The Psychology of Small Business – Are you ready to own and manage your new business or just work for yourself?

by James Latham Bookkeeper and Small Business Consultant

Question: are you aiming to become self-employed or are you aiming to be in business?

While it may seem that I am asking the same question twice, there is an important distinction between them. This difference is either missed by experts, or completely misunderstood by individuals who wish to leave their current employment and set-up as self-employed. Let me explain. The decision to become self-employed or start a new business is not one to be taken lightly. It requires a significant amount of planning, dedication, and hard work. While the idea of being your own boss and pursuing your passions may be tempting, the reality of running -your own business can be quite different from what you may have imagined.
This paper is an introduction into the psychology of being in business. It will focus on two major aspects of small business in relation to the individual. These are “‘Imposter Syndrome’” and the “entrepreneur – manager – technician” mindset. Both play a major part in how you think about business and the success you are likely to achieve.

 ‘Entrepreneur – Manager – Technician’

The ‘entrepreneur – manager – technician’ mindset was introduced by Michael E Gerber in his ground-breaking text: “The E myth Revisited: Why Most Small Businesses Don’t Work and What to do about it (2007).” In it, Gerber states that the psychological make up of an individual is made up of multiple parts. Gerber (2007) goes on to describe three psychological mindsets that any small business owner must understand if they are to succeed in growing a business. These mindsets are the entrepreneur, the manager, and the technician. I will discuss these concepts later. But first let’s ask a few questions about yourself before you go into business.

• What are you doing now, or were doing? The most likely answer is: working for somebody else.
• What do you do? This is an interesting question because industrial societies locate the individual in a hierarchy by what they do, e.g., mechanic, accountant, cook, lawyer.
• Whoever you are the chances are that you were doing ‘technical’ work, and most likely you were damn good at it, Gerber (2007).
• What type of business will you start? The most common answer is one that aligns best to my technical skills. However, it is this ‘technical’ mindset that will cause the most heartache for anyone going into business.
• When did you begin to think about starting a small business? What reasons did you give for starting your own business? Some may include: Why am I working for someone else? I can run a business like this. I know all there is to know about this business. I don’t have to take orders from anyone, I am good at my job they rely on my technical expertise. I can be independent. I can be my own boss. I want to be free!!

If these and other statements are, or were, constantly playing on your mind, just like an earworm that continuously plays a tune in your head, you have been stricken with what Gerber (2007) describes as an ‘Entrepreneurial Seizure’. It is with this seizure that you convince yourself to ultimately start your own business. It is at this point that a ‘Fatal Assumption’ is made by most individuals who decide to start a business. Most technicians make this assumption when they decide to go into business or ‘work for themselves’. In short, because technicians know all about the technical processes of the business, they will, naturally, understand how the business works. Basically, this assumption is false and often leads to small business failures. Just going into business with a technician’s mindset is not enough, why? Because the technician’s mindset is different from the business mindset that offers technical goods and services as a business.

Most people think that if you understand how to install a heating system or build a new kitchen or become a prize-winning hairdresser, you are more than qualified to run a business that does that kind of work.
The point here is that the ‘Fatal Assumption’ is made at the start of a new business. As Gerber (2007) explains:

What is most heart-breaking is as soon as someone makes this false assumption about the mindset of business, and how it will free them to leave a more rewarding life, they are immediately trapped in a continuous cycle of grinding technical processes. In short, allowing your technical mindset to dominate your business will end in failure.

Ok I get that, but how do I avoid the ‘Fatal Assumption’? What does being in business or self-employed mean? To begin with ask yourself; am I starting a business or am I becoming self-employed? These two concepts are different and not interchangeable.

1. Starting a new business.
Is just this, you are starting a business and as such you become a businessperson. As a business person you work on your whole business and not just the technical or management part. Gerber (2007) identifies three important mindsets that any business person must apply to their business. We have already identified the ‘technician’, the ‘doer’ mindset, which tends to be dominant. The second is the ‘manager’ mindset which is concerned with the implemented business systems. The ‘entrepreneur’ mindset requires a lot more effort than the other two put together. This is the main reason it is often neglected. It is like wearing three different hats, each one switching your business mindset as the conditions change. If you seize the day and commit to growing your business with the guidance of your entrepreneurial mindset, you are on the path to success.

2. Being self-employed.
While this mindset should logically lead to becoming a businessperson, it often leads to becoming just an overworked expert or technician. So don’t think about being self-employed! Think being in business!

Think about these questions before you decide which direction you wish to take. These questions are critical to the direction you will take in the future if you decide to ‘go into business’ or become self-employed.

