Apparently, we worry more about regret than we do about the actual loss of something (such as money, time or energy). The hope for gain sits at the bottom of the list. We worry more about loss than we hope for gain – and regret trumps both loss and gain. For the entrepreneur who leads a closely-held enterprise, these motivational dynamics must be particularly strong—for they usually have to take primary responsibility for lost opportunities, mistaken decisions or loss of money, time or energy. Conversely, the gains that are made often have many parents. And as an effective, motivating leader, we encourage this sharing of credit for a success.
Thus, there are both rational and irrational sources of fear about the financial status of a closely held enterprise, as well as fear about making the wrong decision. These organizations are, in fact, often under-capitalized, yet as the behavioral economists point out the fears frequently extend beyond the legitimate concerns. In the most effectively run enterprises, there is a high level of patience on the part of the entrepreneur regarding long-term financial goals and an enduring commitment to achieving these goals. However, there is also an accompanying low level of financial stability in many of these enterprises—which makes the long term strategizing particularly difficult. The dominant desire to avoid regret and loss makes long term strategizing even more challenging.
At the heart of the entrepreneurial challenge associated with this issue is the capacity (and willingness) of the entrepreneur to live with financial insecurity and hold the desire to avoid regret at bay. When asked what she does as an organizational psychologist, a colleague of ours who works primarily with entrepreneurs indicates that she helps people work on the problems that “wake them up at 3 o’clock in the morning.” These “wake-up” problems are often both financial and emotional in nature for the entrepreneur in a closely held enterprise. The psychologist is there is help her entrepreneurial client differentiate between the realistic and unrealistic fears and between those financial matters that are in their hands (internal locus of control) and those that are out of their hands (external local of control).
