John White, president and CEO of a well-known company in the office equipment industry, was wondering if he should acquire a small electronics component business. Since the company’s products would be a valuable addition to his office equipment line, White had been quite eager to pursue the matter. In considering this possibility, White kept going over in his mind the kind of arrangements he should make with the electronics company’s founder and owner, Lee Thompson. During their discussions of the buyout, Thompson had indicated that he was prepared to stay on after selling his company. Although White recognized Thompson’s contribution to making the company a big success, he wondered how a continuing association would work out. Would Thompson fit in with the parent company? How would Thompson deal with being a subordinate? Would Thompson, used to having things his way, follow directions and accept White as a boss?
John White’s concerns are not outlandish. Some entrepreneurs find it hard to accept another company’s way of doing things and can create a working atmosphere that makes adaptation very difficult. One should not, however, see such behavior as the norm. Many entrepreneurs are well equipped to deal with different company environments.
What are entrepreneurs like? What distinguishes them from other businesspeople? Although as a group they are not easy to get a handle on, some characteristics seem to be common to all of them.
Entrepreneurs seem to be achievement oriented, like to take responsibility for decisions, and dislike repetitive, routine work. Creative entrepreneurs possess high levels of energy and great degrees of perseverance and imagination, which, combined with willingness to take moderate, calculated risks enable them to transform what often began as a very simple, ill-defined idea into something concrete. Entrepreneurs also can instill highly contagious enthusiasm in an organization. They convey a sense of purpose and, by doing so, convince others that they are where the action is. Whatever it is—seductiveness, gamesmanship, or charisma—entrepreneurs somehow know how to lead an organization and give it momentum.
Along with their mystique, however, entrepreneurs can have personality quirks that make them hard people to work with. For example, their bias toward action, which makes them act rather thoughtlessly, sometimes can have dire consequences for the organization. Moreover, some entrepreneurs I have known have had great difficulty taking direction.
As Derek du Toit, an entrepreneur, admits, “The entrepreneur who starts his own business generally does so because he is a difficult employee. He does not take kindly to suggestions or orders from other people and aspires most of all to run his own shop. His idiosyncrasies do not hurt anybody so long as the business is small, but once the business gets larger, requiring the support and active cooperation of more people, he is at risk if he does not change his approach. It has been correctly stated that the biggest burden a growing company faces is having a full-blooded entrepreneur as its owner.”1
Du Toit raises questions about what you should look out for if you are considering taking an entrepreneur on board, working for one, or encouraging new ventures. What can cause problems? Are there pitfalls to avoid? If so, what are the options in such situations? What provisions can you make to accommodate the typical entrepreneur? Do entrepreneurs have more personal problems than other people? In short, what is the dark side of entrepreneurship?
Entrepreneur’s Theater
In answering these questions, let’s keep in mind that entrepreneurs are not a homogeneous group. They come in all sizes, each with his or her own characteristics.2 I am discussing here owner-managers I have worked with whose personalities were responsible for their own or their companies’ failures. (See the insert entitled “The Research Base.”)
The Research Base
My research is based on extensive observations of and interviews with 8 entrepreneurs operating in a wide range of industries. Most of these entepreneurs were based in the United States or Canada. My usual entry into their companies was as an expert in strategic human resource management with a special interest in entrepreneurship and family business. Sometimes management asked for my help because it saw my clinical background as useful in untangling complex family and business situations. In a few cases, I had a purely therapeutic “contract” with the entrepreneur. To the extent that I dealt with “dramatic” cases, my sample is biased.
Need for Control
A significant theme in the life and personality of many entrepreneurs I have known is the need for control. Occasionally, their preoccupation with control affects their ability to take direction or give it appropriately and has serious implications for how they get along with others. Some entrepreneurs are strikingly ambivalent when an issue of control surfaces—they are filled with fantasies of grandiosity, influence, power, and authority, yet also feel helpless. They seem to fear that their grandiose desires will get out of control and place them ultimately at the mercy of others.
Consequently, some entrepreneurs I have studied have serious difficulty addressing issues of dominance and submission and are suspicious about authority. This attitude contrasts greatly with that of managers. While managers seem able to identify in a positive and constructive way with authority figures, using them as role models, many of the entrepreneurs I have observed lack the manager’s fluidity in changing from a superior to a subordinate role. Instead, they often experience structure as stifling. They find it very difficult to work with others in structured situations unless, of course, they created the structure and the work is done on their terms.
