Bifurcating Time How Entrepreneurs Reconcile the Paradoxical Demands of the Job (pages 489–512)

Danny Miller Cyrille Sardais

Entrepreneurs have been portrayed in paradoxically contrasting ways in the literature. On the one hand, they are said to be intrepid optimists who venture forth with great persistence even in the face of considerable uncertainty and multiple failures; on the other hand, they are held to be realists who are quick to acknowledge the negative realities of their initiatives and adapt very quickly. In order to reconcile these contrasting views, this study tracks in real time the frequent confidential communications of an entrepreneur and his closest consultant and partner during the last 6 months of a failing venture. We are able to gain insight into how by adopting a positive “frame” or consistent mindset about the future, the entrepreneur is able to sustain confidence in the face of significant challenge while at the same time acknowledging and reacting to significant problems in the present. We propose that an intrinsic quality of an entrepreneur is this ability to integrate or reconcile these seeming opposites—to manage paradox, largely by bifurcating time—by making temporal distinc- tions, and we show how that person simultaneously can be optimistic and realistic, and persistent and adaptive.

Introduction

Entrepreneurs are portrayed in divergent ways. First, they are said to be supreme optimists and paragons of hope (e.g., Brocas & Carrillo, 2004; De Meza & Southey, 1996). But they are also claimed to be hard-nosed realists capable of understanding the major threats that confront their enterprise on a daily basis (e.g., Liang & Dunn, 2008a, 2008b, 2010). A second contrast arises when entrepreneurs are said to be persistent bulldogs—fighting against challenges in a sustained way and struggling to save their venture even under dire circumstances (e.g., Sandri, Schade, Mußhoff, & Odening, 2010). At the same time, they are said to be flexible and adjust quickly (e.g., Brockhaus, 1982; Kuratko & Hodgetts, 2004). Can these opposing characterizations all be true?

One possible explanation for this seeming divergence in the literature is that research- ers have been examining different types or populations of entrepreneurs (Ucbasaran,

Please send correspondence to: Danny Miller, tel.: 514-340-6501, e-mail: danny.miller@hec.ca, and to Cyrille Sardais at cyrille.sardais@hec.ca.

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Westhead, Wright, & Flores, 2010). Indeed, entrepreneurs can be a diverse group. But given the consistency with which findings for these opposing characteristics have emerged, that explanation may not account entirely for such divergence.

We believe that an important reason for these unreconciled and sometimes conflicting accounts of entrepreneurial tendencies is that too few studies have examined the actual thoughts of an individual entrepreneur over the course of his or her venture. Optimism, realism, persistence, and flexibility are best studied by examining the impressions and concerns of a particular person concerning different matters at many different points in time and at different stages of a venture. In the spirit of the “strategy as practice” literature (Carter, Clegg, & Kornberger, 2008; Whittington, 1996), our research tracked an entre- preneur’s real-time confidential communications with his closest consultant (one of the authors) during the last 6 months of an ultimately unsuccessful venture. The reflections of the consultant were also recorded.

The results from our study did supply clues as to why the very same entrepreneur might fit quite opposite descriptions, in a sense resolving the paradoxical demands of his business and of entrepreneurship in general (Lewis, 2000; Smith & Lewis, 2011). Our entrepreneur could be energetically optimistic and at the same time pragmatically realis- tic; stubbornly persistent—and also flexible. He distinguished sharply between the promise of future prospects for the business, and the challenges and real disappointments of the present. In effect, he bifurcated his worldview or “framing” of the venture accord- ing to time , thereby sustaining optimism in the face of a keen awareness of problems—a resolution not addressed by the current literature on paradox. Thus, although our entre- preneur made almost universally positive statements about the future of the business, these accompanied realistically negative statements about present conditions and challenges. Moreover, he persistently clung to a rosy frame of future prospects, but after acknowl- edging that there was little hope, he adjusted his thinking decisively. Only an accumula- tion of disastrous news dismantled his worldview—his frame—which then was adapted radically, not incrementally (Goffman, 1974). As we shall see, the findings from our consultant’s logs demonstrated a very different pattern of less persistence, less cohesion, and more piecemeal and gradual adjustment.

Our paper is structured as follows. First, we briefly describe the divergent charac- terizations of entrepreneurs and their contrasting orientations. We then outline the possi- bilities for a rapprochement via the management of paradox and describe our research method before presenting our results in the form of qualitative excerpts and quantitative analyses of our entrepreneur’s and consultant’s postings. We conclude with a discussion of the results using Goffman’s (1974) frame analysis as a means of interpretation and understanding.

