When Did You Go from Entrepreneur to Guardian of Your Own Success?

An entrepreneur I coached had a successful business. He had once been a highly successful sales manager who could sell almost anything to anyone. Impeccably dressed, a sleek Audi outside and a career that appeared to be heading in exactly the right direction. The future looked bright.

Yet he had been carrying an idea around with him.

I cannot reveal what that idea was. The market is distinctive enough that it would probably be quite easy to identify him. What I can say is that there were no guarantees. Nobody knew whether customers wanted it, how many people would pay for it or how quickly competitors would react.

The idea could have become a success. It could also have disappeared without a trace.

He resigned and went for it.

It worked. His idea grew into a successful business and gave him the freedom, position and financial security he had never enjoyed as a sales manager. He had proved himself right, even though nobody could have guaranteed that outcome in advance.

A few years later, new laws and regulations changed his market. Demand gradually declined, making it clear that his original business model had a limited future. He recognised the danger, developed a second idea and successfully brought that to market as well.

Bam. Another hit.

That second idea has sustained his company for approximately ten years. It produced customers, revenue and a comfortable living. He has now proved twice that he can recognise an opportunity before others see it and build a viable business around it.

Today, he is approaching another turning point.

He knows his company needs to change. He needs a new idea, a different direction or perhaps an entirely new business. Everything suggests that his second success will also have largely disappeared from the market within two or three years. He is still reluctant to believe that completely. That is understandable. As long as the existing revenue continues to arrive, it remains tempting to treat the approaching end as a problem for another day.

His coaching question was simple and confronting:

How do I learn to be bold again?

That question stayed with me. The same man who once gave up his salary, career and predictable future for an unproven idea is now struggling to move, even though he understands that change is necessary.

He has not become less intelligent. He has considerably more entrepreneurial experience. His knowledge is broader, his network is stronger and he has already proved that he knows how to sell. By almost every business measure, his next step should be easier.

Yet it feels more dangerous.

“Success does not make risk smaller. It changes what an entrepreneur believes is at stake.” Ben Steenstra

Was he ever really such a risk-taker?

We enjoy telling the romantic story of the entrepreneur who takes risks other people avoid. He resigns, invests his savings and begins something without knowing how it will end. That decision alone appears to prove that entrepreneurs have a fundamentally different relationship with risk.

The scientific picture is more complicated.

Entrepreneurs often describe themselves as greater risk-takers than employees and managers. In behavioural experiments, the difference is considerably smaller. An important distinction exists between risk aversion, ambiguity aversion and loss aversion.

Risk aversion concerns someone’s willingness to choose an uncertain outcome when the probabilities are known. Ambiguity aversion appears when even those probabilities cannot be estimated properly. Loss aversion describes how much more heavily a potential loss weighs than a comparable gain.

These are three distinct psychological responses.

Research | 2,288 entrepreneurs, managers and employees

Martin Koudstaal, Randolph Sloof and Mirjam van Praag compared 2,288 entrepreneurs, managers and employees. Participants made financially incentivised decisions designed to measure risk aversion, ambiguity aversion and loss aversion separately. They also assessed their own attitudes towards risk. Entrepreneurs described themselves as clearly less risk-averse. The behavioural experiments produced a more nuanced picture. Differences in general risk aversion and ambiguity aversion were small. The clearest difference concerned loss aversion: entrepreneurs were, on average, more willing to accept a potential loss.This does not necessarily mean that entrepreneurs enjoy uncertainty more. They appear more willing to accept that pursuing an opportunity may cost them something. Research published in Management Science

The entrepreneur I coached certainly had something to lose when he pursued his first idea. He gave up a good salary, status, a company car and a promising career. At the same time, he did not yet have an established company, existing business revenue or a customer base that his decision could damage.

He surrendered certainty while having relatively little business ownership to protect.

He also viewed the risk differently from those around him. An outsider saw an unproven idea. He saw his commercial experience, his ability to persuade people and the influence he could personally exert over the outcome. His confidence did not come entirely from the market. Much of it came from what he already knew about himself.

Entrepreneurs often interpret uncertainty in this way. The statistical probability of failure is weighed against the belief that general statistics mainly describe other businesses. The entrepreneur knows his own idea, effort and capabilities. That makes an uncertain outcome feel less random.

