The expression “irrational exuberance” has taken on a new significance in recent days. It was used in a 1996 lecture by the then Chairman of the Federal Reserve, Alan Greenspan, and was widely interpreted as a diplomatic hint that he considered the markets overvalued.

The hint was not diplomatic enough to prevent falls in the markets at the time – or perhaps that was the plan – but they were small falls by the standards of 2007-09, and the irrational exuberance soon returned. The opportunity for a less irrational revaluation was lost and the day of reckoning was postponed. It was therefore far more catastrophic when it finally arrived.
Yet Mr Greenspan probably got the expression from a surprising source – one who used it in a very different context.

The economist John Maynard Keynes spoke of an “irrational exuberance” that is necessary for success.

There are indeed many cases of entrepreneurs who were too young and inexperienced to know that something could not be done – so they just went out and did it!

Indeed, the defining feature of the successful entrepreneur is a willingness to do what no one else does – perhaps because everyone else assumed it was impossible.

So “irrational exuberance” has both negative and positive meanings. The same is true of youth in an entrepreneur.

Youth is by definition inexperienced, and therefore relatively ignorant – and therefore also irrational.

However, youth is also energetic, self-confident, willing to take risks, unbound by convention, and devoid of the caution that comes only with bad experiences over the years. These are the factors which make up the exuberance that enables the young entrepreneur to charge in to places where battle-scarred veterans fear to tread – sometimes successfully but often not.
To seek a happy medium which has the exuberance without the irrationality is to miss the point, which is that the irrationality is a necessary part of the exuberance.

The great historical example of this is a man who retained much of the exuberance of youth throughout his long life, Winston Churchill.

Had Churchill made a “rational” decision in 1940, he would have calculated that there was no way that Britain alone could beat the rest of Europe, then united under Nazi rule – he had no right to assume that Hitler would be so insane as to declare war on both Russia and the United States.

Still the irrational exuberant Churchill fought on, and so saved Western civilisation.
Faith is defined as the “assurance of what is unseen”, and every new enterprise is a leap of faith. We cannot yet see the successful business we want but we are confident enough that we will see it to take the risk.

That leap of faith is greater for some businesses that for others: those great leaps often lead to the greatest successes – but also, it must be said, to the greatest failures.

Irrational exuberance has been at the root of Mankind’s most disastrous errors, from the Tower of Babel, through the Charge of the Light Brigade and Custer’s Last Stand, to the over-heated markets that doomed themselves to a spectacular crash.

Yet the same irrational exuberance is a necessary part of all human progress – including all successful new and expanding enterprises.

After the mini-slump triggered by Greenspan’s remark, bumper stickers were produced reading, “I want to be irrationally exuberant again.”

Perhaps there is a gap in the market for such stickers again.

After all, such irrational exuberance will be necessary to get us out of this recession.
So if you have it, and combine it with a business idea in which you have faith, do not let anyone – least of all two middle-aged men who secretly wish they had more of it themselves – talk you out of it.

About the Author:

Guy Kingston produces and presents the Mind Your Own Business podcast, offering free business advice to entrepreneurs and business owners. As well as audio podcasts there are more articles like this, compelling videos and a must-read blog. All at www.myobpod.com or you can network and join in discussions on the MYOB Facebook group.

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At the 2007 Collegiate Entrepreneurs' Organization National Conference I did a breakout session called "unreasonable requests". It's an exercise to get people thinking about the fast-track, the unconventional path to success. Think about what you want and how you can get there the way nobody else would dare to do it. Want to run the superbowl halftime show? Make a comprehensive report of how to improve it and go find the events planner who runs it--maybe it'll lead to an internship...

 Posted by: @MattWilsontv at April 4, 2009 3:32 PM

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