Home Concepts Organizational Theory Theory E²: Working with Entrepreneurial Professionals in Closely-Held Enterprises

Theory E²: Working with Entrepreneurial Professionals in Closely-Held Enterprises

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6. The Fear Factor

Entrepreneurs who hold their enterprise close to their heart may sacrifice something very large in exchange for this control. In many cases, they sacrifice the capacity to generate outside funds. In professional practices, the outside finds often come from banks or other financial institutions that specialize in loans to professional practices. Leaders of the other types of closely-held enterprises may seek out venture capital (VCs), however, these enterprises often are not very attractive to the VCs because they are so tightly controlled and dependent on the ongoing inspiration and leadership of one or two people. (Venture capitalists typically want to be able to exert their own influence, which means the entrepreneur has to give up partial ownership of that which is close to her heart.) If the closely held enterprise is a professional practice then there may be similar concerns about the enterprise being closely-held and therefore, quite vulnerable.

More importantly, there is a powerful psychological force in operation. For a variety of reasons, most entrepreneurs feel like they are living on the edge of financial insolvency. Just as doting parents are often irrationally concerned about the safety of their children (John Irving captured this fear beautifully in The World According to Garp—the fear of the “under-toad”), the entrepreneur is constantly in angst regarding the welfare of her cherished enterprise. There is never enough financial security. There is always the search for another dollar or a new funding source: “We never seem to have quite enough money . . . or maybe we just keep raising the bar in terms of our financial expectations. . . . how much is enough money? . . . one dollar more than we now have!”

There is also the complex interplay between three fundamental emotions: anticipation of regret, fear of loss and hope for gain. The behavioral economists provide compelling evidence that we are motivated first and foremost to avoid regret. We don’t what to say later that we had the opportunity, but failed to take advantage. To quote Marlon Brando (On the Waterfront): “I could have been a contender!” Or we seek to avoid regret associated with a decision that we did make that turned out to be the wrong decision, made at the wrong time. 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.

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