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updated 11/5/2012 7:51:36 PM ET 2012-11-06T00:51:36

Tom Bandy knows all about the fears of the entrepreneur. Having built two companies from the ground up, he has experienced the fear of spending investors' money and the fear of making payroll. Worse, he has known the dread of having to fire an employee. But he also knows he's not alone. "Every entrepreneur talks about waking up at 3 o'clock in the morning with the thing that scares him to death," he says.

Let's be clear: Fear can be helpful, even necessary. Fear is the mind's way of telling us that danger -- or, at least, a bumpy road -- lurks ahead. But whether justified or not, fear can wreak havoc on the entrepreneurial life. It can thwart imagination and choke ambition. At its most devious, it can make every obstacle seem insurmountable. Consider the German proverb: "Fear makes the wolf bigger than he is."

The trick, of course, is learning to overcome our fear so that we see the wolf as, well, just a wolf. It's not easy. Fear has been etched into our DNA since the first cave man got too close to his campfire. The late horror and fantasy author H.P. Lovecraft called fear "the oldest and strongest emotion of mankind." Yet entrepreneurs have no real options--no good ones, anyway--but to conquer their fears. If you want to take that bold step that could make your company thrive, you'll need to stare down the demons that have been holding you back.

"You're the head honcho," says Linda Sapadin, a Valley Stream, N.Y.-based psychologist and author of Master Your Fears: How to Triumph Over Your Worries and Get On With Your Life, "so you really need to be able to get beyond the fear in order to make your business happen."

Bandy founded his software consulting and web design firm, BandyWorks, in 2005 in Petersburg, Va. (His wife, Holly Reider Bandy, a retired Air Force lieutenant colonel, is chief administrative officer.) He'd been there before. Back in the 1980s, fresh out of the University of Virginia, he started a company that developed database performance tools. After 16 years, an internal debate over the firm's direction resulted in a struggle for control, a struggle that Bandy lost. "For me, I guess, fear is mostly associated with failure," he says. "One of my fears is I'll grow weary of overcoming obstacles. That really is the definition of entrepreneurship to me, that persistence.

I guess that's what you live with as an entrepreneur. I know what it's like to fail and lose something after you've worked really hard on it."

Fear can be one helluva teacher. Bandy made some institutional changes when he founded BandyWorks, which today employs 32 people. Perhaps most significant, he decided against soliciting money from outside investors. He and his wife came up with $35,000 in startup capital, Bandy says, and have invested about $500,000 from proceeds back into the company.

"I've been through a lot, and I don't have much fear about anything except making sure I don't screw up the process," Bandy says. "I am more afraid of looking stupid to my friends on my advisory board than I am of losing money."

Sapadin likes to invoke the example set by the Cowardly Lion, the spineless (but ultimately heroic) character created by L. Frank Baum in the book The Wonderful Wizard of Oz. "People think having courage means you have no fear," Sapadin says. "Courage is taking action despite the fear."

For the entrepreneur, she adds, fear is a perfectly natural reaction that can even be advantageous. It's reasonable to feel some trepidation before making a key hire, negotiating a new contract or investing a large sum of money in new equipment. That emotion can prove helpful by tempering the business owner's thought processes and preventing irrational decision-making.

But fear becomes a burden, Sapadin says, when it is disproportionate to the threat or challenge at hand, and when it lingers even after the challenge has been resolved. "It's not a question of whether we experience fear," she says, "it's whether things that are not particularly fearful have ominous feelings for us. [Then] we're really talking about maladaptive, inappropriate, excessive fear."

Women have been shown in numerous academic studies to generally be more risk-averse than men. Susan Clark Muntean, an assistant professor of management at Ball State University in Muncie, Ind., says the reasons are more cultural and institutional than biological. "Women have multiple barriers that need to be overcome," she says. "These start all the way from childhood. We're told to sit pretty and wear a princess dress."

In September, a dozen of Clark Muntean's students began mentoring Jan Long, president of Mr. Canary, a Carmel, Ind.-based maker of bird feeders that are sold at Kmart, Walmart and Kroger (with annual revenue of about $500,000). Long and her sister, Christina Mowery, started Mr. Canary in 1995. They were fearless, she says, mostly because they were naive. "This is what happens with entrepreneurial people," Long says. "You just hurl yourself off a cliff and then you start thinking, Oh, my God. I don't know how to fly."

Only after Mowery retired earlier this year did Long face her fears about taking new risks and expanding the business. Her ambition sparked some new fears. "I'm more afraid of success in some ways than failure," Long says. "That takes a big commitment in your life. Maybe everybody feels that way, but it's a worry of mine."

Long says she works through her fear by shifting her focus away from herself and toward the scores of workers with disabilities that Mr. Canary relies on to assemble and ship its feeders (via Carey Services, a nonprofit group in the area). "When I think about my team, the people I work with who count on me for jobs, all of a sudden I become like Superman," Long says. "I don't worry so much."

Bandy, however, still worries, though these days his fears are not always rooted in the workplace. He doesn't fear failure, he says, and he's had enough success that he doesn't worry about going hungry. Instead, he's more likely to worry about whether he's spending enough time tossing a baseball with his son.

"I still wake up in the middle of the night," Bandy says, "but I go back to sleep more quickly now. So I think I've made a little progress."

Copyright © 2013 Entrepreneur.com, Inc.

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