Two Contradictory Portrayals of Entrepreneurs

Optimism Versus Realism

A good deal has been written about entrepreneurial vision and optimism (Cooper, Woo, & Dunkelberg, 1988; Fraser & Greene, 2006; Hayward, Shepherd, & Griffin, 2006; Lovallo & Kahneman, 2000; Puri & Robinson, 2004; Storey, 2011). This work portrays an attitude that is positive and enduring (Jackson, Weiss, Lundquist, & Soderlind, 2002; Kuratko, Hornsby, & Naffziger, 1997). Typical accounts of firm creation—often sagas or adventures—concentrate on the lofty dreams of an entrepreneur (Cringely, 2000; Hitt, Ireland, Camp, & Sexton, 2002). There are romantic portraits of an optimistic soul, blessed with a sense of destiny, a risk-embracing spirit, and the confidence to be proactive

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be victims of hubris (Hayward et al., 2006). Certainly, there may be a functional reason for the optimism as it is unlikely that a pessimist would start a business given the uncertainties involved. Only optimism can sustain a person who must risk his or her capital, reputation, time, relationships, and status on what many might consider “a fool’s errand” (Busenitz & Barney, 1997).

Yet there is another facet to the entrepreneur as portrayed by a different literature. Some studies suggest that entrepreneurs are not overly optimistic, but in fact are risk averse, very realistic, and sometimes full of doubts (Xu & Ruef, 2004). Perhaps their past failures have made them that way (Collins & Moore, 1970; Kidder, 2011). Indeed, it has been argued that portfolio entrepreneurs—those who invest in multiple ventures at the same time, are hyper-realists who are quick to learn from their errors, and that that tendency tempers their optimism with a healthy dose of realism (Ucbasaran et al., 2010). Confirming accounts, particularly those within fine-grained corporate histories, show entrepreneurs as being hard-nosed realists who begin their ventures with a good deal of caution, avoid excessive risk taking, and understand better than most others the challenges confronting their venture (James, 2006; Landes, 2006).

A few studies have attempted to resolve the debate by examining different types of entrepreneurs, and finding, for example, that serial entrepreneurs are more optimistic than portfolio entrepreneurs (Storey, 2011; Ucbasaran et al., 2010). Moreover, optimism has been found to be more useful to entrepreneurs in stable rather than uncertain environments (Hmielski & Baron, 2006).

What remains unclear however is what exactly entrepreneurs are being optimistic and positive or realistic and negative about . Could it not be that the very same entrepreneur is both realistic and optimistic—but about different things and at different times? Might that not make sense given that both optimism and realism are required to have any chance of success in a business venture (Liang & Dunn, 2008a, 2010)? Without optimism, who would dare to launch a new venture? Without realism, how could any venture possibly succeed?

Persistence Versus Adaptation

Another source of disagreement in the literature on entrepreneurship concerns the attitude toward changing one’s mental model. Is an entrepreneur’s framework for seeing the world stubbornly persistent or is it flexibly adaptable? Some scholars maintain that entrepreneurial persistence is essential to overcome the many obstacles that beset a new venture. A few have argued that it is entrepreneurs’ elevated needs for achievement that make them unusually tenacious in their efforts (Wu, Matthews, & Dagher, 2007). Others have claimed that persistence stems in part from optimism—without a firm sense of the merits and future promise of a business, persistence is unlikely (Erikson, 2002; Shaver & Scott, 2002). There is a sense from the literature that in order for a venture to succeed, entrepreneurs must be persistent in holding on to their vision and working through the barriers that lie in the way of carrying it out (Gatewood, Shaver, & Gartner, 1995). Indeed, many have claimed that entrepreneurs tend to hang on to their vision for too long (Sandri et al., 2010) and are resistant to change (Miller, 1990).

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On the other hand, some scholars have characterized entrepreneurs as paragons of flexibility and decisive adaptation (Brockhaus, 1982). They change strategies and recognize new opportunities especially quickly (Dubini, 1989; Miller, 1983), move from initiative to initiative (Ucbasaran et al., 2006), and lead the way in innovation (Lumpkin & Dess, 1996). Once more, there is a functional element to flexibility, as in any new business, conditions are constantly changing. No venture can be carried out without periodic adjustments both in perceptions and behavior. On the other hand, too much flexibility may give way to inconstancy of strategic vision, an inability to coalesce partners and stakeholders around a venture, and a squandering of the precious resources of a nascent business (Miller, 1990).

Allowing for inevitable and important individual differences among entrepreneurs, it is once again difficult to imagine many of them choosing between these two poles of persistence and adaptation. Too much persistence would guarantee extinction, particularly in an ever-changing environment such as that surrounding a new venture. Similarly, excessive adaptation would result in quitting a promising alternative too soon, and exhaust- ing firm assets on experiments not given enough of a chance to succeed. The question therefore is, how do some entrepreneurs balance persistence with adaptation, which aspects of their thinking change most or least readily, and when confronted with a dire situation, how quickly do they recognize that and alter their views of the viability of their venture? Again, given the demands of the job, it is hard to believe that entrepreneurs would be lacking in either of these qualities—but how do they reconcile or combine these seeming opposites?