Why do people fall into the self-employed trap? The psychology of self-employment is complex and unique to each individual. Often you here individuals say, I would just love to leave my job, cash in my pension, and open a tea shop in a tourist town, or I am good at what I do, so why not setup a workshop and do what I love doing? Very common responses. Generally, for many self-employment is seen as a form of personal liberation, allowing individuals to pursue their passions and goals while also gaining a sense of freedom and control over their work and life. After all, most self-employed individuals work very hard at what they do. What could be better? However, they are afraid of owning a business because businesses grow and take on a lives of their own. This is scary! This fear can be linked to the second psychological concept in the paper; ‘‘Imposter Syndrome’’, more about this later.

It’s great to have business dreams and ambitions, there’s nothing wrong with that, but what you imagine it to be like and the reality of what it will be like, can be two totally different experiences altogether. For most of us starting down this path we get this warm “fuzzy” image of working for oneself, or owning a small business, when you contrast this with the often “mind numbing” drudgery and subjugation of working for someone else.  But the reality is that some of you will get lucky and sail through setting up a business and watching it grow while you steer it and yourself to prosperity. The remainder will set off with “hope in your heart” then stumble on the rough cobbled, pit holed road of self-employment. And then you are back in the mind-numbing cycle doing the same mind-numbing work, but you are further in debt.

This process is called a “vicious cycle” or “negative feedback loop”. In this type of cycle, the result of an action or event reinforces the continuation of that action or event, leading to a self-perpetuating pattern that is difficult to break. Each iteration of the cycle may deepen the negative effects, making it increasingly difficult to break out of the cycle. Do you lay awake at night thinking about the business you are running? Do you dread getting out of bed knowing you are going back to the drudgery of the ‘vicious cycle’? Or do you sit in a room away from your family working and worrying about how to pay the next inventory bill? Its not much fun, is it? And oh, that feeling of dread.

While, as stated above, for some, being a small business owner can give you both monetary and personal growth rewards, resulting in satisfying and pleasant life for you and your family. But for many owning a small business is often a source of high stress, and sometimes misery. Self-employed individuals must take on more responsibility and manage their own finances. Resulting in doing the same work, plus another extra twenty hours per week doing ‘business’ work. You may now feel overwhelmed by the amount of work that needs to be done. Additionally, self-employed individuals may experience feelings of isolation due to their lack of colleagues (remember many of you led a pleasant social life with your colleagues in your old place of employment). You are on your own now. If you are currently experiencing these feelings, take heart, you can manage your way out of it.

“I thought that working for myself would be fun and liberating?”

Well, it can be. The solution is to think ‘entrepreneur’. So, where was the entrepreneur when things got rough? Let’s go back a step. Small businesses grow into larger businesses, that’s the order of things. When you grow something, you need to tend to its needs, food, water, pruning, repotting, etc. you get the idea? Like plants, a small business needs nurturing and care to allow it to grow healthily. If you want your business to be liberating and rewarding the first step is to switch to the ‘entrepreneurial’ mindset.

• Think about your business as if you are going to franchise it to a customer. Imagine that a customer comes along to purchase a franchise from you. They would expect that the business you sell them is complete and ready to start operating immediately. How would you do this? What needs to be in place to achieve this?
• Document everything. The surest way that you can deliver what you said you can deliver is to document every aspect of your business processes and procedures. That way you will, if you follow these processes and procedures precisely, get the same outcome time after time after time. You can’t fail.
• Once your business is at this stage of development, you can, with confidence, hand over the reins to someone else while you go off for a well-deserved vacation. You can do this knowing that if the processes and procedures are followed precisely, they will produce the same outcomes as if you were there.

It is likely that every business goes through rough and smooth times, but quite a lot of small business owners fall into the ‘vicious cycle’ loop. You must be prepared for the rough times and have strategies and plans in place to get through them. At these times you should switch to the entrepreneur mindset to work on the processes and procedures that will get you out of the cycle. Then switch back to the ‘manager’ and/or ‘technician’ role.

If you have just started out in business or are seriously thinking about going down this path, before you do set off down the road of self-employment, or starting a new business, take a step back and think about your state of mind both now and in the future, then ask yourself: “Am I ready to go down this path?” At least take some time to seriously plan your new venture and ask the hard questions. You can plan and prepare to go into owning a small business.

Starting a new business requires a change in mindset. As an employee, you are used to following orders and having a set routine. When you become a businessperson, you must take on more responsibilities, give out orders, make decisions, and manage your finances. You must be prepared to work long hours and handle the stress that comes with running a business. You must also have a solid business plan that takes into account the market, competition, and potential risks, etc. This is especially challenging if you have multiple clients or projects to manage. Most importantly do not neglect the entrepreneurial mindset.

‘Imposter Syndrome’

The second psychological concept I introduce is the concept of “‘Imposter Syndrome’,” which is a psychological phenomenon where individuals doubt what they have achieved, that, in turn leads to fear, even though they are good and successful at what they do. There a quite a few books written around this concept, but I have chosen; Phil Roberts (2021) as a framework for this paper. Roberts: describes ‘Impostor syndrome’ as a psychological phenomenon where individuals have doubts about what they have achieved, which, in turn, leads to fear, even though they are competent and often successful. This fear can be debilitating and restrict an individual’s capacity to achieve more and become happier.

