- Introduction to Failure
- The Numbers on Failure
- Biggest Business Fails of All Time
- Why Businesses Fail
- Walking Away
- Additional Resources
If you've ever felt a little sick at the thought of taking a test, or turned your back on a brilliant but hair-brained idea, or even just held your tongue when the conversation turned to a topic you didn't understand very well, then you've experienced the fear of failure. Don't worry-everyone else has, too. Failure is as universal as breathing, and everybody is afraid of it, but that doesn't mean you should avoid it. Imagine how much you might have learned from that conversation if you'd asked questions, instead of staying silent so you'd look smart. Embracing the possibility of failure allows you to grow, both as a person and as an entrepreneur.
But how can something like failure be a good thing? And how can you overcome that crippling fear of it? That's why we've written this course. Once you've finished this page, you'll be ready to face failure head-on, and reap all the benefits.
What You'll Learn
- What failure really means
- How failure can help you succeed
- Ways to handle failure without losing your dignity
- Why most businesses fail
- Examples of big-name businesses and entrepreneurs who failed spectacularly
- How to save a company from failure
- How to know when failure is the best option
- A number of resources for additional research
The vast majority of businesses fail. Not must a lot of them-most of them. About 70% of small businesses close their doors within five years of operation, with the highest rates of closure in the first two years, and as many as 90% shutting down within ten. That means that for every ten companies you start, nine will end up on the cutting room floor. Startup Failure Rates are through the roof, but that doesn’t mean that you shouldn’t try. While those nine companies may have failed, the tenth is where you’ll find success, so long as you learn from your mistakes instead of repeating them.
But what’s the point in trying when the economy is so bad? The answer might surprise you. As The Psychology Behind the Project Failure Debate reveals, people tend to over-inflate bad news and panic about it unnecessarily, which creates an environment that says you shouldn’t even try. But if you don’t try, you can only fail. Failure is only one half of the equation, and so long as you regard it as merely a small obstacle rather than the end of the world, you’ll be on your way to success in no time.
The fear of failure is built into our genetic code as human beings. Everybody has a different idea of what failure looks like, but everyone has a definition for it, and strives with all their might to avoid it. The roots of this fear of failure actually come from a more basic instinct-the fight or flight response. When faced with a tough situation, the adrenaline starts going and we get jumpy, which can be interpreted in two different ways: either as nerves and anxiety, or as excitement and eagerness. This interpretation is the basis for what we call fear, and it’s what prevents us from risking failure. As Richard Mendelson explains in The Psychology of Failure, the threat of failure is more emotional than anything else. The actual fiscal damages of most business failures can be rectified and paid off before long and with relatively little trouble, but the emotional stress can make the task seem overwhelming and lead to personal devastation.
Additionally, the worst failures always come when you try to avoid them the most ardently. Giving yourself permission to fail will actually help you avoid it, while demanding constant excellence prevents you from taking the necessary risks to excel. For instance, a basketball player who doesn’t take shots never misses them-but he also never scores. Demanding a 100% shooting rate would put too much pressure on himself, and actually make it harder to score. The Downside of Perfectionism in Sports explores the idea in more detail, pointing out that perfectionism can only lead to frustration, which kills your performance regardless of the task.
In the end, failure is really just a mindset. You may not be able to prevent everything from falling apart occasionally, but as long as you prepare for that eventuality and look at it in a positive light, you won’t have to fall down too hard. Do like Marcus Sheridan does and re-phrase until it suits you: call your failure a Strategic Relocation. Everybody fails, and successful people do it more-the difference is whether or not you know how to reap the possible benefits.
Benefits of Failing
In a lot of ways, failure in business is almost a necessity. Think of it like a training program that all good entrepreneurs must go through, except you don’t have to go to lecture every day, though you probably should take notes. When your company fails, the most important thing to do is to study it and figure out why it failed, so that you can avoid those same mistakes in the future. In fact, Business Failure is Vital to Success because without it, company leaders couldn’t hope to understand what’s really at stake. Doing things wrong eventually leads to doing things right.
In the end, you can’t be successful without failing a few times first. You only have to look to companies like Coke, which regularly produces and tests drinks that ultimately fail, for inspiration. Remember the fiasco that was New Coke? The new formula may have bombed spectacularly, but it served to demonstrate what was so brilliant about the original one. If Coke hadn’t made that drastic change, they might have tried to tweak the formula in other, smaller ways, and instead lost customers over time and been unable to figure out what went wrong. Some products might be duds, but each teaches something about the market they’re targeted for, and their failure leaves room for successes in the future. In How Failure Breeds Success, businessweek interviewed Coca-Cola CEO E. Neville Isdell, who deliberately told his investors that the Coke company was going to fail and fail again in the coming year, trying to find new flavors. But those failures are necessary if you want to think outside of the box and innovate, and it’s no good sitting on old product because you’re afraid of poor returns.
Rather than studiously trying to avoid failure altogether, companies should be trying to fail intelligently-that is, fail in ways that allow you to build on the concept later. If it weren’t for this kind of failure, leading to improvements and innovations, we won’t have the iMac, which resulted from the failure of the Lisa, or Google, which was built on the failure of search engines before it. In Failing by Design, Rita Gunther McGrath explains in more detail how these intelligent failures lead to the world we know today.