Managing the Paradox

Is there some way an entrepreneur can manage the paradox of being both optimistic and realistic, both persistent and adaptive? The literature on the management of paradox holds promise in helping us to resolve these tensions (Andriopoulos & Lewis, 2009; Bakhtin, 1981; Lewis, 2000). Paradox can be defined as “contradictory yet interrelated elements that exist simultaneously and persist over time” (Smith & Lewis, 2011, p. 382). It has been argued that managers confront numerous paradoxes at their jobs. They must exploit existing competencies to be efficient, but also must innovate. They must cut staff as the need requires but create cohesive corporate cultures. They must preserve complementarities among elements of strategy and structure but at the same time adapt to external changes (Poole & Van de Ven, 1989; Van de Ven & Poole, 1988). Most of the paradoxes discussed in the literature pertain to concrete practices: collaboration versus control (Sundaramurthy & Lewis, 2003), flexible versus efficient organization (Adler, Goldoftas, & Levine, 1999), exploration versus exploitation (Smith & Tushman, 2005), and even actively pursued goals such as profit versus social responsibility (Margolis & Walsh, 2003).

Unfortunately, the literature on paradoxes, although wide ranging, has concentrated on managers of mature companies, not entrepreneurs during the early stages of a venture. More importantly, it has focused on behavior more than mindsets and has never addressed the seemingly conflicting demands on entrepreneurs to be optimistic and realistic, as well as stubbornly persistent and boldly adaptive.

Paradox scholars also fail to consider the type of resolution we shall discover in our entrepreneur. They posit resolutions in the form of spatial separation of activities, toler- ance of ambiguity and conflict, and embracing mixed messages in discourse and distinct goal horizons for different types of decisions (Poole & Van de Ven, 1989; Smith & Lewis, 2011). As we shall see, our entrepreneur employed quite a different approach to resolu- tion, not so much in behavior but in attitude, by bifurcating time—viewing present and future events with entirely different mindsets, an ability the entrepreneur maintained by

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In summary, our contribution not only surfaces two critical paradoxes unresolved in the entrepreneurship literature and unrecognized by the work on paradox, it also brings to bear a novel means of resolving these paradoxes.

The questions that guided this research are: do entrepreneurs embrace these seeming polarities of optimism/realism, and persistence/adaptation; do they attempt to reconcile these divergent modes; and if so, how do they accomplish that?

Our Approach

This research attempts to find what reconciliation may look like by studying the thoughts of an entrepreneur as he evolved in real time while he manages a new venture. Aldrich (2001, 2009) and Aldrich and Martinez (2001) have argued that the only useful way to study the behavior and thoughts of entrepreneurs is up close and over time. Scholars of strategy as practice (Johannisson, 2011; Whittington, 1996) have issued the same plea. In heeding these calls, we tried to get inside of the mind of the entrepreneur on an ongoing basis as he grappled with the challenges of a new venture—to see how he interpreted the different aspects of his business, and how those interpretations evolved. In fact, we believe that an important reason for the contrasting and largely unreconciled representations of the entrepreneur we have just presented is that accounts of entrepre- neurship and business creation tend to be retrospective.

Indeed, it is unfortunate that most of the literature on entrepreneurship is based on survey or case methods—often eliciting “after the fact” rationalizations that fail to reflect the uncertainties of the moment (Aldrich, 2001, 2009; Lamoreaux, 2001; Sardais, 2009a). Almost never do we have a “real time” account from the entrepreneurs themselves of their assessments of their venture and their core concerns as these evolve during the first months of a new company. It is only with research having access to that kind of online longitudinal documentation that we may determine just what is going through the minds of some entrepreneurs as they create and manage their venture. We believe that the challenges facing entrepreneurs can be best understood only when we can determine their thoughts on an ongoing basis—specifically, the frameworks they appear to be using to understand their situation, and how those frameworks change as they oversee the first critical months of their business.

Our study builds on data that are new to the field. These come in the form of detailed and confidential diaries of two participants of a new venture in recreational tourism. They reflect impressions at the time of writing, and demonstrate evolving pictures or “frames” of the situation of a business and the hopes of its principals.

Methods

Sample: The Firm and Parties Studied

Our focal company, incorporated in August 2010, operated in the recreational tourism industry, developing and organizing adventure tours in a Canadian province. It pursued three lines of business (Business Units [BUs] 1 to 3), each corresponding to a different type of tour:

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Our study focuses on two people. The first is a founder of the company who held the second largest ownership position. At the time of the firm’s founding, he had 15 years experience as an entrepreneur in building, turning around, and selling various businesses. He was in charge of operations, finance, and sales. As he was responsible for these crucial functions, a 20% owner, and the person with the most experience as an entrepreneur, he enjoyed virtually equal power with the CEO (the latter was a 40% owner with no previous entrepreneurial experience). The second party in the study was an investor and consultant to the company, and one of the current authors who is a tenured professor of management. Starting in January 2011, he worked for the firm 1 day per week. He served on the operating committee with both entrepreneurs who met regularly to monitor progress and discuss operating problems, opportunities, and strategy. The consultant had a degree in management and 4 years of consulting experience. He had known the entrepreneur for more than 5 years, and that relationship provoked the exchange of postings intended to gain insight into the firm and its challenges. The idea for the postings came from the entrepreneur, not the consultant. The former asked the latter if he would agree to respond to his e-mails regarding his feelings about the company. These exchanges at the time were not intended for research purposes. Permission to use the material was only granted several months after both individuals had left the firm. It is the friendship and trust that existed between the parties that enabled us to access the reflections of our entrepreneur. We found it useful to be able to compare the observations of the founder with that of the potentially more objective consultant who was not an entrepreneur and had far less at stake financially and emotionally in the business.

