When Being a Founder is Like Winning the Lottery
It's Easy To Judge A Winner
Have you heard of a lottery winner who suddenly found themselves with millions, only to see it all slip away? They seemingly made some terrible financial decisions, like overspending on luxury items, making poor investments, or giving away too much money too quickly.
It's easy to judge these actions from the outside, thinking they should have been more responsible. However, the psychological impact of a sudden windfall reveals a much deeper narrative.
The influx of wealth can trigger a range of emotional and mental responses, rooted in a person’s financial history and psychological makeup.
The Psychological Impact of a Sudden Windfall
Many lottery winners come from backgrounds of financial scarcity, where money was a constant source of stress and anxiety. The effect of living with scarcity actually limits our cognitive bandwidth (however smart we are), making it difficult to manage new, overwhelming wealth. So when they suddenly acquire vast amounts of money, their nervous systems can react in unexpected ways, leading to financial trauma responses and erratic behaviours.
Winners might go on a spending spree to fulfil long-suppressed desires or become excessively frugal, fearing a return to scarcity.
They could become overwhelmed by the responsibility of managing such wealth, leading to decisions driven by panic rather than logic, or engage in 'financial fawning' by becoming overly generous as a form of people-pleasing.
Understanding these psychological dynamics helps us see that their financial downfall is not merely a result of poor decision-making but a complex interplay of emotions, past experiences, and newfound pressures. This empathy can shift our perspective, making us realise how challenging it is to handle sudden financial changes, whether as lottery winners or business founders.
Similar Experiences for Business Founders
For business founders, the experience can be similar. Securing funding often means handling more money than ever before, triggering similar nervous system responses as our lottery winner.
Suddenly, founders find themselves managing significant sums, which can be both exhilarating and overwhelming. This sudden influx of capital can lead to a variety of responses, often driven by underlying psychological and emotional factors.
Manifestations of Financial Trauma in Founders
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Hiring Sprees: The excitement of having substantial funds can lead to rapid hiring, often without a strategic plan. This can increase overheads and quickly deplete reserves, creating financial strain.
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Uncontrolled Spending: Founders might adopt a "no expenses spared" attitude, investing in high-end office spaces, extravagant marketing campaigns, or unnecessary luxury items for the business, which can be financially unsustainable.
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Cash Hoarding: On the flip side, some founders may react with extreme frugality, hoarding cash out of fear of spending. This fear-based approach can stifle business growth and innovation.
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Panic-Driven Decisions: The responsibility of managing large sums can lead to anxiety and panic, resulting in rushed or poorly thought-out financial decisions.
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Impostor Syndrome: Founders may struggle with feelings of unworthiness or doubt, questioning their ability to manage newfound wealth effectively. This can lead to hesitation and second-guessing every financial move.
Recognising the Complexity
No matter how well-prepared or knowledgeable founders are, the emotional and psychological impact of suddenly managing large amounts of money can be profound.
It's essential to recognise that these reactions are normal and to approach financial management with empathy and understanding.
By acknowledging the parallels between lottery winners and business founders, we can better prepare for and manage the psychological challenges that come with sudden financial changes.
Implementing strategies to create a healthier relationship with money can help founders navigate these challenges more effectively, ensuring long-term success and financial stability.
The Speed of Accessing Money
Adding to this complexity is the speed at which money can now be accessed. Yes, funding rounds take a while but then suddenly a sky high sum is received.
Applying for debt financing can be as simple as a few clicks. Within moments, a substantial amount appears into your account.
While convenient, this rapid influx can feel overwhelming, leading to impulsive decisions, errors, and anxiety.
The Double-Edged Sword of Convenience
The ease and speed of accessing money in today's digital age is a double-edged sword. On one hand, it provides business founders with the agility to seize opportunities quickly. This can be a significant advantage in a competitive market where timing can be crucial.
However, the same speed that facilitates quick decisions can also lead to hasty and poorly considered financial choices. The immediate availability of funds can create a false sense of security, making it tempting to spend without fully assessing the long-term implications. This can result in increased debt, misallocation of resources, and financial instability.
Impulsive Decisions and Errors
The sudden availability of large sums can trigger impulsive decisions. Founders might invest in projects without thorough due diligence, driven by the excitement of new possibilities. The pressure to make quick decisions can also lead to oversights and mistakes, such as underestimating costs or overestimating potential returns.
Furthermore, the anxiety associated with managing substantial funds can exacerbate these issues.
The fear of losing the money or not using it effectively can lead to rushed decisions, further compounding the risk of financial missteps.
Creating a Healthier Relationship with Money as Founders
✨ Pause and Reflect
Notice your feelings and create space for self-reflection. Taking a moment to assess and tune in to your emotional state before making financial decisions can lead to more thoughtful and deliberate choices. Somatic practices such as breathing exercises, meditation, yoga or simply going for a walk in nature can be brilliant here.
🛑 Introduce Friction
Consider adding friction to your financial decisions, such as waiting a day before significant purchases or setting up extra steps in your financing process. This helps slow down the decision-making process, ensuring choices align with your values and long-term goals.
🤝 Seek Professional Support
Engage with financial advisors or mentors to help you create intentional plans, budgets, and cash flows. This support can offer scenario planning and peace of mind, ensuring your financial decisions are strategic and well-informed.
đź’° Understand Your Beliefs About Money
Explore the root causes of your financial mindset, shaped by your experiences, culture, and upbringing. Recognising these influences can be incredibly impactful in forming a healthier relationship with money and allow you to heal from financial traumas.
🎉 Allocate a Budget for Fun
Set aside a portion of your budget for enjoyment so you can plan a trip or activity, buy some treats. Allowing yourself to have fun with money can reduce stress, increase satisfaction, and promote a healthier, more balanced approach to financial management and spending on fun little and often can really help smooth out the desire to splurge.
Final Thoughts
Remember, building a healthy relationship with money is a continuous process that requires patience, self-awareness, and the willingness to adapt and grow.
You’ve got this!
