Entrepreneurial success hinges in large part on a founder’s mastery of psychology. This requires the ability to manage one’s responses to what Ben Horowitz calls “The Struggle,” that is, the emotional roller coaster of startup life. Paul DeJoe captures the ups and downs of being a startup CEO in a post reprinted in a book that I edited, Managing Startups: Best Blog Posts.
It’s all in a founder’s head: the drive to build something great; the resilience to dust yourself off when you repeatedly get knocked down; the passion powering a Reality Distortion Field that mesmerizes potential teammates, investors, and partners. But inside a founder’s head may also be delusional arrogance; an overly impulsive “ready-fire-aim” bias for action; a preoccupation with control; fear of failure; and self-doubt fueling the impostor syndrome. That’s why VC-turned-founder-coach Jerry Colonna named his blog The Monster in Your Head. In a recent interview with Jason Calacanis, Colonna does a nice job of summarizing some of the psychological challenges confronting entrepreneurs. So does a classic article by the psychoanalyst Manfred Kets de Vries: “The Dark Side of Entrepreneurship.”
Causes of Entrepreneurial Failure
If entrepreneurial success hinges on a founder’s mastery of psychology, it stands to reason that a founder’s flawed ego is often the root cause of startup failure.
Categorizing causes of entrepreneurial failure is tricky. Asking entrepreneurs why their venture failed doesn’t always yield reliable answers. To bolster our fragile egos, we credit our successes to our own brilliance and skill, and we attribute our failures to the shortcomings of others or to events outside our control. This pattern is so deeply ingrained that psychologists have labeled it the Fundamental Attribution Error.
Furthermore, just as a living organism might die for many reasons—for example, hunger, predation, or illness—startup failure has diverse causes. Paul Graham cites 18 reasons why startups fail; in her post, What Goes Wrong, reprinted in Managing Startups, Graham’s partner at Y Combinator, Jessica Livingston, warns founders that they must navigate a “tunnel full of monsters that kill.”
Finally, explanations for startup failure are often linked in a complex chain of causality. Running out of capital is often the proximate cause of death. But this implies that an entrepreneur couldn’t raise more funds. Why? Because the venture had little traction. Why? Because the team was slow to market with an inferior product, relative to rivals. Why?
In the spirit of “Five Whys” analysis, one should continue probing until the root cause for failure is revealed. Digging deeper often reveals that startup failures have ego problems at their core.
At the risk of oversimplifying, the ego issues that can derail an early-stage startup come in two broad groupings. Some founders are ambivalent about their vision or their level of commitment to their venture. Others are headstrong—too confident about their vision and their ability to lead. In fact, Peter Thiel hypothesizes that plotting founders along such a spectrum would yield an inverted normal distribution—one that is fat at both tails, rather than in the middle.
Ambivalence. Steve Blank tells a tragic story of a founder failing from a lack of nerve. Entrepreneurs who are irresolute, weak-willed, and wavering can cause problems like these:
- They fail to recruit a great team because strong candidates can sense the founder’s ambivalence and know that resolve is required to lead a startup through its ups and downs.
- They pivot too quickly, never devoting enough effort to any one opportunity to refine their offering and gain traction. Some founders get bored easily and rapidly cycle through new ideas. Others are overly compliant: they lack the strength to say “no” to team members, investors, or customers who suggest different course corrections. Another post from Blank republished in Managing Startups describes Yuri, an indecisive entrepreneur who shifted strategy constantly because he was unable to distinguish between vision and hallucination and was thus “buffeted by the realities of his burn rate, declining bank account, and depressing comments from customers.” His team “was afraid to make a decision, because they couldn’t guess what Yuri wanted to do that week.”
- They scale prematurely, burning through their capital before they have achieved product-market fit, because they are unwilling to resist pressure from investors who urge them to “swing for the fences.” The anonymous author of the new blog My Startup Has 30 Days to Live, a moving real-time account of the pressures, doubts and personal costs confronting a struggling startup’s founder, acknowledges making this mistake: “I had the power to reject these suggestions, at the risk of being labeled as un-coachable…These men never put a gun to my head, never threatened me into making the decisions I did. I just didn’t challenge them.”
- They stay in stealth mode too long, missing a window of opportunity or launch a flawed product due to a lack of early customer feedback. As Paul Graham points out, such procrastination sometimes stems from a fear of being judged.
- They provoke cofounder disputes—especially when, in Livingston’s words, a cofounder’s irresolute behavior raises questions about whether he is “trustworthy or works hard enough or is competent.”