Our study employed two distinct methodologies—the first qualitative, the second quantitative. We shall describe the qualitative methodology before addressing the quan- titative. In the Findings section, we follow the same sequence.

Qualitative Data and Analyses

Nature, Mode, and Frequency of the Narrative Data. The entrepreneur and the consult- ant wrote on a regular basis to reflect their thoughts about the firm, its problems and promise, its challenges, and its prospects. No constraints were proposed regarding what to write, except that the writing was to be done as frequently as possible to reflect ongoing thoughts concerning the business. The diaries were to be kept private and were in the form of e-mails between the two parties. They were written quickly—grammar and presenta- tion were of no concern. Currency and honesty were the major criteria. Over the 5.5 month period from 16th of February to 28th of July, 31 e-mail postings were written by the entrepreneur, and 35 by the consultant. Approximately 32 single-spaced pages of text were written by the entrepreneur (comprising 14,531 words), and about 49 pages by the consultant (25,665 words).

Quantitative Coding and Analyses

Coding the Postings. The postings were coded in three stages by both the consultant and

a third-party coder with an MSc, months after they had been written. The first stage, carried

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Then the two coders in double-blind fashion coded the subjects’ value judgments of the situation. Were the statements clearly positive, clearly negative, or unclear/neutral regarding their implications for the business? Coders coded 17 categories in all using three symbols: + for a positive evaluation that things were promising or going well; = for neutral comments; and - for problems, difficulties, negatives, doubts, or poor outlook. In a third stage of analysis, statements were also coded again by the two coders according to whether they related to present/past versus future conditions (the detailed coding results are available from the authors).

Data Reliability. As noted, two researchers were involved in the coding. One hundred percent of the entrepreneur’s posts and statements were coded by the consultant and a third party working double blind. Data consisted of 31 postings and 81 judgments about the business to be coded as positive, negative, or ambiguous: 74% of the ratings were identical between raters, in 23.5% of the cases, one rater assigned an “ambiguous” rating and the other a positive or negative one. In only 2.5% of the cases did one rater assign a positive and the other a negative rating. After reconciliation, each coder admitted that he had erred. In scoring the statements after the distinction was made between those con- cerning the present versus future, in 76% of the cases, there was perfect inter-rater agreement, in 16%, one rater scored “past and present” and the other one of the two, and in 8% of the cases one rater coded “future” and the other “present.”

An additional rater with an MSc in management was recruited to assess the reliability of the consultant’s postings. Thirty-five postings and 120 statements were coded. For the positive versus negative postings, 79.5% of the ratings were identical between parties, in 16% of the cases one rater assigned an “ambiguous” rating and the other a positive or negative one. In 4.5% of the cases one rater assigned a positive rating and the other a negative one. For coding the distinction between statements concerning the present versus future, in 68% of the cases, there was perfect inter-rater agreement, in 23% one rater scored “past and present” and the other one of the two, and in 8% of the cases one rater coded “future” and the other “present.”

Findings

The chronology of Table 1 presents excerpts from the narratives extracted from the postings of the entrepreneur and the consultant, shown side-by-side to reveal the evolution in the thinking of both parties, as well as the similarities and differences between the two. The quotations were selected to illustrate the key issues being considered, as well as their emotional content, and the critical turning points in the evaluations of both individuals. These turning points, signaled in the table, enabled us to partition the narratives into three phases of the venture. Where appropriate, in italicized text, we comment on the signifi- cance of the quotations and on the themes of the various phases. During the first phase, there is hope on the part of both parties for the business; during the second phase, the consultant begins to have serious doubts about the prospects of the venture while the entrepreneur remains more positive; and in the third phase, the entrepreneur comes to recognize and react to what he perceives to be a hopeless situation and abandons his positive frame for the future of his business.

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Table 1 Chronology of the Postings Entrepreneur

Theme: The entrepreneur is mostly optimistic about present Theme: Impressions of the entrepreneur and consultant are largely circumstances, but he shows a healthy dose of realism as he

in sync regarding the present problems facing the discusses present challenges in getting sales, suppliers, and even

business—although the consultant is more detailed, negative, adequate management talent. By contrast, his statements about

and fine grained in his opinions. Divergence is emerging the future prospects of the business are almost entirely positive

between the two parties, however, regarding the future—the and optimistic. One can sense his enthusiasm from the texts.

consultant has increasingly mixed opinions regarding the prospects for the business. And a critical memo follows the phase and marks its termination.

