life after business failure: recovering from and making the most of business failure
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The F Word:
Making the Most of
Business Failure
Prof Deniz Ucbasaran
Outline
• Why failure?
• Defining failure
• Assess the nature and consequences of failure in
entrepreneurship (the assets and liabilities of
failure)
• Evaluate the saying “failure is the fuel of success”
> Reflect on how individual entrepreneurs might
make the most of their failures
> Reflect on how businesses might be designed
to enable them to capitalize on failures
The F word...
• The uncertainty entrepreneurs face brings with it
opportunity but also failure.
• “Large” vs “small” failures:
> Terminal failure – closure of the business because of
total economic failure (insolvency) or it has fallen
short of the entrepreneur’s goals
> Episodic / day-to-day failures – e.g. failure to meet
performance targets set by investors; NPD failure;
loss of key staff; sudden rise in costs etc.
• Failure is endemic in entrepreneurship
Business Failure Rates
• On average, 50% of new single-establishment
businesses ‘fail’ (i.e. cease to exist) within the first
4 years. • Office of National Statistics (ONS) 2008
• Business failure is on the rise
In 2009:
236,000 business births
279,000 business deaths
Highest no. of deaths and
first time deaths > births
since records began in 2000
ONS, 2010
Failure: The Fuel of Success?
Abraham Lincoln experienced 12 major defeats before he was elected 16th President of USA.
Before the start of his career, Beethoven’s music teacher told him that “as a composer, you are hopeless”.
Walt Disney’s first cartoon production business went bankrupt.
John Grisham’s first novel was rejected by 16 agents and 12 publishing houses.
“One who fears failure limits his activities. Failure is only the opportunity to more intelligently begin again.” (Henry Ford, whose first two automobile companies failed).
Failure is an event, not necessarily a person.
Failure: The Fuel of Success?
“The British attitude is if you have failed once, you are a failure forever. The American attitude is that if you have failed once, you have learned a lesson that makes you more likely to succeed next time…The American point of view accepts, and almost congratulates failure as a path to eventual success. It has made American society much more entrepreneurial and, ultimately, more wealthy.”
Haji-Ioannnou Stellios (2005)
The Assets and Liabilities of Failure
The Assets of Failure
• Learning and new knowledge
> About self
> About entrepreneurship
• Motivation – to correct problems, challenge old
assumptions and innovate.
• Emotional resilience
• Strengthened relationships
Entrepreneurs’
Thoughts on Failure
“Bankruptcy was a dire blow…After all, it is like
euthanizing your own baby. Economic downfall
entails a complete breakdown that affects your
confidence in your own abilities and your trust in
people” French serial entrepreneur
“Business failure is a kind of social death, with every
little aspect of your life badly jeopardized…I felt
abandoned by everyone, it was a nightmare” Italian serial entrepreneur
“[The business is] a child.... [Losing the business] was devastating....
The things that were going on in my life—I'd lost my company, lost
my home, lost everything. I couldn't handle it . . . . There was a time
…when I sat in my office and cried, and then put a gun to my
head…. When I finally got over all that [pain and anger associated
with the loss of the business] was when I quit blaming other
people.... It was my fault because I didn't plan far enough ahead. It
was stupid as hell of me to sit there exposed like that. . . . Listen, this
lesson was extremely expensive. I paid dearly, my family paid
dearly.... Yeah, I learned a lot.... I'd be an incredible CEO for some
company. I'm the best.”
A serial entrepreneur,
Founded 8 businesses (2 went bankrupt)
The Liabilities of Failure
• Financial costs
• Social costs
> Reputation – stigma
> Relationships (e.g. business partners, financiers,
family etc.)
• Emotional & Motivational
> Business failure likened to the loss of a loved one,
leading to grief
> Self-doubt & knock to confidence
• Physical
Failure:
The Fuel of Success?
For failure to lead to success, two related things
must happen:
1. One must learn from the failure (but this is not
automatic)
2. One must bounce back and start again to apply
what they have learnt (i.e. manage emotions)
How one makes sense of and reacts to failure
becomes important
Learning is not just a function of
how and what we “think” but
also how we “feel”
(Shepherd, D.A., 2009)
Learning from failure
• Learning from failure is not automatic or
straightforward – biases, emotions etc.
> Attribution bias: attribute successes to ourselves
and failures to others / external effects
> Emotions: Propensity to focus on how bad everyone
felt on last day of business and handing over key to
liquidator – leaves less room to focus on actions /
inactions that lead to the failure in the first place.
