Home sweet hindrance? Positive events in one’s personal and family life can be bad for business, study finds!

Have you heard the phrase “a happy home makes for a happy life”? It's often believed that contentment at home positively influences overall well-being, including one's professional life. However, a new study and its surprising findings have now challenged this notion.

This new research has found that positive life-changing events, including those within the family, can negatively impact the growth or survival of business ventures — even more than negative events!

Occasions like the birth of a child, purchasing a new home or winning the lottery can boost an entrepreneur's confidence. Yet, this emotional uplift often leads to overconfidence, resulting in poor business decisions due to an inflated sense of capability.

Conversely, entrepreneurs facing negative events like divorce, financial troubles or the death of a family member, tend to approach business decisions with more caution and deliberation. This increased prudence can lead to better decision-making and more sustainable business practices.

Positive occurrences can make entrepreneurs more passionate, alert to opportunities and creative, but these traits do not necessarily predict future business success. Overconfident entrepreneurs may be good at identifying opportunities, but often make critical mistakes by overestimating their abilities and underestimating challenges, the study found.

“In short, there is a negative association shown in research between entrepreneur overconfidence and new venture survival,” said Professor Pi-Shen Seet, the study’s lead author.

Blessings and business blunders: How positive events can derail new ventures

Even during the venture creation process, positive family events can inadvertently boost entrepreneurs' confidence, affecting their assessment of risks and opportunities. This often leads to snap decisions that might not be well thought out, the findings indicated.

Positive family events tend to induce a global thinking style among entrepreneurs, where they tend to focus on abstract, high-level features of problems and choose the first acceptable solution that comes to mind. This can help them make necessary decisions quickly and efficiently under tight time and resource pressures.

However, if these positive events lead to overconfidence, as the research shows, entrepreneurs may believe their talents and skills alone can compensate for any lack of information and overcome real difficulties in the venture creation process. This reinforces errors in judgement and inferior decision-making, increasing the vulnerability to mistakes that can harm the new venture.

The study also highlighted that changes in family dynamics can further affect a new venture's trajectory. Entrepreneurs do not embark on the venture creation process alone; their families share in the journey, experiencing the emotional highs and lows alongside them.

Significant family changes, such as births, marriages, or deaths, disrupt the family system and affect the entrepreneur. These events alter the family structure, change roles, and modify interactions among family members, impacting the entrepreneur's ability to manage their business effectively.

This research was conducted by ECU's Professor of Entrepreneurship and Innovation, Pi-Shen Seet, in collaboration with Associate Professor Wee-Liang Tan from the Singapore Management University.

It utilised panel data from the HILDA survey, commissioned by the Australian government and administered by the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. This dataset has previously been employed by researchers investigating the effects of negative family events, such as divorce, on financial decisions.

Its findings are published in the International Entrepreneurship and Management Journal and can be accessed here.