07 Mar 2011  Research & Ideas

Why Companies Fail--and How Their Founders Can Bounce Back

Leading a doomed company can often help a career by providing experience, insight, and contacts that lead to new opportunities, says professor Shikhar Ghosh. Key concepts include:

  • Most start-ups fail due to lack of foresight, lack of wiggle room in the business plan, bad timing, or lack of funding.
  • But too much funding for an unstable business model can take what would have been a small failure and turn it into a huge one.
  • Running a doomed company can actually help a career, yielding experience and networking opportunities with venture capitalists and other entrepreneurs.
  • While failure of a business or project is a learning experience, personal lapses in ethical or moral behavior can damn a career.

 

Most companies fail. It's an unsettling fact for bright-eyed entrepreneurs, but old news to start-up veterans.

But here's the good news: Experienced entrepreneurs know that running a company that eventually fails can actually help a career, but only if the executives are willing to view failure as a potential for improvement.

The statistics are disheartening no matter how an entrepreneur defines failure. If failure means liquidating all assets, with investors losing most or all the money they put into the company, then the failure rate for start-ups is 30 to 40 percent, according to Shikhar Ghosh, a senior lecturer at Harvard Business School who has held top executive positions at some eight technology-based start-ups. If failure refers to failing to see the projected return on investment, then the failure rate is 70 to 80 percent. And if failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90 to 95 percent.

"Very few companies achieve their initial projections," says Ghosh. "Failure is the norm."

Why start-ups fail

Start-ups often fail because founders and investors neglect to look before they leap, surging forward with plans without taking the time to realize that the base assumption of the business plan is wrong. They believe they can predict the future, rather than try to create a future with their customers. Entrepreneurs tend to be single-minded with their strategies—wanting the venture to be all about the technology or all about the sales, without taking time to form a balanced plan.

"In Silicon Valley, the fact that your enterprise has failed is actually a badge of honor."

And all too often, they do not give themselves wiggle room to pivot midstream if the initial idea doesn't jibe with customer demand.

"Instead of going into the venture with a broad hypothesis, they commit in ways that don't allow them to change," Ghosh says. He cites as an example the failed dot-com-era grocer Webvan, which bought warehouses all over the United States before realizing that there was not enough customer demand for its grocery delivery service.

Next, there's the matter of timing, a huge issue that can determine whether a company gets funding and whether it achieves the start-up's elusive measure of success: an exit that involves going public or getting bought.

During the Internet boom, companies armed with nothing more than a PowerPoint presentation of a lousy idea could secure tens of millions of dollars—which sometimes gave them enough time to figure out a viable business plan through trial and error. Eventually successful companies such as Netscape and Open Market went through several business models before finding one that worked. But the opposite was true after the boom; a company could have a great idea and a great team, but still fail to achieve traction due to lack of funding and, consequently, lack of time to let a good model mature. (These days, Ghosh says, start-ups often manage to secure a good team and good financing, they face dozens of lower-cost competitors and fragmented customer demand.)

Funding has the potential to turn a little failure into an enormous one.

"The predominant cause of big failures versus small failures is too much funding," Ghosh says. "What funding does is cover up all the problems that a company has. It covers up all the mistakes, it enables the company and management to focus on things that aren't important to the company's success and ignore the things that are important. This lets management rationalize away the proverbial problem of the dogs not eating the dog food. When you don't have money you reformulate the dog food so that the dogs will eat it. When you have a lot of money you can afford to argue that the dogs should like the dog food because it is nutritious."

Enterprise failure can be an asset, but personal failure is ruinous

Still, stubborn entrepreneurs continue to found companies, in spite of the failure rates, which raises the question of why. It's not as if any of them harbored childhood dreams of launching a search engine optimization software firm.

Sometimes this is due to na´vetÚ and hubris—the notion that their idea simply cannot fail. But savvy entrepreneurs know that running a company that eventually fails can actually help a career. Even failed businesses yield future networking opportunities with venture capitalists and relationships with other entrepreneurs whose companies are succeeding. Ghosh says boards of successful companies often seek out the founders and CEOs of failed companies because they value experience over a clean slate. After all, Henry Ford, Steve Jobs, and Desh Deshpande experienced multiple failures before achieving success.