- They throw in the towel without putting up much of a fight, because they lack, in Livingston’s view, the drive and determination “to overcome the sheer variety of problems you face in a startup” or they are “immobilized by sadness when things go wrong.” As Jason Cohen says, “It’s so easy to stop. There are so many reasons to stop. And that—stopping—is how most little startups actually fail.” Andrew Montalenti adds, in a post republished in Managing Startups, that founders are likely to get “antsy” when they pursue a startup mostly to advance their career but lack personal passion for its mission.
- They follow the herd, perhaps because they are insecure about their ability to set direction. Such founders often pursue derivative ideas or copy rivals’ features, as in Cap Watkins’ post-mortem of Formspring’s failure.
- They take their eye off the ball. Mark Suster bemoans entrepreneurs who crave the limelight and lack the discipline to say “no” to offers to speak at conferences. Livingston warns founders to avoid distractions—in particular, conversations with corporate development executives who want to learn about a startup but have no real intention of pursuing a deal.
Obstinacy. Startups run by founders who are control freaks, headstrong, or arrogant often precipitate the same problems listed above, but in very different ways:
- They fail to recruit a great team because they don’t recognize their own shortcomings or they are unwilling to delegate. According to Kets de Vries, they also may be prone to driving away talented colleagues by scapegoating or by viewing employees in extreme terms, putting some on a pedestal while vilifying others.
- They fail to pivot because, in some cases, an overconfident entrepreneur simply cannot comprehend that customers might be rejecting their product. Or, they may be cocksure that the path that led to success in their last venture will prove true again. In still other instances, founders who Steve Duplessie describes as zealots may be loath to pivot away from a vision to which they are fervently committed—even if sticking with the startup’s original plan puts the venture in peril. This risk is compounded when an entrepreneur relies on a Steve Jobs-style “reality distortion field”—using personal charisma and riveting rhetoric to inspire people to go to extremes to achieve a startup’s vision. When a vision is sold this way, it is especially difficult to subsequently admit that it might have been flawed.
- They scale prematurely due to overconfidence or an impatient drive to see their vision become a reality. Kets de Vries says such founders often defend against anxiety by “turning to action as an antidote.”
- They stay in stealth mode too long. In some cases their founder, with a vision burning so brightly, feels no need to secure early market feedback. In other instances a founder’s perfectionism prevents a team from “launching early and often.”
- They provoke cofounder disputes by battling ceaselessly for dominance and control of their venture’s direction.
There’s no science behind my characterization of founders’ egos as lying somewhere on a spectrum that ranges from ambivalent to obstinate. I’m sure this one-dimensional view makes trained psychologists cringe, because it ignores a mountain of research pointing to a “Big Five” set of stable personality traits: openness, agreeableness, extraversion, conscientiousness, and neuroticism. Adeo Ressi’s Founder Institute draws on such research in the admissions test for its training program. Based on analysis of responses from over 15,000 aspiring entrepreneurs, the test sheds light both on the traits of successful founders and the attributes of Bad Founder DNA: excuse-making, predatory aggressiveness, deceit, emotional instability, and narcissism. Founder Institute’s research confirms: it’s all in the head!
So, what should a founder do to master the monsters in her head?
Self-reflection is the starting point. What motivates you? How do you respond to pressure and uncertainty? For some, therapy with a professional psychologist will put this in focus. For others, a startup coach like Colonna can provide helpful guidance, as can a good mentor. Regardless of where you seek such counsel: ask for help, tell the truth, and listen.
If you are thrashing around and pivoting too quickly, follow Steve Blank’s advice to Yuri: sit on any new insights for 72 hours, and brainstorm them with someone you trust.
Build the discipline of debriefing to learn from your startup’s failures. Discerning the causes of small setbacks may help you stave off big ones. The U.S. Army’s After-Action Review process provides a template. With an AAR, a team asks four simple questions: What was our objective? What happened? Why did it happen? What do we do next?
In conducting post-mortems, however, be on guard for the Fundamental Attribution Error, that is, a tendency to blame failure on events outside your control. Also, as Blank points out, you’ll be in a better position to learn from a big failure if you recognize that your emotional response to it may follow Kubler-Ross’s five stages of grief—denial, anger, bargaining, depression, and gradual, grudging acceptance.
Follow the advice of Spencer Fry and find healthy ways to relieve stress. Recognize that such stress puts entrepreneurs at increased risk for depression. If you believe that you or someone you work with may be depressed, seek treatment NOW. And read Brad Feld’s posts to learn more about depression and how to manage it.
Finally, follow the advice of David Tisch, and never lose sight of the ‘why.’ Tisch advises founders to constantly ask whether they are still on the path that originally motivated them to launch a startup, for example, the desire to disrupt an industry, to build a great company, or simply to be independent. If not, Tisch says, it’s time to wind things up. As Brad Feld points out, sometimes failure is your best option.