When evaluating founders, investors should consider the impact that different personality traits can have on their performance and decision-making. There is substantial scientific research demonstrating how different personality types can affect business performance and decision-making. Understanding the personalities of founders is essential when making investment decisions as these traits can heavily influence business outcomes and decision-making accuracy. Here we will explore how the different personality types of a founder should affect investment decisions.
Personality Type and Leadership Style
The Big Five personality traits are extroversion, agreeableness, openness, conscientiousness, and neuroticism. An examination of these personality tests will provide clues as to how the individual sees themselves, relates to others and predicts who will become a leader and leadership styles, for example, extroversion is the strongest predictor of leadership and agreeableness is the weakest.
A growth mindset is essential to entrepreneurs and should be at the core of business culture as it allows individuals to reflect, grow, anticipate risk and to cultivate psychological resilience. It is reflected through an individual’s personality through an inherent belief that failure is an opportunity to grow and not a limit to one’s abilities (a fixed mindset).
Individuals with unhelpful personality traits often have developed apparent attitudes and beliefs that result in problematic behaviour. Difficulties with emotional regulation feature along with inflexible, and rigid thinking patterns. Such individuals have problematic relationships and a lack of appropriate coping mechanisms often hiding their vulnerabilities by bullish and competitive behaviour.
All behaviour serves as communication. Through understanding behaviour as communication and reflecting, we can positively influence outcomes. Through understanding ourselves in relation to the behaviour we can influence outcomes. With an analysis of communication styles and gaps, individuals can be helped to develop inspirational communication based upon transparency, empathy, shared goals, clarity, and trust within interpersonal relationships.
Managing Conflict and Confrontation
Triggers, proxemics (the use of personal space), non-verbal cues, verbal cues, body language, staged de-escalation (simple, e.g., distraction and complex, for example, motivating and setting limits) are all techniques that are required for the de-escalation of conflict.
People who are in highly anxious states require clear and calm instructions and parameters. They are almost always replicating previous or current relationships and may be forcing you to behave in ways that are familiar to them, e.g., by pushing your buttons so you become the punitive parent who re-enforces their lack of self-worth. Conversely, they may lock you into a rescue fantasy by acting coy and helpless. Be wary of this as it will create a perpetuating cycle of infantilization, self-absorption and escalating rage.
When working with high value assets, it is essential to identify positive and negative emphasis bias, which are essentially a judgement of an individual based upon personal impressions rather than facts.By understanding exposure to these biases, investors can better assess the risk associated with investing in certain founders or start-ups.
There are a variety of forms of bias but perhaps the most relevant one is an unconscious one called The Halo Effect which is a type of cognitive bias whereby our perception of someone is positively influenced by our opinions of that person’s other related traits.
“If people are failing, they look inept. If people are succeeding, they look strong and good and competent. That’s the ‘halo effect.’ Your first impression of a thing sets up your subsequent beliefs. If the company looks inept to you, you may assume everything else they do is inept.”
Economist, Psychologist, awarded the Nobel Memorial Prize in Economic Sciences
Making any investment decision requires careful consideration of many factors, including the personality of its founders, their biases, strengths and vulnerabilities. Understanding the individuals behind these companies is a crucial indicator in their ability (or inability) to effectively operate a company. Dark Minds can offer valuable insights into how well-suited someone might be for leading an organisation into success or failure, providing invaluable tools when making investment decisions.
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