"In a start-up, if a company is doing well, and a founder gets greedy and takes more than his fair share, people sort of forgive him. But when a company is going down, when you protect your own interest it's always at the cost of someone else. People don't forgive that."

"How many search engines are out there that really matter now?" Ghosh says. "Just a handful! And yet the people who created all the other ones in the 1990s are not living under a bridge somewhere. Many of them now run the big ones. In Silicon Valley, the fact that your enterprise has failed can actually be a badge of honor."

Individual failures within a company can be an asset, too, in that they can prevent the whole system from failing—but only if the executives are willing to view failure as a potential for improvement. For instance, if the company's best salesperson is unable to sign a key customer, then the management is likely to chastise the salesperson for failing. But they could also realize that if the top talent has trouble with the sell, then maybe there is something wrong with the product. Small failures can provide the raw material for improvement.

"The more that you can embrace all the little failures you have, and treat them as ways of improving the system, the less likely that the entire system will collapse," Ghosh counsels.

That said, Ghosh warns entrepreneurs that failure of an enterprise, product, or initiative and the personal failure of an individual executive are two very different things. While the former is a learning experience that can lead to future opportunities, the latter can damn a career.

A personal failure, as Ghosh defines it, is one in which an individual does something that violates a fiduciary duty, commits a crime, or acts in a way that goes against the normal tenets of morality and fair play. Ghosh cites as example a CEO who fires a bunch of employees in order to pay for his own severance package. In such cases, a manager's reputation will be tarnished to the point of rendering him or her un-hirable even if the venture was a financial success.

"In a start-up, if a company is doing well and a founder gets greedy and takes more than his fair share, people sort of forgive him," Ghosh says. "But when a company is going down and you protect your own interests it's always at the cost of someone else. People don't forgive that."

Ironically, a personal failure often occurs because an entrepreneur is trying too hard to avoid an enterprise failure. Trying to keep the venture capitalists happy and the bankruptcy at bay, the founder or CEO will resort to illegal acts such as fraud, or to morally problematic acts such as blatant misrepresentation of the company's capabilities or prospects when talking to customers or financiers . "And when you do that, you're then on the slippery slope of taking an enterprise failure and making it a personal failure," Ghosh says. "Executives do that all the time because they do not distinguish between the two."

Revising expectations

Ghosh notes that venture capitalists could help mitigate personal failures by allowing for the expectation of company growing pains. He points out that a baseball player with a .350 average is considered to be a success, even though he has a .650 failure rate. But in entrepreneurial management, there's a tendency to see things in black and white, rather than looking at the whole picture. And while VCs are likely to recruit an executive with experience at a failed company, they are less patient with individual failures. VCs rarely consider their role in establishing unrealistic expectations or an environment where the ends are more important than the means, he says.

"In any natural system, failure is the engine that causes growth, that causes new birth, that causes anything to happen," he says. "One of the truly big differences between growing economies and economies that stagnate is the acceptance of failure. If you don't let forests burn, if you don't let the old trees die out and the new trees grow, you don't get a healthy forest. The ability to manage failure so that enterprises fail but people can still succeed becomes one of the tricks of how you build a society that can reinvent itself as the world changes.

About the author

Carmen Nobel is Senior Editor of HBS Working Knowledge.

Comments

    • W. Thomas Hamlin
    • Managing Consultant, Extensible Information Systems

    I have experienced business/project failures not from a lack of technology but because of it. Far too often, the technology far exceeds the ability of a "human organization" to implement/accept/adopt it and/or a fundamental lack of understanding on the behalf of the technologist about the "true business problem". These failures are "solutions in search of a problem".

    Your article explicitly involves "start ups", but if they survive this phase, then their "business development staff" hits the seminar circuit, golf courses and bars across the country in search of "problems".

    Because the new technology is sold with excessive hype (Mastering the Hype Cycle by Harvard Business Press 2008) and since the unsuspecting business process owner does not appreciate the technology paradigm shift and his new management responsibilities, the project become another "near miss" that ends up as "shelf ware".

