Failure is the new black in business. An ability to fail fast, cheaply and ethically – and to learn and recover from failure – is becoming a critical business skill. So much so that entrepreneurial ventures need to know how to fail their way to success.
Yes, it seems odd promoting the virtues of failure. We’ve been hardwired at home, school, university and work to strive for success. Business books promote successful people. Business courses provide tools to succeed. Nobody teaches you how to fail correctly and too many big companies won't tolerate it from staff.
That’s a shame. Humans learn by trial and error, and as technology makes it easier and cheaper to launch a venture, entrepreneurs will try more ideas – and have a higher proportion of failures.
Knowing how to fail means being able to take more risks. With that comes greater capacity to take and control those risks. The result: more innovation and opportunities to commercialise ideas and create wealth.
Failure is arguably at the heart of new thinking on entrepreneurship. The theory of Lean Entrepreneurship likens startup ventures to launching a “hypothesis”. Here, founders search for customers and the right business in real time in the market.
Under this model, entrepreneurs are running a portfolio of experiments, not putting everything into one idea or spending years researching ideas and writing 200-page business plans.
Why? Because startup ventures have a high failure rate. And because you never really know if an idea will work until you are in the market. You need to be prepared to fail.
Of course, we’d prefer to succeed. But business and life are not like that. Accept that failure is part of being a risk-taking entrepreneur and treat it like any other learnable business skill. Wear it like a badge of honour when you do your absolute best and fail ethically. Recognise that the experience of failure – provided it is mixed with many more successes – is increasingly viewed as an asset in the eyes of ventures capitalists, big business and boardooms.
Who would you rather hire? Someone who has had five straight successes and has never experienced or recovered from failure? Or someone with four successes and one failure? I’d go for the latter every time. Chances are, he or she is mentally tougher, and more rounded and resilient after suffering a few business bruises.
Here are nine tips to sharpen your failure skills.
If failure is unavoidable, review your ethical obligations. Don’t hide behind legalities.
Plan for failure
Failure is inevitable in startup enterprises. Not the catastrophic “she’s gonna blow, captain” failure – although that happens – but where startups are learning as they go and making mistakes almost daily. Accept that staff in startup ventures will make errors as they try things and promote a culture within the organisation that tolerates the right kind of failure.
Know what failure looks like
Many owners persevere too long with underperforming ventures when they should deploy capital elsewhere. Know when it is time to pull the plug. Do not wait for the venture to fail technically and die a slow death. It will stunt your recovery.
Seek business advice
If business failure appears unavoidable, act while you still have funds to pay for professional restructuring or insolvency advice. Most of all, review your legal obligations and duties as a company director.
It’s a fine line. Ideas need enough time to develop or grow in different directions, but not so long that failure destroys too much capital. Ensure your product has “feedback loops” or ways to assess customers in real time – for example, a section on your website to rate ideas or provide comments. You’ll soon know if the idea has traction or if it’s a flop.
Some businesses by their nature have high fixed costs. Increasingly, entrepreneurs are getting products to market faster and cheaper, and stripping out as many fixed costs as possible. The goal: to minimise the “hurt money” should something go wrong.
If failure is unavoidable, review your ethical obligations. Don’t hide behind legalities. Consider your ethical responsibilities to stakeholders who have lost their jobs or money from the venture’s failure. How can you help them?
Safeguard your networks
An entrepreneur’s contact book is always among his or her most valuable assets, especially when recovering from failure. You need people who know what you’re made of and will help when you are down.
Be up front with trusted contacts about the business failure. Let them know your progress when you launch another business. Don’t go to ground or be embarrassed by failure.
Learn from failure
Consider what went wrong and what you can learn from it while the memory of failure is fresh.
Don’t be afraid to seek personal help
Know that business failure can have significant physical and mental health consequences if managed poorly. Take steps to protect your wellbeing, know the symptoms of depression and seek professional medical advice if you feel “down” about your venture for an unnaturally long period.
Tony Featherstone is a former managing editor of BRW and Shares magazines.