When Optimism Kills Entrepreneurs tend to depend on optimism in the same way that fish depend on water. It's absolutely crucial for survival. In fact, it's arguably the single most important character trait that a successful entrepreneur can have, but it also has a dark side…

A realistic path to success

• Lead with questions, not answers
• Engage in dialogue and debate, not coercion
• Conduct autopsies without blame
• Build red flag mechanisms.

No matter how bad your day's going, it's probably nothing compared to your average day at the "Hanoi Hilton'. This was the euphemistically-named prisoner-of-war camp (actually called Hoa Lo Prison) where American soldiers were interned during the Vietnam War. Pilot Jim Stockdale was shot down on 9 September 1965 and sent to the prison.

While there, he was tortured, denied medical attention, kept in a windowless cell and locked in leg irons at night. Stockdale spent almost eight years in the prison, and while many other American soldiers died there, he survived.

This brings us to the topic of optimism. You don't survive eight years in a prison camp by giving up hope. Despite almost impossible conditions (and odds), you need to stay optimistic. Stockdale never lost hope.

"I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade," Stockdale later said about his time in the prison.

The stockdale paradox

So, Stockdale was an optimist right? Yes, but it's a bit more complicated than that. Jim Collins interviewed him while writing his seminal book Good to Great: Why Some Companies Make the Leap... and Others Don't. After hearing how Stockdale refused to give up hope and stayed optimistic throughout his internment, Collins asked him who didn't make it out alive.

"Oh, that's easy," he replied. "The optimists. They were the ones who said: "We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say: 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.

"This is a very important lesson. You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be."

From this, Collins identified one of the key things that differentiated great companies from others: The ability to accept brutal facts. Greatness demands optimism, but not in the face of obvious disaster. Collins called this the Stockdale Paradox.

Too much optimism

What happens when a bunch of executives enter a boardroom with their charismatic founder? The founder is optimistic, inspiring... and demanding. He has absurd expectations. He wants the impossible. (Steve Jobs was a good example, who employees said had a "reality distortion field' around him). The executives are eager to seem equally gung-ho, of course, even those who know that a crucial deadline won't be met, so the brutal facts are ignored.

"We're going to be shipping product by Christmas," they all say. And Christmas comes, and Christmas goes. Then they say: "We're going to ship by Easter. And Easter comes, and Easter goes. And then Thanksgiving, and then it's Christmas again…

An overdose of optimism is a dangerous thing. While optimism is a crucial tool in the entrepreneurial kit (especially when it comes to motivating employees), it can lead to disaster if administered too liberally. Like morphine, a sensible amount can take the edge off a scary reality, but too much will distort reality to such an extent that you become oblivious to existential threats.

And how do you keep your company off the morphine? Collins suggests four things: Lead with questions, not answers. Engage in dialogue and debate, not coercion. Conduct autopsies without blame. Build red flag mechanisms. If you do this, optimism becomes a powerful tool, and not a ticking time-bomb.