Successful Entrepreneurs May Be Their Own Worst Enemy

Facing the issue of risk vs. reward
by Darren T. Case and Michael Marsh

Do I risk what I have for more? This is the ultimate question that nearly every successful entrepreneur faces following the building of wealth through their business. The mantra of “If you’re not growing, you’re dying” has been preached to entrepreneurs at every business seminar or within every best-selling business success book, so one would assume that continued growth is always the answer. But there is a psychological component that many successful entrepreneurs may be ignoring when answering the question. At such a pivotal moment when the entrepreneur may, ultimately, risk all the wealth he or she has created within the business, perhaps it is time for the entrepreneur and his or her advisors to dig deeper with their analysis.

Undoubtedly, an entrepreneur has put his or her blood, sweat, and tears into the business, as well as investing all personal assets. This does not leave the entrepreneur much time or money to analyze psychological factors involved throughout the business lifecycle. For example, the psychological drive and pleasure derived through building one’s business is closely tied to the entrepreneur’s accumulation of personal wealth from the business. This point is exemplified in The Last Taboo: Money as Symbol & Reality in Psychotherapy & Psychoanalysis, in which Peter A. Olsson, M.D., notes, “Almost all human beings covet phenomenal monetary success in conscious or unconscious fantasy.” Once an entrepreneur has reached a level of success, however, and has begun to enjoy the financial fruits of his or her labor, the entrepreneur may become too satisfied with that wealth and then become psychologically driven by the fear of losing it — so much so that the entrepreneur has become his or her own worst enemy in deciding whether to expand the business.

The psychological ridiculousness that often can be found deep within an entrepreneur’s fears can be beneficially analyzed through the “theory of loss aversion.” As noted by Dan Grech in Money Talks: in Therapy, Society, and Life citing the work of psychologists Daniel Kahneman and Amos Tversky, who generally conceived that people will do nearly everything and anything simply to avoid the pain of loss, including making decisions that work against their own self-interest. Such theory ultimately earned the pair a Nobel Prize in economics. Couple this with the related nascent field of neuroeconomics — which, essentially, displays through the use of an MRI machine that the area of the brain that processes financial loss is, in fact, the same exact area of the brain that processes literal physical pain — and it is easy to understand why entrepreneurs may fear the risk of pain that comes with business growth.

When entrepreneurs become uneasy regarding painful business decisions, the most common path they take is seeking guidance from their team of advisors. On the personal side, entrepreneurs consult with their financial advisor, accountant and estate planning attorney, which often brings clarity to their individual wealth. On the business side, many entrepreneurs, when examining a growth strategy, will seek assistance from a commercial real estate broker. Given that real estate is generally the second-largest cost for companies, just behind payroll, there is a real potential to negatively impact future cash flow and greatly impact flexibility in other key areas. While it certainly would be perceived as insane for any of these advisors to recommend psychological help to their entrepreneur client in making business decisions, the advisors simply being armed with the knowledge of such fields makes it possible to better understand how entrepreneur clients may act against their own best interests. But if the answer as to whether the entrepreneur should expand the business is psychologically influenced, and the entrepreneur is often his or her own worst enemy, what should advisors be doing to uncover the underlying deep-seated issues and fears?

What advisors can do to help clients is, ultimately, to better understand how entrepreneurs experience pain or behave in bizarre manners in order to avoid it. This allows advisors to educate entrepreneurs on the psychological difficulties and show empathy toward the challenging decisions that come with growth. This, in turn, allows the entrepreneur and his or her advisors to clearly review the process to limit the number of surprises and, ultimately, set expectations of what constitutes success, regardless of whether it involves the entrepreneur risking what he or she has for more or maintaining the status quo. And considering the entrepreneur often has put everything into building the business, having advisors dig deeper into their concerns and fears, psychological or otherwise, is the level of service that enables the entrepreneur’s continued success, however it is defined.

Darren T. Case is a tax and estate planning attorney for Tiffany & Bosco, P.A. He is a co-author of the Arizona Estate Planning & Probate Handbook and former president for the Central Arizona Estate Planning Council
Michael Marsh is a commercial real estate broker in the Phoenix office of Lee & Associates. Marsh specializes in the representation of landlords and tenants in the leasing and sales of office properties, working with a variety businesses and entrepreneurs within the community.

 

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  1. […] Successful Entrepreneurs May Be Their Own Worst Enemy, an article discussing the psychological impact that success might have on an entrepreneur and their businesses, which was written by Darren T. Case of Tiffany & Bosco, P.A. and Michael Marsh of Lee & Associates, was published in inBusiness Greater Phoenix Magazine. […]

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