SEVEN years ago Joe Jones (not his real name) left his job with a big NASDAQ-listed company to strike out on his own. He was sick of corporate life and he wanted to test his inner mettle. But being an entrepreneur proved far harder than he had imagined: a succession of potholes, speed bumps and dead-ends rather than a high road to prosperity. He found he had “lost his levers of control”: all the things his former employer had provided for him, from administrative support to a social network. He had to learn how to do all sorts of things he had not thought about before. The responsibility of meeting his payroll was “overwhelming”. The worry about every detail of his life—could he afford to keep his car, or pay the mortgage on his house?—was all-consuming. He took to drinking. Mr Jones eventually joined Alcoholics Anonymous and turned his business into a success. But many other would-be entrepreneurs have not been so lucky.
It is fashionable to romanticise entrepreneurs. Business professors celebrate the geniuses who break the rules and change the world. Politicians praise them as wealth creators. Glossy magazines drool over Richard Branson’s villa on Lake Como. But the reality can be as romantic as chewing glass: first-time founders have the job security of zero-hour contract workers, the money worries of chronic gamblers and the social life of hermits.
Over half of American startups are gone within five years. Most of the survivors barely stumble along. Shikhar Ghosh of Harvard Business School (HBS) found that three-quarters of startups backed by venture capital—the crème de la crème—failed to return the capital invested in them, let alone generate a positive return. In 2000 Barton Hamilton of Washington University in St Louis compared the income distributions of American employees and entrepreneurs, and concluded that the latter earned 35% less over a ten-year period than those in paid jobs.
Even success can turn into a different sort of failure. The best way to avoid the loneliness of the long-distance entrepreneur is to found your company with a friend. But this frequently leads to quarrels about power, titles or money, as anyone familiar with the story of Facebook will know. The best way to cope with growth is to take on more investors and introduce more professional managers. But this usually leads to a loss of control: few founders are still CEOs when their companies go public.
Such a roller-coaster would impose an emotional strain on even the most balanced people. But it seems the average entrepreneur is far from balanced. John Gartner, who teaches psychiatry at Johns Hopkins University medical school, suggests that a disproportionate number of entrepreneurs may suffer from hypomania, a psychological state characterised by energy and self-confidence but also restlessness and risk-taking. Numerous studies confirm, at the least, that they are prone to over-optimism. Guy Kawasaki, a venture capitalist, says that when an entrepreneur promises to make $50m in four years he adds one year to the delivery time and divides the revenue by ten. Venture capitalists often use personality tests to distinguish between the merely over-optimistic and the completely delusional.
What can be done to deal with the dark side of entrepreneurialism? Mr Wadhwa urges company founders to have regular medical checkups, make time to exercise and learn to relax. “You may not believe in anything called a work-life balance, but your body certainly does.” Mr Jones suggests that people who start their own companies need to think hard about constructing social networks: the idea that they can succeed in splendid isolation is a dangerous illusion. They need friends to lean on, and mentors to guide them. The Entrepreneurs’ Organisation (EO), which has more than 10,000 members in 46 countries, organises meetings in which they can talk about their emotional as well as their business problems. The Kauffman Foundation, an American non-profit which studies and promotes entrepreneurship, provides online courses on “surviving the entrepreneurial life”.
Learning by being thumped
Company founders need to have a more realistic assessment of what it is like to fail. Management literature is full of guff about how entrepreneurs should embrace failure as a “learning experience”. But being punched in the face is also a learning experience. Dean Shepherd of the Kelley School of Business at Indiana University argues that the entrepreneurs who fail frequently go through a process that is similar to grieving after a death or divorce. Some bury themselves in the details of putting their lives back together. Others fixate on their loss. He argues that they must learn how to repair their lives and cope with their loss if they are to restore their fortunes and learn from their mistakes. Glib talk about “failing fast” hardly encourages this.
The paradox of the current, romantic view of entrepreneurs is that it leads us to undervalue their achievements. It is easy to envy people if you focus on a handful of success stories. It is easy to say, as Barack Obama did, that “If you’ve got a business—you didn’t build that. Somebody else made that happen”, while ignoring all the edifices that have fallen down and crushed those who devoted their lives to building them. Would-be entrepreneurs need to have a more measured view of the risks involved before they start a business. But society also needs to have more respect for people who put their lives on the line to build something from nothing.