February 16

March 5

“Commercial development is not structured enough. We have many “We have to know whether we are selling dreams for the future, promising prospects and interests, but very few actual contracts.”

which we can do, or pointing to actual results; of course, we March 9

want to sell results but let’s be clear: we have only three things “I’ve seen the planes [we will be renting]. They’re not great. If

to sell [he goes on to list the assets]. Certainly, this company is [the supplier] agrees to renew the seats, we could work with

not worth $10 million. But even if it’s worth $1.3 million, we them. An older plane with very old seats can be OK for tourists

would have created $1 million of value from six months of looking for adventure, but not great for professional clients . . .

work . . .

[About an acquisition opportunity]. Here, it’s really interesting. “It’s good to write and observe, but much more exciting to The guy is 58 years old, and thinks that his company is worth

participate in running the firm, to engage, with one’s heart, not almost nothing. But he has three key facilities we can use and

only his brain.”

all the permits we need.” Realism regarding the value and meager assets of the firm. Realism regarding the present. Optimism concerning opportunity.

Excitement to be part of the adventure. March 14

March 16h

“I wonder if we haven’t paid four times its real worth for “Curiously, this morning as I awoke, I was concerned about the [Business Unit 1, which the firm had acquired]. even if on paper

business. It’s one of the first times. It’s ironic because it is the valuation seemed reasonable at the time. We have

happening probably only a few days or weeks before the clouds under-estimated the following problems: The condition of the

are starting to disappear, because it’s highly possible that within vehicles, which had cost us more than $20,000 to repair, an

a month, because of the new clients and investors likely to be amount we wouldn’t have had to pay for new ones . . . The

coming onstream, we could be in good shape for a long time company had no system of management, no software or

to come.”

processes to manage orders, cash flow, clients, etc. In reality, Optimism regarding the future but an undercurrent of doubt—a with 17 vehicles, the company can only be profitable if it is

contrast with the more sanguine entrepreneur. managed by one person who will work like a dog during four

March 29

months and hope to make enough revenue to pay for eight “I do think that these last days of March and early April are the months of holidays.”

most uncertain ones yet for this company. We are full of projects Realism regarding past mistakes and current challenges.

and prospects, but we have nothing concrete yet and no cash March 18

anymore.

“The project is taking shape and I wake up earlier and earlier each “I have never been so close to telling myself: now, we are off on a morning, with the thrill of making it happen. . . . Today, we are

long and promising trajectory, and at the same time saying, going to fly the planes [in a trial], without knowing at this stage

damn, I’m not sure whether we will still be alive not just in six exactly where we are going to service and refuel them.”

months, but in a few days!”

Enthusiasm about the future. Concerns about some imminent Strange mixture of optimism and serious pessimism about future. practical aspects.

April 7

March 31 “What I would like, is for BU2, which was supposed to be the “Now, I do believe it. We will have planes . . . starting from May.

cash cow of this group, but until yesterday has produced no . . . I hope that we are going to be ready, because things are

revenue, to start to produce some results!” beginning to move fast and I feel that the business is on the

Impatience, disappointment.

verge of becoming much better that anything we had expected. However, nothing basically has changed, the facts are the same as yesterday, except that in two days, things will be ready for the airport and the planes, and as a result, everything we dreamed about is about to become a reality; and we are going to build on that.”

Hyper-optimism regarding future—realism about current limitations.

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Table 1 Continued Entrepreneur

The entrepreneur remains realistic about current problems and The opening of this phase was the consultant’s April 17 memo: expresses frustration with his CEO. But the theme is still one

entitled “drowning.” There is an air of disappointment in how of hope for the future.

things are going and pessimism about the future. Clearly, a darker tone for the consultant than the entrepreneur.

May 2

April 17

“BU3 is supposed to start operations in the coming weeks, but

Memo titled—“Drowning”

until now, nothing concrete has been accomplished. “If we go on, as we have, the business will soon die. It is “Our credibility is seriously affected [by the CEO’s actions], and

necessary, if it’s not too late, to radically rethink our ‘suicidal’ it is very annoying.

strategy.

“Anyway it’s a complete mess. I keep up the fight because all “In a plane that is going down, one’s instinct is always to pull my ventures went through exactly such phases . But one

the rudder the wrong way. In a small business, it’s the same really needs to have the faith to continue and be persistent.”

thing. When things start to go bad because of a lack of Realism about today’s problems—with an expression of hope

funds—because sales aren’t coming in, the tendency is to and the necessity in every new venture to be persistent in the

increase the number of projects, as though the various face of inevitable problems.

chimeras being pursued are all beckoning to save the day . . . May 5

and bring in money. With Project X we are pursuing exactly “I’ve just been to [a hotel] to renegotiate delaying payment.

what we should be avoiding (. . .) I didn’t think that I should go there after the CEO and say

“I have the feeling that we’re headed towards a brick wall. Is something different than he said, but I’ve followed [an

everything lost and only the crying to come? No—but we investor’s] advice and went anyway. And it worked! We’ll

must act!”

pay them, when we get paid. Not before. From time to A signal warning about very significant current problems, a time, it’s good to be considered as a half-god, cleaning up

strategy that is doomed to failure, and clouds on the horizon. another’s mess.”

