Academy of Management

Resilient Entrepreneurs Don’t Shy Away from Failure

By Daniel Butcher

Some of the most common mistakes that entrepreneurs make are focusing too much on past successes, pretending that hard work always results in success, and not learning from failure, according to Academy of Management Scholar Dean Shepherd of the University of Notre Dame.

Shepherd said that the shocking closure of his own father’s business was what inspired him to study the effects of entrepreneurial failures. He described loss orientation as communicating about the disappointing or traumatic event and restoration orientation as thinking about other things, including next steps.

“It was a family business in residential construction formed around 1965—I am not sure how large it was, but [it built] maybe 100 houses per year, and there were no full-time employees; my father used a lot of sub-contractors,” Shepherd said. “It started to experience some difficulties approximately one year before he closed it down.

“He was very much a restoration-orientation person, so he refused to talk about it, just like a typical Australian male, and he and I never discussed it,” he said. “He never engaged in loss orientation, [grieving the] loss of his business; he never oscillated between loss orientation and restoration orientation, and so he suffered for a long time as a result of that.

“I did research on scientists working in Germany, and when their projects failed, those that were able to oscillate between the two, loss orientation and restoration orientation, were the ones who were most successful at processing the setback or loss, bouncing back, and moving forward.”

Shepherd cited the work of Eric Ries, an entrepreneur and author of The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, as emblematic of a strain of entrepreneurship that doesn’t shy away from failure but actually highlights the need for it to inform the organization’s plans, budgeting, and initiatives.

“A lot of entrepreneurs now, including the author of The Lean Startup, are trying to think about different projects like real options, so they’re probes into an uncertain environment, and if we have many of them, then we gain information, and as we get that information, we can kill some projects and redeploy the resources to the ones that show promise,” Shepherd said. “That’s a way to try and manage the uncertainty, and it really has failure as part of the process, because we must terminate those initiatives that don’t show promise in order for this strategy to work.

“If we have an anti-failure bias and we choose not to terminate them, or we take longer to make the decision to discontinue them, then the downside losses actually start to increase,” he said. “The best examples are my dad, who struggled to process failure, and the studies of the German scientists, some of whom were able to deal with failure in a productive way.”

Author

  • Daniel Butcher is a writer and the Managing Editor of AOM Today at the Academy of Management (AOM). Previously, he was a writer and the Finance Editor for Strategic Finance magazine and Management Accounting Quarterly, a scholarly journal, at the Institute of Management Accountants (IMA). Prior to that, he worked as a writer/editor at The Financial Times, including daily FT sister publications Ignites and FundFire, Crain Communications’s InvestmentNews and Crain’s Wealth, eFinancialCareers, and Arizent’s Financial Planning, Re:Invent|Wealth, On Wall Street, Bank Investment Consultant, and Money Management Executive. He earned his bachelor’s degree from the University of Colorado Boulder and his master’s degree from New York University. You can reach him at dbutcher@aom.org or via LinkedIn.

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