There is a conversation that takes place in many businesses that nobody else hears.
It happens in the owner’s head.
I should have seen that coming.
Why did I employ that person?
Why didn’t I deal with the problem earlier?
How did I lose that customer?
Why did I make that investment?
How could I have got that decision so wrong?
Everyone is relying on me. I cannot afford to fail.
I have spent almost four decades in senior leadership, corporate management, entrepreneurship, investment, business ownership, Boards and advising businesses. One thing I have learned is that some of the toughest conversations business owners and leaders ever have are not with employees, customers, bankers, suppliers or shareholders.
They are with themselves.
And sometimes we can be extraordinarily unforgiving.
My original version of this article described the relentless responsibility carried by small-to-medium business owners, from cash flow and employees to customers, regulation and difficult decisions. I think there is a much deeper leadership issue hiding underneath that observation.
How do you remain demanding, ambitious and accountable without progressively destroying yourself through relentless self-criticism?
That is where self-compassion becomes relevant.
And before you dismiss the term as soft, indulgent or inconsistent with high performance, stay with me.
Because self-compassion is not about lowering your standards.
It is about becoming psychologically strong enough to confront reality, accept responsibility, learn from failure, recover and keep leading.
For SME owners, and particularly those leading family-owned businesses, I believe that distinction can be enormously important.
Why SME Owners Can Be Their Own Harshest Critics
Large corporate organisations distribute responsibility.
There may be a CEO, CFO, COO, HR Director, Board, legal counsel, risk team, strategy team and layers of management.
In a small-to-medium business, responsibility is often concentrated in a handful of people, sometimes principally in one owner.
When payroll is due, it is personal.
When a major customer leaves, it is personal.
When an employee you trusted disappoints you, it is personal.
When margins collapse, it is personal.
When the bank starts asking uncomfortable questions, it is personal.
When your spouse asks how the business is going and you are not quite sure how to answer, it becomes very personal.
And in a family-owned business, the boundary between business and personal life can become even less distinct. Business decisions can affect family wealth, relationships, succession, retirement and the financial security of future generations.
This is one reason I have previously written about SME owners becoming overworked, stressed and overwhelmed.
But there is another dimension.
Many successful business owners possess precisely the characteristics that helped them build their businesses: ambition, drive, competitiveness, resilience, high standards and an unwillingness to accept mediocrity.
Those characteristics can be enormous strengths.
But every strength can become a weakness when taken too far.
High standards can become perfectionism.
Accountability can become self-blame.
Determination can become an inability to stop.
Responsibility can become control.
Reflection can become rumination.
Ambition can become a belief that nothing is ever good enough.
Resilience can become an excuse never to admit that you are struggling.
The characteristics that helped build the business can eventually begin damaging the person running it.
What Self-Compassion Actually Means
Dr Kristin Neff, one of the leading researchers in the field, conceptualises self-compassion around three interconnected elements: self-kindness, common humanity and mindfulness.
In practical business language, I would translate them this way.
Self-kindness means responding constructively rather than destructively when you make a mistake.
Common humanity means recognising that mistakes, uncertainty, disappointment and failure are not evidence that you are uniquely inadequate. They are unavoidable features of being human, leadership and entrepreneurship.
Mindfulness means being able to see what has happened clearly without either denying it or catastrophising it.
None of these requires you to pretend that everything is fine.
In fact, genuine self-compassion requires something harder.
You have to face reality.
That distinction matters.
Self-Compassion Is Not Letting Yourself Off the Hook
Perhaps the biggest misconception is that being compassionate towards yourself means making excuses.
I disagree.
Suppose you make a decision that costs your business $100,000.
There are at least three possible responses.
Response One, Denial
It wasn’t my fault.
The market changed.
My employees let me down.
The customer was unreasonable.
There is little accountability and therefore little learning.
Response Two, Self-Destruction
I cannot believe I did that.
I’m hopeless.
