Harvard Business Review – What Makes Entrepreneurs Burn Out?

By now we are all familiar with the risks of burnout. Research shows that it leads to work-related issues such as job dissatisfaction, absenteeism, inefficient decision making, and turnover, as well as health-related issues such as depression, heart disease, and even death. Research also reveals some of the common causes of burnout, such as lack of autonomy, engagement, motivation, and passion.

But since much of this research has looked at employees in large organizations, we know less about what burnout looks like for other types of workers. We wanted to study a group that seems to be more susceptible to burnout: entrepreneurs.

Some evidence suggests that entrepreneurs are more at risk of burnout because they tend to be extremely passionate about work and more socially isolated, have limited safety nets, and operate in high uncertainty. This has important consequences for economic growth — entrepreneurial firm failure and bankruptcy is likely to contribute significantly to the $300 billion that burnout costs the U.S. annually.

We conducted a study to see what factors lead to greater burnout among entrepreneurs. Specifically, we looked at whether job passion, job fit, and destiny beliefs (the belief that a successful entrepreneurial career is “meant to be”) make entrepreneurs more likely or less likely to experience burnout. These factors have been shown to affect important outcomes such as entrepreneurial stress and venture performance.

We surveyed 326 members of Business Networking International (BNI) in a region in the southwest of the United States. BNI is the largest entrepreneur networking organization in the world, with over 2,800 chapters across 50 countries. Members meet weekly to build relationships and exchange referrals and other resources. Within our sample, 59.6% of respondents were male and the average age was 47.4 years. These individuals worked in a range of industries, from service and finance to manufacturing and trade. The majority (95.6%) of our respondents worked in small businesses with 250 or fewer workers, and the average tenure was 8.59 years. (Our data does not show if these entrepreneurs are business owners or founders.)

Our survey asked a number of questions to measure entrepreneurs’ job passion, job fit, destiny beliefs of work, and tendency to experience burnout. We defined job fit as how well the person thought their current job matched their ideal job. We defined job passion as having a strong inclination toward work that one liked and found important. We wanted to measure both harmonious passion, which means someone is motivated by the job because it bring them satisfaction and is an important part of who they are, and obsessive passion, which means the job is important to someone because of the status, money, or other rewards that it brings.

For beliefs about work, our questions were designed to measure how people thought their career would evolve over time. People fell into two groups: those with a flexible mindset, who believed that an entrepreneurial career can be developed over time, and those with a fixed (destiny) mindset, who thought that a career step is either right or wrong and that entrepreneurial success is either meant to be or not. To measure burnout, we asked people questions like whether they felt tired when they faced another day on the job, whether they doubted the significance of their work, and whether they felt exhilarated when they accomplished something at work. All our survey questions were based on validated scales.

Our findings show that even though entrepreneurs generally had the autonomy to design their jobs, their passion, sense of job fit, and likelihood of experiencing burnout varied. The entrepreneurs in our sample, on average, said they experienced some level of burnout. But some were more burned out than others — 25% of entrepreneurs felt moderately burned out, while 3% felt strongly burned out. We found that the majority of the entrepreneurs reported high levels of job fit (4.26 on a 5-point scale), scored high on harmonious passion (3.90), and scored average on obsessive passion (2.58) and destiny beliefs (2.79).

We found that the entrepreneurs who reported high scores of obsessive passion were more likely to say they experienced burnout than those who reported high scores of harmonious passion. The obsessively passionate entrepreneurs reported feeling that work was more emotionally draining and that working all day required a great deal of effort. They indicated feeling frustrated by their work and even that it was breaking them down. For some entrepreneurs, their burnout caused a constant state of anxiety and stress. We also found that among entrepreneurs with obsessive passion, those with a fixed mindset were even more prone to burnout.

