelessly. Keeping a balanced company plan is the key. The tale of George Soros, an investor who gained notoriety by taking audacious, high-stakes positions against the consensus, is arguably one of the most notable examples of this lesson. He positioned his shares properly, anticipating an immediate market collapse on the Nikkei and a longer-term rise on the S&P 500 during the legendary 1987 bull market. Regretfully, this was not the case, and Soro’s audacious decision to go against the crowd had unintentionally turned into a disaster for his whole company.
Business executives can learn a valuable lesson from the example of Soros: it just takes a mismatch between strategy and rationality to lead to failure.
5 reasons entrepreneurs shouldn’t blindly follow the herd
1. Authenticity matters
The greatest risk of going along with the crowd is losing sight of who you are and what makes you special. Your principles, ideas, and passions start to lose importance in your life and decisions when you comply to social norms. It’s still true that the only way to find personal fulfillment and create lasting connections is to value your uniqueness.
Personal example: Being passionate about sports, I invested in a new sports management business despite having limited sports industry experience. The experience had many ups and downs with an eventual successful exit 10 years later.
2. Creative freedom
Herd mentality is one of the greatest barriers to creativity and innovation. It’s difficult to get new ideas when you’re following the conventional path. But by stepping away from the crowd, you can explore new ideas.
Personal example: Against my financial advisor’s advice, I went into business collaboration in the art industry. It turned out to be one of my best decisions, one I wouldn’t have made if I had stuck with the conventional.
3. Critical thinking
Being a follower of trends or a herd member prevents you from developing your critical thinking abilities. You may hone your intellect and make wise decisions by investigating your independence and carefully evaluating the circumstances surrounding you. Over time, you’re able to make deliberate decisions that support your objectives.
Personal example: I have been able to examine and realize the best things for me, now I prioritize the well-being of my mind, body and spirit through practices like meditation and Qi Gong.
4. Personal growth
Being different from the crowd also helps you become more conscious of your own development. You are compelled to confront your concerns and push the boundaries because you are not following the norm. These encounters shape who you are as a person and an entrepreneur and teach you the value of staying true to who you are even in the face of adversity.
5. Unique path to success
A reality that you will need to immediately accept if you want to succeed is that success is defined differently for every individual; there is no one type of success. You must separate yourself from the outer world and create something special that plays to your talents and passions. Put simply, you have to define success according to your own standards.
Way forward for entrepreneurs
- Prioritize risk management and diversification. Soros failed to manage his risk and this led to his downfall. Always be strategic and never over-commit to a single strategy.
- Work on your emotional intelligence. An emotionally intelligent business leader can understand when external factors are influencing decision-making. This leads to a more intentional and rational choice.
- Recognize you have cognitive biases and that they can distort decision-making. A deep understanding of these potential biases can help reduce their influence.
- Nurture and embrace adaptive strategies that make it possible for you to adjust and pivot accordingly in the dynamic business environment.
FAQs
1. What is herd mentality, and how does it affect entrepreneurs?
Herd mentality refers to the tendency of individuals to conform to what the majority is doing, often without considering their own unique perspectives or needs. For entrepreneurs, following the herd can stifle creativity and limit opportunities for innovation and growth.
2. Why should entrepreneurs avoid blindly following trends?
Following trends without careful thought can lead to loss of individuality and competitive advantage. Instead of blindly imitating others, entrepreneurs should focus on their unique strengths and creative freedom to stand out in the market.
3. What is an example of herd mentality leading to failure?
Investor George Soros made high-stakes bets against the consensus during the 1987 bull market, expecting a market collapse that never occurred. His decision to go against the herd without proper strategy led to disastrous financial results.
4. How can authenticity benefit entrepreneurs?
Authenticity allows entrepreneurs to stay true to their values, passions, and ideas, which fosters personal fulfillment and meaningful connections with customers. It helps build a brand identity that stands apart from competitors.
5. What role does critical thinking play in entrepreneurship?
Critical thinking helps entrepreneurs make informed decisions, develop independent strategies, and avoid impulsive actions driven by trends or societal pressures. It encourages deeper analysis and more deliberate choices.