How to Fail Gracefully
The best way to face failure is head-on. There’s no point trying to skirt around the issue, placing blame elsewhere and burying your head in the sand when all else fails. If things go wrong and your business is going under, take responsibility for that and do it publicly, so you can keep your reputation intact. No one is going to blame you for failing in the long run, but if you try to dodge responsibility, you may never recover. Try this experiment described in Dan Shipper’s If you’re not failing, you’re not trying: take a package of M&Ms, go out in public, make eye contract with a stranger and then try to throw and catch an M&M in your mouth. You will probably fail, and the stranger will watch you do it, and nothing bad will happen beyond that. Doing things like this on a regular basis will help diminish the sting when you fail in a big way later on.
And if you don’t want to take your advice from Dan, try taking it from one of the biggest names in the entrepreneurial industry: Seth Godin. On his personal blog, Seth talks about How to Fail, but do it in a way that will lead you back around toward success. He gives you a few key points to focus on:
- Take on projects with specific scopes, so you don’t get overwhelmed.
- Be specific about what success will be and when it will occur, so you can recognize failure immediately.
- Don’t go it alone. Failure is easier when you have company.
- Be honest with yourself and others about how horrifically wrong it could all go, so you aren’t surprised if it actually happens.
- Focus on the parts of the project that you can influence and ignore those you can’t. If external events cause you to fail, at least it won’t be because you were worrying about them too much.
- Take responsibility when you fail, and find the exact cause of your failure so you don’t repeat it.
And when you do have to fail, do it with style. If you want to Be a Badass Failure, you have to be able to take things as they come and accept your failure for what it is. Don’t get caught up on the fact that you didn’t end up where you intended to go. Instead, look at where you are and how you got there, and learn from the journey. As Baker Lawley explains in this article, you may not be a starting player on the team, but you might learn a lot about losing, winning, and working hard.
Businesses fail all the time. In fact, most of the time. But it’s only when businesses fail in a truly spectacular and public way that they really catch much heat, and that’s usually because they failed incorrectly. That may seem like a strange concept-to Fail at Failing-but if you fail wrong, the result might be catastrophic. Take, for example, Blockbuster. The reason they failed was not because they had a bad business model or they over-extended themselves. It was because they failed to notice that the market was changing, and didn’t innovate until after their competitors (read: Netflix) had beaten them to the punch. Failure fails come in many forms, but here are a few ways to avoid them:
- Innovate before you have to. Anticipate which areas might fail, and plan for them. Playing "catch up" will never get you ahead, but it will certainly leave you in the dust.
- Make adjustments when failure starts to happen. Change your staff, re-train your employees, move your business-whatever you can think of that might help solve the impending problem.
- Never point fingers. Always see your business as a reflection of yourself, and behave accordingly. If it goes down, you have to accept the responsibility for it.
Essentially, don’t just stick your head in the sand when failure is looming. Do something about it. Or else you might end up like one of the 25 Worst Business Failures in History, which includes Woolworth’s, Flooz.com, and SwissAir. All of these companies had great ideas, and some of them were quite popular, but they failed to see obvious flaws in their plans. Woolworth’s overextended itself, with too many locations and too much variety of product, so ultimately the sales couldn’t keep pace with the rising rent cost. Internet currency may have been a great idea, but Flooz failed to realize that using credit cards online was easier and more convenient for customers. SwissAir borrowed more money than it could pay back, especially after the 2001 terrorist attacks put a stopper in the international airline industry. A little bit of foresight might have saved any of these companies. Instead, they crashed and burned.
But for those who handled their big-name burnouts with style, the payoff was huge. There are tons of Business Leaders who Failed Before They Succeeded, which just goes to show the success that failure can breed if you handle it correctly. Big-name CEOs and entrepreneurs like Bill Gates, Colonel Sanders, and Richard Branson top the list, all with failed companies, bankruptcies and naysayers at their backs forcing them to move on and prove themselves successful. In fact, Henry Ford started not one but two automobile companies that both went bankrupt, leaving him penniless. But instead of moping about the disasters, Ford learned from his troubles and came up with the idea for a car assembly line, which became the key to Ford Motor Company’s success.
Businesses fail all the time-that’s to be expected. But is that how it should be? After all, every business is intended for success, so it might come as a surprise that entrepreneurs sometimes set themselves up for failure from the beginning. In The Seven Pitfalls of Business Failure and How to Avoid Them, Patricia Schaefer covers the reasons most businesses fail. And since preparation is the key to success, looking out for these things will help you avoid disaster. For example, you should:
- Make sure you’re in business for the right reason. If you only want to make a lot of money, you won’t survive. You have to have passion for what your company does, or else you’re sure to fail.
- Hold your managers accountable. Nothing kills a company faster than bad managers who don’t understand their jobs or try to hide problems.
- Double-check your bank account. If you don’t have enough funding, you’re dead in the water.
