From the August 2012 issue of Investment Advisor • Subscribe!

Stress for Success, Pt. 1: How to Handle the Stress of Running a Small Business

Business success depends on managing stress levels

I’ve written before that the real value I bring to my owner/advisor clients isn’t technical business knowledge—it’s helping each of them to deal effectively with the challenges of managing and growing a service business.

Over the years, I’ve come to realize that perhaps the most critical of those challenges is dealing with the stress that comes with running a small business. Many advisors are attracted to launching firms due to the freedom that having their own business gives them in servicing their clients and in creating their own lifestyle. But that freedom comes at a cost: the responsibility for their future, and the futures of their employees and their clients; the nearly unlimited array of opportunities to grow their businesses, from new services to marketing channels to acquisitions; and, more often than not, a lack of colleagues to bounce their ideas off and to help them make decisions.

I’ve come to believe small business owners, such as owner/advisors, are especially susceptible to stress overload, which can have dramatic consequences for their personal lives and for their businesses. To help advisors manage their stress more effectively, I’ve found the Yerkes-Dodson Stress Law and its accompanying Human Performance Curve (see Figure 1, page 54) to be extremely valuable. First published in 1908, Yerkes’ and Dodson’s ideas about the relationship between stress levels and performance are widely known. Yet, in my experience, applying that knowledge in a small business setting—such as an advisory firm—is much harder than one might think. Here’s a brief look at how we use the Yerkes-Dodson stress curve to keep firm owners’ stress at productive levels.

For those of you unfamiliar with Yerkes’ and Dodson’s work, here’s a quick overview. Their overall idea is that, when it comes to either physical or mental performance, some stress can be a good thing, but too much stress isn’t. Psychologists use the term “arousal” interchangeably with “stress”: both mean anything that gets your adrenaline flowing and your heart rate up. When it comes to performance, stress is any of the collection of factors that motivate you to do something: go to work, take a test, hit a golf ball, etc. They can be potential benefits such as getting paid, negative consequences like getting fired, or internal drives to do well—whatever motivates you.

As Figure 1 graphically illustrates, when one’s stress level increases from zero, the level of one’s performance (the quality or the quantity of one’s results) goes up as well; but only to a point, at which we reach the classic point of diminishing returns. As stress continues to increase, performance starts to fall off and continues to do so. This curve captures the downward spiral that’s all too common among business owners: The motivation to do more in less time eventually takes its toll, and both the quantity and quality of one’s output begins to decline. Many business owners respond to their declining productivity by redoubling their efforts, which of course only increases their stress levels, causing their output to fall further. If left unchecked, this vicious cycle on the back side of the stress curve can lead to any number of dire consequences, including absenteeism, breakdowns, substance abuse and relationship problems.

What’s more, owner/advisors operating on the downside of the stress curve almost always have an adverse effect on the employees of their firm. Managers under too much stress often become overly critical, self-absorbed and insensitive to the needs of their employees. They tend to micromanage in an effort to feel some level of control. Consequently, they increase the stress levels of their staff, which in turn can push their employees onto the downside of the stress curve as well, precipitating their downward spiral—and ironically, creating even more work for the already overworked owner.

The bad news is that once you’re on the back side of the stress curve, getting off it is extremely difficult—and very painful. Often, people have to “hit bottom”—reaching their breaking point where they simply stop trying, which allows their stress level to reset. This is almost never a good outcome and includes a lot of collateral damage, both personally and to one’s business.

The best strategy that I’ve found to get people off this slippery slope before it’s too late is first to get them to recognize the problem. The key is the recognition that one’s increasing efforts are yielding negative results. This makes it easier to stop doing what they’re doing and try something else. That something else should include the following elements:

Take some time off to “reboot.”
Yes, it’s very difficult to get people to take time off when their workload is growing and their business is struggling. That’s why most people need to “hit bottom.” We use this fact to get people to take constructive action before it’s too late. The first step is to take at least a couple of weeks and go sit on a beach somewhere. Tell your clients you’re going away and when you’ll be back. Leave the iPhone and iPad at home, don’t check emails and truly get away. The change in perspective from just a week or two off of the treadmill can save one’s business. And the break that one’s employees will get while the owner’s away can save their mental health, too.

Re-evaluate your standard of performance.
Advisors usually get overstressed because they don’t understand the dangers of too much stress and consequently try to do too much. Now that you’ve learned what your limits are, it’s time to learn to live within them. Everyone’s peak level of stress is different. Your goal should be to operate on the positive side of the stress curve—and not too close to the peak, so that you have a cushion for short-term emergencies. The operative word here is “short-term.”

Get positive feedback.
Many of us push ourselves because we want to do a good job. The problem is that we often need some confirmation of just what a “good job” is. When you’re in a marriage, you can always ask your spouse for some support. When you own a business, asking your employees to tell you what a good job you’re doing just feels a little creepy. But you can ask your clients. During their office visits, don’t hesitate to ask if there’s anything else your firm can do for them, and if they are satisfied with the service they’re getting. To make sure you’re doing a  good job, regular client surveys will give you valuable, and probably more objective, feedback.

Learn not to buy into your own thoughts.
If you’re a perfectionist like me, you’re probably not a good judge of either how you are doing, or what you can realistically do. This is the real benefit of a coach, a consultant, a business advisor, a colleague or a trusted employee: someone to run your plans and projections by to get an objective reality check. Of course, the hard part will be to listen. The key is to remember that your tendency is to over-project unrealistic goals—so your default should be to believe your advisor when he or she suggests that you’re doing it again.

The goal of every manager and business owner should be to keep his or herself on the front part of the Yerkes-Dodson stress curve—and to stay off the back side at all costs. For consistently good performance, owner/advisors need to stay safely behind their peak stress level to avoid the diminishing performance spiral. Knowing where their danger zones lie, recognizing the signs when they’ve pushed too far, and allowing themselves to take their foot off the gas and let stress levels decline a bit are perhaps the most important skills a small business owner can have. Successful businesses are built on consistent performance—by owners and by their employees—over the long haul. The key is just the right amount of stress.

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