Entrepreneurs are lauded for their passion, confidence, and optimism. That trio of traits is indeed a key ingredient in the entrepreneur's secret sauce, making founders attractive to potential investors, employees, and customers. Those traits give founders the gusto to persist through the troughs of the entrepreneurial rollercoaster. Research has also shown that optimism can spark higher levels of innovation.
However, as critical as these traits can be, left unchecked, they can lead to a founder's very demise. A study by Arnold Cooper and colleagues asked founders to compare the prospects of their start-ups to those of similar start-ups. Of the respondents, 95 percent believed that their own start-ups had a better than 50 percent chance of succeeding, but only 78 percent believed that a similar start-up had the same chance of succeeding. A full one-third of the respondents believed that their start-ups had a 100 percent chance of success.
This overconfidence can introduce hazards at almost every stage of the entrepreneurial journey:
- Operationally, founders underestimate the time needed to develop their product or service.
- Financially, founders underestimate the resources they will need.
- Strategically, founders discount negative information that instead should spark a rethinking of their original plans.
- Within the team, founders underestimate the holes in their skills and fail to bring onboard the right people to complement their shortcomings. They also can overestimate their abilities to manage the difficult interpersonal issues that arise between co-founders.
Focused on rosy, "when we conquer the world" scenarios of success, founders often fail to even consider expected-case scenarios, let alone think about worst-case scenarios. The result: They run out of money long before hitting their milestones because they did not devise plans that would help them deal with the inevitable bumps in the road.
In all of these ways, passion, confidence, and optimism become the founder's Achilles heel as he or she is building the start-up. However, the pitfalls start even before founding, when the founder is making the first decisions about leaping into the uncertain world of entrepreneurial life. When making that "when to leap" decision, founders should objectively evaluate three major factors:
- Market factors: Does my idea resolve a "pain" in the market and are there enough people willing to pay to assuage that pain?
- Career factors: Have I developed the knowledge, skills, and contacts necessary to pursue my idea?
- Personal factors: Will the life of a founder heighten the stresses on my personal life and am I (and my friends and family) equipped to deal with those stresses?
When making the weighty decision to forgo a steady paycheck in favor of developing an unproven idea and building a company from scratch, passion, confidence, and optimism can blind founders to the challenges posed by these three factors. Bright-eyed, they assume that if they love their idea, a large market will also. They overestimate their skills and their readiness for founding. They fail to consider the toll that founding will impose on their loved ones. By misreading all of these factors, they leap before they should, or fail to manage the risks in each area. Doing so makes the founding journey much harder from the start and introduces new pitfalls further down the road. More of these challenges are described in the Kauffman Foundation's sketchbook about "Making the Leap."
On the other hand, founders who do anticipate those risks can proactively avoid the pitfalls introduced by these seemingly positive traits. Founders who are disciplined about focusing on their biggest market uncertainties and on evaluating product-market fit increase the chances that they won't leap when there isn't a market for their product. Founders who have a clear picture of their holes can proactively develop necessary skills, broaden their networks, and learn more before they leap. Likewise, founders who clearly evaluate the worries and interests of their families and friends can proactively develop ways to assuage their concerns.
By anticipating and avoiding the pitfalls caused by these three powerful traits, founders can remove their most common founding hurdles, drawing themselves closer to realizing their dreams and having the impact on the world that we all want them to have.
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