Business Psychology

Article No. 363
Business Practice Findings, by James Larsen, Ph.D.

Surrender, Double-down, or Transform

Research discovers a pattern business founders should know.

Surrender, double-down, or transform. Which will it be for you if your business encounters a prolonged period of adversity? You might think it's impossible to say. Each choice represents a business strategy, and business strategy involves defining the situation, generating options, and making rational choices, choices that reflect your best alignment of strengths with possibilities. Adversity might force any of the three on you.

It sounds reasonable, but is it true?

Encountering adversity is common for new businesses, so common that researchers can closely examine the experience and notice patterns that emerge . . . patterns that could be very instructive to new business owners as they encounter adversity, and that's what recent research by E. Erin Powell from Clemson University now provides.

Founders of new businesses express important parts of their personal identities when they start a business. For some, it's very simple: "I watch the bottom line;" "I want to make money." For others, multiple aspects of their identities are expressed: patriot, community supporter, caring boss, business person, and others. Powell noted two variations in this second group: 1) business founders who felt that all important aspects of their identities are expressed through their firms, and 2) owners who found contradictions which frustrated their ability to express important elements of their identities through their businesses, for example, an environmentalist who could not afford to run his/her business in an environmentally sustainable way and yet stay in business. Powell labeled the first group congruent and the second incongruent. The identities of those in the congruent group supported each other. The identities of those in the incongruent group conflicted with each other forcing owners to suppress some important elements of their identities.

Powell found that these differences in the expression of owners' identities with their businesses caused them to define adversity in different, predictable ways. They seemed to notice some aspects of the adversity but not others which led to differing understandings of the adversity they faced.

Owners with simple expressions of a single identity, "watching the bottom line," noticed threats that had to be accommodated. Reduced revenue dictated that they reduce costs and shrink to fit the new business reality even if it meant closing up the shop. These folks surrendered to the new reality.

Owners expressing multiple identity elements that supported each other (congruent identity expression) had great confidence in the choices they had made. They defined adversity as a challenge, a test of their fortitude. They got to work, doubling down on their effort, changing very little in their businesses, and expressing confidence they could outlast the adversity.

Owners with multiple identity elements that conflicted (incongruent identity expression) saw opportunity in adversity. They recognized aspects of adversity that allowed previously suppressed elements of their identities to find expression in a transformed business that exploited opportunities the adversity exposed.

Surrender, double down, and transform are distinct business strategies often implemented in times of adversity for the wrong reasons. For business founders facing adversity, what feels right may be a function of their identification with the business. It may ignore important realities and opportunities present in the unfolding business environment. When this happens, it would be best to listen carefully to trusted advisors and pay less attention to your guts.

Reference: Powell, E. Erin and Ted Baker (2014) It's What you Make of it: Founder Identity and Enacting Strategic Responses to Adversity. Academy of Management Journal, 57(5), 1406-1433.

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Keywords: Adversity, Business strategy, Identity, Owner psychology
Consult Subject Index for related research.

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