Experienced entrepreneurs also tend to reduce uncertainty by dividing a large decision into smaller steps. Entrepreneurship research describes this as affordable loss: deciding in advance how much money, time, capacity or security someone can afford to lose while discovering whether a genuine opportunity exists.

Research | How experienced entrepreneurs make decisions under uncertainty

In a study by Stuart Read, Nicholas Dew, Saras Sarasvathy, Michael Song and Robert Wiltbank, 27 highly experienced entrepreneurs and 37 MBA students were given the same problems involving the development of a fictional company. They were asked to explain their thinking aloud while making their decisions. The MBA students more frequently attempted to predict the market, calculate expected returns and select the option with the highest potential payoff. The experienced entrepreneurs more often reasoned from the resources already available, possible partners and the losses they could afford to absorb.They did not wait for uncertainty to disappear. They limited the consequences of being wrong. This allowed them to learn without immediately putting everything at risk. Research on effectuation and affordable loss

This helps explain how someone can start a business without enjoying large risks. An entrepreneur may accept a limited loss in pursuit of an opportunity that matters and that he believes he can influence.

At the beginning, a decision also involves far more than financial returns. Freedom, autonomy, meaning, status and the desire to build something independently all have value. Calculating only the salary at risk ignores much of what the entrepreneur believes he can gain.

Success turns possibility into possession

In the beginning, a company has no fixed form. There is an idea, perhaps a first customer and a suspicion that a market may exist. Adaptation feels natural because almost everything still needs to be discovered.

After ten successful years, the situation looks completely different.

Revenue has become part of the entrepreneur’s normal income. Customers expect continuity. He has built a reputation and arranged his daily life around the company. The business provides money, status, structure, social relationships and an answer to the questions of what he does and who he is.

The company therefore represents more than its expected future profits. It also carries memories, sacrifices and personal recognition.

This changes the entrepreneur’s psychological reference point.

Daniel Kahneman and Amos Tversky demonstrated through prospect theory that people experience outcomes as gains or losses relative to their current position. The same final financial position can therefore feel completely different depending on how someone arrived there.

Research | Choosing certainty with gains and gambling with losses

In one of the best-known experiments from prospect theory, participants could choose between a guaranteed gain of 3,000 and an 80 per cent chance of gaining 4,000. The gamble had the higher expected financial value, yet 80 per cent chose the guaranteed 3,000.Comparable amounts were then presented as losses. Participants could choose between a guaranteed loss of 3,000 and an 80 per cent chance of losing 4,000, with a 20 per cent chance of losing nothing. In this situation, 92 per cent chose the gamble.People tend to prefer certainty when they can secure a gain. When they already face a loss, they become more willing to accept greater risk in the hope of avoiding that loss altogether. Original research on prospect theory

Existing business revenue is not yet a reference point for a starting entrepreneur. An investment of €50,000 can feel like the price of pursuing an opportunity. For an established entrepreneur, the same amount may feel like money being taken away from a functioning company.

The amount is identical. Its meaning has changed.

Any revenue growth produced by innovation remains uncertain. The revenue that might disappear during development is concrete and already exists. The potential loss therefore gains more psychological weight than an equally large future gain.

The endowment effect strengthens this response. People value something more highly once they own it. That increase in value appears even when ownership has been assigned completely at random.

Research | A coffee mug immediately becomes valuable property

Jack Knetsch divided students into three groups. The first group received a coffee mug and could exchange it for a chocolate bar. The second group received chocolate and could exchange it for a mug. The third group received nothing in advance and could choose directly between the two products.Among students who had received nothing beforehand, 56 per cent chose the mug. There was no overwhelming general preference for either product. Of the students who had initially received a mug, 89 per cent kept it. Of those who received chocolate, 90 per cent kept the chocolate.Randomly assigned ownership quickly determined what people wanted to retain. Research by Jack KnetschKahneman, Knetsch and Richard Thaler later studied the effect in a market setting. Students who owned a Cornell coffee mug wanted at least $5.25 to sell it. Students without a mug were willing to pay only between $2.25 and $2.75. Ownership alone approximately doubled the value assigned to the object. Experimental research on the endowment effect

A company obviously means considerably more than a randomly assigned coffee mug. The entrepreneur imagined it, guided it through difficult years and shaped it through hundreds of decisions. The company confirms his competence and represents part of his life story.