Larry Malcolm, a successful entrepreneur in the sporting goods industry, is a typical example. In my discussions with him, he talked about his inability to work for others. After he dropped out of college, Malcolm started work as a sporting goods salesperson for a department store. He liked the experience (sports had always been his great enthusiasm), but a fight with the department head over the “right” way of displaying merchandise prematurely ended his stay. He then found a clerical position in an apparel company that manufactured active wear. Although he managed to stay on longer at this job, he disliked the working environment, felt stifled, and, finally, quit.
In his third job, he didn’t fare much better. But by this time, Malcolm began to realize that working for others was not his forte. Not knowing what to do and wanting time to think about the future, he took his savings and made an extensive trip to Europe. At a sporting goods fair in Germany, he met a designer whose work he liked, and on the basis of the man’s designs, managed to get a few orders from a department store and a number of small retail operations when he returned to the States. All of a sudden, Malcolm found himself running his own business.
Larry Malcolm’s story is not unusual. Many entrepreneurs seem to be driven by a magnificent obsession, some idea, concept, or theme that haunts them and that eventually determines what kind of business they choose to be in. Malcolm’s great passion was sports, and everything related to it. It partially explains his talent for finding more functional as well as attractive designs. This focused interest is not the only factor, however. Listening to entrepreneurs’ case histories, I have found many situations where it was also—like Malcolm’s—people’s inability to submit to authority and accept organizational rules that drove them to become entrepreneurs.
Many entrepreneurs are misfits who need to create their own environment.3 Offering the deference a subordinate usually owes a superior often suffocates this type of person. They tell themselves that they don’t want to be at the mercy of others. Even if they move away from old controlling influences, these concerns linger on. Many of the entrepreneurs I have been studying are preoccupied with the threat of subjection to some external control or infringement on their will. When such people are suddenly placed in a subordinate position, power conflicts are inevitable.
People who are overly concerned about being in control also have little tolerance for subordinates who think for themselves. In organizations, this desire for control can lead to extreme behavior, for instance, an owner-manager needing to be informed about even the most minute operation of the company. To illustrate, every morning one entrepreneur responsible for a $20 million consumer product operation habitually opened not only his own personal mail but also all mail directed to the company. In addition, he had to approve all requisitions, no matter how small. He said it gave him a “feel” for the overall functioning of the organization.
Once that may have been the case. But excessive concern with detail that may be appropriate in the start-up phase of a company will increasingly become a burden to the organization as it stifles the information flow, hampers decision making, and inhibits the attraction and retainment of capable managers. In this entrepreneur’s situation, although his subordinates admired many of his qualities, they deeply resented being infantilized. Good performers did not stay.
Moreover, because true accountability was lacking, information needed for decision making did not circulate. As a result, sales and profits plateaued and the future growth of the enterprise was endangered. Buyers of entrepreneurial companies started by such people should be prepared to inherit a mediocre management group.
Sense of Distrust
Closely related to the need for control is a proclivity toward suspicion of others. What makes some of the entrepreneurs I have known stand out as extreme examples has been their strong distrust for the world around them. They live in fear of being victimized. They want to be ready should disaster strike. Paradoxically, quite a few I have worked with feel best when their fortunes are at their lowest. When at the top of the success wave, they imagine themselves incurring the envy of others.
So not to tempt the wrath of the gods, when people ask them how things are, they respond by saying that business is only “so-so” or “not too bad.” But if their fortunes turn and they are close to bankruptcy, it is as if they have paid the price, done their penance for having been successful. Because it produces a sense of relief, their predicament can have a positive effect. With the alleviation of anxiety, they have the energy to start anew, which they do with enthusiasm and a sense of purpose.
People who are “sick” in this way are continually scanning the environment for something to confirm their suspicions. This behavior pattern does, of course, have its constructive side: it makes the entrepreneur alert to competitors’, suppliers’, customers’, or government moves that affect the industry. Anticipating the actions of others protects them from being taken unaware. But such vigilance can also lead them to lose any sense of proportion. Focusing on certain trouble spots and ignoring others, entrepreneurs like this may blow up trivial things and lose sight of the reality of the situation.
