From the March 1997 issue of Entrepreneur

Depending on whom you're talking to, paranoia is: 1) a psychotic disorder characterized by delusions of persecution, 2) an irrational distrust of others, or 3) a key trait in entrepreneurial success.

Sound crazy? Not according to Andrew S. Grove, president and CEO of Intel Corp. in Santa Clara, California, and author of Only the Paranoid Survive (Doubleday/Currency). The title of Grove's book comes from an oft-repeated quote that has become the mantra of the chip king's rise to the top of the technology business.

"I have no idea when I first said this," Grove writes, "but the fact remains that, when it comes to business, I believe in the value of paranoia." To those who suffer from clinical delusions of persecution, of course, paranoia is neither a joke nor a help. However, in a business context, the practice of voluntarily being highly concerned about potential threats to your company has something of a following.

"If you're not a little bit paranoid, you're complacent," says Dave Lakhani, an entrepreneur in Boise, Idaho, who offers marketing consulting to small businesses. "And complacency is what leads people into missed opportunities and business failure."

Pick Your Paranoia

Being paranoid, according to Grove, is a matter of remembering that others want the success you have, paying attention to the details of your business, and watching for the trouble that inevitably awaits. That basically means he is paranoid about everything.

"I worry about products getting screwed up, and I worry about products getting introduced prematurely," Grove writes. "I worry about factories not performing well, and I worry about having too many factories."

For Grove, as for most advocates of paranoia, being paranoid primarily consists of two things. The first is not resting on your laurels. Grove calls it a "guardian attitude" that he attempts to nurture in himself and in Intel's employees to fend off threats from outside the company. Paranoia in business is also typically defined as paying very close attention to the fine points. "You need to be detail-oriented about the most important things in your business," says Lakhani. "That means not only making sure you're working in your business but that you're there every day, paying attention to your customers."

As an example of paranoia's value in practice, Lakhani recalls when sales began slowly slumping at a retail store he once owned. He could have dismissed it as a mere blip. Instead, he worried and watched until he spotted a concrete cause.

"It turned out one of my employees had developed a negative attitude, and it was affecting my business," Lakhani says. "As soon as I let him go, sales went back up."

The main focuses of most entrepreneurs' paranoia, however, are not so much everyday internal details as major competitive threats and missed opportunities. Situations in which competition and opportunity are both at high levels are called "strategic inflection points" by Grove, and it is during these times, typically when technology is changing, that his paranoia is sharpest.

Paranoia is frequently a welcome presence at major client presentations for Katharine Paine, founder and CEO of The Delahaye Group Inc. In the past, twinges of seemingly unfounded worry have caused Paine to personally attend sales pitches where she learned of serious problems with the way her firm was doing business, she says.

The head of the 50-person Portsmouth, New Hampshire, marketing evaluation research firm traces her paranoid style to childhood days spent pretending to be an Indian tracking quarry through the forest. When she makes mental checklists about things that could go wrong or opportunities that could be missed, she's always keeping an eye out for the business equivalent of a bent twig.

"If you are paranoid enough, if you're good enough at picking up all those clues, you don't have to just react," says Paine, "you get to proact and be slightly ahead of the curve."

Paranoid Parameters

There is, of course, such a thing as being too paranoid. "There are times when it doesn't make any sense," acknowledges Lakhani. Focusing on details to the point of spending $500 in accounting fees to find a $5 error is one example of misplaced paranoia. Worrying obsessively about what every competitor is doing or what every potential customer is thinking is also a warning sign, he says.

Lack of balance with interests outside the business may be another. "If your whole life is focused around your work, and that's the only thing you're thinking about 24 hours a day, that becomes detrimental," Lakhani says.

For Paine, failing to act is a sign that you're going past beneficial paranoia and into hurtful fear. "Fear for most of us results in inaction--absolute death for an entrepreneur," she says. "If we feared the loss of a paycheck or feared entering a new market, none of our businesses would have gotten off the ground."

All this may be especially true for small-business owners. While paranoia may be appropriate for heads of far-flung enterprises, some say entrepreneurs are already too paranoid.

It's all too easy for entrepreneurs to take their desire for independence and self-determination and turn it into trouble, says Robert Barbato, director of the Small Business Institute at the Rochester Institute of Technology in Rochester, New York. Typically, entrepreneurs take the attitude that "nobody cares as much about this business as I do" and exaggerate it to the point of hurtful paranoia toward employees and even customers, he says. "They're seeing ghosts where ghosts don't exist," warns Barbato.

That's especially risky when it comes to dealing with employees. Most people--not just entrepreneurs--do their work for the sense of accomplishment, not because they are plotting to steal their employer's success, Barbato says. He acknowledges this may be a difficult concept for competition-crazed entrepreneurs, especially those who have never themselves been employees, to understand.

"People who own their own business are not necessarily used to moving up the ranks," Barbato notes. Entrepreneurs must learn to trust and delegate if their businesses are to grow.

Practical Paranoia

Now matter how useful it is, paranoia may be too loaded a label for some entrepreneurs. If so, critical evaluation or critical analysis are the preferred terms of Stephen Markowitz, director of governmental and political relations of the Small Business Association of the Delaware Valley, a 5,000-member trade group. The distinction is more than name-deep.

"When I say `critically evaluate,' that means look at everything," Markowitz explains. "If you're totally paranoid, the danger is not being able to critically evaluate everything."

For example, Markowitz says a small retailer threatened by the impending arrival of a superstore in the market would be better served by critically evaluating the potential for benefit as well as harm, instead of merely worrying about it. "If you're paranoid," he says, "you're not going to critically evaluate how it might help you."

Whatever name it goes by, few entrepreneurs are likely to stop worrying any time soon. In fact, experience tends to make them more confirmed in their paranoia as they go along.

Paine recalls the time a formless fear led her to insist on going to a client meeting where no trouble was expected. She lost the account anyway.

"The good news is, my paranoia kicked in," she says. "The bad news is, it was too late. That made me much more paranoid in the future."

Contact Sources

The Delahaye Group Inc., (800) 926-0028, (http://www.delahaye.com);

Dave Lakhani, c/o Direct Hit Marketing, 770 Vista, Boise, ID 83705, (208) 368-7979;

Small Business Association of theDelaware Valley, 320 MacDade Blvd., #100, Collingdale, PA 19023, (800) 533-3732, (610) 237-1336;

Small Business Institute, (716) 475-2350, rjbbbu@rit.edu.

Mark Henricks is an Austin, Texas, writer specializing in business topics.