What entrepreneurs are feeling: Fear

In tough times, entrepreneurs have every reason to feel anxious. Don't let those feelings slow you down.

By Alexander Stein
Featured on Fortune Small Business

(Fortune Small Business) – Meeting Ed Sherman, you’d never guess how frightened he is. Debonair and self-assured, he’s the founder and creative force behind a reputable boutique ad agency. To all outward appearances, he epitomizes success. But beneath his polished surface, Sherman is struggling to navigate the financial crisis, keep his business viable and, more than anything else, manage his crushing anxieties.

“I’m respected and established,” Sherman (not his real name) told me recently. “I have a good stable of upmarket clients, and new business is coming in. But outstanding receivables are substantial, and cash on-hand won’t cover my current or near-term expenses.” At this point, his voice started to crack. “I’m not sure I’ll make it to the end of the year,” he said quietly.

Sherman’s business problems were mounting just as Wall Street collapsed and the global economy slid toward recession. His suppliers and vendors demanded payment for services rendered. Banks were reluctant to extend credit. His clients were tightening their belts, not writing checks. And unlike Bear Stearns or AIG (AIG, Fortune 500), Sherman’s business wasn’t eligible for a government bailout.

Most entrepreneurs have experienced some version of his crisis. In the startup world, volatility and insecurity go with the territory. But Sherman’s problems aren’t simply the result of tight cash flow and the national economic meltdown. I’m a psychoanalyst, and he turned to me rather than a traditional business consultant because he sensed that his core issues were emotional, not financial.

Early in our conversations it became clear that Sherman, 35, understood what steps he needed to take to fix his business: collect late receivables, trim expenses and negotiate larger upfront retainers from new clients. But he was paralyzed by the mere prospect of pressing customers to pay those overdue invoices. Actually make the call? Impossible. The mere thought of asking a client for more money made him feel like Albert Brooks’s sweaty, hyperventilating character in Broadcast News.

The more his business and the economy suffered, the more distraught he felt. That’s true for a lot of us, of course. As many as 80% of Americans currently feel stressed about the economy and their personal finances, according to a recent survey by the American Psychological Association. No less an authority than Warren Buffett, writing recently in the New York Times, argued that fear was “widespread, gripping even seasoned investors.” But Buffett also suggested that fears “regarding the long-term prosperity of the nation’s many sound companies make no sense.”

Buffett is onto something: Anxiety isn’t always rational. But that doesn’t make it any less real from an emotional perspective. Running a small business requires enormous psychological resources in the best of times. It’s even harder to stay focused and positive while the pundits predict economic Armageddon and the Chicago Board Options Exchange Volatility Index reaches triple digits. Sherman and other entrepreneurs I work with feel pressured and concerned; they want to know what to do.

Sometimes the best response is not doing. That doesn’t mean doing nothing, but rather not taking action. This doesn’t come naturally, especially for entrepreneurs. Humans are hardwired to fight, flee or otherwise act in response to threatening situations. Our cultural admiration of people who manage to remain calm under duress comes from our visceral understanding of how difficult this is.

Business owners may be particularly susceptible to the corrosive effects of fear and anxiety because they’re professionally more isolated than most, having no peers or superiors, only employees, clients and competitors. Especially in high-stress situations, having partners (or a trusted confidant) can make all the difference.

The four founders of Elemental Architecture and Sine Elemental, a New York City architecture, design and branding collaborative, operate like a high-wire acrobatic team: Each partner depends on the others for support and balance. I met with them recently as they prepared a presentation for a prospective client. David O’Higgins, 50, Elemental’s lead creative, was feeling particularly stressed. In a poignant, staccato voice, he listed the flavors of his anxiety: “Did I pack my daughter’s apple? My vision isn’t as good as it was. Your call cannot be completed as dialed. If I’m so visionary, how come I’m not getting paid? Fear of never sighting land. Fear of being wrong.”

His partner, Tom Abraham, didn’t miss a beat. “Each of us has had the cold-sweat-in-the-middle-of-the-night moment,” he said, as the others nodded. “We trust you.” (Update: Negotiations with that client continue, but working as a team with one soloist, Elemental was still in the running.)

Let’s take a closer look at fear and anxiety. They get a lot of bad press, but both serve important functions. They’re also different. Fear is normal and useful. It’s what you experience when you smell smoke, see a bear in the woods or spot a bus bearing down on you while crossing the street. It comes with a menu of physical signals: sweaty palms, racing pulse, trembling. Fear in this context is a life-preserving reaction to a recognizable danger. Optimally, it will help you get out of a jam.