For more specific explanations, check out the New York Time’s How Six Companies Failed to Survive 2010, which reviews the failure of several small companies in 2010. The businesses failed for a variety of reasons, including poor customer interaction, lack of passion, and loss of focus, but the common thread is the lack of forward planning. Many of these companies could have been saved with a little more foresight and perhaps a few consultations with finance professionals.
Entrepreneurs are notorious for rushing in head-on without considering the long-term needs of their company. Because they have such a seize-the-moment outlook, they tend to bite off more than they can choose and ultimately end up in over their heads. In Anatomy of a Business Failure, Mary Goodman and Rich Russakoff, both business counselors, related an anecdote about one of their clients in just such a situation, who asked for help when it was already too late. They strongly urge anyone going into business to do so with eyes wide open, and armed with a "business pre-nup"-a plan that allows them to notice the second things start going off track, so they can correct the mistake.
Turning it Around
As mentioned above, the best way to escape business failure is to plan for it in advance. Scope out your market thoroughly: know what kind of money you can reasonable expect to make, who your competitors are, and how great the interest in your potential product might be. Take a couple hints from 11 Astonishingly Simple Steps to Avoid Business Failure, and maybe you can save yourself before the problem even arises.
But once you’re in the thick of it, the most important thing to do is not panic. Focus on the things that are going right, and how you can improve them. For example, if you have six really solid clients, survey them and find out what it is you’re doing well and what you could improve on. If you can hold on to those clients, you can stay in business long enough to find new ones; if you can make the improvements they suggest, you can claw your way back into the market. If people don’t seem to be buying because of the down economy, look for growing markets where the money is flowing, and adapt to the needs of those customers. Review and overhaul your entire system, streamlining production and management costs, and make sure that your employees are kept happy above all else-they are your greatest asset. How to Turn Your Business Around Amidst a Changing Economy even suggests instating trivia night Fridays-a cheap and fun way to keep your employees satisfied and coming to work.
It won’t be easy to save your company once it’s on the rocks. There are no quick fixes, regardless of what people might tell you. Some companies seem to think that utilizing Facebook and other networking sites can help them build back markets they’ve lost, but the fact is that Social Media Won’t Fix Your Broken Business by itself. You can use it as a tool to communicate with your employees and customers, but ultimately you have to do the work yourself. The internet might make things faster, but that doesn’t necessarily mean it’s easier.
But sometimes, the best thing you can do is cut your losses and bail. Sometimes this will be incredibly painful, especially considering the time and effort you’ve invested in your project, and Letting go of the dream just doesn’t seem possible. But there are a number of situations in which it’s best to just move on. For instance, if…
- You’ve lost the passion. Even as you’re struggling to save the company, secretly, you wish you could just bail. So why don’t you?
- It’s ruining the rest of your life. If you’re so stressed out trying to turn the company around that you forgot a birthday or have been neglecting your health, it’s time to bow out and focus on more important things.
- You’re missing other opportunities. What’s the point in saving your company if it means missing out on another million-dollar idea? Switching tactics isn’t weak-it’s smart.
That last point is key. When you’re defeated, the best option is to admit defeat and move on, and do so in a calm and collected manner. Don’t keep flailing forward, shoving things around in the hopes that something will work. The fact that you’re failing isn’t Justification for Continuing Futility-it’s a reason to cut your losses and bail. Quitting is not only okay, but actually better for your nerves and your health in the long run.
The best thing you can do for yourself when starting a new company is to have several Exit Strategies, right from the get-go. No one wants to fail, but it’s always a real possibility, and a contingency plan will help you get through the disaster with your dignity, and your finances, intact.
- A Ph.D. and a Failure. – An article from the Chronicle of Higher Education discussing the fear of being a failure in academia and how it impacts students’ career choices. While not specifically related to business, the article makes many relevant points.
- Failure Magazine - A website dedicated to relating stories of failure, including a fun section called "This Day in Failure" that highlights key failures in the past.
- Despair, Inc. – A satirical website dedicated to producing "demotivational" posters-a great way to laugh at your failures and help you get over it.
- Admitting Failure - A website designed to encourage failure confessions, in the hopes that admitting to failure will help achieve success.
- Advice from a Failure by Jo Coudert - This self-help book is designed to help you understand the inner workings of your own brain, and how to get yourself through even the toughest of times.
- Startup by Jerry Kaplan - The rise and fall of the GO Corporation vividly recounted by the man at the center of it all, this is the go-to book for understanding Silicon Valley startups and the challenges they face.
- Storms of Perfection by Andy Andrews - This series of four books collects stories of failure and obstacles overcome, each from a highly successful individual, in his or her own words.
- Falling Forward: Turning Mistakes into Stepping Stones for Success by John C. Maxwell - A number of inspirational stories about overcoming failure and defeat from famous people both in and out of the corporate world, including Mary Kay Ash, of Mary Kay Cosmetics, and Greg Horn, of the Into the Air Mt. Everest tragedy.
- The Ten Commandments for Business Failure by Donald R. Keough - The ex-Coca-cola president reflects on his own business failures as well as those of some of his high-powered friends, including Warren Buffett and Bill Gates, and relates what those failures taught him.