10.2 Why Early Failure Can Lead to Success Later

Common Contributors to Failure

There are some common reasons for failure that often combine to end a business. However, there are often ways to prevent these failures from happening. CB Insights, a company that mines and analyzes data for companies and uses machine learning to help them answer complicated strategic questions, researched the factors that contributed to the failures of 101 startups. Figure 10.6 shows some of the main factors they identified in their research.

Figure 10.6 Startups that falter identify some common obstacles to success. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)

In the following discussion, we expand on some of these reasons for failure and offer advice on how to avoid them. Considering the following failures will give you an idea of what may go wrong in a business but will also help you spot and correct them before you launch.

Innovation Failure

Innovation can be tricky because it requires creativity, risk, and often some subjectivity, taking into consideration feelings and intuition in decision making. Lack of innovation and missteps in innovation can be obstacles to success.

• Lack of innovation or failing to change effectively. Companies that don’t change their strategies, technology, or products run the risk of jeopardizing the business. Similarly, those that do change but not with the right adjustments risk failure. The build-measure-learn loop can help avoid these pitfalls by discerning what consumers really want and need by asking for their feedback.

Blockbuster, an instant hit out of the gates in the 1980s, failed to innovate, or pivot its business model, and went out of business. The video store revolutionized the media and movie industry by displaying empty boxes of its titles on shelves categorized by genre (the VHS tapes were kept behind the counter) and keeping late hours for night owls and last-minute weekenders wanting to catch a flick. Using a computer system to track videos as they were rented, most of its profit was made by the fees charged for late movie returns. In 1987, the company was bought by Wayne Huizenga, an American entrepreneur who owned several businesses in different industries and who developed Blockbuster into a successful business by modeling McDonald’s approach. The enterprise grew from twenty locations to over 9,000 locations. Blockbuster was then acquired in 1993 by media giant Viacom in an intricate transaction. As streaming and related technology entered the market, Blockbuster failed to innovate by not making necessary pivots to its delivery of entertainment and so could not compete with new technology. Over the ensuing decade, it became more common to see Blockbuster stores with “store closing” banners, as shown in Figure 10.7, than it did to see a thriving store. There were other reasons why Blockbuster failed. Embedded with the lack of technology was the lack of fostering a culture of creativity from all of its employees, which hindered innovation. It lacked visionary leadership. It needed a culture of collaboration and teamwork to facilitate communication with stakeholders, such as employees, customers, and upper administration. Finally, it closed all but one of its stores in 2013.²⁸ By then, Netflix had completely changed the landscape of digital streaming services and left Blockbuster without a ticket to the show.

Figure 10.7 Blockbuster failed to change its distribution channel to cater to new generations of movie watchers. (credit: modification of “Blockbuster Store Closing, Ypsilanti Township, Michigan” by Dwight Burdette/Wikimedia Commons, CC BY 3.0)

ARE YOU READY?

Proactively Considering Failure

Consider the list of reasons for failure presented in Figure 10.6. Come up with solutions to each of those reasons, focusing on a business of your choice.

• How would you avoid the failure?
• What strategies or goals can you have in place to avoid the pitfalls of failure?

Fear of Failure

Even the fear of failure can be enough to lead a business to fail. Fear can freeze entrepreneurs and force them into a corner instead of advancing their businesses; it can freeze them from reaching potential clients and being profitable. When companies struggle, the owners may experience many emotions, such as pain, grief, shame, humiliation, self-blame, anger, and hopelessness. Business failure is hard to separate from personal failure, as the business is often associated with the identity of the entrepreneur. Managing these emotions can help business owners heal and continue moving forward to their next business. Reaching out for help to a trusted mentor or therapist can help provide guidance in dealing with these feelings.

There are likewise many stories of entrepreneurs who, despite their fears, continued working toward their goal and were successful. They kept going, determined that fear would not run their lives. Tony Robbins, author and serial entrepreneur, says that people are afraid of failure because it is painful, and people try to avoid pain and suffering at all costs. “Failure,” he says, “is the ultimate loss.”²⁹ But overcoming fear doesn’t have to be painful if you understand it as a program or detrimental thinking running in your mind. People are hardwired to believe they are not good enough or can’t do it. These patterns can be embedded in people’s minds and can deter creativity and success. Some signs of fear of failure are listed in Table 10.3.

Fear of failure often stems from thoughts of inadequacy or a belief that you don’t have the experience and skills necessary to succeed, that you’re not smart enough, and so on. Thoughts like these can prevent a person from starting or advancing their business. Individuals with a high level of stress about failure tend to lack self-esteem, have anxiety, be perfectionists, and tend to avoid new or unfamiliar things at all costs.³⁰ Fortunately, these traits and behaviors can be controlled and conquered.

Most entrepreneurs will tell you that, at some point, they had to fight their fears before they had any success.

Most entrepreneurs who succeed will tell you that behind every success there were many failures. Many people in general think that those who are great and successful were born that way. But that is simply not true.

Take Michael Jordan, for example. One of the most successful basketball players of all time, with five championship rings and thousands of points and assists, Jordan often said that he owed his success to failure. “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”³¹ Michael Jordan, a kid who didn’t make the varsity team in his high school, got his act together and propelled himself to stardom because he didn’t give up when he failed. The same goes for entrepreneurs: Just because it didn’t work the first time, it doesn’t mean that they can’t try again.