When a strong sense of distrust assisted by a need for control takes over, the consequences for the organization are serious: sycophants set the tone, people stop acting independently, and political gamesman-ship is rampant. Such entrepreneurs can interpret harmless acts as threats to their control and see them as warranting destructive counteractions. Understandably, such thinking doesn’t lead to sound head office-subsidiary relationships.
In one case, headquarters sent a consultant to help the chief executive of a newly acquired company to assess profitability by product line and develop and implement a strategic plan. When the consultant arrived, the ex-owner didn’t even let him look at the financial statements on the ground (as he explained to headquarters) that the consultant might use the information to help the competition. At another time, when his machines were idle and he had to lay off employees, this same person refused to sell goods-in-process to a noncompeting business. He argued that he had once been burned when a competitor used his goods-in-process to manufacture a line of products that competed with his own, and he was not going to let it happen again.
In another case, the vice president of human resources of a conglomerate was surprised to discover that the former owner of a subsidiary had television cameras monitoring the front and back entries of both his plant and his office building. To allay his fears that employees were stealing from him, the manager kept two split-screen consoles on his desk that he watched constantly.
The problem one has countering such distorted forms of reasoning and action is that behind the fear and suspicion always lies some reality. If one looks hard enough, one will always find somewhere some confirmation of the entrepreneur’s suspicions—someone stealing something. Unfortunately, the person who manages this way forgets the price the company pays in deteriorating morale, low employee satisfaction, and declining productivity.
Desire for Applause
The common heroic myth begins with the hero’s humble birth, his rapid rise to prominence and power, his conquest of the forces of evil, his vulnerability to the sin of pride, and, finally, his fall through betrayal or heroic sacrifice. The basic symbolic themes here—of birth, conquest, pride, betrayal, and death—are relevant to all of us. And as we have seen, with a Greek chorus in the background applauding their achievements but warning them about pride, some entrepreneurs act out the same myth.
The myth helps us see why quite a few entrepreneurs live under a great amount of tension. They feel they’re living on the edge, that their success will not last (their need for control and their sense of distrust are symptomatic of this anxiety) but they also have an overriding concern to be heard and recognized, to be seen as heroes. Some entrepreneurs need to show others that they amount to something, that they cannot be ignored.
A very gifted entrepreneur, who was experiencing great stress while working out how fast to expand his business, described to me a dream he had repeatedly. In the dream, he would be standing on a balcony, looking down, to see a group of women smiling admiringly up at him. This scene would soon fade and the admirers would turn into harpies. Feeling suffocated, he would wake up screaming. He also recalled dreams of himself as a swaggering cowboy climbing an ever-narrowing trail leading to the top of a mountain. But below the top, a gate blocked the road. To move past it, the man would have to risk sliding down.
If one looks at these dreams as symbolic, albeit in a simplified way, one sees some wishes and fears standing out. One of the more noticeable characteristics of both dreams is their grandiosity; they involve high positions—balconies and mountains—the way to both viewed as fraught with many dangers. We want to ask, why does he want to go there at all? Whom is he trying to impress? What are the dangers? How do women figure in all of it? What makes him scream, and what causes the feelings of suffocation? What is behind his hyperactivity?
Perhaps one way of looking at the need for applause is to see it as a reaction against feeling insignificant, of being a nothing. Some entrepreneurs I have known hear an inner voice that tells them they will never amount to anything. But regardless of who put this idea into their minds, these people are not retiring types who take such rebuke passively; they are the defiant ones who deal with it creatively through action. They possess enough inner strength to prove the voice wrong and show the world that they amount to something. They will ride to the top in spite of all the dangers; they will get the applause; they will find a way to master their fears.
A manifestation of this need is the interest some entrepreneurs show in building monuments as symbols of their achievements. Sometimes the monument is an imposing office building or production facility; sometimes it is a product that takes on symbolic significance. For example, because he wanted to show people in the section of town where he grew up that he had amounted to something, one entrepreneur built an imposing head office and new factory. The contrast between his building and the decrepit surroundings was striking. That this action jeopardized the company’s financial position—it was during a period of economic decline and all advisers advocated offshore production—made the decision more bizarre.
