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Failing Beautifully: How Entrepreneurial Flops Can Make You Better

by Katie Moritz
November 25, 2016 | Work

We learn from our mistakes. What doesn't kill you makes you stronger. Fall down seven times, stand up eight. There are so many altruisms about getting back up and brushing ourselves off after failure. But how do these examples of folk psychology apply to real-life entrepreneurial busts?

Researchers Yasuhiro Yamakawa of Babson College; Mike W. Peng of the University of Texas at Dallas; and David L. Deeds of the University of St. Thomas found that, well, it depends. The psychological reaction an entrepreneur has to a failure ultimately determines if it will help them be successful in future attempts at starting a business.

Look at your life, look at your choices


For the purposes of their study, the researchers defined a "failure" as a total closure of an entrepreneur's business due to poor performance. The team looked at the responses to a 2001 survey of about 200 Japanese entrepreneurs who had experienced business failures in the past.

They found that failure only benefits future business ventures if the failed entrepreneur directs at least some of the blame for the botched project onto him or herself.

Do you look at the failure and say, 'There are things I could have done better'?" said Deeds, editor-in-chief of the Entrepreneurship and Innovation Exchange, in an interview with Rewire.

If the blame is pointed entirely outward, another try at a business will likely be similarly unsuccessful— "since the cause of failure is not considered the entrepreneur's fault, there is little motivation to change their behavior," the researchers found. So, if your instinct is to try to save face after a failure by deflecting blame to outside factors, just know you likely won't experience the benefit of learning from your mistakes, and you're more likely to fail again.

"Essentially you’re saying, this was beyond my control, so let’s just move on," Deeds said.

Deeds said about 13 percent of the entrepreneurs the team studied pointed blame inward rather than outward.

Hitting an entrepreneurial wall


But being self-critical can only take you so far. Yamakawa, Peng and Deeds also discovered that acceptance of a failure as your own fault rather than someone or something else's only works so many times. If an entrepreneur fails once and turns the blame inward, they are more likely to be successful the second time. Once an entrepreneur fails between two and three times, growth begins to halt for subsequent attempts. After a fourth failure, an entrepreneur's later ventures are less successful on a more dramatic scale, even when the entrepreneur takes the blame.

This is because "each failure takes its toll on the reputation, morale and sanity of the entrepreneur" and "the loss of a business can generate a negative emotional response that can interfere with the ability to learn from the loss," the research team found. Essentially, an entrepreneur that experiences multiple failures can get to the point where they're so bummed out that they can no longer learn from their mistakes. At this point, failure is no longer a helpful catalyst for improvement and can actually hurt the entrepreneur further.

You can do it, put your heart into it


Here's another altruism for you: Hard work beats talent when talent doesn't work hard. The researchers found this is kinda true; the best thing you can do for yourself when trying again to start a business after a failure is be intrinsically motivated to succeed—motivated because you're passionate about your idea or your business, rather than for the sake of financial gain or any other kind of reward.

And although there's a threshold where self-blame no longer helps entrepreneurs improve after failure, there's no point where intrinsic motivation stops helping entrepreneurs get better. Wanting to succeed because of passion for your work continues to boost business growth no matter how many times an entrepreneur has tried and failed in the past. Intrinsically motivated entrepreneurs recover faster and better from a failure than any other kind of entrepreneur, Deeds said.

"The more intrinsically motivated you are, the more you’re driven, the more likely you are in your second or third iteration to create a rapidly growing company," he said.

What does this mean for people who want to create a business? As long as you keep believing in yourself, there’s no limit to what you can accomplish.


This article is part of America's Entrepreneurs, a Rewire initiative made possible by the Richard M. Schulze Family Foundation and EIX, the Entrepreneur and Innovation Exchange.

Katie Moritz
Katie Moritz was Rewire's senior editor from 2016-2020. She is a Pisces who enjoys thrift stores and pho. Follow her on Twitter @katecmoritz.
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