When we hear tales of entrepreneurs who’ve made it big, most of us only notice the successes. Take a closer look at the same story, and you’d find many, many more failures along the way.
Thomas Edison endured more than 6,000 failed attempts before inventing a light bulb that could burn for 1,500 hours. Henry Ford and Walt Disney went broke several times before succeeding. No great success comes without failure.
Unfortunately, when faced with setbacks, we’re wired to quit. There’s a part of the brain that remembers your last screw-up so vividly that it’ll push you to irrational lengths to avoid another one, even when the rewards for a potential success should encourage you to try again.
Loss aversion, or the principle that losses loom larger than gains, is the reason we need to see $2.50 in gains before we’d risk losing a dollar. (The Princeton psychologists that discovered that fear is 2.5 times more powerful than greed won the Nobel prize for their findings in 2002.) If we lost money in our last attempt, even $5 won’t be enough to get us to try again.
For aspiring entrepreneurs, loss aversion is a major obstacle that must be overcome. “The only people that don’t have problems are in cemeteries. And thank God we are not there,” says Jim McIngvale, the founder of Houston based Gallery Furniture, known to the locals as Mack.
Every town has an entrepreneur like Mack, a rags-to-riches type. Mack started selling furniture out of a tent on the side of a freeway in 1981. His two business locations now gross $110 million, making Gallery Furniture one of the highest sales-per-square-foot furniture retailers in the country.
But to consider Mack’s story decades earlier would be to see a tale of failure. Mack’s first business venture, a fitness chain, grew from one to four locations so quickly that it went broke altogether. “It was a flaming bankruptcy,” remembers Mack. Next, he was fired from a series of sales jobs. By 27, he was broke, unemployed, depressed, and living with his parents in Dallas.
One Sunday morning, Mack found inspiration from the couch. “I turned on the TV and experienced a miracle. There was a religious program on. Oral Roberts wasn’t asking for money, but he said, ‘Get up. Go to work. Make something out of your life,’” says Mack. “I knew he was talking to me.”
The next day, Mack found a new job as a salesperson at a furniture store 30 miles away. He spent his long bus commute reading self-help books such as Think and Grow Rich by Napoleon Hill. He learned everything he could and eventually became a good furniture salesman. With his boss’s blessing, Mack moved to Houston in April of 1981 to open his own furniture store.
“All of my wife’s friends and relatives said we weren’t gonna make it,” Mack remembers. They had good reason to be skeptical. Mack was severely undercapitalized, had few contacts in Houston, and no banking references. “But,” he says, “We had a big unfair advantage, and that advantage is called desire.”
At the time, the oil business was thriving. Mack’s plan was to appeal to newcomers who had arrived in town looking for oil jobs. Gallery did $1 million in sales its first year and $2 million in the second. Then the oil boom went bust, and Mack’s sales dropped to $10,000 a week from $50,000.
Mack had to appeal to a broader range of customers if he was to have any hope of staying in business. He took his last $10,000 and bet it all on a television ad. “They told me they’d charge me less if I came down to the station and recorded the ad at night,” he says.
“They started rolling the cameras and I totally froze up. I was stammering and stuttering, and out of sheer impulse pulled money from my back pocket and started waving it around while saying ‘Gallery Furniture will save you money.’ ” Mack’s fast-talking, three-ring circus-like advertisements made Gallery Furniture a household name in Houston.
“I can’t tell you how many times I’ve wondered if we’d make payroll on Fridays,” says Mack. “Faith sustained us in our darkest hours.” In May of 2009, a massive fire wiped out more than $20 million of Mack’s inventory. With his warehouse ablaze, Mack did television interviews at 11:30 p.m. to let customers know his other retail store would be open for business and he’d be making deliveries the next morning.
“Optimism is looking for the best in everything,” he says. “I’ve always been the type to believe you can overcome any and all problems.”
When we face uncertainty or failure, the part of our brain that feels fear, the amygdala, reminds us of past failures. That triggers loss aversion, draining the brain of the feel-good chemical dopamine. Dopamine is what motivates us and keeps us focused. When we’re in loss aversion mode, we become incapable of taking risks--even smart ones.
While largely independent, the brain’s loss avoidance system and its reward pathway are part of the same circuitry that guide motivation. When one is turned on, the other is deactivated.
The classic decision-making techniques we use to evaluate risks only further heighten our fear of loss. By forcing yourself to think through everything that can go wrong, you all but guarantee that you’ll take no action at all. The key to steering clear of loss mode is to maintain a focus on reward.
Aspiring entrepreneurs must, at some point, take a leap of faith. They must then learn to deal with uncertainty and rise past failure as a matter of routine. Optimism, a focus on the possibility of positive outcomes, and prioritizing tasks that stimulate our interests and passions naturally activate the side of the brain that causes us to charge forward, keeping loss aversion at bay.
If Mack’s story ended when he was 27, all we’d see is failure. It’s how the story ends that matters.