The Dark Side of Passion

Let’s take a closer look at the connection between passion and burnout. The entrepreneurs who reported high levels of harmonious passion reported experiencing high levels of concentration, attention, and absorption during their work. While these entrepreneurs said they often felt totally taken by their work, they also allowed themselves breaks from it and had more flexibility. Moreover, they felt that their entrepreneurial career allowed them to live a variety of memorable experiences and to reflect on the qualities they liked about themselves. Overall, these harmoniously passionate entrepreneurs were able to balance their job with other activities in their lives without experiencing conflict, guilt, or negative effects when not engaging in work. Consequently, we found that those entrepreneurs had a significantly smaller chance of suffering from feelings of burnout.

In contrast, entrepreneurs who were obsessively passionate about their business viewed their career as important because of certain pressures or outcomes. They were concerned about social acceptance, status, money, and other outcomes associated with being an entrepreneur. They reported high levels of job fit (4.5) but also reported having a hard time paying attention at work; they were often distracted by thinking about the roles and responsibilities they were neglecting (such as family and staying healthy) because of their obsessive passion. They said they couldn’t live without their work and felt a strong urge to work in their companies 24/7. Moreover, they felt emotionally dependent on their work, had difficulty imagining their lives without their work, and felt their mood depended on them being able to work.

The Importance of a Flexible Mindset

It was also telling that a fixed mindset moderated the relationship between job fit and burnout. What this means is that entrepreneurs with a fixed mindset viewed their feelings of job fit as so rigid that it influenced their feelings of passion, consequently leading to burnout.

Let’s extrapolate a couple of examples from our data to see what this can look like in practice. Peter (not his real name) is an entrepreneur who reported a high level of job fit and a fixed mindset. Defining his whole life around his job, he became consumed by his career, as he believed that being in his ideal job was something that was unlikely to happen again. This immersed Peter in his current lifestyle as an entrepreneur, and he became obsessed with his businesses, ultimately leading to burnout.

Let’s contrast him with Sarah (not her real name), who reported a high level of job fit and a flexible mindset. Sarah didn’t attach as much value to job fit, as she believed there was more than one perfect career for her. So while she really liked being an entrepreneur, she didn’t view entrepreneurship as the one and only right place for her. This made Sarah much more flexible as to how she viewed her career, and led her to truly enjoy her job, making her less likely to burn out.

In sum, our findings show that job fit, passion, mindset, and burnout are inextricably linked. Understanding that passion is a double-edged sword can help entrepreneurs monitor their motivations and work behavior and can prevent burnout from hurting their careers. Similarly, learning to think more flexibly about your career may also help you prevent burnout.

Harvard Business Review – Managing the Perks and Pitfalls of Proactive People

Published in Harvard Business Review

By Lotte Glaser and Eva de Mol

Companies need proactive employees. Proactive employees do more than they are supposed to, are good at realizing ideas, and work to overcome resistance to change. They are essential for suggesting, developing, and sustaining innovative new projects and for helping companies stay competitive.

But being proactive at work involves risk. Entrepreneurial employees often are not rewarded for being proactive. In fact, many face obstacles when trying to innovate in their organizations. For example, pushing for change without being told to can ignite resistance from supervising managers and fellow colleagues. And there is a chance that an initiative might be poorly timed or carried out inappropriately.

Not surprisingly, studies show that people who are more likely to show initiative also like to take risks. But what remains unclear is how this preference for risk-taking influences proactive employees’ actual performance. This led us to wonder how organizations can exercise control over proactive employees without overly constraining them. On the one hand, top managers need to provide autonomy so that middle managers feel comfortable taking initiative. On the other hand, top managers must prevent middle managers from taking on too much risk, which can lead to negative performance outcomes.

How can top managers guide proactive behavior so that good ideas make it to the finish line? One of us (Lotte) conducted a study, published in the Academy of Management Journal, to explore this question. It tracked 383 middle managers operating in 34 business units of a multinational in the logistics service industry. The company has 160,000 employees worldwide and continues to grow. At the time, the company reported annual revenue of $17 billion, and the board had just announced an effort to promote entrepreneurial behavior among middle managers to stay ahead of the competition.