James Dyson, founder and inventor of the Dyson vacuum cleaner, had failed 5,126 times before he came up with his Dual Cyclone vacuum cleaner in 1993, fifteen years after he created the first version. When asked about how failure helped him, he said, “Failure is interesting—it’s part of making progress. You never learn from success, but you do learn from failure. When I created the Dual Cyclone vacuum, I started out with a simple idea, and by the end, it got more audacious and interesting. I got to a place I never could have imagined because I learned what worked and didn’t work.”³² Dyson also says that he continuously embraces risk and failure, and allows his employees to explore that: “Nothing beats the thrill of invention. Letting people go out and try their ideas, getting them totally involved, and unleashing new thinking. They’re not bound to any methodology—in fact, the stranger and riskier, the better.”³³

Fear of Failure around the World

According to research, fear of failure is influenced by people’s upbringing and cultural backgrounds. The Global Entrepreneurship Monitor (GEM), an organization that researches entrepreneurship around the world, has studied this topic. According to its 2018–2019 report, Americans are not as afraid to fail in business as people from many other countries are.³⁴ This report includes those who would like to start a business but feel stuck because of fear of failure. Fear of failure is highest in Greece, Italy, Russia, and Cyprus, and lowest in Latin America and Africa. Usually, the fear is lowest in countries where there are few jobs and where people have to become entrepreneurial to survive.

GEM also reports that women are usually more afraid of failure than men and show less confidence in their abilities (Figure 10.8). The research also shows that women tend to open ventures in consumer industries, whereas male-driven startups are often in manufacturing and tech sectors, and men receive more capital and incentives to open those businesses. This can be attributed to the lack of women in science and tech industries.³⁵ Other studies corroborate GEM’s findings, showing that women are more afraid to start a business, they don’t receive as much funding, and feel they have to prove themselves more than men to be taken seriously.³⁶

Figure 10.8 Research shows that women tend to be more afraid of failure and have less confidence in their abilities than men. Getting support from business organizations, programs, and mentors can help women build their self-assurance to begin or grow an enterprise. (credit: “Accomplished Achievement Agreement” by “rawpixel”/Pixabay, CC0)

What Failure Teaches You

Some would argue that, in reality, failure does not exist. There is only perceived failure, or obstacles that can become steps up the ladder to a better outcome. The importance in failing lies in learning how to get back up again. As Eric Ries dove into failure with his first company and felt the deep pain and disappointment of having to let go of an unsuccessful idea, he applied his lessons to create his new virtual reality company IMVU. IMVU then became a very successful experiment from which he derived the lean startup method. He was able to pinpoint his shortcomings and find ways to better himself and his performance. With his new company, he was able to get the product to market faster without it being perfect and ask for much-needed feedback from customers that he hadn’t received before.

Converting Lessons Learned to Success

Most successful business owners will tell you that success didn’t come to them easily. They had to persevere in pursuit of their goals to attain them. Converting their failures to lessons often led them to higher success than they had imagined. Entrepreneurs who can turn their obstacles into positive lessons can resurrect from failure.

Take Evan Williams, a visionary who launched a software tool to help users easily publish blogs. That venture, Blogger.com, was launched in 1999 and purchased by Google in 2003. The next year, Williams decided to establish Odeo, a platform for creating and sharing podcasts. Apple had been working on a similar platform and shared it earlier on iTunes to the demise of Odeo. Williams didn’t want to go head to head with iTunes, as this could potentially destroy his company, so he found a way to go in a different direction and establish a new way of sharing status updates and other data. Williams took that failure, and with a few friends, co-founded Twitter. We all know how that worked out: Twitter is one of the most popular microblogging tech platforms.³⁷

Kathryn Minshew, shown in Figure 10.9, also experienced failure but has learned from it. In 2010, she quit her job to create Pretty Young Professionals (PYP). She invested $25,000 of her own money to develop a networking platform for women who were smart and passionate about their careers. After a few months, she and the three other co-founders started to disagree on some issues, including their approach to advertising. As they hadn’t completely formalized the ownership of PYP, two of the founders lost their investments, including Minshew. After experiencing the loss of her investment, her friendships, and the original idea, Minshew persevered with a new opportunity and established The Muse. This platform is similar to PYP but added job listings, workshops, and advice. Currently, the site has over 4 million users and is a major competitor of LinkedIn. Minshew didn’t let her first disappointment prevent her from starting a new venture. She applied the lessons learned in building the original platform to the creation of a new one—with the right contracts and right people in place.³⁸ Minshew now speaks at business conferences and events, sharing her mistakes and how she used them to lift herself up to launch a new venture properly. She hopes that her experience helps other entrepreneurs avoid the pitfalls she went through so they can be as successful.

Figure 10.9 Kathryn Minshew, co-founder of The Muse, used the lessons from her first business’s failure and built a successful platform for professional networking. (credit: modification of “Kathryn Minshew” by “Techcrunch”/Wikimedia Commons, CC BY 2.0)

Being able to learn from different types of failure is as important as experiencing success because you get to know your strengths and how to leverage them. Failures can be seen as stepping stones rather than embarrassments. Feeling comfortable takes practice. Table 10.4 shares several tips on dealing with these dynamics.

Coping with Fear

When coping with fear of failure, there are two strategies that entrepreneurs can use. The first way to reduce fear of failure is to modify your business strategy by changing the target outcomes for your business. Instead of aiming to make $50,000 in the first six months, you can be open to the idea of a leaner start, learning about your customers and how best to serve them. Learning/growth goals can be just as valuable as hitting a revenue target in terms of overall success and longevity. Also, if a goal is not met, don’t consider it a total failure: Refocus and ask yourself what you learned from the experience and how to apply that knowledge to a revised goal. More than likely you will find this experience has enhanced your toolbox to help you make changes within the business or start a new one.

A second way to reduce high stress is to practice some sort of meditation or breathing exercise that can help lower the anxiety created by fearful thinking. Reaching out to a mentor, support group, therapist, or counselor can also help alleviate fearful thinking.