- Describe failure and its effect on entrepreneurs


[SLIDE 1]

A business failure is generally conceived as the termination of a commercial organization that has missed its goals and failed to achieve investors' expectations, preventing the venture from continuing to operate and resulting in bankruptcy or liquidation. 

Failure can intensify the cognitive processes involved in learning, resulting in improvements in future performance and increasing the probability for future success. For this reason, many entrepreneurs see failure as a journey and the path by which individuals travel to develop into entrepreneurs. Having learned from failure, entrepreneurs often feel more confident, prepared, and motivated to attempt another startup venture. 

Despite these perceived benefits, the failure of a venture can be not only financially costly but also emotionally painful, even traumatic. It can be experienced as the end of an intimate relationship resulting in feelings of grief and loss, leaving the entrepreneur's self-efficacy and inclination for risk-taking in tatters. 

Big failures (or "epic fails") in business are the ones we hear about the most. Bankruptcy or forced sale is probably the biggest failure for a startup. Social network Friendster is a good example of an epic fail. Founded by Jonathan Abrams in 2002 (the year before MySpace and two years before Facebook), Friendster is often credited with kicking off the era of social networks. Just a year after it was launched, Google offered Abrams $30 million to buy the company, but Abrams turned down the offer. Not long afterwards Abrams was pushed out as CEO by the board of directors because of his lack of experience in running a company. A few years later, Friendster collapsed due to technical glitches and failure to keep up with the competition as its users moved on to MySpace and Facebook. Friendster was eventually acquired by one of Asia's biggest internet companies, MOL Global, and went on to operate as a social gaming site. 


[SLIDE 2]

There are many different reasons behind the closure of a start up. Contributing factors often include lack of market need, poor marketing, and loss of focus. One analysis of the most common reasons behind the failure of start ups suggests that a lack of market need, a lack of cash, and an unsuitable team are among the common causes. 


[SLIDE 3]

It is also useful to hear how entrepreneurs themselves articulate the underlying reasons as to why their start ups failed. Three of the main reasons why entrepreneurs fail are their psyche, inaction, and hiring issues.


[SLIDE 4]

However, there is an important difference between big failures and small failures.

No one wants or even expects catastrophic failure such as bankruptcy, but all entrepreneurs experience countless small "fails" that require a quick reaction and sometimes a change in direction, often known as a pivot. A small fail is an event -- an obstacle to overcome to get through the other side -- whereas a big fail like the collapse of a business is a process that unfolds over time; it is more personal and can be more difficult to recover from. The most successful entrepreneurs embrace and leverage failure and pivot when they need to.

Small failures are considered the "valleys" in the entrepreneurial journey which include the setbacks, the missteps, the ill-planned experiments, the misplaced decisions -- all manageable events that can help you build on what you learn. This ties with the key points of the practice of entrepreneurship -- the observation that small, reversible, informative failures along the way can highlight key issues and set you on a better path to success. The point is that if we can expect and embrace the learning from the small failures, then perhaps we can mitigate the risks of the big failures.