I've heard some version of this story many times over:
An entrepreneur's business is bleeding money. Despite clear indicators that the company won't make it, he continues to pour time and funding into it. He uses his retirement fund, his kids' college savings, and even re-mortgages the house. When the dust clears, the business is gone and his family is bankrupt.
Then there's this story:
A founder's startup is doing well but her spouse and kids are miserable. They keep asking her to spend more time with them. She doesn't do it, instead working nonstop while arguing that she's doing it all for the family. As soon as the business goes public, her husband moves out, takes the kids with him, and files for divorce.
The forces that pull us toward irrational behavior
Both of these scenarios happen often enough that it's worth asking: Why? Why would otherwise intelligent, strategic, and capable entrepreneurs make such poor decisions? Why would such supposedly flexible and innovative leaders have trouble course-correcting in the midst of a bad situation?
We are all susceptible to stress and its negative impact on our clear-headedness. When we are overloaded with information and decision-making--as almost every entrepreneur is--we can have trouble choosing what color socks to wear, let alone choosing to make a major life change.
But that still doesn't explain the stubbornness with which otherwise smart entrepreneurs can pursue a course of action that is clearly not generating good outcomes.
In the bestselling book Sway: The Irresistible Pull of Irrational Behavior, organizational expert Ori Brafman and his psychologist brother Rom Brafman discuss two powerful forces that can cause perfectly reasonable people to make irrational decisions: commitment and aversion to loss.
The more you've put into something, the harder it is to walk away
There's no doubt that entrepreneurs, who put everything from their reputation and career to their savings and financial future on the line for a business, have commitment. But that can lead to what the Brafman brothers call "the swamp of commitment." You may be unable to walk away from a failing idea, precisely because you have invested so much into it.
Similarly, with aversion to loss, the greater the potential losses, the harder it is not to give up. Think of the gambler who has lost thousands of dollars; he or she is going to be far more motivated to try to win the money back, no matter how unlikely that possibility, than the gambler who has lost only $50. The company founder who has given years of effort and most of his life savings to the venture will cling to it for longer than the founder who has just been dabbling in an idea for a few months.
How to offset the forces of irrationality
On the surface, commitment and aversion to loss seem like positive character traits for the ambitious entrepreneur. But when those elements become driving forces, overcoming all other rationale or voices, you may easily find yourself barreling down a doomed path.
To avoid such a situation, Ori and Rom Brafman suggest a few different strategies to keep your decision-making clear and logical:
1. Have a long-term plan--and stick with it.
When we are stressed or anxious, we operate with shorter time horizons. We focus on short-term solutions while losing sight of our longer-term goals. Establishing a plan will provide a roadmap for keeping you on a consistent path, even when a crisis tempts you to go too far off book.
2. Encourage feedback and dissent from those around you.
Your colleagues, family members, mentors, or friends can provide differing perspectives, which are especially valuable when you have tunnel vision. It's important to let them know that their opinions will be heard and taken seriously, even if they conflict with yours.
3. Be willing to let go of your previous actions and investments, and be willing to admit mistakes.
Shifting your mindset in such a way will help you escape when you're feeling too entrenched in a particular way of doing things. If you can release what was previously done and recognize that it wasn't ideal, you allow yourself to move forward with a clean slate. You can assess the challenges before you with a fresh approach.
With a little help, you can put the pieces in place to offset the temptation to make irrational decisions. Your business, your family, and your own well-being will certainly benefit.