My coauthors and I noticed that some entrepreneurs consider sleep optional, a nuisance, or even a waste of time. These entrepreneurs usually feel like their growing business is so important that they redirect their normal sleep time to focus on the pursuit of new business opportunities. It’s hard to fault these entrepreneurs for feeling this way when their entire financial past, present, and future may hinge on the performance of their business.

It’s true, entrepreneurs must make time-allocation compromises when there are more than 24 hours of tasks to accomplish in one day, and sleep is usually the first item compromised when a conflict arises. But what are the tradeoffs associated with these compromises? What, specifically, are entrepreneurs missing when they forgo a good night of sleep? Our recent paper answers these questions using multiple methods to isolate the effect of sleep restriction on entrepreneurial endeavors including new venture idea formation and early confidence in a business idea.

We’ve known for many years that adequate sleep improves individual mood, cognition, and motor performance. We also know, for example, that a night of sleep facilitates innovative solutions to problems faced the previous day. Lack of sleep has been associated with diminished inhibition, poor cognitive flexibility, and a reduced attention span. What we don’t completely understand is how sleep deficits specifically influence entrepreneurial endeavors. And if these deficits exist, will entrepreneurs who operate on less sleep perform suboptimally on tasks that are important in the formation and growth of their business? Since many entrepreneurs hold derisive views toward ensuring adequate sleep, we suggest this research is both necessary and timely.

We answer our research questions using multiple methods, including a field survey, a laboratory experiment, and a multi-week daily field experiment, that build on previous research in psychology and entrepreneurship to uncover the particular reasons why sleep has a negative effect on the formation of new venture ideas and beliefs. In the early stages of new venture formation, founders both posit new ideas and form initial beliefs about those ideas. It is impossible, however, to pursue each new venture idea, which suggests the early stages of entrepreneurship hold high leverage over which opportunity an entrepreneur might pursue. Therefore we target our investigation on the early formation of new venture ideas and the initial beliefs about those ideas.

Drawing on previous discoveries in structural alignment theory, we show that sleep matters for each entrepreneur above-and-beyond individualized ability to get by on less sleep, and that sleep restriction causes deficits in idea and belief formation. Taken together, the evidence in these three studies converges to indicate that entrepreneurs are less likely to form promising ideas, and their initial confidence in a new venture idea is based on less-important superficial information about the venture. This can lead an entrepreneur to form inaccurate beliefs about ideas that are not easily assessed (e.g., non-obvious good or bad opportunities), because the entrepreneur does not perceive the underlying structural (mis-) match of the key characteristics of the opportunity. These characteristics include the how and why a market would (not) appreciate the features of a commercial offering, and particular benefits and problems associated with a new venture. The key finding from our work is that sleep-restricted entrepreneurs are less likely to comprehend more important, but more difficult to appraise, structural information about the idea during belief formation. Importantly, the second study shows consistent findings comparing individual entrepreneurs to themselves. This means that, even if an entrepreneur claims to require less sleep than the National Sleep Foundation’s recommended 7-9 hours, that entrepreneur discovers structural indicators better with more sleep.

Our work indicates that entrepreneurs improve their assessment of opportunities when they get more sleep, which should lead to greater performance. We provide evidence that entrepreneurs perform worse on a sleep-restricted day than their well-rested-selves on a different day. These findings contribute new insights about an entrepreneur’s cognitive abilities in the formation of new venture ideas and beliefs, specifically articulating why sleep matters in these endeavors. The results from our empirical evidence suggest that, even though there is pressure for entrepreneurs to devote maximum time and energy to their new ventures, limiting sleep can cause entrepreneurs to form inferior conclusions about both favorable and unfavorable new venture ideas.

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