    I don't think my "good intentions" and subsequent failure reinforce anyone's idea of a good Karma. We need to do our homework before we attempt to "help" the business. Today, we have enough technology to solve most business problems. Let's figure what the problem is before we start coding.

     
     
     
    • Anonymous

    I appreciate the discussion of the necessity of failure. As mentioned above, failure allows companies (and people) to adjust to reality or changing circumstances.

    The issue not addressed, though lurking around the corner, is when government interferes and organizations aren't allowed to fail. This creates a moral hazard, as the penalty/remedy, failure, isn't allowed to happen.

    Without failure, life's most important lessons are never learned.

    Nobody likes to fail because of pride, but the lessons are priceless!

     
     
     
    • Nick Chipman
    • Partner, PwC

    Just a few thoughts on why failures occur however we should also recognise that some 60-70 % succeed based on Ghosh's commentary(interesting that we give primacy to the failures.....)

    Anchoring biases and other forms of cognitive bias-when looked at from a starting position make interesting reading-what did the investors and the proponents believe in the face of alternative views and facts?

    The getting caught mid-stream and failure to adapt and overcome-is this a function of blind faith,absence of a suitable mentoring model or independent review and challenge of the real state of play or an absence of metrics and indicators that reflect the truth rather than something convenient-or something else?

    Maybe the false positives,successful failures are an important source of IP for us all-and we should value the downside events more on the basis of learning and appreciating just how fragile business can be,when the concept seems so sound to start with?

     
     
     
    • Rishant
    • Undergraduate economics, IIT Kanpur

    Great analysis . People or organization that accepts failure have growth mindset . The study done by Carol S. Dweck on fixed mindset and growth mindset shows that to achieve really great success , individuals need to have growth mindset .

    Similarly an organization , whose decision makers have this growth mindset in majority tend to be a growth organization . Therefore the element of team 's mindset can be very important determinant of success .

     
     
     
    • AL HOLMES
    • DIRECTOR, SEQUUS

    Very interesting. For organizations at the peak of performance, Adizes tells us that 'success often breeds failure' due to complacency, inward focus, resting on laurels, arrogance, etc. This article tells us that at the beginning of the lifecycle, failure often breeds success if founders can learn from the experience, overcome the founder's trap the next time around and perhaps learn to park their egos at the door, take advice from others and share the leadership.

    Thank you. I will definitely read further.

     
     
     
    • Rajiv
    • Owner, Capricorn Lifstyl

    An interesting addition to this article would be the way different cultures view failures on the business front.

    In the USA, a failed venture means you tried.

    In China, a failed venture means you lost face, and possibly blemished your family's name.

    In India, a failed venture means something in between.

    Regards,

     
     
     
    • Pankaj Sahai

    To me the article seems too one-sided, putting all the blame of the failures on the founders. VCs who fund these 90% failed ventures, surely, cannot escape the blame (at least in some measure) for the failures.

    The figures are staggering in their impact - "90% of the ventures fail" - but the author has not apportioned any blame to the hard-nosed VCs . Clearly,the flip side of the 90% failure is that 90% of ventures funded by the VCs are not screened appropriately, risks are not assessed and managed well enough, contracts are not structured properly for the timely intervention and rescue of the floundering ventures and the legendary VC Value-add is just not good enough to help the founders in times of crisis.To me this article seems more like an indictment of the GPs than that of the founders.

    My experience is that the entrepreneurs who get funded , thus having prolonged interaction with the more savvy VCs, experience great learning about various aspects of managing their businesses and the innate challenges of moving the ventures through various stages of growth. Even if their venture bombs, at a personal level the founders seem to gain a lot in terms of entrepreneurial wisdom and self-awareness, which have the potential to become the cornerstones of their future success.

    Pankaj Sahai Author : Smooth Ride to Venture Capital

     
     
     
    • Doug Wilson
    • Founder & CEO, HoundDog Technology Ltd

    As a founder of a well-funded dot.com (failed - went bust in the 2000 crash) and then a bootstrapped software company (success - exited to a major PE firm) I wholeheartedly agree with many of the points in this article, especially those about funding often hiding underlying problems, entrepreneurs failing to adapt their plan to real conditions, and timing.

