Auf Wiedersehen! Failed Ventures
THE World Cup like any other sports events started with much anticipation. This year, under-dogs beat expectations more than usual by sending firm favourites home early. The biggest surprise was the four-times winner Germany exiting at the end of the first round. As soon as the game had finished, the international press rubbed salt into the wounds of personal defeat. Shock and scorn filled the headlines. The trainer having lead the team to victory previously is suddenly not good enough. The players' futures are jeopardised and transfer values plunged. A national debate about failure erupted in a country used to the success of their team. Swiftly following the “national humiliation”, proudly waving national flags disappeared. Failure hurts. Not many queued to welcome the players back home!
Behind every success or failure are people who were prepared to take risks. Nobody intentionally sets out to fail. Business ventures are no different. Most start-ups involve risks, hard-work, financial investments and sacrifices. In addition to coming to terms with a sense of personal defeat, society does not view business failure favourably on anyone's CV. Relationships break up over failure as people prefer associating with successful people. In the worst case, business failures leave a bankruptcy mark on entrepreneurs barring them from starting again for a period of time and making a new venture so much harder. Lenders and investors are left out of pocket. Everyone can see whose fault it is. The failed entrepreneur finds himself moved from being admired to the fringe of society. For many, a world falls apart. Once a failure – always a failure? Surely inclusiveness is also about giving new chances. Could it be that accepting failure is actually good for society and for building larger and more resilient companies?
In the 2010 published study “ Tolerance for Failure and Corporate Innovation”, Xuan Tiang and Tracy Yue Wang found
“that IPO firms backed by more failure-tolerant VC investors are significantly more innovative “ and “Being financed by a failure-tolerant VC is much more important for ventures that are subject to high failure risk, i.e., ventures born in recessions, ventures at early development stages, and ventures in industries in which innovation is difficult to achieve.“
Referring to several papers in their study, they point out that
“if the law provides leniency in the case of either personal failure or corporate failure, then we observe more entrepreneurial activities and innovation.“
Marissa Levin, Founder and CEO, Successful Culture, also encourages in her article “4 Great Lessons in Failure from the World's Most Successful Entrepreneurs” to embrace failure as important for innovation. She quotes Jeff Bezos of Amazon in a 2016 shareholder letter: "One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!)." He advises, "Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you're still going to be wrong nine times out of ten."
The Innovation Platform refers to several studies “how bankruptcy regulations affect innovative firms” and concludes:
“Regimes that severely penalise “failed” entrepreneurs, whether by forcing liquidation or limiting entrepreneurs’ ability to start new businesses in the future, are likely to reduce their willingness to take risks.
Strict regimes may also discourage individuals from leaving salaried jobs to set up their own business, especially when legislation contains severe personal liabilities, and limitations on civic and economic rights following a bankruptcy. In addition, entrepreneurs may suffer from psychological and social costs (such as stigma) when filing for bankruptcy (Shepherd, 2003).
Therefore, strict (pro-creditor) bankruptcy legislation may have a direct negative effect on entrepreneurship. To the extent that innovative ventures are riskier than traditional businesses, pro-creditor bankruptcy regimes may disproportionately discourage the former, thus shifting the economy toward a more conservative growth path.”
It is widely recognised that most start-ups fail. Depending on a society's prevailing attitude towards failure and its regulations for failed businesses, the entrepreneur may shun risk-taking or try again. An inclusive society encourages entrepreneurs to substantiate the lessons learned from failure in new ventures ultimately yielding higher success rates and innovations benefiting all.
"Failure provides the opportunity to begin again, more intelligently." (Henry Ford)