How to manage emotions and
bounce back after failure
Three strategies from the grief recovery literature: > Loss orientation – working through and processing some
aspect of the loss experience (e.g. discussing the failure with
friends, family, others…) BUT too much of a loss orientation
may lead to rumination and an inability to break the bond with
that which has been lost
> Restoration orientation – based on both avoidance and
proactiveness (e.g. starting a new business) BUT too much
restoration orientation may limit reflection on the loss and lead
to an inability to draw out lessons
> Oscillation strategy - individual oscillates between loss
orientation and restoration orientation.
“Don’t worry so much about being
right –worry about being wrong
intelligently!”
Marrisa Mayer
(ex-Google, now Yahoo CEO)
“Intelligent failure”?
How to fail well: Some insights
from experienced entrepreneurs
• Accept that failure is a natural part of entrepreneurship
• Affordable loss – what am I willing to lose? Fail cheap
• Build partnerships of all kinds
• Focus on control not prediction; incremental steps
• Embrace contingencies / surprises
• Develop a support system
• Build a culture that shares, forgives and sometimes
celebrates (?) failure
An “Intelligent Failure” Culture?
• How can organizations respond to failure
constructively without giving rise to an anything-goes
attitude?
• A culture where one can admit and report failure
must co-exist with high standards of performance
• Identify blameworthy and praiseworthy failures
> When asked managers estimated 2-5% of failures were
truly blameworthy but 70-90% were treated as
blameworthy
How to build a “safe” environment:
Implications for Leadership
• Frame the work accurately – what is normal in your
context (e.g. Routine production or innovation)?
• Embrace messengers – “blameless reporting”
• Set boundaries and hold people accountable
> What is tolerable and what is blameworthy? What are
the consequences?
• Lead by example – acknowledge your limitations – what
you don’t know, your own mistakes
• Invite participation from all perspectives – teams
Some additional evidence...
• You can learn from others’ failure experiences (as long
as you have some experience of failure yourself)
(Madsen and Desai, 2010)
• Challenges the learning benefits of small failures
(Madsen and Desai, 2010; Shepherd et al., 2012).
• If the failure is too small and you don’t experience a
sense of loss you may not have enough motivation to
try and make sense of the failure
• Social-pain functions like physical-pain and responds to
analgesics! (DeWall, 2011)
• You can learn to become more resilient (Seligman, 2011)
Let’s not forget about success...
• Failure can fuel an “unfreezing” process in which old
ways of perceiving, thinking and acting are shaken and
new ways accommodated. In contrast, success may
lead to over-learning of behaviours that are believed to
foster success – lessons drawn from success may turn
into straightjackets that prevent adaptability (Sitkin,
1992).
• Failures get a post-mortem. Why not triumphs?
In sum
• Failure and the fear of failure is real and with reason
(assets AND liabilities of failure)
• How can we ensure that the assets outweigh the
liabilities, increasing the odds that failure fuels
success?
> Individual strategies
> Emotional coping strategies
> Insights from expert entrepreneurs
> Organizational strategies
> Design for “intelligent failures”
> Create the right culture
Questions and Comments?
The research (a sample)
Cope, J. (2011). ‘Entrepreneurial learning from failure: an interpretative phenomenological analysis’.
Journal of Business Venturing. 26: 604-623
Harvard Business Review (2011). The Failure Issue, April.
Madsen, P and Desai, V. (2010). Failing to Learn? The effect of failure and success on organizational
learning in the orbital launch industry. Academy of Management Journal, 53: 451-476
Read, S., Sarasvathy, S., Dew, N., Wiltbank, R. & Ohlsson, A. (2011). Effectual Entrepreneurship.
Routledge, Oxon.
Seligman, M. (2011). Flourish: A Visionary New Understanding of Happiness and Well-being. Free Press.
Shepherd, D. A., Patzelt, H. and Wolfe, M. (2012). Moving forward from project failure: Negative
emotions, affective commitment and learning from experience. Academy of Management Journal.
Shepherd, D. A. (2009). From Lemons to Lemonade: Squeeze every last drop of success out of your
mistakes. Wharton School Publishing, New Jersey.
Ucbasaran, D., Shepherd, D., Lockett, A. & Lyon, J. (2013). Life after business failure: The process and
consequences of business failure for entrepreneurs. Journal of Management. In press.
Ucbasaran, D., Westhead, P., Wright, M. & Flores, M. (2010). The Nature of Entrepreneurial Experience,
Business Failure and Comparative Optimism. Journal of Business Venturing. 25(6): 541-555.
Ucbasaran, D, Wright, M & Westhead, P (2011). Why Serial Entrepreneurs Don’t Learn from Failure.
Harvard Business Review, 89(4): 16.