Given these strong needs, it’s reasonable to ask if it is possible to harness such drives. Can such entrepreneurs relinquish their need to invest in certain organizational symbols? Can they live under the constraints of corporate budgets, expense controls, and long-range plans? Can they play second fiddle?
The Defenses We Use
People’s personalities are largely determined by the way they balance their views of the world with external reality. A personality consists of the enduring, pervasive behavior patterns that complex, deeply embedded psychological characteristics create. Although each of us may behave differently, one thing we all have are defenses that help us deal with the stresses and strains of daily life. The relationships we develop with others are colored by the kinds of defenses we use.
People who are in trouble psychologically (who have difficulty balancing their internal and external lives) often resort to “splitting” as a way of coping. Splitting is a tendency to see everything as either ideal (all good) or persecutory (all bad). The way these people see themselves as well as others becomes so dramatically oversimplified that they fail to appreciate the complexity and ambiguity inherent in human relationships. They tend to see things in extremes when dealing with other people. While people with unbalanced personalities idealize some people and put them on a pedestal, they vilify others. The attitudinal pendulum shifts all too easily.
Let’s look at an example. One entrepreneur I studied made a point of hiring young MBAs just out of school. He would marvel at their mastery of the latest management techniques and hold the new executives up as examples for his other employees. He would tell them that these were the kinds of managers he needed. Inevitably, his lavish praise would stir up enormous resentment among the rest of the staff (with the predictable spiteful consequences). But also, just as inevitably, the president’s infatuation with his latest recruit would soon exhaust itself and disappointment would set in. No new recruit could live up to his exaggerated expectations, and eventually, like other MBAs before, he or she would leave.
When this same man sold his company, he was at first quite enamored of the acquiring company’s CEO. He would praise his new boss’s accomplishments to all. It would give him great pleasure to dwell on certain incidents illustrating the CEO’s achievements. But as with all the others, this infatuation did not last long. A request from headquarters for more information about a new advertising campaign was the turning point. The ex-owner interpreted the request as a vote of no confidence, as an attempt to find fault with his actions, and even as part of a plan to get rid of him. He had had similar reactions to other requests from headquarters. Almost overnight in his eyes, the CEO changed from hero to chief villain. Eventually, because the entrepreneur withheld information, the CEO had no choice but to make his fears come true, and he let him go.
We all have a tendency to externalize internal problems: we “project” our discomforts and fears onto others. When we attribute a threat we feel to someone else or to an event, it becomes more manageable. But if this tendency becomes exaggerated and the predominant reaction to stressful circumstances, it can be problematic. Scapegoating is a method people commonly adopt to see themselves as blameless. If used to the extreme, though, this way of managing stress becomes a dysfunctional personality characteristic.
People who act this way experience little sense of personal responsibility. They distance themselves from the problem and deny and rationalize away whatever responsibility they may have had. They refuse to see what they don’t like to see and blame others. In an organization, this kind of thinking contributes to political infighting, to denial of responsibility, and to insularity and factions.
One entrepreneur who had sold his company, but remained in charge, refused to accept reports that sales were dropping rapidly and a number of creditors were ready to pull the plug on the company. Instead of recognizing that the downturn resulted from mismanagement on his own factory floor and in his design department, he denied his own responsibility in the matter and blamed any adverse indications on the government or on customers’ malice. He also kept arguing that the new product line had miraculous potential, and nobody in the company was bold enough to contradict his statements. Instead, his subordinates continually reassured each other that the president’s opinion must be correct. Despite a hands-off policy, head office management eventually had to intervene and end prematurely the entrepreneur’s employment contract. It took many years of effort to get the company back into the black.
Finally, quite a few entrepreneurs I have worked with are inclined to turn the passive into the active, a characteristic that relates to their difficulty controlling their impulses and managing anxiety and depression. Such entrepreneurs defend against anxiety (evidenced by their restlessness and irritability) by turning to action as an antidote.
As these entrepreneurs try to steer between their fear of success and fear of failure and wonder if success will last, or whether—not consciously—they will suffer the dreaded fate of the mythical hero, they finally can’t stand the tension. The work worry creates is far too anxiety provoking, so they flee into action, even if it is impulsive and thoughtless, without considering facts. I’m not saying that waiting out events has no attraction for them, only that they may fear so strongly that being passive would make them overdependent and, ultimately, controlled by others, that they have to act counterdependently.