I always get these things wrong.
Maybe I’m not capable of running this business.
There may be accountability, but it has become personalised and destructive.
Response Three, Self-Compassionate Accountability
I made the decision.
It turned out badly.
What assumptions did I make?
What information did I miss?
What should I have challenged?
What can I learn?
What will I do differently next time?
That is not weakness.
That is leadership.
The difference can be summarised simply:
Poor Accountability
Mistake
↓
Excuse
↓
Blame
↓
Little Learning
↓
Repeat
Destructive Self-Criticism
Mistake
↓
Self-Blame
↓
Shame
↓
Fear
↓
Reduced Confidence
Self-Compassionate Accountability
Mistake
↓
Accept Reality
↓
Take Responsibility
↓
Learn
↓
Adapt
↓
Move Forward
I know which leader I would rather have running my business.
Accountability and Self-Attack Are Not the Same Thing
This is perhaps the central point of this article:
Holding yourself accountable and attacking yourself are not the same thing.
Accountability asks:
What happened?
Why did it happen?
What was my contribution?
What have I learned?
What needs to change?
Self-condemnation asks:
What is wrong with me?
The distinction looks subtle, but its consequences can be profound.
One focuses attention on behaviour, decisions, systems and learning.
The other attacks identity.
There is an enormous difference between:
“I made a bad decision.”
and:
“I am a bad businessperson.”
The first leaves room for learning.
The second can progressively undermine confidence, judgement and willingness to act.
This connects strongly with something I have written about previously: the value of leadership “scar tissue”.
Experience is valuable partly because we get things wrong.
But experience only becomes wisdom when we are capable of learning from it.
Research into project failure has similarly explored how self-compassion can help explain differences in people’s capacity to regulate negative emotions and learn from failure.
The Business Owner’s Dangerous Inner Critic
Most experienced leaders have an internal voice that evaluates their performance.
That can be useful.
You want an internal standard.
You want dissatisfaction with poor performance.
You want the ability to look at yourself critically.
The problem begins when the internal critic stops evaluating behaviour and starts prosecuting the person.
Think about how strange this can become.
Imagine one of your best managers comes into your office and says:
“I made a mistake. I backed the wrong supplier, and it has cost us money.”
Would your response be:
“You’re an idiot. You always screw things up. I don’t know why anyone trusts you. Maybe you’re simply not good enough.”
Probably not.
Yet some business owners effectively speak to themselves that way every day.
Why would we believe a form of leadership we would regard as destructive when applied to employees somehow becomes productive when applied to ourselves?
Developing greater emotional intelligence and self-awareness therefore involves recognising not only how you react to other people, but also how you react internally to yourself.
What the Research Tells Us About Entrepreneurs
This subject becomes particularly interesting when we move beyond general psychology and look specifically at entrepreneurship.
Research involving entrepreneurs has found that self-compassion can be relevant to coping with fear of failure.
One experimental study exposed entrepreneurs to a threatening venture obstacle. A brief loving-kindness meditation increased self-compassion, which was associated with lower fear reactivity. Importantly, the researchers reported that the reduced fear response did not mean participants failed to recognise the seriousness of the threat.
That is important.
The objective is not to become oblivious to danger.
It is to remain capable of responding intelligently to it.
More recent research involving 177 entrepreneurs who had experienced venture distress found that self-compassion and learning could help buffer some of the adverse effects of distress on subsequent thriving.
This is highly relevant to SME owners.
Business inevitably produces setbacks.
Customers disappear.
Strategies fail.
Products flop.
Employees resign.
Partnerships break down.
Acquisitions disappoint.
Margins compress.
Economic conditions change.
Technology disrupts industries.
The question is not whether something will eventually go wrong.
The question is what happens to you, and your leadership, when it does.
Fear of Failure Can Become a Business Risk
There is an irony in entrepreneurship.