We contacted middle managers, who directly reported to the top managers of each business unit, asking them to complete a survey capturing their tendency to take initiative, their propensity for risk-taking, and the amount of autonomy they have in their jobs. Glaser also surveyed their top managers about the extent to which they encouraged employees to set challenging goals and to support each other.

Alongside the survey, we interviewed 30 of the managers, asking middle managers about specific initiatives they had undertaken and how these were managed, and asking top managers about their approach for guiding and challenging their middle managers’ initiatives. A few months later, we collected year-end performance appraisals for the middle managers; the appraisals determined their compensation for next year.

Our results showed that although the majority of the middle managers (93%) reported being proactive, the middle managers who also reported being more likely to take risks (54%) had worse performance appraisals. Moreover, we found that a middle managers’ appetite for risk reduced the performance of their proactive initiatives.

The Critical Role of Top Managers

What’s interesting is that the top managers’ approach also affected middle managers’ appraisals. Top managers who failed to guide, challenge, and stretch their more proactive middle managers were more likely to give negative performance reviews. But top managers who more effectively managed proactive employees’ goals gave better performance reviews. Let’s take a closer look at these two types of top managers.

The first group of top managers reported rigidly sticking to existing performance appraisal systems. In these existing systems, the middle managers’ performance review took place on a strict quarterly basis, and it included only the key performance indicators (KPIs) for the ongoing “traditional” projects middle managers worked on, and excluded KPIs for the proactive projects. Due to spending time on proactive projects, middle managers did not achieve their KPIs for the traditional projects for that year, resulting in negative performance reviews.

The other group of top managers reported managing performance appraisals in a more entrepreneurial manner. First, they included the objectives of proactive projects in the performance review and rewarded middle managers if these KPIs were met. On top of that, this group of top managers carefully guided their middle managers as they worked on those proactive projects. They said they helped them set challenging goals and encouraged a trial-and-error strategy of continual testing and adapting ideas. They scheduled monthly meetings to discuss progress and ensured the projects were kept in line with the overall company’s strategy.

This continuous dialogue seems to have helped, as these middle managers saw better performance outcomes. Our findings suggest that these middle managers took on the right kinds of risks and avoided the wrong ones. Two examples from our data illustrate how different approaches by the top manager approach can influence performance outcomes.

Max, for example, received great support by his supervising top manager, Bob, while working on a proactive project. When Max started the project, he sat down with Bob to discuss the full project outline and set clear milestones. Bob was aware of Max’s appetite for risks, so he knew that he had to devote extra time to keeping Max in line. Max suggested implementing a piece of new technology to improve the efficiency of his product line. However, for product line personnel to use the technology, an extensive training program would be required, making the initiative a risky endeavor. So during a 15-minute coffee chat that Max and Bob had early on about the project, Bob signaled the problem: The idea involved too much company cost. Bob advised Max to look for less drastic innovations, and connected him to a friend working in the same industry to get inspiration for an alternative solution. In the end, this timely intervention led Max to implement an innovative but less expensive piece of technology, which yielded a very strong performance review for Max.

Compare this with Max’s colleague George, who had a similar appetite for risk as Max. When George told his supervising manager that his product line could be more efficient, he was told to figure out to prepare a plan to change the product line. After working on this plan for months, George, just like Max, proposed a new technology that would save labor costs and increase revenues in the long run — but that would require training all product line personnel. Not only had George worked out the full proposal, but he had also already incurred significant costs for his own retraining. George’s manager told him to put the project on hold, pointing out how this initiative didn’t align with the company’s values and was way too costly. Since George had spent most of his time working on this project, he ended up missing his actual unit targets for his ongoing projects, and his manager was forced to give him a negative performance review.

