How Founders Self-Destruct Under Pressure

Facebook
Twitter
LinkedIn
Pinterest
Pocket
WhatsApp


Over the past 10 years, and particularly through the bull market that lasted well into 2021, investors have chased the most promising startups and their founders. Among them was “John,” whose bravado, assuredness, and larger-than-life charisma were assets that spoke of his zeal and commitment. But now, in a sharply changing investment environment, these same personality traits have become a liability as investors ask him tough questions about performance and capital requirements for his business. Instead of engaging, John’s immediate response has been to shut down the conversation. “I’m not worried about getting funding,” he said, despite his latest pitch for additional capital being turned down a dozen times. “This isn’t my first startup. I’ve rung the bell three times before, and I will this time too.”

It’s a bad behavior, one of the classic “executive derailers” that have long fascinated psychologists and social scientists (Horney, Hogan & Kaiser, Dotlich & Cairo, etc.) who identified and cataloged behavior patterns that cause the mighty to fall. In this article, we examine three categories of detrimental behaviors that are becoming more common among entrepreneurs as they face mounting stresses over their funding and the health of their businesses. These behaviors are “moving against,” “moving away,” and “moving toward,” all of which are coping mechanisms that attempt to regain control through manipulation, deflect reality and harsh criticism through avoidance, or avoid pain and fear through ingratiation.

Becoming increasingly aware of their stress-related behaviors and self-destructive patterns is increasingly important for entrepreneurs today, especially those who have never lived through an economic downcycle before. Self-awareness, paired with professional and personal support, can stave off self-destructive behaviors and promote more positive interactions and, importantly, results. For many entrepreneurs, this is uncharted territory as venture capital funds have pulled back their investments, resulting in a 22% decrease in early stage, Series A and B  rounds in the second-quarter of 2022 alone. Startup valuations are in decline, as well. Market volatility has cast a pall on initial public offerings (IPOs), with 72% fewer new listings in the first half of 2022 compared to a year earlier. In fact, institutional investors are telling many of the founder/CEOs we coach and advise not to expect any new infusions of capital for at least 18 to 24 months — and perhaps longer.

These combined pressures will increase leadership challenges for entrepreneurs and founder/CEOs, making it likely that their self-defeating behaviors will increase as market conditions erode and investors’ demands intensify. As a result, we anticipate founder/CEOs will have an even greater tendency to fall prey to their derailers.

Battling with Reality

An entrepreneur’s optimism — there is a way, a solution can be found — is a positive trait when trying to launch a new business, albeit within reason. When it becomes unbridled, however, that optimism can turn to willful blindness about both the business-threatening forces that exist around them and the negative personality traits within them. Often, this is exhibited by the tendency to “move against” — denying the difficulty reality and refusing to address the challenging questions that go with it.

John was a classic example of moving against, as he refused to address what he did not want to face. But arrogant defensiveness isn’t the only “moving against” behavior. It can also manifest as redirection, diverting attention from the issue at hand, such as by spiraling rapidly into ideating, sometimes coming up with brand-new strategies on the spot and spinning schemes about new products, new markets, and growth possibilities that can save the company. As a result, the management team feels whipsawed and confused, and investors, unclear on the company’s strategic direction, begin to lose confidence in the leader.

Founders in this category are skilled at winning others over, sometimes distracting investors to issues with their blinding displays of razzle dazzle. For example, Adam Neumann, who was at the helm during the rise and fall of WeWork, ending with his departure from the company after an attempted IPO was a spectacular failure, is at it again: He is part of a new real-estate startup that reportedly is worth $1 billion. This latest venture and the size of the investment has sparked some outrage in the startup community, but ironically, also acknowledgment that this is Neumann’s singular talent. As one real estate executive told the BBC, “Adam is clearly an incredible salesperson and he can create a narrative and a vision. He was very successful at raising a lot of capital for WeWork.”

But sales spin often doesn’t work in challenging business conditions that need straight answers. The remedy calls for the contrary — becoming more steward and less salesperson — to sublimate the ego and demonstrate humility. The advice here is to listen closely to customers, don’t over promise, and own business issues.

Avoiding the Problem

In this category of behaviors, founder/CEOs move away from problems (sometimes literally) instead of making decisions. Suddenly, they are difficult to reach or quick to dodge tough conversations. One founder we know refused to engage with the company’s chief marketing executive about continuing to invest in advertising or cutting back marketing spend. “I’m tied up, on the road, meeting with investors” became the cover story for avoiding uncomfortable conversations. Similarly, one first-time startup executive was so undone by needing to reduce headcount that he skipped the executive team meeting to plan these reductions and sat in his car instead, scrolling through social media and toking on a joint.

An extreme example is Vijay Mallya, a flashy multimillionaire known for his extravagant lifestyle, who first avoided making tough decisions around his signature venture, Kingfisher Airlines, when it faced huge financial losses.  He then tried to disappear into relative obscurity in Great Britain, until he faced extradition to India in 2020 to answer fraud charges surrounding his use of loans from banks in India. Though extraordinary, his case provides a cautionary tale for founder/CEOs who exhibit avoidance behavior of a milder variety: dodging questions from board members and refusing to give investors updates. Such refusals usually risk violation of investors’ information rights that are spelled out in term sheets.