We often celebrate entrepreneurs for taking risks, yet once someone has built something valuable, their relationship with risk can change dramatically.
Now there is something to lose.
Employees depend on you.
Your family may depend on you.
Your reputation matters.
Your wealth may be concentrated in the business.
Suddenly failure has consequences.
Fear can therefore begin influencing decision-making.
You delay an investment.
Avoid confronting an underperforming executive.
Retain the wrong customer.
Keep an unsuccessful strategy alive.
Refuse to enter a new market.
Avoid admitting that an acquisition was a mistake.
Put off restructuring because it feels like acknowledging failure.
This is why effective strategic planning needs both analytical discipline and emotional honesty.
A leader can have perfect financial models and still make poor decisions because ego, fear, pride or shame are sitting invisibly at the Board table.
What Carol Dweck’s Growth Mindset Adds to the Discussion
Carol Dweck’s work on the growth mindset provides another useful lens.
If you interpret capability as something fixed, failure can become threatening because failure appears to reveal something permanent about you.
If capability can develop, failure becomes information.
That distinction is enormously relevant to business.
The question changes from:
“What does this failure say about me?”
to:
“What is this failure teaching me?”
Those are psychologically very different questions.
The second encourages curiosity.
And curiosity is far more useful to a business leader than shame.
This also resonates with James Clear’s emphasis on systems and incremental improvement in Atomic Habits. My review of Atomic Habits explores how sustainable improvement comes from repeated behaviours and systems rather than relying exclusively on heroic motivation.
You do not need to become perfect.
You need to become better.
Jim Collins, Level 5 Leadership and the Courage to Look in the Mirror
Jim Collins’ work provides another useful perspective.
His concept of Level 5 Leadership combines professional will with personal humility.
That combination matters here.
Humility allows a leader to say:
“I got this wrong.”
Professional will adds:
“Now I am going to do something about it.”
Neither requires:
“Therefore I am worthless.”
My discussion of Level 5 Leadership explores why humility and determination are not opposites.
The same applies here.
Self-compassion and accountability are not opposites.
In many circumstances they reinforce each other.
Brené Brown, Vulnerability and the Myth of the Invulnerable Owner
Brené Brown’s work on vulnerability, courage and shame also deserves consideration.
Many SME owners unconsciously believe leadership requires them to appear invulnerable.
Employees must not see uncertainty.
Customers must not see weakness.
Suppliers must not see financial pressure.
Family must not worry.
The bank must remain confident.
So the owner keeps carrying everything.
The difficulty is that emotional suppression does not make pressure disappear.
It merely makes it private.
That isolation can become dangerous.
One of the most valuable things an SME owner can have is someone with whom they can speak candidly, whether that is a trusted director, independent chairman, mentor, peer or experienced business advisor.
Not somebody who simply agrees with you.
Somebody who can challenge you without judging you.
Family-Owned Businesses Carry an Additional Emotional Load
Family businesses add another dimension because business identity and family identity can become intertwined.
Imagine inheriting a business your parents spent thirty years building.
You are no longer simply managing a company.
You may feel you are protecting a legacy.
Now imagine the business begins declining under your leadership.
The financial problem is difficult enough.
But the internal conversation may become:
Dad built this business and I’m destroying it.
That is a profoundly different emotional burden from simply missing a quarterly budget.
Family businesses can involve sibling expectations, parental expectations, generational comparisons, succession pressures, family wealth and decades of history.
This is one reason independent perspective can become particularly valuable in a family enterprise. My work as a Family Business Advisor frequently centres not merely on strategy and financial performance, but on helping owners separate business problems from family relationships and personal identity.
You are responsible for your decisions.
But you are not your business.
When High Standards Become Perfectionism
High standards create great businesses.
Perfectionism can destroy good leaders.
There is an important difference.
A high-performing leader says:
“How can we improve this?”
A perfectionist says:
“This isn’t good enough.”
Then, when it is improved:
“Still not good enough.”
