Entrepreneurial Ego

Setting your mind on succeeding at any cost may cost you your business

If you think that no entrepreneur worth a tinker's damn needs lessons on when to back a project and when to abandon one, think again. Scores of once wildly successful business builders can't get out of their own way when it comes time to fold a product line or a strategy that simply isn't working.

There are more subtle, pernicious factors than hubris that block successful entrepreneurs from seeing or hearing warnings that they need to change course. Sherlock Holmes once remarked to Watson, "You see, but you do not observe." That's what is at issue here. The primary reason that once-successful business leaders fail "to observe" (product potential, new markets, and so on) is that they have no psychological need to observe.

Anyone who succeeds suffers a version of what psychologists call the gambler's fallacy: win, stick; lose, switch. In business schools it's presented as the "if it ain't broke, don't fix it" model of management. But as anyone who watches businesses knows, if you manage your company to preserve a leading market position--rather than move aggressively to expand your market share--you soon find that your lunch is getting eaten by lean and hungry competitors. Unfortunately, most business leaders persevere in maladaptive ways--a self-defeating disorder I call "perseveration"--because to break or abandon whatever brought them success is anathema to their sense of self.

There are sound historical and cultural precedents for believing that achieving success--and stopping to smell the roses--is a virtue, not a vice. Horatio Alger's novellas forged an American entrepreneurial ethos grounded in the notion that your climb to the top will bring you a cornucopia of rewards. Nothing is said about second acts, sustaining market share, or preparing to adapt to technological advances. American business leaders have been imbued with the idea that "a winner never quits and a quitter never wins." So rather than abandoning once-winning ways, they keep on going and going and going with what made them number one in the first place. That never-say-die approach to business can be incredibly self-destructive.

Perseveration describes the behavior of people who just don't know when enough is enough. The best example of an entrepreneur suffering from this behavior is Ken Olsen, founder and former CEO of Digital Equipment Corp. Regrettably for Olsen, he may be best remembered as the man, once named "America's Most Successful Entrepreneur" by Fortune magazine, who in the mid-1970s called a prototype of the Apple Computer a "toy" and on a separate occasion reportedly proclaimed, "There is no reason for any individual to have a computer in their home." Of course, roughly a decade after that remark, PCs became ubiquitous, DEC began hemorrhaging red ink, and Olsen was en route to being deposed as head of the multimillion-dollar business he'd founded.

Sewell Avery, the former CEO of Montgomery Ward, suffered a similar fate for exactly the same reason. Montgomery Ward's slide into bankruptcy from a position of market leader began back in 1941, when Avery initiated a business strategy that he later steadfastly refused to abandon. During his watch, the retailing giant fell from the top of the heap because from 1941 to 1957, he would not approve the opening of a single new store. Meanwhile his crosstown Chicago rival, Sears, Roebuck & Co., was pursuing just the opposite tack by gambling its future on a costly expansion into suburbia.

Like Avery and Olsen, dozens of other business leaders have failed because they refused to alter, or perhaps even reexamine, plans that were no longer working. Now, Olsen and Avery's attitude does have a logic to it. No successful person makes it in life by being pessimistic. In fact, I'd bet that, as they pursued their dreams, 9 out of 10 entrepreneurs were begged by well-intended friends and family members to stop throwing good money after bad. So why in God's name should someone who proved naysayers wrong before start doubting himself once he'd made it? On the contrary, wouldn't the self-confidence that brought success only get stronger when proved correct?

Perseveration is further fueled by the fear many successful people have that admitting a single defeat will be tantamount to being labeled a loser . And since people often define themselves by their successes, abandoning a successful project, plan, or practice can often feel tantamount to losing one's identity.

As you might guess, the best antidote to perseveration is prevention. Since a history of success can be your worst enemy when it comes to responding to the need to modify a dated, outmoded, or failing business strategy, having a knowing-when-to-fold-before-you-need-to strategy may be lifesaving.

For those of you who would rather prevent perseveration altogether than learn to abandon it at a crisis point, here are some ways to ensure that you won't allow a history of success to cloud your judgment:

Reward contrarian opinions. If CEOs are to avoid the pitfalls of perseveration, they must foster honest criticism of their ideas, plans, and strategies within the ranks of their executive corps. The key to doing that is to train yourself to differentiate between criticism of your work product and criticism of yourself, the person responsible for the work product.

Reduce the risk of all-or-nothing outcomes. Make sure that, as CEO, all of your self-esteem eggs are not in one basket. When the future of your business rests on more than one product, procedure, or plan, you have a greater capacity to ditch an underperforming idea without feeling that you, personally, are a total failure. Olsen and Avery had one strong "line" to sell. Their fear may have been that if they gave it up, all was lost. Yet by clinging to it tenaciously, they lost out to the competition.

In your business plan, quote Bob Dylan often. Bob Dylan's refrain "the times they are a-changing" may have been issued as a hostile warning to the establishment during the 1960s, but it's a message that every business builder should heed each morning. Olsen couldn't see computers in the home, and Avery couldn't see the expansion of retailing to suburban malls. Sure, predicting the future is difficult, but since changing times, technologies, and tastes are inevitable, prepare for them with some form of planned obsolescence that allows you to switch horses before you kill the one you're riding.

If it's no longer a game, quit. The surest sign that you're in danger of perseverating is the feeling that you must succeed regardless of personal costs. Business is a most dangerous realm to be in if your self-esteem is linked directly to your bottom line. There's no quick fix here, but it may help put things into perspective if you remember that Ken Olsen lost his empire to two kids from California who were playing around in a garage to build a toy that helped change the world.

Dr. Steven Berglas is a management consultant and a psychologist on the faculty of Harvard Medical School.