Unfortunately, these founder/CEOs also often avoid the one remedy that can help: reaching out to trusted advisors such as a peer CEO, executive coach, mentor, or active, interested investor. Instead of burying issues in hopes of them going away, the better action is discussing significant issues to improve clarity and demonstrate visible leadership. Leadership can be honed in crisis, and having the courage to address the issue is half the battle.

Controlling What’s Comfortable

An initially positive behavior can turn negative. Founder/CEOs do need to dive into the details, especially during challenging times, to get a handle on problems and show appropriate urgency. But this behavior becomes negative if it bleeds into micromanagement. One founder began obsessing about the expense tracking system to avoid engaging with the executive team on big-picture strategic issues. This behavior speaks to a need for control, often by reverting to a founder’s technical skill set where they once felt very competent. The founder/CEO who was an engineer dives deeply into product specs, instead of meeting with investors to review strategy. The founder who was a former marketer obsesses with the latest website look and feel.

Another way of “moving toward” is focusing intently on one or two sympathetic investors and communicating only with them, while avoiding others who ask tough questions. We watched one founder ghost four board members, not responding to their inquiries, while being fawning and ingratiating to two board members to curry support as business performance deteriorated.

The remedy here is to keep an eye on the fundamental drivers of firm value. Our first counsel to founder/CEOs is to audit their current schedule, removing themselves from low impact activities. We recommend asking the question: “Must this be me?” If yes, proceed; if no, then they are probably doing work below their scope of responsibilities and need to empower those they have hired to do the work (and who are often more expert). Richard Branson, entrepreneur and founder of Virgin Atlantic among other ventures, is a big proponent of delegating to encourage collaboration, while also helping entrepreneurs channel their energy into what they uniquely can do. Branson’s advice to entrepreneurs is to “focus on the big picture and achieve the things you need to do make your product or service stand out.”

But delegating to others and freeing themselves up will be hard for founder/CEOs who seek the comfort of holding on tightly. To counter this tendency, leaders can ask their team directly: “What activities or meetings do you see me involved in that I need not be?” Instead of being overly involved, the founder/CEO can shift from being actively involved to simply being consulted, or from being consulted to being merely updated.

An audit of external meetings forces a founder/CEO to see whether they are spending their time with the right range of advisors at the right frequency, versus operating on autopilot. Such an audit is a relatively simple, but powerful exercise. First, make a list of key advisors, then go through the calendar from the past quarter to map the frequency of meetings with each. The founder/CEO can then adjust as needed in the coming months. We find that most founder/CEOs who “move towards” only one or two (controllable) advisors don’t realize what has happened until they see the evidence on paper.

Final Counsel

With most founder/CEOs, these three patterns of negative behaviors are often rooted in a lack of self-awareness regarding how they behave under stressful conditions. A few tips we routinely give founder/CEOs:

Understand their typical behavioral patterns under pressure.

If founder/CEOs don’t know their patterns, we counsel them to ask trusted team members or mentors/counselors. Most problematic behaviors are glaringly obvious to others. If leaders are genuinely open to listening, a powerful question for them to ask is, “What’s one of my traits that you see getting in my/our way under pressure?” There is some magic to asking for just one trait as it requires people to prioritize, while also keeping the founder/CEO from being overwhelmed. And the leader’s answer to this feedback should always be, “Thank you.” Rebuttals or excuses ruin the conversation.

Tune in to “loving critics.”

These are the mentors, peer advisors, coaches, and even board members who understand them and the situations they’re facing. Some powerful strategies to explore include: engaging with the executive team in pre-mortems about a particularly ambitious, pet initiative to de-bias thinking or assigning a loving critic the task of calling out the leader whenever they slip into a behavior they’re trying to curb.

Start/stop/continue.

Gather the management team around a whiteboard and conduct a “start/stop/continue” exercise by asking: “What should I/we start doing to improve our performance? Stop doing? Continue doing? How might I/we reinforce our key cultural tenets?” Getting everyone involved brings issues out into the open and increases buy-in.

Develop stress reduction routines.

Sleeping better (adults who sleep fewer than eight hours a night report higher stress levels), eating healthier (foods rich in omega-3 promote blood flow, which is reduced in times of stress), and exercising more (it reduces the number of poor mental health days by more than 40%), and mindfulness practices (yoga, meditation, etc.) can all yield significant benefits. Regularly taking time for fresh air and/or to have a cup of coffee with friends, socializing, and staying close to nature can provide significant benefits. This can be a tough sell, though, because founder/CEOs are among the most time-starved individuals. The helpful adage for them is: small moments; many times. We advise founder/CEOs to start small (5-minute meditation sessions vs. 30 minutes); partner where they can (healthy meal prep services can save hours) and look for “two-fers” (such as walking meetings or going to a greenspace instead of a dark restaurant with friends).

Finally, we encourage founder/CEOs to take the long view, far beyond the current economic contraction. This means embracing challenging times as a valuable opportunity to build credibility in the organization, with their investors, and in the marketplace.

Facebook
Twitter
LinkedIn
Pinterest
Pocket
WhatsApp

Never miss any important news. Subscribe to our newsletter.

Leave a Reply

Your email address will not be published.