May 3

A current victory—or opportunity. “I am hardly delighted by developments. Aside from X’s sales, May 13

we’ve had nothing in April. And the future remains uncertain. “[The CEO] has convinced two travel agencies to distribute our

That notwithstanding, the past is over; lets take on the battles products. . . . It’s cool. They are his friends. I wonder, why he

one at a time and work towards the future.” didn’t call them before to induce them to sell our products.

Pessimism—but with resolve to act. Most probably he considered that our operations were not

May 9

ready yet. I hope that these guys will sell our products.” “Unbelievable—we fought for weeks to develop a business plan, Optimism about a new opportunity—with a critical note.

which has brought in a paltry $25,000 investment. Now, all of May 23

a sudden, a third party is considering investing $500,000—the “Finally the CEO is visiting the travel agencies, something he

miracle the entrepreneur had been talking about these past should have done awhile ago. He seems to be in the process

weeks.”

of lining up $800,000 of business for the coming year. Another mirage that will soon disappear. Things are falling into place.

May 30

“My time horizon for this venture remains at one or two more “[The entrepreneur] gave me an update few days ago. Sales are years to full fruition, after which I will remain an investor

‘simmering’ very slowly. More precisely, more nibbles are not an employee.”

coming in, so there’s some potential. The project will pay off—eventually.

“But it’s becoming critical at this point, because [the lack of May 30

revenue] is what prevents us from acquiring investors. The “I talked with X who mentioned that if we developed products

project is good but without sales, things are extremely dicey. for the Grand Prix, we could cash out big.”

“In short, even if in the very short term, cash is the main Hope springs eternal.

problem, as far as I’m concerned, we have above all a serious sales problem.”

Slightly positive prospect regarding revenue—but also a feeling that this might be coming too late to save the business.

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Table 1 Continued Entrepreneur

The June 6 memo signals the beginning of this phase in which the June 5 represents “the last straw” for the consultant who feels he entrepreneur finally turns negative about the future—and comes

can no longer recommend the firm’s products to his friends. to mirror the views of the consultant. June 6

June 5th

“Something radical has to change. The cash flow is catastrophic, “Obviously, I have serious concerns about the production of future sales prospects are more than uncertain. Of course, May

the company. About the will of the staff to meet quality is better than April . . .

requirements. . . . And honestly, today, I feel I can no longer “The current shareholders will be approached [for investment]

recommend our product, even to my friends .” but they will probably refuse to ante up more funds. Even I

Shift for the consultant. It’s no longer “our” company but would refuse to do so . . . [The consultant] called me yesterday

“theirs.” He doesn’t feel a part of it, and wants his friends to to talk to me about [his experience with the terrible service we

steer clear of it.

offer]. I was furious without being totally surprised.”

June 10th

Here, the entrepreneur begins to express real doubts about the “I think again about my talk with [the entrepreneur] at the end of future.

April. I had said that we may have to fire most employees, to June 8

give up most projects, and only keep BU1. I am wondering why “If one day someone reads these emails, he will know, that I am

we mostly just continued as before.” totally de-motivated . . .

What had to be done has not been. It is probably too late now to “And that’s why, normally, without this kind of moral contract

save the company.

with [the consultant] to write what I think day after day, I would

June 10

never have written down such a thing. . . . (Re. talks with another investor.) “We first talked about past losses “But I feel like a fireman having to put out the fire . . .

and came to the conclusion that bankruptcy was inevitable. The “I still believe in this project even if it was mishandled. So, I’m

$50,000 that the CEO could bring would only delay things for a not completely de-motivated. But I don’t really know where all

month.”

this is going.” There is no longer a sense of hope. The project is seen as having been mismanaged, even a waste of

June 16

time, but there remains a glimmer of hope. “BU2 was already dead, but we could have saved BU3 and above June 14

all BU1. Now, I’m convinced that everything is dead, it’s too “I was a bit emotional, because I feel that the end of my adventure

late.”

[in this company], at least as a salaried member, is reaching an Definitive statement about the future. “It’s over.” end very quickly.”

Then he writes almost nothing until later in July. The future looks bleak enough to consider leaving the firm. Then

July 28

he writes almost nothing until later in July. “It’s done. As of today, I am no longer a stockholder in this July 26

company.”

“I have now reached the point of turning the page on this business.”

Highlights of the Narrative

From the chronology, we see that the entrepreneur began with a good deal of opti- mism, while also recording negative posts regarding existing challenges and errors. If we take the first 19 postings—phases 1 and 2 inclusive—until 30th of May, the entrepreneur appears to be saying: “Although the business is beset with problems, this is normal for its stage of development, and the future continues to be promising given the quality of the products and staff and the soundness of the concept of the business.” The entries of the postings all correspond more or less to such a view, and they do so persistently across the 19 missives. The 20th posting (6th of June) reflects a sea change in the attitudes of the entrepreneur and the beginning of phase 3. It was written after he had verified complaints regarding the poor quality of the services, and after it became clear that several

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The consultant also showed optimism about the future and realism about current issues at the beginning of the venture, but became wary about the prospects of the business more quickly than the entrepreneur. The entrepreneur also seemed much more optimistic about the future than the consultant, although he held similar views about the present. After the 12th posting (7th of April)—the end of phase 1, the consultant sensed that the accumulation of problems did not augur well.

