Research: Unbridled egos can cause start-ups to end up in trouble
The relatively high failure rate of entrepreneurial start-ups may be more related to personality traits than the worthiness of the product or service, according to a College of Business researcher at Clemson University.
Hubris – excessive pride or self-confidence – is a personality trait that can lead to an entrepreneur’s success or downfall, according to Chad Navis, associate professor, Arthur M. Spiro Professor of Entrepreneurial Leadership.
“It is not uncommon for hubris to be brought on by a history of success in a leadership position,” Navis. “Leaders often overemphasize the role they play in the success of their business accomplishments. That, in turn, can give them a false sense of confidence in repeating that success in a very different business setting.”
In a research paper, “The Right People in the Wrong Places: The Paradox of Entrepreneurial Entry and Successful Opportunity Realization,” Navis says the overconfident, narcissistic personality can be a bane or blessing to an entrepreneur. He adds, there are many examples of entrepreneurs possessing these personality traits who leave the comfort and stability of their conventional businesses for more novel ventures, only to have them unravel.
Case in point is cyber grocer Webvan, launched in 1999 by Louis Borders, who co-founded Borders bookstores. Borders hired another accomplished industry leader in George Sheehan, head of Andersen Consulting (now Accenture), as CEO of the venture company. Despite a huge investment infusion, and seemingly proven track records, the start-up went bankrupt after 18 months.
“It was a case of the right people being in the wrong place,” Navis said. “In unfamiliar settings, proven leader can fall victim a false sense of extreme confidence in vision and direction. They feel they can overcome uncertainties when others can’t. Oftentimes, egos get the best of them and they hunker down in their belief in themselves.”
“On the other hand, strong self concepts can also drive people to succeed. If they’re right, they will be relentless and go to any length to achieve their desire for success,” he added.
Start-up investors also must be cognizant of how personality traits can affect the success or failure of a venture.
“Confident and charismatic people are drawn to highly uncertain opportunities. Their overconfidence can affect, for example, decision making on the resources needed to succeed or prompt them to ignore valuable data in order to satisfy their appetite for success. For those reasons, investors need to be aware of the entrepreneur’s cognitive biases and emotional make-up,” Navis said.
The adage, past performance is not an indicator of future results is probably no truer than in a scenario of a successful business person venturing into unfamiliar territory.
“Successful businessmen and women are sometimes given freer rein in a start-up because of their track records and that investors are confident they will deliver on their word,” Navis said. “But many were in structured and more familiar environments in their previous roles where they had checks and balances, and much of their decision making was scripted. In a start-up, the person at the top may be the sole decision maker, so they must be adaptable and willing to change when it’s needed.”
With the relatively high failure rate of start-ups – about 40 percent of them go under in the first five years – Navis said it would behoove investors and entrepreneurs to examine personality tendencies and try to strike a balance between hubris and humility.
“If the project is highly innovative or untested it is very important for egos to be checked at the door. There needs to be accountability and that can be achieved by not placing power solely with the entrepreneur.”
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