How Under Pressure Founders Self-Destruct

Credit to Carter Cast and Brooke Vuckovic
Summary.

The three sorts of harmful behaviors that are growing increasingly prevalent among entrepreneurs as they experience increasing pressures regarding their funding and the health of their firms are examined in this article. These actions are all coping methods that aim to recover power through manipulation, deflect truth and harsh criticism through avoidance, or escape pain and anxiety through ingratiation. They are collectively known as "moving against," "moving away," and "moving toward." We'll also discuss how self-awareness can prevent self-destructive habits, encourage more constructive interactions, and, most significantly, lead to better outcomes when combined with professional and personal support.

Investors have sought out the most promising firms and their founders during the previous ten years, especially during the bull market that lasted well into 2021. One of them was "John," whose brashness, self-assurance, and larger-than-life charisma were qualities that spoke of his fervor and dedication. However, these same personality attributes have suddenly turned out to be a weakness as investors press him on his company's performance and capital needs in a radically changing investment environment. John has immediately stopped the chat rather than participating. Despite the fact that he had received a dozen rejections for his most recent request for further cash, he declared, "I'm not anxious about getting funding."My startup is not my first. Three times before, and I shall do so again, I rang the bell.

It's a poor behavior, one of the well-known "executive derailers" that have long captivated social scientists and psychologists (Horney, Hogan & Kaiser, Dotlich & Cairo, etc.) who have identified and compiled behavior patterns that bring the powerful to their knees. The three sorts of harmful behaviors that are growing increasingly prevalent among entrepreneurs as they experience increasing pressures regarding their funding and the health of their firms are examined in this article. These actions are all coping methods that aim to recover power through manipulation, deflect truth and harsh criticism through avoidance, or escape pain and anxiety through ingratiation. They are collectively known as "moving against," "moving away," and "moving toward."

Entrepreneurs today, especially those who have never experienced an economic downturn, must become more conscious of their stress-related behaviors and self-destructive tendencies. Self-awareness can prevent self-destructive behaviors and encourage more positive interactions and, most importantly, results. It can also be used to pair with professional and personal support. Since venture capital funds have reduced their investments, there has been a 22% decline in early stage, Series A, and B rounds in just the second quarter of 2022, which is unprecedented terrain for many entrepreneurs. Additionally, startup valuations are declining. Initial public offerings (IPOs) have been negatively impacted by market volatility, with 72% fewer new listings in the first half of 2022 than in the same period in the previous year. Many of the founder/CEOs we teach and advise have actually been told by institutional investors not to anticipate any additional capital infusions for at least 18 to 24 months, and possibly longer.

Entrepreneurs and founders/CEOs will face more leadership challenges as a result of these interrelated constraints, which increases the likelihood that they will engage in self-defeating behaviors when market circumstances deteriorate and investor demands increase. As a result, we predict founders/CEOs will be even more likely to become victims of their derailers.

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Combating Reality

When trying to start a new firm, an entrepreneur's optimism - there is a way, a solution can be found — is helpful, however within reason. Unchecked optimism, however, has the potential to result in willful ignorance of both the forces outside their company that could pose a threat and the unfavorable tendencies that exist inside them. This is sometimes demonstrated by the propensity to "move against," which involves rejecting the existence of difficulty and avoiding confronting the unpleasant issues that arise as a result.

John was a perfect example of moving against it because he refused to address his fears. But there are other "moving against" behaviors besides haughty defensiveness. It can also take the form of redirection, deflecting attention away from the current problem, as in the case of a sudden burst of ideation that results in the creation of brand-new strategies on the spot and the spinning of tales about potential new products, markets, and business opportunities that could save the company. As a result, the management team experiences whipsawing and confusion, and investors start to lose faith in the CEO since they are unsure about the company's strategic direction.

These entrepreneurs are adept at persuading people, and their eye-popping showmanship can occasionally blind investors to problems. For instance, Adam Neumann, who oversaw the rise and collapse of WeWork before leaving the organization following a disastrous IPO attempt, is back at it: He is a partner in a new real estate business that is reputedly valued at $1 billion. Ironically, the startup community has expressed displeasure about this most recent endeavor and the scale of the investment while still recognizing Neumann's unique talent. a real estate executive reportedly told the BBC, "Adam can clearly convey a story and a vision, making him a fantastic seller. He was highly effective in raising a significant amount of money for WeWork.

But when faced with difficult business situations that call for straightforward solutions, sales spin frequently fails. The cure is to do the opposite, to become more of a steward and less of a seller, to subdue the ego and show humility. Here, it is advised to pay special attention to consumer feedback, refrain from making unwarranted promises, and take responsibility for company problems.
Preventing the Issue

In this group of behaviors, founders and CEOs avoid decisions by walking away from issues, sometimes literally. They become elusive or adept at running away from challenging conversations all of a sudden. One of the company's founders we are aware of declined to discuss whether to increase marketing spending or decrease advertising expenditures with the chief marketing officer. The excuse for avoiding awkward encounters became, "I'm tied up, on the road, meeting with investors." Similar to the first company CEO, this one skipped the executive team meeting to plan the staff reductions in favor of sitting in his car, reading through social media, and smoking a joint. This executive was so distraught by the necessity to decrease headcount.

