Anheuser-Busch Briefing Center, U.S. Chamber of Commerce
1615 H St NW, Washington, D.C.
Registration and Breakfast: 8:00 a.m.-8:30 a.m.
Innovation explores new territory, and figuring out what works also means figuring out what doesn’t. There is a litany of mottos in the tech industry using the idea of failing fast and often. Implied is the notion that failure is necessary. What is more, this perspective does not view failure as final – at least, not for motivated entrepreneurs and forward-thinking innovators. Whether developing a new business model or inventing a ground-breaking piece of technology, failure is synonymous with the learning process.
By definition, failure is the absence of success. Businesses face numerous pitfalls in growing and innovating, and to develop the best products and business models, entrepreneurs and innovators need to continually learn how best to compete in the market place. This takes investigation and experimentation. There is no roadmap for creating and growing something new, making failure an inevitable, important part step in the entrepreneurial process.
When we first learn to ride a bike or use ice skates, we expect to fall. Why? Because it takes most people a few tries to get the hang of it, learning how to balance one’s body and control our movement. In trying, failing, and trying again, the right mix of experience, knowledge, perseverance, and bumps and bruises eventually combines to unlock a new ability, and with that comes an overwhelming sense of confidence. For businesses, learning from failure can also profit success in the long run.
Nathan Greidanus, a professor at the University of Manitoba Asper School of Business, developed a theory – Positive Entrepreneurial Failure (PEF) – that reveals the role of failure in entrepreneurship. According to the theory, there are three perspectives that define the entrepreneurial process: pre-conceived perceptions of failure; persistence through failure; and learning from failure. These make up a cycle of failure and learning, which can ultimately lead to success. Greidanus writes:
“Entrepreneurs are distinguished from the general population by their [pre-conceived] perception of failure; once entering the entrepreneurial process, the ability to persevere through failure further distinguishes a sub-set of entrepreneurs…finally, a further subset of entrepreneurs is distinguished by their ability to transition from persevering through failure to an ex-post learning from failure.”
Then the process repeats, with entrepreneurs employing the lessons learned. For Greidanus, failure is a constructive – rather than a destructive – force, although the entrepreneur’s readiness to learn and persevere is a critical element in eventual success.
Lessons learned through failure come with a cost, but with new digital capabilities, that cost is falling, which gives entrepreneurs greater freedom to experiment and test new ideas. Before the Internet, most businesses required a physical office or store, as well as other capital-intensive demands. The amount of money needed to start a business was higher, which made the stakes higher too. Today, businesses can start up and operate only online, costing a fraction of what it did in years past. Inc. quotes a Silicon Valley venture capitalist who said because of the Internet, a new concept that once cost $10 million to test now costs just $200,000.
As failure costs less, investors are also recognizing that entrepreneurs who have endured failure are more likely to succeed in further attempts. A Kaufman Foundation study found the survival rate among businesses started by entrepreneurs who had previously failed were significantly higher than those launched by first-time entrepreneurs. This did not extend to long-term business survival, meaning previous failures are valuable experiences for entrepreneurs during a company’s early stages, but it does not necessarily mean the business will ultimately become a financial success.
Failure can teach an entrepreneur a lot, but there is also a threshold for failure. Larry Weinzimmer and Jim McConoughey, authors of The Wisdom of Failure, write: “you can only fall off the corporate ladder so many times before your climb is finished.”
This they call the failure paradox – the point at which failure stops teaching and instead evidences poor effort or ability. Weinzimmer and McConoughey make the case in their book that to avoid this and the negative ramifications they say failure can bring, entrepreneurs can take lessons from another’s experiences and apply them to their own business.
The threat of a company going under can be distressing in a time when the United States lacks millions of needed jobs, but for entrepreneurs, this failure holds the critical lessons that will ultimately help them succeed in the future. Indeed, as Daniel Crenna writes in Technology Innovation Management Review:
“If an entrepreneur is in this game for the long haul, they will fail so many times that they will no longer differentiate failure from success, because like any human endeavor that improves with practice, the art of business building is a steady march of preparation, timing, execution, and aftermath.”