Research into business owners shows that they assign emotional value to their ownership that cannot be explained entirely through profits, control or other financial benefits. This emotional value can influence, for example, the amount they expect to receive when selling the company. Research on the emotional value of business ownership

This explains why a strategic discussion can suddenly become deeply personal. A proposal to discontinue a product may feel like a rejection of years of work. Criticism of the business model may be experienced as criticism of the founder’s judgement. A new leader or investor may threaten the autonomy for which the entrepreneur once resigned from his job.

The company does not exist solely in his investment portfolio. It has also become part of his identity.

How the builder becomes the guardian of his own success

During the early years, the entrepreneur I coached explored almost everything through possibilities. Would anyone buy his idea? Could he persuade the first customer? What needed to change to reach the market?

There was still little to protect. Movement was part of building the company.

His current business has customers, revenue, a reputation and a way of working that has performed successfully for years. Every new idea is therefore compared with a mature company that has already proved its value.

That comparison places the new idea at an immediate disadvantage.

An early idea is always smaller, less complete and more uncertain than a company that has had ten years to develop. It has no loyal customers, stable revenue or refined processes. When an emerging opportunity is judged by the standards of an established success, it will almost automatically appear weak.

The entrepreneur can then produce highly sensible reasons to wait. Existing customers may not want it. Current revenue should not be cannibalised. The brand could become diluted. The team lacks capacity. The technology is not sufficiently mature. The timing feels wrong.

Any of those objections may be valid.

The pattern becomes dangerous when every opportunity is evaluated primarily according to the damage it could cause. Innovation gradually changes from a source of future relevance into a threat to current stability.

The status quo also receives a psychological advantage. Continuing with what already exists feels as though no new decision is being made. Change has a clear decision point, requires investment and creates an identifiable person who can be held responsible.

Research | Entrepreneurs also prefer the existing situation

Katrin Burmeister and Christian Schade compared the decisions of 240 entrepreneurs, 135 bankers and 427 students. Participants were given choices in which one possibility was presented as the existing situation.That existing option was selected disproportionately often. Entrepreneurs were less susceptible to status quo bias than bankers, yet approximately as susceptible as students. Entrepreneurial experience made them relatively open to change without eliminating the attraction of what already existed.This study matters because continuing without change is often experienced as a neutral position. Psychologically, the status quo is simply another option, one that becomes more attractive because it already exists. Research on status quo bias among entrepreneurs

When a new product fails, the loss appears in the accounts. The development costs, hours and unsuccessful campaign can all be identified. Someone can point to the person who approved the decision.

When a business gradually loses market share because it failed to innovate, there is rarely such a clear moment. Nobody receives an invoice for a missed opportunity. Revenue that was never created is never recorded. The knowledge a competitor develops in the meantime does not appear as debt on the balance sheet.

Waiting therefore appears cheaper than it really is.

“Anyone who only calculates the cost of change makes standing still look free.” Ben Steenstra

The entrepreneur I coached knows that his second business model is approaching its end. As long as it continues to generate revenue, the urgency remains abstract. The cost of pursuing a new direction can be felt today. The price of waiting lies mostly in the future.

That difference makes delay extremely tempting.

When avoiding small risks creates one enormous gamble

Innovation rarely works perfectly on the first attempt. A pilot may fail. A target audience may respond differently from what was expected. A product may prove technically possible and commercially irrelevant. A partnership may deliver less than anticipated.

A starting entrepreneur often treats these outcomes as information. An established entrepreneur may interpret them as evidence that he should have stayed with the successful business.

When every innovation must become profitable immediately, there is no longer room to experiment. The company only invests once considerable certainty exists. By then, new competitors have usually already made several mistakes, developed valuable knowledge and discovered what works.

A nearly invisible pattern can develop over several years. Small, recoverable risks are postponed. The business model ages. The distance from the market grows. Once the threat can no longer be denied, a modest experiment no longer offers sufficient hope.

Only one apparent solution remains: a major investment, a radical transformation or a final attempt to save the company.

“An entrepreneur can spend years taking too little risk to renew the business, only to take far too much risk trying to save it.” Ben Steenstra

The same loss aversion that initially produced caution can now drive extreme risk-taking. The entrepreneur has entered the domain of losses. Stopping makes the loss final. Continuing preserves the possibility that the company will recover and earlier decisions will eventually be vindicated.

