Big life events can influence an entrepreneur’s success, but not always in the expected way

Entrepreneurs are the lifeblood of any innovative economy.

The creation of new businesses has been shown to have a significant positive impact on economic growth, innovation, and job creation. However, it is not easy and most new businesses fail.

When someone starts a business, they usually don’t do it alone, the whole family forms part of the journey. They can all experience the emotional roller coaster of entrepreneurship.

This obviously flows in the other direction as well: founders have their own major ups and downs in their personal lives.

Big positive changes that occur in a family, such as a promotion, marriage, or the birth of a baby, or negative changes, such as when someone sadly dies, can shake things up for someone looking to start a business.

However, only a few studies have investigated the extent of these effects on new business creation.

A recently published study looked at how big family events affect the success of new ventures.

Surprisingly, our findings show that certain positive family events can have a greater negative impact on new venture survival than negative events by making entrepreneurs overconfident. I made it clear.

Emotions have complex effects

We used data from the Household, Income and Labour Dynamics in Australia (HILDA) survey to analyse emotions triggered by major family events experienced by entrepreneurs.

In our study, we found that many of these family events have the expected impacts based on both intuition and past research: positive events are typically helpful, and negative events are typically detrimental to new venture survival.

However, existing research may oversimplify this relationship: Family structure – the relationships, emotions, and goals between family members – can have complex effects on entrepreneurs’ mindsets and decisions.

The impact on founders’ confidence levels is particularly significant: confidence is necessary to start a business, but it can become an overkill problem if entrepreneurs overestimate their abilities.

In particular, some positive events can lead to overconfidence, which can take the form of being overly optimistic about the extent of one’s abilities or overestimating the accuracy of one’s beliefs. there is.

And, perhaps counterintuitively, we find that overconfidence resulting from positive family events has a negative impact on new business survival. This effect was clearly greater than the effect of negative events.

Why does this happen?

Two important theories in psychology may help explain why overconfidence can be harmful.

First, the “information-as-emotion theory” suggests that our emotions act as a kind of compass, helping us understand whether a situation is beneficial or harmful.

Entrepreneurs may rely on pre-existing knowledge or heuristics when they feel better because of a positive family event, such as marrying their childhood sweetheart.

Second, entrepreneurs can succumb to “emotional priming.” This suggests that emotions influence decision-making by automatically evoking relevant ideas and memories.

Such priming can affect not only how they think, but also how they think. For example, if an entrepreneur is in a good mood, their mind will present memories associated with positive emotions, whether relevant or not, to help them make decisions.

These theories suggest that major family events can influence entrepreneurs’ self-confidence by subtly and automatically adjusting how they evaluate opportunities and risks in decision-making.

Read more: Emotional intelligence is the key to being a more successful entrepreneur

On the other hand, positive events in the family can lead to a more holistic thinking style and faster decision-making. This is beneficial for entrepreneurs who need to make quick and efficient decisions under time and resource constraints.

However, if an entrepreneur is overconfident because he or she believes that their own abilities alone can compensate for a lack of information, a positive event in the family may only reinforce that overconfidence.

Like other people, when entrepreneurs think they are better at things than they actually are, they can begin to believe a task is easier than it actually is.

This can lead to errors in judgment that can seriously damage your new business.

How can this research help entrepreneurs?

Our research focuses on the deep embeddedness of the family in the entrepreneurial process.

Entrepreneurs need to realize that they need to carefully manage their own emotional state, especially their confidence level.

Entrepreneurship training and support programmes often focus solely on business strategies to launch a successful new venture – this research suggests it is also important to incorporate elements such as maintaining mental health, managing major family events and accessing support.

Read more: Entrepreneurs are facing a mental health crisis — here’s how to help them