An extreme example is flamboyant multimillionaire Vijay Mallya, who first delayed making difficult decisions regarding his flagship company, Kingfisher Airlines when it faced significant financial losses. Mallya is known for his opulent lifestyle. Before being extradited to India in 2020 to face fraud accusations related to his usage of loans from Indian banks, he tried to blend into relative obscurity in Great Britain. Though rare, his example serves as a warning for founders/CEOs who engage in avoidance conduct of a milder nature, such as skirting board members' concerns and declining to provide investors with updates. Such denials frequently put investors' rights to information disclosure, which are outlined in term sheets, in jeopardy.

Sadly, these founders/CEOs frequently shun the only solution that might be helpful: talking to reliable advisors like a fellow CEO, an executive coach, a mentor, or an active, interested investor. The preferable course of action is to have meaningful discussions about important topics to increase clarity and show visible leadership, as opposed to burying concerns in the expectation that they would go away. In times of crisis, leadership skills may be honed; having the guts to confront the problem is half the battle.

Controlling What Feels Good

Behavior that seems positive at first can become bad. Founder/CEOs must go into the specifics in order to grasp issues and convey the necessary urgency, particularly in trying circumstances. But if this conduct veers toward micromanagement, it becomes problematic. In order to avoid discussing broad strategic issues with the executive team, one entrepreneur started focusing on the cost monitoring system. This habit, which frequently involves retreating to a founder's technical skill set where they formerly felt quite competent, points to a need for control. Instead of meeting with investors to discuss strategy, the founder/CEO, who is also an engineer, delves extensively into product specifications. The entrepreneur, a former marketer, is fixated on the newest website design.

Another strategy for "moving toward" is to concentrate your attention on one or two sympathetic investors and limit your communication with them, disregarding those who raise difficult issues. We observed a founder ghost four board members by failing to react to their questions while courting favor with two board members by being adoring and ingratiating as business performance declined.

The solution, in this case, is to pay attention to the core factors that influence firm value. First, we advise founders/CEOs to review their present calendar and cut out any low-impact tasks. We suggest thinking to yourself, "Must this be me? If so, go on; if not, they are likely performing tasks outside the area of their authority and should provide others they have hired the authority to perform those tasks (and who are often more expert). Entrepreneur Richard Branson, who founded Virgin Atlantic among other businesses, is a strong believer in the delegation as a way to foster teamwork and support business owners in focusing their energies on what they do best. Entrepreneurs should "concentrate on the big picture and achieve the things you need to do to make your product or service stand out," according to Branson's advice.

For founders/CEOs who prefer the security of holding on tightly, it will be difficult for them to delegate to others and free themselves up. In order to avoid this inclination, leaders might explicitly ask their team: "What activities or meetings do you see me participating in that I don't need to be in?" The founder/CEO can switch from being actively involved to only being consulted, or from being consulted to just being updated, in place of being highly involved.

A founder or CEO is forced to examine their external meetings to determine whether they are spending their time with the correct advisors at the right frequency rather than doing so automatically. Such an audit is a straightforward yet effective practice. Make a list of the important advisors, then look through the calendar for the previous quarter to map out how often you met with them. In the ensuing months, the founder/CEO might make adjustments as necessary. According to our research, the majority of founders/CEOs who "move towards" only one or two (controllable) advisers are unaware of what has transpired until they read the supporting documentation.

Final advice

These three undesirable behavioral patterns are frequently caused by founder/CEO's lack of self-awareness about how they act under pressure. We regularly offer founders/CEOs the following advice:
Recognize how they typically behave under stress.

We advise founders/CEOs to ask dependable team members or mentors/counselors if they are unsure of their patterns. The majority of troubling activities are blatantly visible to others. What is one of my attributes that you perceive getting in my/our way under pressure? is a potent question for leaders to ask if they are sincerely interested in hearing what others have to say. Asking for just one quality has a certain power since it forces people to prioritize while also preventing founders and CEOs from being overburdened. And the leader should always say "thank you" in response to this input. Rebuttals or justifications sabotage the discussion.
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Watch out for "loving critics."

They include mentors, peer advisers, coaches, and even board members who are familiar with their circumstances. Engaging the executive team in post-mortems on a particularly ambitious, pet project to de-bias thinking or appointing a loving critic to call the leader out if they revert to behavior they're attempting to stop are two effective tactics to consider. Start/stop/continue.

Do a "start/stop/continue" exercise with the management team while asking: "What should I/we start doing to improve our performance? Quit doing? Do you still? How can I/we reaffirm our core cultural values? Including everyone increases buy-in and brings issues into the open.

Create routines for reducing stress.

Better sleep (adults with less than eight hours of sleep per night report higher stress levels), healthier eating (foods high in omega-3 promote blood flow, which is reduced during times of stress), and more exercise (it cuts the number of days with poor mental health by more than 40%), and mindfulness techniques (yoga, meditation, etc.) can all have a positive impact. Socializing, being outdoors, getting some fresh air, and/or enjoying a cup of coffee with friends on a regular basis can all have a positive impact. Founders and CEOs are some of the people with the least free time, thus it may be difficult to convince them of this. For them, the saying "little moments, many times" is useful. We suggest founders/CEOs start small (5-minute meditation sessions instead of 30-minute sessions), partner where they can (healthy food prep services can save hours), and hunt for "twofers" (such as walking meetings or going to a greenspace instead of a dark restaurant with friends).

Last but not least, we implore founders/CEOs to look well beyond the current economic downturn. This entails accepting difficult situations as a great chance to establish a reputation within the company, with its investors, and in the marketplace.