This is where rational persistence can become escalation of commitment.

Rational persistence continually reassesses current information, remaining resources, alternative uses of those resources and expected future returns. Escalation of commitment gives increasing weight to earlier investments, fear of losing face and the desire to prove that a previous decision was right after all.

The familiar statement, “We have already invested so much in this,” sounds determined. Economically, it says very little about the value of the next investment.

Research | 466 entrepreneurs take greater risks when their business is at stake

An experiment involving 466 entrepreneurs in Cali, Colombia, compared neutral financial choices with decisions connected to the ownership or potential loss of their own business.The researchers used the certainty equivalent: the guaranteed amount someone considers equally attractive as an uncertain gamble. When business ownership was at stake, entrepreneurs accepted riskier options. For the median entrepreneur, the endowment effect increased the certainty equivalent of a gamble by 36.5 per cent.The finding suggests that emotional ownership changes how entrepreneurs value their companies and can make them willing to take additional risks to prevent losing them. The researchers identify this as a possible explanation for continued investment in underperforming businesses and the high valuations entrepreneurs sometimes place on their own companies. Research on the endowment effect among entrepreneurs

Perseverance remains an essential entrepreneurial quality. Almost every successful business experiences periods in which results disappoint and stopping appears more attractive in the short term. There is no simple rule that always separates healthy persistence from damaging escalation.

Research does show that financial performance explains only part of the decision.

Research | Why entrepreneurs continue with an underperforming business

Research into the survival of underperforming ventures shows that entrepreneurs do not base their exit thresholds solely on revenue, profits or growth expectations.Personal motivation, previous investments, attachment to the company and the alternatives available outside the business all influence how long someone continues. A company may therefore survive below the performance level at which a purely financial model would predict that its owner would leave. The entrepreneur evaluates more than what the business is likely to produce from today onwards. The years already invested, its personal meaning and the consequences of walking away also influence the decision. Research on persistence in underperforming ventures

Some threatened entrepreneurs respond in the opposite way. They do not bet everything and instead become paralysed. Under pressure, their field of vision narrows. They admit less information, centralise decisions, increase control and fall back on routines that worked in the past.

This is known as threat rigidity.

The buffers available to the business partly determine which response emerges. An entrepreneur with sufficient reserves can experience a setback as a solvable strategic problem. Without financial room, the same setback begins to feel like an existential threat.

Research | Company size and reserves change the response to setbacks

Pino Audia and Henrich Greve studied expansion decisions in the shipbuilding industry. They found that small companies with limited resources took fewer expansion risks when performance deteriorated.Larger companies with greater buffers sometimes responded by taking more risk. They had more capacity to finance an attempt at recovery and were less likely to interpret a setback as an immediate threat to their survival. The findings help explain why underperforming entrepreneurs do not all behave in the same way. The meaning of the threat, the resources available and the ability to absorb another failure influence the response. Research by Audia and Greve

Fear therefore influences more than someone’s willingness to take risks. It can also reduce the ability to recognise alternatives. An entrepreneur without financial reserves, mental space or independent challenge may struggle to experiment, even while understanding that change is essential.

How can you tell when sound risk management has become excessive caution?

An entrepreneur with customers, obligations and a successful company should treat risk carefully. More is at stake than during the startup phase. Caution can therefore reflect mature entrepreneurship.

Excessive caution becomes visible when protection consistently receives more attention than development and the risks of standing still are barely examined.

New initiatives must then be almost certain to succeed in advance. Small experiments are discussed and calculated extensively, while execution is continually postponed. Existing customers determine the innovation agenda. Potential cannibalisation is considered sufficient reason to reject an idea. Criticism of the business model affects the entrepreneur personally.

A recognisable vocabulary often develops:

“Our customers do not want this.”

“This does not fit who we are.”

“We cannot associate our brand with that.”

“This is not the right time.”

“The current model is still working.”

“We have already invested too much to stop.”

Each statement may be entirely justified in a particular situation. Their accumulation tells a larger story. When almost every strategic possibility ends with a reason to preserve the current situation, it becomes worth examining the role played by fear of loss.

The entrepreneur can ask several uncomfortable questions:

• Would I invest in this business model again today?

