Wannabe entrepreneurs are highly likely to ignore poor financial performances in order to pursue their dream, according to new research by emlyon business school and ESC Clermont Business School. The researchers found that in the early stages, new entrepreneurs are so blinded by their dreams of becoming successful, they believe entrepreneurial spirit can get them out of a difficult situation.
They add that common myths about entrepreneurs, such as not making a profit early on, enduring poor financial results, or that entrepreneurs all go through hardship at the beginning, mean that entrepreneurs ignore early warning signs of poor performance and potential failure.
These findings come from research conducted by François-Regis Puyou, Professor of Accounting & Corporate Finance at emlyon business school, and his colleague Maxence Postaire, Professor of Management Control at ESC Clermont Business School.
Entrepreneurs used tactics to overcome disappointing performance such as redoubling their efforts, boosting sales forecasts relying on unrealistic new service developments, and willingly enduring economic hardship (i.e. not being paid) for the time deemed necessary for the company to grow profitable.
The researchers say that entrepreneurs must be more objective when it comes to their accounting reports. It is important for them to stay as level-headed as possible and not continue to pursue something that is clearly likely to fail.
One way the researchers suggest doing so is ensuring that the entrepreneurial team is as diverse as possible, so that entrepreneurs have opposing voices, as well as more reasonable and sensible points of view in the organisation.