Managers play a significant role in helping employees manage the risks of being proactive. They need to provide autonomy so that people feel comfortable taking initiative, but they must also prevent people from taking on too much risk. Some proactive ideas may fail to get off the ground, let alone create value for your company; some may even cause more problems than they solve. But creating an open dialogue about their goals, offering guidance, and keeping the trial-and-error process in line with your company’s strategy can go a long way. Let employees rock the boat, but gently.

How to predict venture performance through team composition – beyond intuition and gut feeling

Human capital and passion

 

Time and time again, passion has been cited as the key ingredient that drives venture performance. Like Paul Graham from Y Combinator states, “We thought when we started Y Combinator that the most important quality would be intelligence. That’s the myth in the Valley. And certainly, you don’t want founders to be stupid. But as long as you’re over a certain threshold of intelligence, what matters most is passion.” Passion is what motivates people, the “fire of desire” that makes entrepreneurs pursue their dreams and make the impossible possible. Also academic work repeatedly confirms that entrepreneurial passion boosts persistence and creativity. Thus, we know that passion is important in explaining entrepreneurial success. But is it more important than prior experience, skills and knowledge – so called human capital? And what happens if team members experience different levels of passion? Can passion also lead to negative outcomes? These were the key questions driving one of the studies that I’ll talk about today. Specifically, the main objective of this study was to examine whether and how rational (human capital) and affective (passion) team member characteristics interact in predicting venture performance.

The results of the study show that entrepreneurial teams with greater human capital do not necessarily perform better. Instead, the positive impact of their human capital is dependent upon the teams’ passion and the extent to which team members share a common vision for the strategy of the company.

These findings make a lot of sense. Let’s take the example of Mike, a friend of mine who is working for a venture capital firm. Mike recently told me about a potential investment, a software company, that he was very excited about. Let’s call it Clocker. When Mike read about Clocker and received the company materials, he was thrilled to meet the team. In addition to the interesting financials, the founding team’s track record was outstanding. The founder and CEO had in depth industry knowledge, worked in the software space for years and led the product division for Salesforce. The CFO graduated from Harvard, had worked for Bain & Company before joining Clocker and showed very strong financial and strategic skills. The VP of Sales was a typical sales tiger who’d worked as an account manager for Microsoft. Finally, the fourth team member was very hands-on, a serial entrepreneur with a successful exit on his resume and some experience with start-up failures. On paper, the team seemed to have all that it would take to successfully scale up Clocker and ensure a nice return on the potential investment. You’ll understand why Mike was very excited to meet the Clocker team.

Nevertheless, when the team members presented their pitch in the boardroom and elaborated on the Clocker growth strategy, Mike was disappointed. The story just didn’t hold. While the founder told Mike that he wanted to expand to the USA and become the next Salesforce, the CTO did not seem to share this passion and ambition. He dismissed the founders’ ideas immediately and argued that he would be too busy with other projects to realize global expansion this year. The problem? The Clocker team members had very different ambitions and goals in mind for Clocker and were not equally passionate about the company. Because of these differences in passion team members did not communicate efficiently and failed to share their knowledge, which ultimately led to a decrease in their performance. Not surprisingly, the Clocker team soon after broke up.

Continue reading “How to predict venture performance through team composition – beyond intuition and gut feeling”

On a mission to improve investment decisions through data-driven venture team diligence

I’m on a mission to increase data-driven investment decisions. We can do that by building a bridge between academic research and the entrepreneurial and investment community. Great academic work is out there on very relevant topics, such as how team composition can predict performance, why Scale Ups are an important asset class, and how co-investing can increase portfolio performance. But since most of this research is published in scientific journals that are very difficult to read for non-academics, people that deal with these those topics on a day to day basis – such as entrepreneurs, investors and start-up mentors – miss out on all this knowledge. This is unfortunate, as informed people make better decisions.

This blog is a startingpoint for making more impact with scientific research in the venture community and empower better investment decisions.