• How would I evaluate this company if it belonged to someone else?

• Which decision am I defending mainly because I originally made it?

• What could disappear within three years if I change nothing now?

• Which small loss am I avoiding today?

• How large could the forced risk become if I continue to wait?

The entrepreneur I coached can discuss the approaching end of his market rationally. He sees the impact of regulation and understands that his current success has a limited future. Yet every new idea still feels like a threat to something that is currently performing well.

That is where the real tension lies. He is protecting a business that has given him freedom for years, and in doing so he risks allowing that same company to restrict his room for movement.

How do you become bold again without becoming reckless?

The entrepreneur does not have to throw away his current success to prove that he still has courage. His next step does not need to be as dramatic as the moment he resigned from his job.

Ten years of entrepreneurship have changed his circumstances. He has more knowledge and experience, along with greater financial and psychological interests. The courage required at this stage therefore takes a different form.

“Courage after success means moving while what you have still works. If you wait until change becomes unavoidable, circumstances will eventually make the decision for you.” Ben Steenstra

Affordable loss can be applied again inside an established company. The entrepreneur decides in advance how much money, time and capacity an experiment may consume. He defines the assumption being tested and identifies the information required for the next decision.

A new initiative does not have to prove an entire business from the beginning. It can start with a specific audience, a temporary proposition, an initial paid pilot or a partnership with someone who already has access to another market.

The experiment can also be temporarily protected from the standards of the existing company. A separate brand, independent budget or small team prevents an emerging opportunity from immediately having to deliver the same margins, processes and reliability as a mature business.

The risk analysis must then look in both directions. What might the company lose by running the experiment? What could disappear if the experiment is postponed for three years?

The second calculation is more difficult because it contains assumptions. That does not make it less relevant. Future revenue that disappears, knowledge that is never developed and the advantage gained by a competitor are genuine strategic risks.

Predefined exit criteria help prevent enthusiasm from becoming escalation of commitment. A maximum investment, a final decision date, minimum customer response and clear conditions for continuing or stopping create boundaries before reputation and hope begin to distort judgement.

Independent challenge also matters. People inside a company are usually dependent on the existing model in some way. Long-standing advisers may unconsciously have adopted the same perspective. An outsider without emotional ownership can more easily recognise that a valued product has reached the end of its useful life or that a persuasive argument mainly serves to justify delay.

This brings us back to the coaching question.

“How do I learn to be bold again?” sounds as though the entrepreneur has lost a personal quality. His history tells a different story. His ability to recognise and sell opportunities still exists. The environment in which he must use that ability has become heavier.

He does not need to return to the sales manager in the sharp suit with the sleek Audi, the man who had no customers, revenue or company to lose. He needs to move from the position of the entrepreneur he has become, with a realistic view of what he owns and what he may lose by waiting too long.

What the research does and does not prove

There is no decisive longitudinal study that has followed the same large group of entrepreneurs from their first idea through the development of a mature company and demonstrated that loss aversion explains their entire behavioural change.

The argument in this article emerges by connecting several research traditions: prospect theory, loss aversion, the endowment effect, the emotional value of business ownership, status quo bias, affordable loss, threat rigidity, escalation of commitment and research into underperforming ventures.

These studies point in a similar direction. Ownership changes valuation. A shifting reference point influences how gains and losses are experienced. Previous investments can distort future decisions. Threat can produce both excessive caution and extreme risk-taking.

Loss aversion does not explain every form of resistance to change. Financial obligations, customers, employees, investors, regulation, age, reputation and available reserves also influence entrepreneurial decisions. An entrepreneur with a family, employees and high fixed costs should make different decisions from someone starting with a laptop at the kitchen table.

The psychological explanation remains valuable because it reveals why greater experience and more resources do not automatically produce a greater willingness to change.

Sometimes the results of earlier courage make the next courageous step more difficult.

The entrepreneur I coached has developed two successful business ideas. He does not lack evidence that he can do it. He may have accumulated too much evidence that his current approach works.

Meanwhile, time continues to pass.

His second idea is expected to have largely disappeared from the market within two or three years. He can use that period to protect his existing revenue for as long as possible. He can also use it to take small, bounded risks and rediscover where his next future may lie.

Both choices contain uncertainty.

Only one allows him to remain an entrepreneur.