In short, it appeared from the narratives (1) that the entrepreneur tended to be quite realistic about problems and challenges confronting the firm while at the same time remaining optimistic; (2) there was a good deal of consistency in the comments of both parties in the early stages of the venture, although the consultant was somewhat more realistic about the prospects from the beginning; (3) the consultant was quicker to become negative about the future of the business than the entrepreneur.

But how does our narrative help to resolve the paradoxes implicit in the entrepreneur- ship literature: between optimism and realism, and persistence and adaptation? We shall revisit our data to address these paradoxes in turn, in each case examining first the qualitative information and then verifying our impressions quantitatively using the totality of the coded data.

Optimism Versus Realism

Qualitative Findings. Table 1 makes clear that the entrepreneur is boldly optimistic about the future. He uses phrases such as “the expected sales volume is so massive that it gives us, all of a sudden, a major negotiating advantage”; and “everything is still very tentative but at the same time, things are falling into place,” and “I feel that the business is on the verge of becoming much better than anything we had expected.” Even when things looked bleak he says “but everyday we send out quotes and that is an additional reason to be hopeful.”

At about the same time the entrepreneur made these statements, typically in the very same memo, he admits of the current challenges confronting the business. “I’ve seen the planes and they’re not great . . . not great for professional clients,” “We have under- estimated the following problems: The [poor] condition of the vehicles, the company has no system of management, no software or processes to handle orders.” “Our credibility is seriously affected by the CEO’s actions,” “Anyway [business unit 3] is a complete mess.

I keep up the fight because all my ventures went through exactly such phases.” The consultant’s narratives were more measured: the current problems listed were

presented in even greater detail than was true for the entrepreneur, and the expressions of hope for the future were more restrained.

In short, it appeared that our entrepreneur, and to a lesser degree the consultant, were able to be both optimistic and realistic at the same time. The optimism pertained to the future, and the realism related to current problems and events . We wished to confirm this observation more systematically and in a quantitative manner by taking into account all of our narrative data.

Quantitative Findings. From Table 2 and Figure 1 we can see that the entrepreneur’s statements about the future were very strongly positive in phases 1 and 2 (92% and 78%),

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Table 2 Number of Positive and Negative Statements for Entrepreneur and Consultant for

Each Phase Regarding Present and Future of the Business

Entrepreneur

Consultant

Clearly positive

Clearly negative

Clearly positive Clearly negative

Total 26%

61% Phase I

39% Phase II

52% Phase III

98% ALL present

76% Phase I present

77% Phase II present

65% Phase III present

100% ALL future

51% Phase I future

23% Phase II future

39% Phase III future

Figure 1 Favorable Statements About the Future: Entrepreneur Versus Consultant

Phase I

Phase II

Phase III

and very strongly negative in phase 3 (77%). 1 That this optimism, and later pessimism or realism, was spread across so many variables, functions, and product lines during a given phase does suggest that there was an orchestrating and filtering lens through which the entrepreneur viewed the future. At first, everything regarding the future seemed bright. It is as though the appraisal of individual elements of the business were “rose colored” by an essentially positive frame. The same consistency across elements—this time negative—also materialized in phase 3.

1. As shown by Table 2, no clear pattern surfaced before bifurcating the data according to statements about current versus future conditions. Only with temporal bifurcation did a clear contrast emerge.

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Figure 2 Favorable Statements About the Present: Entrepreneur Versus Consultant

Phase I

Phase II

Phase III

This optimism of the early phases did not pertain to statements about the present (see Figure 2). The entrepreneur fully recognized the current problems facing the busi- ness (only 11% or 12% of his statements were positive during the first two phases)— which suggests a negative evaluation of current conditions, especially during phase 2. That the view of the future could remain so bright given the realism about the present confirms the strength of the optimism. In a sense, for the entrepreneur the future reflects

a positive worldview since it is maintained despite the negatives expressed in current appraisals. It is instructive that the positive to negative percent statistics (for the three phases combined) regarding the present are similar between the entrepreneur and the consultant—8%/75% for the entrepreneur versus 15%/76% for the consultant. By con- trast, statements regarding the future are strikingly different: 53%/32% for the entrepre- neur versus 29%/48% for the consultant. These ratios differed at the .01 level under Fisher’s exact test. In short, if we use the consultant as a rough analytical standard of objectivity, it appears that the entrepreneur is quite realistic in recognizing the challenges and problems facing his business in the present. But he is far more optimistic than the consultant about the future.

