Formula of startup success vs ability to manage stress-factors
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“We’ve had a chance to discuss internally and unfortunately did not think that it’s the right opportunity from an investment perspective. The potential market opportunity did not seem large enough for our required model”
This email was written to Brian Chesky, co-founder and CEO of Airbnb, by a Silicon Valley investor in August 2008. That summer, Brian and his team had met with seven prominent investors in an attempt to raise $150,000 at a $1.5M valuation. Not a single investor came through, and two out of seven didn’t even bother replying.
Just four years later, the San Francisco quartered Internet heavyweight was valued at $1.3 billion and had offices across the globe.
Chesky is not alone. His rags-to-riches fairytale is a story we hear often from successful startup founders.
Founder of Pandora Tim Westergren famously spent two and a half years completely broke, working for free and pitching, with no luck, to 300+ venture capitalists before the project finally took off. Salesforce.com, which is now worth billions of dollars, was also turned down multiple times by some of the biggest VCs in Silicon Valley.
No formula for success
“I’ve spent a lot of time trying to figure out what makes a startup take off. I founded my first startup in 2006, when I was just 25 years old, and have been addicted to tech projects ever since. As a Director of the Founder Institute in St. Petersburg, I know that funding, intelligence and access to information are no guarantee for success. After years of trying to crack the code, I am absolutely certain that nobody knows what the right formula is.” — speaking Jane Smorodnikova, Welltory Co-Founder.
Most investors already know this. Just take a look at any due diligence checklist venture capitalists use to assess startups — they run for several pages and cover everything under the sun, from practical parameters like margins and sales numbers to qualitative factors like team dynamics and the founder’s personality.
And while the quantitative parameters are easier to assess, figuring out how a founder’s work ethic or personality might affect a startup’s chances of succeeding is extremely tricky, if not impossible. Of course, this doesn’t mean we should give up on trying.
The good news
“For the past year and a half, my team and I have been developing a stress & energy assessment tool that allows people to track how different lifestyle factors — sleep, exercise, and even the weather — affect their stress levels.
In order to make Welltory into what it is today, we ran dozens of experiments, read through hundreds of research papers, and tested almost every single one of our discoveries on ourselves.
The project has afforded me an in-depth look into something I believe investors frequently overlook — how stress affects rational decision making, particularly for startup founders.” — Jane is describing our team experience.
The truth is that an entrepreneur’s ability to navigate stressful environments and make clear-headed decisions in the face of adversity is more important than passion and grit. In fact, stress might be one of the biggest reasons startups fail.
Here’s why.
Stress — it’s everywhere
The road to successful entrepreneurship is fraught with risk and uncertainty.
One day you’re short on money and you have to choose between making rent or paying your programmer, the next you’re swimming in cash and begin stressing over the fact that you can no longer justify the lack of progress with excuses about insufficient funding.
One day you have no employees and you’re upset that you can’t inspire anybody to work with you, the next you have an office full of people you can’t figure out how to manage.
For startup founders, top stressors include:
- A lot of responsibility. Founders are responsible for the livelihoods of their staff on top of having to worry about where their own next paycheck is going to come from.
- Constant danger. Running out of cash, unexpected server issues, losing key employees: the fact that 90% of startups fail illustrates the constant danger founders live with.
- Decision making. Decision fatigue is a well documented phenomenon, and refers to the stress people experience from having to make too many decisions — even if those decisions are small.
- Non-stop deadlines. Unlike employees working on a 9–5 schedule, entrepreneurs don’t have the option to simply leave work at the end of the day.
- Taking on too many roles at once. Founders have to know how every single aspect of the company works, from marketing and PR to product design and engineering.
- Rejection. As we already discussed, founders have to bounce back from disinterested investors, dissatisfied clients and negative feedback about their product on a daily basis.
These stressors are compounded by the fact that entrepreneurs suffer from mental health conditions at much higher rates than just about any other demographic.
A chicken and egg problem
In a recent survey of 242 entrepreneurs, 49% reported having a mental health condition. About 30% of respondents said they suffer from depression, and another 27% reported struggling with anxiety.
“People who are on the energetic, motivated, and creative side are both more likely to be entrepreneurial and more likely to have strong emotional states,” says Michael Freeman, a researcher who studies mental health and entrepreneurship.
Brad Feld, a Managing Director at Foundry Group, claims that many aspects of the startup life exacerbate his depression, and that learning how to take breaks from startup culture has been good for his mental health. “I stop setting my alarm for 5 a.m. and let myself sleep until I wake up naturally,” Feld says, “I observe digital Sabbaths in which I stop checking email, keeping up with the news online, and checking into Foursquare. I travel less. I read and run more. In other words, I do all of the things that the prevailing start-up culture tries to squeeze out of my life.”
This means that startup founders are both more likely to have personality traits that make them susceptible to mental illness and they also work in an environment that serves to exacerbate mental health conditions.
The problem runs so deep that a basic Google search reveals a plethora of advice columns for entrepreneurs looking to cope with stress and depression, The Atlantic has published a long piece about the suicide epidemic in Silicon Valley and the Y Combinator startup 7 Cups of Tea has opened a free online therapy hotline for startup founders.
The biggest risk factor
But stress does a lot more than chip away at the mental health of entrepreneurs. It actually impairs rational decision-making.
In a 2009 study published in Psychological Science, psychologists Jane Raymond and Jennifer L. O’Brien of Bangor University in the United Kingdom found that people are more likely to be guided by irrational biases and overlook information predicting negative outcomes when they are stressed.
Founder of Riskology.co Tyler Tervooren recommends avoiding making big judgement calls under stress altogether. “It doesn’t matter what kind of or how much stress you’re under,” Tervooren says, “If you’re feeling it, you’re going to slip up when it comes to making good choices.”
Moreover, constant exposure to uncertainty and inability to cope with stress often means that startup founders simply crack under pressure.
“When startups die, the official cause of death is always either running out of money or a critical founder bailing,” says Paul Graham, co-founder of the startup incubator Y Combinator, “Often the two occur simultaneously. But I think the underlying cause is usually that they’ve become demoralized.”
In other words, stress gets the best of entrepreneurs. It’s a frequently-overlooked risk factor that is exacerbated by the nature of the job and the prevalence of mental health conditions among startup founders. Ignore it for too long, and it will cloud your judgement and sink your business.