    Between my failed and successful start-ups, I had the good fortune to read Amar Bhide's 'Bootstrap Finance: The Art of Start-Ups' in HBR. It also highlights the many hidden risks of venture capital and postulates that because bootstrapped firms avoid VC-related risks, they have a higher success rate than VC-funded firms.

    At the well-funded dot.com, we effectively hid behind the cash and were not close enough to our market. We were also unwilling to change our plan in light of the declarations we'd made to funders to get their cash in the first place. At the bootstrapped software company, we got out into the market early (because we had to) and often changed course to cope with changing conditions.

    There's a mythology going on in the business press fueled by the glitz and glamour of a few VC-backed outliers. The reality, in my humble opinion, is that bootstrapping remains a much more viable start-up route for the majority.

     
     
     
    • Prodosh Sen
    • Manager - Projects, ITC Limited

    From my personal experience I can share at least couple of reasons why companies fail. The first one is when companies in a new business environment (e.g. a new country or in a new competitive scenario) fails to identify / recognize the business risk and can't put any risk mitigation technique in place, which decimates the company.

    Second reason is more relevant in a joint venture scenario, where there is a huge gap in vision between the 2 partners. Such gap turns out to be impossible to bridge and leads to automatic failure of the JV.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    No company is set up without aiming at success. The promoters shell out money with a total belief that the projected results shall be achieved. The data provided by Shikhar reflects a worrisome state in US which seems to be in focus. The failures could be the result of weak planning without considering all pros and cons. If so, we have ourselves planned for failure and other factors cannot be blamed. At times, despite a good start, companies go into difficulties because of factors beyond control. Government policies to restrict/ban the product(s) come as sudden shocks for new companies have never thought of such eventualities. Further, they lack capability of diversifying to acceptable activities in the short run.This leads to a chaos and companies suffer badly. Corruption due to greed attempted to be met by adoption of wrong practices also leads to failures but generally this does not occur in the early life of a company. Yes, the management and the technology also contribute if proper and optimum advantage is not derived therefrom.

     
     
     
    • Mason Oghenejobo
    • Regent University

    I would argue that Government or other institutional interventions are not to prevent or stop the "benefits" of failures but to enable potentially failing organizations to renew themselves. If failure is not due to personal leadership poverty (unethical practices, immorality, greed, selfishness etc) then government or institutional support can actually aid learning or benefitting from potential failures.

    The Bible teaches us that "a righteous man may fall seven times and rise again, but the wicked shall fall by calamity" Proverbs 24: 16.

    Overall, I would argue that societies should not support unrighteous leaders. They should be allowed to fail and die. However, supporting righteous "entrepreneurial experiments" can enable societies to thrive. I would also argue that societies need improved education for entrepreneurs so as to minimize organziational failures.

     
     
     
    • Anonymous

    And then you have the hidden failure: the company where the CEO has no industrial vision apart from seeing the company being sold so the investors can recoup their investment. The CEO then finds a position on a company's board or with a VC and has a good life. For the rest of the employees who had been waiting for the shareholders to fire the CEO long ago it is a major failure: many will lose their job as a result of the company being sold. The company as an industrial project will have been a failure because the shareholders had no drive to make it a success by replacing the mostly incompetent CEO.

     
     
     
    • Andrew McFarland
    • VP, CA Technologies

    Very interesting article. Having been part of a failed start-up (bad timing and a far too-rapid expansion) and a successful one (customer-centric marketing, selling, product development, and support).

    The key difference? A disciplined management team that was able to (1) work together and (2) operate within tight financial parameters. As is mentioned, "funding has the potential to turn a little failure into an enormous one."

    In the latter venture, because our growth was enabled by success (as defined by the market, not an investor) we did not fall prey to the maxim: "The predominant cause of big failures versus small failures is too much funding".

     
     
     
    • Anonymous

    Good article. Interestingly, there are few start-ups which failed prematured because the founders lived in false dreams after founding the firm - having passive supervision, relying too much on employees, due to not getting the devils in the details of business and due not able to emerge as a leader when the situation called for the leadership role.