Eventually nothing is enough.
Revenue reaches $10 million.
Why isn’t it $15 million?
Profit reaches $2 million.
Why isn’t it $3 million?
The business wins an award.
Why didn’t it win two?
The owner takes a holiday.
Why am I not at work?
This becomes a treadmill where achievement never produces satisfaction because every accomplishment immediately moves the benchmark.
Ambition is healthy.
But ambition without perspective can become a prison.
Stephen Covey’s The 7 Habits of Highly Effective People remains relevant here because effectiveness is not simply about producing more. It includes renewal, perspective and maintaining the capacity to perform. I discuss that broader conception of effectiveness in my review of The 7 Habits of Highly Effective People.
The Way You Treat Yourself Eventually Affects the Way You Lead Others
There is another reason this matters.
Your internal leadership style can become your external leadership style.
If mistakes are unacceptable to you personally, you may become intolerant of employees’ mistakes.
If you expect yourself to work fourteen-hour days indefinitely, you may unconsciously expect the same commitment from everyone else.
If you interpret asking for help as weakness, your managers may learn not to ask for help.
If you hide mistakes, your employees may hide theirs.
And now what began as personal self-criticism has become organisational culture.
That can become expensive.
Employees stop speaking up.
Problems remain hidden.
Innovation declines.
People protect themselves.
Management receives increasingly sanitised information.
Psychological safety disappears.
This is why high-performance teams require both accountability and an environment where people can acknowledge problems without automatically being humiliated for doing so.
Compassion-based interventions in workplace research have also been associated with reductions in burnout and stress and improvements in interpersonal relationships and psychological resources.
Self-Compassion Does Not Mean Avoiding Difficult Decisions
A compassionate leader still has to make difficult decisions.
Sometimes you must dismiss someone.
Sometimes you must close a division.
Sometimes you must abandon a project.
Sometimes you must tell a family member that they are not the right person to become CEO.
Sometimes you must confront a business partner.
Sometimes you must tell employees that costs have to be reduced.
Sometimes you must acknowledge that the strategy you championed has failed.
Compassion does not remove these responsibilities.
It may actually help you undertake them with greater clarity.
Harvard Business Review has similarly argued that self-compassion can help leaders move from fear and self-doubt towards the clarity and action needed when confronting difficult decisions.
The objective is not:
Feel better instead of confronting reality.
It is:
Become emotionally balanced enough to confront reality properly.
A Practical Self-Compassion Framework for SME Owners
When something goes seriously wrong, I suggest working through six questions.
1. What Actually Happened?
Separate facts from emotion.
What do we know?
What don’t we know?
What assumptions are we making?
2. What Was My Responsibility?
Do not minimise it.
Do not exaggerate it.
Identify it accurately.
3. What Was Outside My Control?
Markets move.
People behave unpredictably.
Competitors act.
Governments change regulations.
Economic conditions change.
Accountability does not require pretending you control the universe.
4. What Can I Learn?
What warning signs did I miss?
Which assumptions were wrong?
What should I have challenged?
What capability was missing?
What information would have improved the decision?
5. What Must Change?
Learning without action is merely reflection.
Change the process.
Change the KPI.
Change the structure.
Change the person.
Change the strategy.
Change yourself.
6. Then Let It Go
This may be the hardest part.
Once you have accepted responsibility, extracted the lesson and implemented the change, continuing to punish yourself creates no additional business value.
You have already paid for the lesson.
Do not keep paying interest on it for the rest of your life.
Ask Yourself, Would I Speak to Someone Else This Way?
There is a simple test I find useful.
When you catch yourself engaging in brutal internal criticism, ask:
Would I speak this way to a respected colleague who had made the same mistake?
If not, why is it acceptable to speak that way to yourself?
This does not mean replacing:
“I am useless.”
with:
“Everything I do is wonderful.”
That is not self-compassion.
