Entrepreneurial contexts are often dynamic, uncertain and stressful. From day to day, even hour to hour, change is frequently the norm. Entrepreneurship is a constant dynamic of exploration and discovery, while also exploiting what is already known. Anyone who founded or worked in a startup will attest to this. In the morning, you are working on a new marketing plan, by the afternoon you are visiting potential investors or distributors, and into the evening you are focusing on the technical challenges of product development. And that could be a quiet day.
To operate successfully in these contexts, entrepreneurs need strong psychological skills in self-management and adaptation. They must be ready to shift attention, focus on new tasks, and then adopt alternative ways of thinking and acting, often combining exploration and exploitation. In a psychological sense, these demands call for strong self-regulation, which is the capacity to adopt different goals and then manage your own thinking and behaviour in pursuit of these goals.
Managing your mindset
According to Prof. Tory Higgins of Columbia University in New York, there are two dominant modes of self-regulation, and we all have a measure of both. On the one hand, people are motivated to chase new goals and gains, using creativity, exploration and risk-taking. While on the other hand, people are also motivated to prevent losses, leading to caution, following rules and risk avoidance. Not surprisingly, entrepreneurs are more likely to be the former—chasing gains and taking more risks—and feeling a sense of excitement and optimism in doing so.
The question then arises: if an entrepreneur´s ability to adapt is so important, is it possible to enhance this skill? In fact, it is. Consider this example. Assume you have an investment opportunity. It could be explained by emphasizing either the positive or negative risks. From a positive risk perspective, we could say that you have a 50% chance to double your money. This explanation emphasizes the positive or upside risk and would often stimulate positive risk-taking in decision making. Alternatively, the investment could be explained in a way that emphasizes the negative or downside risk, by saying that you have a 50% chance of losing half your money. In this case, the decision-maker could be more inclined to avoid the risk and minimize the chance of losses. How we frame the option matters.
Enhancing positive motivation
Applying these insights to practice, it is possible to enhance an entrepreneur´s positive motivation to chase gains and explore opportunities. Experiments show that these effects can be achieved. By framing or explaining problems in ways that will enhance upside risks, by emphasizing the chance of positive gains and the rewards of risk-taking. In this way, it is possible to stimulate more exploratory, creative behaviour.
Motivating Lean Startup
These behaviours are especially relevant for entrepreneurs who adopt Lean Startup methods. This method focuses on exploratory learning, conducting experiments, a willingness to accept and learn from failure, and consistent adaptation or pivoting. Indeed, many entrepreneurs are choosing the Lean Startup method, owing to its flexibility and efficient use of resources. And importantly, it is a method that calls for exploratory, creative behaviour, risk-taking and adaptation. Therefore, startups following the Lean Startup method should work hard to build a culture and decision processes that encourage such behaviour. Of course, a healthy degree of risk awareness remains necessary. People need to be mindful about the potential downside as well. But adapting for the upside is clearly necessary for navigating the dynamic and uncertain world of entrepreneurship.
Written for Hargraves by Prof. Peter Bryant, IE Business School, Madrid, and Hargraves’ Global Partner.