What Makes Entrepreneurs Tick?

Rick Gregg December 09,2024 What do you think?

I’ve thought about this for a very long time. Why, oh why, do I stick with it? Four decades. Several startups, one of which is currently operating; and two exits. I’m beyond the traditional retirement age. Is it an addiction to the roller coaster thrill of success and failure? What exactly motivates an entrepreneur to persist? It turns out, unsurprisingly, that the answer can be found in the psychological domain.

Psychological Ownership

Psychological ownership is the state in which individuals feel as though the target of ownership, or a piece of it, is “theirs”. At the core of psychological ownership is the feeling of possessiveness and of being psychologically attached to an object. Such possessive feelings make people evaluate a situation more favorably than other things that they do not own or cannot easily obtain.

The concept of psychological ownership is relevant and important to the context of entrepreneurship. Entrepreneurs come up with business ideas, invest tremendous time, money, and energy into developing their venture, design the venture’s values, goals, vision, and culture; and acquire critical resources such as employees and customers. During this process, they have also developed industry knowledge, the market; and business operations gaining a sense of control over their venture. Because self-investment, having control, and intimate knowledge of their venture are three routes to the development of psychological ownership, ownership feelings are developed during the entrepreneurship process. As a result, there is a positive relationship between psychological ownership for the venture and the likelihood of persistence.

Adversity in Entrepreneurship

Adversity in Entrepreneurship is the comparison between venture performance and entrepreneur’s expectations. Well-performing ventures are those whose performance exceeds the entrepreneur’s expectation and therefore are low in adversity. In contrast, underperforming ventures are those where the performance falls short of the entrepreneur’s expectation and are high in adversity. Entrepreneurs cycle through this comparison daily which explains the roller coaster ride metaphor.

Examining the relationship between adversity and the likelihood of persistence, individuals will act in a certain way when they expect that (1) a given amount of effort can result in the achievement of a particular level of performance that will lead to a particular outcome which, in turn, creates an expectation for the entrepreneur; and (2) the outcome is attractive to motivate the entrepreneur to attain it. When the entrepreneur perceives things are going well, the entrepreneur remains motivated and continues their current behavior, increasing the likelihood of persistence.

In contrast, when adversity is high, the negative disparity between venture performance and entrepreneurs’ expectation will prompt entrepreneurs to reassess the situation. As a result, you might conclude that an entrepreneur may have a lower likelihood of persistence with the venture. However, this is incorrect. Instead, psychological ownership and adversity interact to affect the entrepreneurs’ likelihood of persistence.

Entrepreneurs high in psychological ownership tend to protect their ownership target, particularly in adverse situations when they feel their ownership is challenged. There is a much stronger desire to react to the high adversity to protect their ventures, no matter how irrational that may seem. To be specific, the sense of responsibility that accompanies psychological ownership will be triggered in the high adversity context and entrepreneurs with deep psychological ownership will feel responsible for protecting the venture to maintain the felt ownership no matter what the adverse circumstances are.  

Should I Stay or Should I Go?

An entrepreneur’s persistence decision to continue with their venture is highly governed by the entrepreneurs’ psychological ownership when adversity is high. As a result, psychological ownership will have a stronger influence on the likelihood of persistence when adversity is high than when it is low. This constant battle between psychological ownership and adversity effects not only the founder but all involved in the venture which creates a tremendous mental health challenge for every entrepreneur.

At The saasmvp Project we stive to provide entrepreneurs with the mental health resources they need to navigate this challenge by incorporating these resources and access to counseling dedicated to this very issue in our saaskamp program. You can learn more about this in the 2017 Applied Psychology paper entitled “An Investigation of Entrepreneurs’ Venture Persistence Decision: The Contingency Effect of Psychological Ownership and Adversity.” In the meantime, we’re excited to help you discover your ideal SaaS customer profile and can’t wait to see what you build! Let me know what you think.