A more useful response is:
“That didn’t go well. I am disappointed. I contributed to the outcome. I need to understand why, fix what I can and learn from it.”
Notice what has disappeared.
Shame.
Notice what remains.
Responsibility.
That is the balance.
Don’t Confuse Your Business Performance With Your Personal Worth
This may be the hardest lesson of all.
Entrepreneurs frequently become psychologically fused with their businesses.
Ask them who they are and they tell you what they do.
The business succeeds, they feel successful.
The business struggles, they feel like failures.
That is understandable.
You may have invested twenty or thirty years of your life in the organisation.
But your business is something you created, own or lead.
It is not the totality of who you are.
A declining EBITDA margin is not a judgement on your worth as a human being.
A failed acquisition does not make you a failure.
Losing a customer does not erase twenty years of achievement.
Making a poor appointment does not mean you cannot judge people.
A business failure can be devastating.
But it does not have to become an identity.
This is where self-compassion, perspective and mature leadership development intersect.
The Strongest Leaders Are Both Tough and Compassionate
I do not advocate lowering standards.
Quite the opposite.
Businesses need demanding leaders.
They need leaders prepared to make uncomfortable decisions, confront underperformance, hold people accountable, challenge complacency and accept responsibility when things go wrong.
But toughness without self-awareness can become brutality.
And leaders who are brutal towards themselves often eventually become brutal towards others.
The better combination is:
High Standards + Humanity
Accountability + Perspective
Ambition + Self-Awareness
Courage + Humility
Resilience + Recovery
Reflection + Action
That is a much more sustainable leadership model.
Eight Practical Habits SME Owners Can Start Now
My original article recommended journaling, mindfulness, peer support, constructive feedback and celebrating progress rather than perfection. I would retain the underlying ideas but make them more commercially practical.
- Catch the language. Notice when “I made a mistake” becomes “I am a failure.”
- Separate facts from judgement. Write down what actually happened before deciding what it means.
- Conduct after-action reviews. Ask what worked, what didn’t, what was learned and what changes next.
- Keep a decision journal. Record important decisions, assumptions and expected outcomes. Review them later. This separates decision quality from hindsight.
- Build trusted challenge around yourself. A capable mentor, Board member, Non-Executive Chairman or adviser can provide perspective precisely when your own perspective is compromised.
- Stop demanding perfection. Demand improvement instead.
- Model constructive responses to failure. If you want employees to disclose mistakes early, show them that mistakes lead first to investigation and learning, not humiliation.
- Recover deliberately. Leadership is an endurance activity. Recovery is not the opposite of performance. It helps make sustained performance possible.
A Final Thought for SME Owners and Leaders
Running a business can be exhilarating.
It can also be lonely, frightening, exhausting and deeply personal.
You will make mistakes.
I have.
Anyone who has spent long enough making consequential decisions has.
You will occasionally trust the wrong person.
You will miss opportunities.
You will sometimes act too quickly.
At other times you will wait too long.
Some strategies will work brilliantly.
Others will not.
You will look back at certain decisions and wonder what on earth you were thinking.
That is not evidence that you should not be leading.
It is evidence that you are human.
The objective is not to avoid mistakes altogether. That is impossible.
The objective is to develop the emotional maturity to face them honestly, accept responsibility appropriately, learn intelligently, make the necessary changes and keep moving forward.
Perhaps that is the paradox.
We sometimes imagine that great leadership requires becoming harder.
Experience has increasingly convinced me that the opposite can also be true.
The strongest leaders I have encountered are capable of being extraordinarily demanding without losing their humanity.
They can confront brutal facts without becoming brutal people.
They can acknowledge failure without becoming defined by failure.
They can say:
“I got that wrong.”
And then, instead of spending the next five years beating themselves up about it, ask the far more valuable question:
“What have I learned, and what am I going to do differently tomorrow?”
That is not weakness.
That is resilience.
That is self-awareness.
And I believe that is leadership.
