27 Jan Pricing, Passion, and the Risks Ahead for Entrepreneurs
Guidance from some of Harvard Business School’s best faculty minds
Adapted by Michael McAdams from a December HBS posting by Dr. Rachel Layne
In 2025, entrepreneurs were stretched with the challenges of inflation, tariffs and supply uncertainty, the hope (and risks) of applying new technological opportunity, even faster-paced market changes, and a seemingly endless rise in business complexity. 2026 is not likely to be any less eventful and will probably be an even more risky environment for small and medium-sized businesses in which to succeed. Here is a summary of this mind-expanding article available on the internet with a refocus of the best points for the private business owners that we at PPL seek to serve.
Pivoting around Tariffs
Inflation is not dead. Only 20% of tariff-induced price costs have shown up in prices on the shelf so far. Further, Harvard experts believe the CPI will hover around 3% this year giving the Fed little room for rate cuts given their official inflation fighting mandate.
The impact on household products and electronics is expected to be the greatest going forward. So, if that is your business, be prepared. But in general, all businesses should not assume we will be going back to a pre-trade war tariff and trade environment in the near future. Higher costs, restricted markets, and alternative sourcing all need to continue to be part of the plan going forward; they are not the exception to the annual plan.
So, building in price changes due to tariffs should be part of any purchase contracts and passing along costs should be an understanding with all customers. Likewise, even more diversity of sourcing needs to be explored.
But not always appreciated is investment in systems and technology to monitor costs and margins to be able to quickly switch suppliers and alter contracts or production techniques or product sizing or packaging.
Wrestling with Technology
Speaking of tech, AI was of course the buzz word of 2025 and it won’t be disappearing from the top of business news feeds in 2026. But for this section, we shall say tech in general, not just AI. That is, there is still plenty of “old” – i.e. 2023-2025 – software, hardware, and ways of thinking that nearly every firm could utilize to boost efficiency and probably even more cheaply today. Of course, anything you do add now needs to be AI friendly and “plug and play” compatible as AI software and hardware falls not only in price but grows in proven applicability to your business.
For smaller businesses, HBS both encourages and cautions entrepreneurs adoption of newest tech. It can of course give you advantages over your competitors, especially other small firms seeking to break out of the small firm mold. But, the trick is not to do so without smart implementation, testing of its use, fine tuning of output and how users interact with it, and of course confirming that it is indeed actually driving efficiency, profits, staff engagement, and competitive positioning.
Augmenting work of humans should be your objective at this stage, not automating humans. Your judgement (and that of your staff) should get better through tech. That is the point.
The Venture Chase
Even if a few customers have been telling you they really need the new “x2000 version of your old x1900” model, 2026’s uncertainties could reveal unexpected difficulties and so it might help to carefully consider the launch of a new product to corner the market (especially if it will require shutting down other assembly lines with little new product testing or limited product marketing). Likewise, even if you have always wanted to buy out the “old codger” when that largest competitor’s owner calls and says he is getting out of the business and thinks your firm is the “2nd best in the industry and wants you to buy his firm,” this may not be the time to jump at the acquisition without extensive, thoughtful, and detailed due diligence.
Do your homework on any new large deal. Do small new product runs with test marketing. Get your CPA and lawyer involved in confirming the value of an acquisition.
But most of all, 2026 is a good year to invest in options and alternatives if you are surprised by the economy, competition, customers, tariffs, taxes, etc. Establish new extended partnerships with old and new suppliers. Encourage your staff to develop alternative relevant skills and capabilities to take the firm into new places if needed. And look at your numbers and understand not just what they say but why.
Passion vs. Work
Entrepreneurs typically love to talk about their passion for their business. They even hire people with similar passion.
But, in short, passion is not a substitute for experience, hard work, planning, reflection on realities, mindfulness or awareness of the resources, staff abilities, customer relationships, and product advantages and disadvantages that a firm has.
Founders are often the guiltiest of this fault. Be aware of your inevitable human faults. Knowing both your strengths and weaknesses is a strength!
Look in the Mirror
Entrepreneurs, by definition, probably do not like having bosses. Bosses tell us what to do and how well (or not) we are doing at our jobs, despite our efforts to work hard and be as smart about what we do as possible. But, who tells a sole proprietor when they mess up or “gosh, you really could have done that better?” You do see it in your P&L. Or, hopefully not, you can’t meet payroll like you usually do? Or you get an unpleasant letter from a lawyer or a key employee quits to join a competitor.
Instead, especially in 2026 with its many challenges, be your own best critic. Without a board or shareholders, ask your trusted senior management team, CPA, lawyer, or an old college professor how you personally are doing and what could the entire firm and management team do better. At Harvard they use the case method to explore business issues in classes; draw up your own case study for a challenge you are having and get smart people from your country club, church group, or neighborhood to explore the issue with you. Take notes and make changes.
Movin’ Forward in New Ways
Even the most progressive of us are prone to have “sacred cows” and ways we have always done things that have proven the test of time and made us more successful than we might have otherwise deserved. Many of such business techniques are immutably part of how we run things.
But, as we have been saying, 2026 may be unforgiving. Consider instead adopting the concept of “zero-based decision making.” That is, be willing to question and re-evaluate what you do periodically. Old production concepts, distribution relationships, measures of efficiency, sales or financial success should be looked at with objectivity periodically and compared to changing goals, industry trends, competitive realities or changes in cost of capital. Possible new products or target acquisitions or marquee customers need to be reconsidered under a bright light of objectivity. Sometimes what was an ideal fit just isn’t any more (given changes in markets or an industry).
We at Pasadena Private Lending hope these thoughts can be of help to business owners of all types. We invite you to contact us to discuss your specific situation and for creative and flexible lending solutions to help businesses grow in the face of market conditions and challenges.