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How Entrepreneurs Benefit From 3 Types of Failure

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Nobody goes into business to fail -- but perhaps they should. Both scholarly research and practical experience indicate that failing can often provide an entrepreneur with an invaluable opportunity to learn and benefit. Failure, it turns out, often lays the groundwork for success.


In my coaching, of course, I work with entrepreneurs to avoid catastrophic failure. But I also tell them that, when failure happens, it doesn’t have to be the end of entrepreneurial dreams.

Related: You Will Fail, But Don't Ever Consider Yourself a Failure

The annals of business are packed with entrepreneurs who failed, sometimes repeatedly, before striking it rich.

Arianna Huffington, the co-founder of The Huffington Post, had her second book rejected by 36 publishers. Oprah Winfrey was fired from her first job in television. Inventor James Dyson went through thousands of unsuccessful prototypes of his vacuum cleaner designs. And so on.

If you’re going to learn and prosper from failure, the worst thing you can do is sweep it under the rug and ignore the hard-bought lessons it has. Once you fail or see that you are about to, it’s time to switch into learning mode.

The first step is to figure out what kind of failure it is. That will help you direct your learning. You can divide failures into three types:

1. Preventable failures

These could have been foreseen but weren’t. This is the worst kind of failure, and it usually occurs because an entrepreneur didn’t follow best practices, didn’t have the right talent, or didn’t pay attention to detail. If you’ve experienced a preventable failure, it’s time to more deeply analyze the effort’s weaknesses and stick to what works in future ventures.

2. Unavoidable failures

These often happen in complex situations and involve unique sets of factors. This is the type of failure currently dogging energy firms beset by an oil price collapse that almost no one saw coming. The lesson from this type of failure is to create systems to try to spot small failures resulting from complex factors, and take corrective action before it snowballs and destroys the company.

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3. Intelligent failures

These are the best kind. They happen fast, and don’t consume too many resources. This kind provides the most useful information for the least cost. This is the philosophy behind the trial-and-error approach, in which a business conducts experiments to find a product or business model that works. The lesson here is clear: If something works, do more of it. If it doesn’t, go back to the drawing board.

Here’s what to do when you sit down to regroup:

  • Don’t try to fix failure without a determined effort to find out what went wrong. This can give you clear guidance about the future. For instance, if the competition was too stiff, you may see that you need try to find a different market or better way to differentiate your product.
  • Don’t get caught up in the blame game. Failure is an opportunity to get smarter, not get even.
  • Create a culture that encourages openness. Everyone in your company needs to be able to point out a mistake that can help you learn.
  • Start with a blank slate. Don’t assume you know what went wrong. Instead, study the problem with an open mind.
  • Ask for input from others who don’t have a stake in the prior failure, and listen.
  • While you don’t want to focus on blame, accept that some people may need to be replaced. If it’s necessary, do it without hesitating.
  • Find out why you missed signs of the last failure and set up monitors, such as more frequent cash flow reporting, to serve as early warnings.
  • Once you find out how much you can learn from failure, consider failing again. What I mean is, design additional experiments such as marketing pilots and product prototypes. These can, without costing too much, uncover weaknesses in opportunities under consideration.

The failure takeaway I offer my coaching clients is this: Failure is inevitable. It isn’t a signal to give up. Rather, failure is just opportunity -- in somewhat different dress than you are probably used to. It’s an opportunity to learn, to correct mistakes, and to fine-tune products, marketing, staff and business models, so that next time -- the result is success.

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