It is the concept of fear, or self-doubt that can have a significant effect on the individual’s psyche of self. For many, they have a fear of being exposed as a fraud, and believe they are not deserving of their success. ‘Imposter Syndrome’ (IS) affects us all to some degree or other, regardless of how successful we are. Impostor syndrome can have negative consequences on an individual’s mental health, career, and overall well-being. It can lead to anxiety, depression, low self-esteem, and burnout. The problem is often we don’t know that this is what is affecting us, although we are experiencing some negative feelings through our actions. If we don’t know what is affecting us how can we know how to change it? In this paper we are interested in the mindset of the small business owner, and, how ‘Imposter Syndrome’ feelings affect the self-employed.

While the syndrome is commonly experienced by high achievers, such as entrepreneurs, executives, and students, an individual’s upbringing, and background can influence their feelings. ‘Imposter Syndrome’ is also prevalent in people who have been brought up in a family where they have been constantly told that they are worthless and will not amount to anything. These people with ‘Impostor Syndrome’ often feel that their achievements are due to chance or that they have somehow tricked others into thinking they are more capable than they really are, and not through their own skills, knowledge, and expertise. It is also fair to say that you can expect to find greater effects of ‘Imposter Syndrome’ in people who are members of marginalized groups, such as the working classes, women, children, and people of colour. It can also prevent individuals from pursuing opportunities and taking entrepreneurial risks that could lead to further success and personal growth.

Examples of ‘Imposter Syndrome’ (IS), include:

• Feeling like a fraud, even though you have demonstrated evidence of success and competence. This is probably why technicians stick to what they know, it is a security ‘bubble’. They build confidence when demonstrating their skills.
• Feeling that you don’t belong or aren’t good enough in your profession or social group. Often new members of a group are made to feel this way, even though they don’t deserve this. Business associations constantly reinforce and actively encourage the importance of networking and meeting others in your business area. In short, you have to put yourself out there. This can be confronting and is a good example of individuals experiencing ‘Imposter Syndrome’. Individuals new to business often feel out of their depth when interacting with other members of the industry or associations. Business Associations take note.
• Constantly playing down your achievements and attributing success to external factors, such as good fortune. A very common attribute from newcomers into the industry. You need a mentor who can reinforce your positives and help you broadcast your achievements.
• Having a nagging fear of being exposed as a fraud. This is where you shrink into yourself and go off grid. You think you must be a fraud because I shouldn’t be doing this.
• People who experience ‘Imposter Syndrome’ often feel that they don’t deserve their accomplishments, that they have been lucky or that they have simply fooled others into thinking they are more capable than they really are. This often leads to.
• Overworking or being perfectionistic to avoid being exposed as a fraud. The sense of not accomplishing your goals drive’s you on to continuously aim for perfection. Even though you are close to perfection you still feel unsatisfied. Perfection is a Myth.

Treatment for serious cases of impostor syndrome may include cognitive-behavioural therapy (CBT), self-reflection, and developing a more realistic and positive self-image. Support from friends, family, and colleagues are essential in overcoming experiences of ‘Impostor Syndrome’.

Conclusion

In conclusion, the decision to become self-employed or start a new business is a complex one that requires careful consideration and planning. While small business ownership can be rewarding and fulfilling, it also comes with its own unique set of challenges and responsibilities. By understanding your psychological mindsets, motivations, planning and preparing, together with seeking support when needed, you can greatly increase your chances of success and achieve your business goals.

So where to from here? Below are items that you should consider, when you have got your mind around becoming a small Business owner.

1. You can change your mindset about the way your business operates even if you have an established business, or you are a new starter. Seek advice. Very Important.
2. Think about changing the way you think. Michael Gerber talks about the ‘Franchise Prototype’ as a model building a fail-safe business. It takes a bit of work, but it makes complete sense. Seek advice.
3. Start to Plan. You cannot hope to succeed in business without workable plans. Seek advice.
4. Talk continuously with those involved in your business, get their feedback and input.
5. Do not be on your own. Develop support mechanisms. Join business related groups
6. Take your time. It takes quite a bit of work, but it will come good in the end.
7. Apply KISS principle. Keep it Simple, Seriously!

© Copyright 2023 James Latham PhD. All rights Reserved.

References

– Michael E Gerber (1995, 2007): “The E myth Revisited: Why Most Small Businesses Don’t Work and What to do about it.” Harper Collins e-books.
– Phil Roberts (2021): “The ‘Imposter Syndrome’: How to Stop Feeling like a Fraud at Work, Build Your Confidence and Stop the Inner Critic.”
If you are seeking further information about how to setup or turn around your business, then call James Latham PhD on 0484 616 302 and leave a message and contact details.