The reference point mechanism

Daniel Kahneman’s prospect theory research established the foundational mechanism: every outcome is evaluated not against an absolute standard but against a reference point, and the reference point determines whether the outcome registers psychologically as a gain or a loss. The success definition is the reference point. When the success criterion is “achieve a ten times return for investors,” every commercial outcome is evaluated against that standard before any other assessment occurs. Revenue that would represent a substantial achievement against a different criterion registers as insufficient against this one. The strategic plan may be working; the success definition determines that the plan is failing.

The reference point mechanism operates automatically and continuously. The founder is not consciously comparing each decision to the success definition; the comparison happens at the level of emotional evaluation before conscious analysis begins. The options that feel attractive, the risks that feel tolerable, and the trade-offs that feel acceptable are the ones that the reference point has already evaluated as progress. The strategic analysis that follows is largely a rationalisation of the emotional evaluation that the success definition has already performed.

The regulatory focus that the success definition installs

E. Tory Higgins’s regulatory focus research established the specific behavioural consequence of the reference point mechanism: the success definition determines the regulatory orientation from which all commercial decisions are made. A success definition framed around the achievement of an ideal, reaching a revenue milestone, building something of genuine impact, growing a team with a specific culture, installs a promotion focus in which the decision-maker is oriented toward approaching desired end-states. A success definition framed around the avoidance of an unacceptable outcome, not losing the investment, not failing publicly, not proving the family’s doubts correct, installs a prevention focus in which the decision-maker is oriented toward avoiding losses.

The regulatory focus that the success definition installs is the most powerful available predictor of the approach taken to commercial risk, the type of strategic action the founder is drawn toward, and the emotional experience of the building process. The promotion-focused founder experiences urgency, optimism, and appetite for the bold action that upside-oriented thinking generates. The prevention-focused founder experiences vigilance, caution, and a chronic monitoring of the downside that thoroughness generates but that also makes decisive action in genuinely uncertain conditions more costly. Neither orientation is universally superior; the problem arises when the regulatory focus is installed by a success definition that was not deliberately chosen and does not correspond to the founder’s genuine values.

Where the success definition comes from

Melissa Cardon’s research on entrepreneurial identity documented the specific social mechanisms through which the success definition is acquired rather than chosen. The founder who enters the venture ecosystem absorbs its criteria: growth rate, market size, fundraising round size, and exit multiple become the operative standards of commercial achievement because they are the criteria by which the community evaluates its members. The criteria are not stated as requirements; they are embedded in which stories get told, which outcomes get celebrated, which founders get invited to which rooms, and which questions investors ask. The founder who has not already examined their own success definition adopts the community’s by default, because the community’s criteria are available, socially reinforced, and apparently objective in a way that genuinely personal criteria are not.

Leon Festinger’s social comparison research predicts the specific dynamic that follows: the upward comparison to more successful peers within the venture community resets the success criterion continuously upward with the peer group’s commercial performance. The success definition drifts to match the upper tier of the peer environment regardless of what the founder’s absolute commercial position is. The founder who was, by any reasonable standard, building something of genuine value develops the chronic insufficiency experience that the comparison mechanism reliably produces, because the reference point is always slightly ahead of the current position and the gap between the two is always registering as failure.

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The introjected criterion and its consequences

Edward Deci and Richard Ryan’s research on autonomous versus introjected goal orientation predicts the psychological consequences of the inherited success definition with considerable precision. The founder pursuing a genuinely autonomous success definition, one that reflects integrated values and genuine personal significance, shows the sustained motivation, psychological wellbeing, and genuine satisfaction on achievement that autonomous regulation produces. The founder pursuing an introjected success definition, one that was adopted to avoid shame, gain approval, or meet the expectations of an investor, a peer community, or a family narrative, shows the anxiety, chronic goal-post-moving, and arrival emptiness that introjected motivation reliably produces even when the introjected criterion is achieved.

The arrival emptiness finding is particularly important for the founder community: the founder who achieves the fundraising round, the revenue milestone, or the exit that the inherited success definition required does not experience the satisfaction that the achievement was supposed to produce, because the introjected criterion was never genuinely theirs to achieve. The emotional response to achievement is proportional to the genuine significance of the criterion to the person who achieved it. An inherited criterion, however large its nominal commercial value, does not generate genuine significance on arrival.

The specific decisions the success definition distorts

The practical commercial consequences of the misaligned success definition are specific and predictable. The founder operating under the investor success definition makes hiring decisions optimised for growth rate rather than for the kind of business they actually want to build. They make product decisions optimised for the metric the investor monitors rather than for the customer problem they genuinely want to solve. They make partnership and distribution decisions optimised for the story they can tell at the next fundraising round rather than for the commercial model that makes genuine sense for the business. The strategic plan may be coherent; the success definition is determining the specific implementation choices in ways the strategic plan does not account for.

The Festinger comparison mechanism adds a further distortion: the success definition is not stable but drifts continuously with the peer environment’s performance. The commercial decisions made under a drifting success definition are targeting a moving standard that resets faster than the business can respond to it. The founder is not pursuing a goal; they are running on a treadmill whose speed is set by the commercial performance of peers they are monitoring.

The values clarification and the deliberate success definition

Steven Hayes’s ACT values clarification research predicts the most directly available correction: the deliberate examination of the success criteria currently in operation is the process through which the introjected definition can be identified and the autonomous alternative constructed. The values clarification does not require the founder to abandon ambition or to pretend that commercial outcomes do not matter. It requires the founder to ask, specifically, whose definition this is, where it came from, and whether, if they could design their own success criterion from the beginning, they would choose this one. In most cases the honest answer reveals a significant gap between the operative definition and the genuinely chosen one.

The deliberate success definition does not resolve the difficulty of building. It resolves the more costly problem of building toward the wrong standard while believing the standard is one’s own. The founder who has examined their success definition and genuinely chosen it makes the same commercial decisions with a different underlying orientation: the regulatory focus is installed by a criterion that reflects their actual values, the reference point against which outcomes are evaluated is one they have set rather than absorbed, and the achievement of the criterion, when it comes, produces the satisfaction that genuine achievement of a genuinely significant goal produces.

If the experiences described in this article are significantly affecting your wellbeing, speaking with a psychologist is the right next step. UK: Samaritans (116 123, free, 24/7). Mind (0300 123 3393). BACP: bacp.co.uk/search/Therapists. Crisis Text Line — text HOME to 741741 (US, UK, Canada, Ireland). International: internationaltherapistdirectory.com.

This article is for educational and informational purposes only. Sources: Higgins, E.T. (1997). Beyond pleasure and pain. American Psychologist, 52(12), 1280-1300. Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux. Cardon, M.S., Wincent, J., Singh, J. and Drnovsek, M. (2009). The nature and experience of entrepreneurial passion. Academy of Management Review, 34(3), 511-532. Deci, E.L. and Ryan, R.M. (2000). The “what” and “why” of goal pursuits. Psychological Inquiry, 11(4), 227-268. Festinger, L. (1954). A theory of social comparison processes. Human Relations, 7(2), 117-140. Hayes, S.C., Strosahl, K.D. and Wilson, K.G. (1999). Acceptance and Commitment Therapy. Guilford Press. Hari, J. (2018). Lost Connections. Bloomsbury. Storr, W. (2021). The Status Game. HarperCollins.