Often, in the fast-paced world of entrepreneurship and innovation we hear stories of dramatic success. The personal stories of Bill Gates, Steve Jobs, Mark Zuckerberg, and others, epitomise the career ambitions of many men and women who beaver away at their new projects, working long hours in their garage, study, hub or workshop to bring their idea to market. The idealised career arc illustrates how these years of creative thinking, hustling and hard slog lead to a glorious payoff: the day when the entrepreneurial boat comes in and commercial success is realised.
Sadly, this is not always the case. In fact, it’s rarely the case. Rather than a sweeping curve that rises over time, many entrepreneurial career pathways have more in common with a cardiac monitor in the ICU. Failure––that deep abyss in our career charts––is far more common than we’d like to believe.
I recently participated in a discussion about the “risk averse” nature of Australian society. A presenter asserted that Australians are a cautious bunch. We are wary of risk and, as a result, we are less likely than people in other countries to undertake entrepreneurial endeavours.
I initially agreed. Australia is known for its Tall Poppy Syndrome. But as I looked for data to back up what I heard, I discovered that the opposite is actually true. Even though many of us would like to see entrepreneurship and innovation flourish more in Australia, international assessments indicate Australia does well with its current levels of entrepreneurship. The Global Entrepreneurship Monitor compares 54 countries and found Australia was second only to the USA amongst developed economies.
However, the issue raises some interesting questions. First, why don’t we embrace failure more? Second, how can we help entrepreneurs and would-be-entrepreneurs to manage their experience of failures better?
Despite this, it is clear that many of us aren’t able to embrace failure. Yet failure is a normal part of the entrepreneurial experience. We are often told of the high failure rates of small business. Business closure, it should be said, is not always a result of failure. However, failure is a common experience––and not just in business. Julian Baggini, writing in The Guardian, described as “pernicious nonsense” the myth that “with enough belief, determination, and perhaps even hard work, you can achieve anything you want”. Citing the examples, such as Princeton psychology professor Johannes Haushofer and his CV of failures, he argues, “in real life, every past failure should be a reminder that a happy outcome was never guaranteed”. And in business, there are few guarantees.
We’ve all heard to stories of successful entrepreneurs who failed in their earlier ventures, but is it true that we don’t embrace failure as we should? James Surowiecki says optimism is endemic in the start-up world of Silicon Valley. Yet, while it may not be something to celebrate, there are clearly lessons to be learnt from failures––and no shortage of website articles telling us what lessons we should learn: see here, here, here, and here…
More attention is being given to failure. In Mexico in 2012, the first Fuckup Night was held. This has since become a global movement allowing businesspeople to publicly share their business failure stories. Hundreds of people attend each event to hear three to four entrepreneurs share their failures. Each speaker is given seven minutes and is able to use ten images, after which there’s a question-and-answer session and time for networking (i.e., beers).
Entrepreneurship and business management differ in one important way: how they manage risk. The business manager wants to reduce risk wherever possible. Whether its shareholders funds or a family’s savings, managers are acutely aware of the need to curb costs, reduce risk and play safe. In contrast, the entrepreneur embraces risk. Risk and reward are intrinsically related. Of course, I am not referring to the extremes of these cases: the business manager who takes no risks at all and the entrepreneur who treats risk with gay abandon will likely meet a similar end. The point is: risk is a part of entrepreneurial life. How then, can risk be managed better?
The first way this can be done is to build failure into the entrepreneurial lifecycle: fail fast and fail often. This is a part of the process of managing entrepreneurship and innovation. It highlights the importance of experimentation, piloting and testing. Wherever this is possible, it should be done at a small scale, where risk is limited and where learning from the outcomes is increased.
The second way is through public policy. This is where much of my work has centred for the last twenty-five years. Here, the emphasis is on how to provide protection to people who are in the entrepreneurial lifecycle. The best-known, historic case for this was the creation of the limited liability company in New York in 1811. This new legal entity provided a mechanism for entrepreneurs to invest into a venture and risk only their investment––not their entire personal assets. However, there are many social policy instruments to limit the vulnerability of entrepreneurs to risk. In the USA, the Kauffman Foundation has proposed a range of social insurance measures to “unlock entrepreneurial opportunities”, including health insurance and income support. In the UK, the RSA proposes a Charter for the Self Employed, which contains ideas such as automated saving schemes for the self-employed, a ‘Right to Request’ for more flexible terms on mortgage payments and rental costs, a re-design of Universal Credit to reflect the reality of self-employed work, and improvements to the New Enterprise Allowance.
I may be an Australian, but in my work across the world I have come to recognise that people’s attitude to failure is not a cultural phenomenon. It reflects the ability of entrepreneurs––no matter where they may be located––to manage risk and respond to vulnerability. Changes in personal and business management can improve our appetite for risk and our ability to mitigate it. Equally importantly, however, good public policy can provide us with tools to take strategic risks without punishing the entrepreneurs who drive change and stimulate growth. We can’t all be Zuckerburgs and Gates, but with the right personal skills and policy tools we can help our societies create more winning businesses.