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

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.