Most of us work continually to keep a balance between dependency needs and the wish to do things on our own—to be independent. Some entrepreneurs seem to have a particularly rough time maintaining this balance and preserving a stable image of themselves. Instead, they teeter-totter and are prone to deep mood swings. When things are going well, everything is terrific. But when the bubble bursts and something goes wrong, the pendulum often shifts completely in the other direction. Then everything is terrible, the situation is hopeless, and bankruptcy is just around the corner.
One entrepreneur I got to know compared himself at one point to the mythological King Midas, implying that everything he touched turned to gold. He would describe at great length how fantastically successful and profitable his company was. In this state of mind, letting himself see only what he wanted to see and using all the defensive patterns I have just described, he didn’t bother to read sales and financial reports. If anyone questioned him about that, he would say that his reporting system was just fine; everything was terrific. Only news from the head office controller pointing out that the company had suffered a loss during the last quarter aroused him, finally, from his self-deceptive state. Needless to say, he didn’t take the report with equanimity; his mood plunged. He feared that he was over his head and that his operation was finished. It took some time to pull himself together.
Turning on the Light
I have described some of the dark side of entrepreneurship. The cases I’ve outlined here are extreme, though; most of the relationships between entrepreneurs and their acquirers do not deteriorate that much. For one thing, many countervailing forces—institutions, government, banks, and a person’s health and good judgment—prevent excesses. Most entrepreneurs’ sense of reality prevents things from getting out of hand.
Entrepreneurs do not necessarily have more personal problems than other people, nor do they inevitably have personality disorders. What one can extract from the previous comments, however, is that entrepreneurs have their own unique ways of dealing with the stresses and strains of daily life. In saying this, I want to emphasize that the boundaries between very creative and aberrant behavior can be blurry; normal and irrational behavior are not discrete categories on a scale. The mix of creative and irrational is what makes entrepreneurs tick and accounts for their many positive contributions. Entrepreneurs create new industries and jobs and stimulate the economy. Their visionary qualities and leadership abilities enable those around them to transcend petty concerns and attain great achievements.
In one case I know, the president of a conglomerate worked hard to build a relationship based on mutual trust with the entrepreneur running a company he was considering acquiring. The two talked about the working arrangements and operational procedures each would accept. While the entrepreneur expressed his concern about preserving his independence, the president described the information he would need from any subsidiary to make him feel comfortable. They also agreed that the entrepreneur could call on the president any time for assistance.
After the acquisition, the president kept his promise to let the entrepreneur run his own show; he kept interference from headquarters at a minimum. The arrangement about assistance turned out to be critical. The president soon found out that the entrepreneur was using him regularly as a sounding board, which he did not mind since it enabled him, in an atmosphere of mutual trust, to bring a healthy dose of reality to the entrepreneur’s occasionally high-flying schemes. This loose-tight arrangement turned out to be very successful. The new acquisition became one of the most profitable in the conglomerate’s portfolio of companies.
Unfortunately, though, as we’ve seen, acquisitions don’t always have happy endings. The personality quirks I have described can make collaboration very trying. The last case provides a clue, however, to how executives and venture capitalists can work with these imaginative, but sometimes difficult, people. The challenge is to develop a relationship based on mutual trust that will allow the executive and the entrepreneur to talk openly and regularly and that will enable the latter to test ideas against reality.
To facilitate this process, venture capitalists and chief executives should respect the entrepreneur’s needs for independence and design control and information systems accordingly. Living with such an arrangement is not easy. Given the erratic way some entrepreneurs run their companies, a loosely coupled relationship with headquarters may prove problematic. Such an approach will demand that executives at the head office maintain a proper balance between monitoring performance and letting go of control. One way to ensure the autonomy of acquired companies is to keep the headquarters staff lean to prevent excessive interference.
Top managers should heed a few other precautions before taking an entrepreneur on board. Before buying an entrepreneurial company, pay close attention to the quality of management that will come with the deal. Ask if the personnel pool of the company you’ll acquire can be trained and developed. Or are you facing such a mediocre management that it will be very difficult to build a team that will fit the acquiring company’s culture? Does a situation of trained incapacity and “decidophobia” exist that will make it impossible for the acquired management group to move the company forward if the entrepreneur departs?