Persistence Versus Adaptation

Qualitative Findings. Our chronology of the postings began to show important diver- gences between the entrepreneur and the consultant in the second phase of the narrative. It became clear that the entrepreneur was more positive about the future than the consult- ant who was far more wavering or inconsistent in his evaluations. In other words, the entrepreneur was more persistent in his optimism regarding the future. As late as May when the venture was struggling with severe operating, marketing, and financial prob- lems, the entrepreneur said “one really needs to have faith to continue and be persistent” as he pointed to himself as “a half-god, cleaning up another’s mess.” He also rationalized the difficulties as “normal among new ventures.” By contrast, by May, and even before, the consultant writes “I do think that these last days of March and early April are the most uncertain ones yet for this company. . . . I’m not sure whether we will still be alive not just in six months but in a few days.”

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Figure 3 Favorable Statements (Present and Future): Entrepreneur Versus Consultant

Entrepreneur Consultant

However, once the entrepreneur sensed that the business had little chance of succeed- ing in the marketplace, his reaction was not reluctant acquiescence but a very decisive decision to recognize losses, quit the venture, and move on to the next challenge. On June

14 he states, “I feel that the end of my adventure [in the company], at least as a salaried member, is coming to an end very quickly [he is already preparing to leave for greener pastures].” Then on July 26, long before the business (which still “survives”) almost goes bankrupt, the entrepreneur states, “I have now reached the point of turning the page on this business.” Ultimately, his positive frame is abandoned.

In short, the qualitative findings seem to suggest that the entrepreneur is more persistent than the consultant in embracing a positive frame of the future for the business; but once he believes things have become hopeless, he changes and adapts his view dramatically and is ready to go. He is both persistent and then decisively negative, but at different times. By contrast, the consultant even early on is quicker than the entrepreneur to be more reserved and nuanced in his statements about the future of the business, and then even when he is pessimistic in the second phase, continues to express hope about the future—displaying a far more mixed set of reflections.

Quantitative Findings. Again, we wished to establish whether these observations of persistence and subsequent decisive adaptation would be borne out by a more systematic treatment of the complete set of narrative data. The entrepreneur remained more positive than the consultant about the future of the business in both the first and especially the second phase of the venture. Our data indicate that the entrepreneur is persistent in adhering to his positive frame of the future throughout the 19 postings—long after the consultant has begun to express doubts about the firm’s prospects. Then he suddenly changes his opinion in a dramatic and wholesale way.

Whereas the data aggregating statements about the present and future showed a gradual decrease in positives (Figure 3), that was not true for statements about the future, where the evolution across the phases went from 92% positive to 78%, to 0% in the third phase, while negative statements rose from 8% to 13% to 77% (see Table 2 and Figure 4). Clearly, the frame of the entrepreneur changed radically at the end of the second phase. Moreover, the frame shift represented the entrepreneur’s suddenly altered view of the future. By contrast, the progression of statements regarding the present, which were more nuanced

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Figure 4 Entrepreneur’s Favorable Statements: Present Versus Future

Phase I

Phase II

Phase III

from the beginning, was far more gradual: with negative statements increasing across the phases from 44% to 71% to 95% and positives moving from 11% to 13% to 0%.

Figure 1 shows that whereas the entrepreneur is only slightly more optimistic about the future than the consultant during the first phase, that gap widens considerably in the second phase—with the consultant’s positive statements approaching 0 and the more persistent entrepreneur maintaining a positive outlook. The third phase then shows how the consultant declines somewhat gradually toward 0 positives, whereas the entrepreneur shows a dramatically adaptive quantum drop—never to look back. More precisely, during phase 2, positive statements regarding the future for the consultant fell to 20% while they remained at 78% for the entrepreneur (the difference is significant at beyond the .01 level under Fisher’s exact test). Also, for the consultant the proportion of “unclear” statements rises steeply in phase 2 (from 13% to 43%, significant at the .01 level), while positive statements drop sharply. In short, the entrepreneur’s frame shows more inertia than that of the consultant despite the two individuals rendering parallel evaluations of the current situation facing the firm .

Such inertia could also be detected in the way the entrepreneur and the consultant changed their opinions within a category. For example, the consultant has twice as many statements as the entrepreneur, but three times as many shifts of opinion regarding the future (36 versus 12). More importantly, if we look only at the positive shifts of opinion about the future, the consultant has five times as many as the entrepreneur (15 versus 3). This suggests that our entrepreneur rarely reversed himself once he changed his mind. The situation is very different for statements about the present where there are a similar number of positive and negative changes of opinions between the two parties (Table 3).

The Frames of the Entrepreneur

As noted, the entrepreneur embraced a positive frame of the business—enabling him to acknowledge present realities while sustaining optimism about the future. In the end, it was possible to identify two frames of mind or worldviews of our entrepreneur that might

be characterized as follows: Frame A: We’ve got a fantastic project, a solid team, and some excellent product

offerings. Our financial situation and our sales at the moment are certainly a problem,

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Table 3 Shifts Between Positive and Negative Evaluations Shifts

Past

Future Total