At its worst, anxiety makes you feel straitjacketed by the idea of the bear or that oncoming bus. You experience an astringent emotional state in anticipation of possible danger, not as the result of an immediate threat. Then maybe you focus on everything but where you’re going – or you never even leave the house. But transient or episodic anxiety (such as those nerves you might notice before the big pitch meeting with a prospective client) can also be harnessed for creative productivity.

Some entrepreneurs freeze up in those situations, like the proverbial deer in the headlights; others develop more productive reflexes. Consider Mark Robin, owner of the Hungry Moose Market & Deli in Big Sky, Mont.

“I make hundreds of quick decisions all day,” Robin told me. “There’s no time for fear and anxiety in the daily running of a grocery store. If I stood there debating or floundering, everything would come to a standstill.”

I asked Robin how the current economic downturn was affecting him. “Luckily for us, people always need to eat,” he replied. “Business is definitely down, and the upcoming winter season looks a bit iffy, but Christmas week should be crazy-busy as always. It’s probably time to do some belt-tightening, but in the end we should be fine. I really take it day by day.”

Robin’s grocery store and Sherman’s advertising agency have little in common from a business perspective, but it’s not about comparing apples and ad campaigns. The real issue is that they display different emotional responses to similar types of stress. Why is that?

Sherman tends to project difficult childhood memories onto his business relationships. Robin’s formative memories involve working in his parents’ retail business, where he often watched his mom and dad take crises in stride. Those experiences helped him develop effective strategies to cope with stress.

Even so, he is hardly a nerveless robo-grocer. “Anxiety comes into play with bigger decisions,” he admitted.

Still, his childhood prepared him to manage his natural anxieties without letting them get in the way of his decision-making. That’s harder for Sherman. Despite his outward composure, I’ve learned to recognize (mostly from his voice) how little confidence or optimism he feels. Today’s economic crisis is his worst nightmare come to life. The world is objectively threatening for him in ways that match his most dreaded anxieties: doing well, then teetering on the edge of ruin and feeling unable to step away from the brink. Disaster. Cut to black.

Incessant scrutiny

Sherman and I looked to his childhood for the origins and composition of his internal strife. Sherman’s family lived comfortably, but to his father, a senior executive with a national mortgage lender, nothing was more important than financial security. Deeply pessimistic by nature, his father saved because he was always worried about losing everything. Although the family never ran short of cash, money was doled out sparingly and ungenerously, except toward his mother’s home-decorating projects.

His mother was a merciless perfectionist. “I was always scrutinized and under surveillance,” Sherman recalled in one of our sessions. He remembered working constantly as a child. Chores weren’t done until every shred of lint or speck of dust was gone. A bed wasn’t made unless it could pass a Marine sergeant’s muster. And his hard work earned him no praise, only escape from punishment.

Although he now runs a successful business, Sherman unconsciously relives these painful early experiences in his client relationships. He feels incessantly scrutinized and imagines that punishment is just around the corner. And he’s unable to enjoy his success because he fundamentally believes that good things don’t last.

He told me that, as a boy, he concocted “schemes.” Under his compliant fa�ade lived a little rebel. He’d postpone chores until just before his mother’s inspection, clocking how fast – and flawlessly, of course – he could get everything done. He’d deliberately break rules and then fastidiously cover the evidence, trying to get away with more and more without getting caught. While the tasks were mundane, the emotional risks were great.

Thriving in crisis

As a group, entrepreneurs are more likely than not to feel comfortable in crisis situations. So Sherman’s youthful machinations may have contributed to his career choice. That’s fine, as long as being an adrenaline junkie works for you. Problems arise, however, when you become disabled by panic, fixated on the idea of cataclysm or stuck in dangerous behavior patterns because you need that adrenaline high.

What’s not working for Sherman is his unconscious confusion of the past and the present. Emotionally, he’s convinced that his business isn’t temporarily faltering in a recession environment but failing altogether because he didn’t heed his father’s dire warnings about financial overextension. He identifies late-paying clients with his domineering, unappreciative mother. Frustrating business transactions become recurrences of traumatic rejection. No wonder he’s anxious.

So would the anxiety go away if Sherman’s balance sheet improved? Not necessarily. It’s certainly true that a cash infusion would reduce his situational panic. But it wouldn’t change the underlying risk-anxiety paradigm, which needs only the next incident to become activated.

Sherman’s work with me continues, so I can’t say how the story ends. On the bright side, he has developed a better understanding of his anxieties – where they come from, what triggers them and how they affect his life and business. Recently he’s been picking up the phone and calling some of those deadbeat clients. He was pleasantly surprised when nothing bad happened. On the contrary, money started to come in.

Dr. Alexander Stein is a practicing psychoanalyst in New York City and a principal in the Boswell Group, a consulting firm.