Executives should also consider how well the entrepreneurial company’s culture will fit the acquiring company’s. Is “the way of doing things” at the head office very different from that of the acquired company? How similar are the basic values in the two organizations, for example, about issues like accepted behavior, structure, and goals? (Naturally, I am not thinking here of a dramatic transformation but of a gradual shift.) Corporate executives should be equally open to change; cultural adjustment works both ways. In any case, executives need to consider whether the cultural differences are so great that a clash is inevitable. Moreover, if conflicts occur, will they be drawn out?
Given the wealth of product and market knowledge entrepreneurs usually have, separating them from their companies should be the last option. In those instances where it becomes quickly obvious that an entrepreneur’s need for autonomy overshadows everything else, it may be advisable to have the founder stay on for a short transition period only. And because, as a rule, acquiring companies do feel the need to impose their cultures on subsidiaries, entrepreneur-owners most often do leave.
Whatever executives or venture capitalists finally decide to do, they should keep in mind that entrepreneurs’ personality quirks may have been responsible for their drive and energy and are important factors in making them so successful. Thus instead of fighting these idiosyncracies, managers should regard developing them as a challenge.
The Light Side
“So you are going to start the dry goods business?” [John Wanamaker was asked, as reported in a newspaper.]
“Yes!”
“What is your idea, Mr. Wanamaker, in doing it?”
“To do in ladies’ goods just what we have done with men’s goods—first in getting clothing for the people at reasonable prices; then in reducing the prices of shoes; then in lowering the cost of hats. All these are men’s and children’s goods. Now, then, we propose to turn our attention to women’s goods, hoping to bring about beneficial results.”
“But this is not in your line?”
“Why not, who has a patent on merchandising? We never questioned the right of dry goods stores that began to sell clothing, nor would we doubt the propriety of dealing in any article that we pleased. If we were just starting in business, who would consider it proper to question what business we chose to follow?”
“But you have a large business already.”
“So we have, and we worked 16 years for it, and with the large property we now have we can do a great deal more business with no more expense for rent, taxes, gas, and only the addition of needed clerk hire. This is a great advantage for introducing a new department.”
“What is the tendency of large establishments?”
“Well, the moment the doors of the new dry goods department open the prices will go down throughout the city.”
“Why do you suppose that?”
“Because the more competition, the better it is for a community—the better the people are served…”
“What effect will this have on other storekeepers?”
“That is not the question; the real question to be considered is whether the people will be served by it or not—it is not the few that are to be thought of, but the many… The new store must have an excellent effect on the city business, [just as] two roads serve the city better than one would. By its uniformly moderate prices it will compel low prices everywhere; it will stimulate everyone to do their best to serve their patrons; it will attract, by its mammoth stock and its conveniences, crowds of people from the country, who buy all kinds of goods of our neighbors, the furniture, glassware and stove stores, harness, grocery and other stores; it will bring money to Philadelphia that otherwise would not come here; it will give employment to hundreds of people, many of whom would otherwise be idle.”
References
1. Derek F. du Toit, “Confessions of a Successful Entrepreneur,” HBR November–December 1980, p. 44.
2. See, for example, Norman R. Smith, The Entrepreneur and His Firm: The Relationship Between Type of Man and Type of Company (East Lansing, Mich.: Michigan State University, 1967); Herbert A. Warner and Irwin M. Rubin. “Motivation of Research and Development Entrepreneurs Determinants of Company Success,” Journal of Applied Psychology. June 1969, Issue 3, Part 1, p. 178; and John A. Hornaday, “Research About Living Entrepreneurs,” in Encyclopedia of Entrepreneurship, ed. Calvin A. Kent, Donald L. Sexton, and Karl H. Vesper (Englewood Cliffs, N.J.: Prentice-Hall, 1982), p. 20.
3. See Orvis F. Collins and David G. Moore, The Organization Makers: A Study of Independent Entrepreneurs (New York: Meredith, 1970); and my article, “The Entrepreneurial Personality: A Person at the Crossroads,” Journal of Management Studies, vol. 14, no. 1, 1977, p. 34.