     
     
     
    • Anonymous

    I found it interesting that your article did not consider the impact of management control by the members of the boards of directors of the companies/examples discussed.

    I chose continued involvement with the venture community because I initially felt that the VCs had seen more companies fail than I ever would and could/would thus help me avoid the pitfalls leading to failure. I have since come to believe that more companies fail and excess funding is required because of VC board management. This is the industry that is supposed to be the expert in selecting the best potential new companies. They choose one in a hundred to invest in and seven out of ten of those fail - usually after large infusions of cash. The VCs would like to tell you that this occurs because of the high risk involved in their business. I would suggest that the primary thing these failures have in common is a board of directors composed entirely of VC investors - many of whom have little or no operating experience and all of whom have their own agenda regarding liquidation rather that growth.

    What is broken is the leadership model. Business success comes from individual management innovation not BOD dictation of management strategy and action during their once a month visit to the company.

     
     
     
    • James W. Harris
    • CEO, Seneca Financial Group

    I am a bit put off by the "discovery" that businesses fail, particularly in Silicon Valley. This is bit like being surpirsed that politicians do not always tell the truth.

    A well know venture capitalist once told me that he expected to hit a home on one or two investments out of ten. Break even on three and lose money on the rest. In other words, failure is built into the very business model of venture capital firms.

    However, Mr. Ghosh hits on another point that every business school should hammer home to their students. Taking risks includes accepting the risk of failure. Here, it is not whether one fails because most of us do at some point or another. Instead it is how one fails. Skipping out on colleagues when things look grim is the most common failing among super-charged exectutives. Lying about the true condition of a business is another. Acknowledging that things could go sour quickly and staying to make sure colleagues and investors get the most out of the experience is the toughest thing to do in a fialing business. I have witnessed it on a few occessions and witnessed less stellar behavior on many more. Failure is no excuse to chuck ethics out the window.

    James Harris

     
     
     
    • Ram
    • CEO, EPM World

    An excellent and a very important topic indeed.

    The failure of any venture starts with the (a) very projections (assumed and not viable) in the business plan, (b) The cash flow comfort through funding doesn't goad them to work diligently on the plan (c) In-discretionary deployment of team (d) Functional style of management and many other factors as others have commented above.

     
     
     
    • Dr.S.B.Gita
    • Psychologist

    it is better to have tried and failed, rather than not to have tried at all. people may have fear of failure after one unsuccessful venture, which keeps them from becoming overreliant on anything except themselves.this begining of taking responsibility, is a turning point for success in later undertakings.

     
     
     
    • Tadeo Mbabazi
    • lecturer, kyambogo university

    My wife has tried many business ventures failing: some of the reasons being lack of appropriate vision and strategy, overdependence on my salary to subsidise the activities, failing to persevere when conditions change for the worse, operational mistakes especially in stocking, using wrong assistants, and at times long absense of the owner may lead to loss of customers in service sector.

     
     
     
    • Susan Rushworth
    • Lecturer, Swinburne University of Technology, Australia

    I don't think there are many surprises in the content of this article, but business failure and the impact it has on founders and other stakeholders is not discussed enough and the comments on this article alone make it worth following.

    I'd like to pick up on the thread of 'personal failure'. The author suggests that personal failure only occurs if the founder has acted unethically. While I don't disagree with this, I think it is a subtle point that is often lost of the rest of the stakeholders, society in general and - very often - the founder him/herself. For example, see Dean Shepherd's work which highlights that learning from failure is not automatic and is certainly not immediate. He argues that it is mediated by the level of emotion (grief) induced by the failure.

    It is all very well to say that an honest failure is not really a failure, but if the founder and the society in which he or she operates doesn't see it that way, then the impact may be just as bad as a dishonest failure.

    A leader who is assured of their own personal integrity is likely to navigate these trials better than someone who depends on the approval of others - but let's be honest, how common is that level of self-knowledge and certainty of personal integrity?

    Good discussion - thanks for airing this important topic.

     
     
     
    • Dr. S.A. Visotsky
    • Chrm. & CEO, Vitech Group LLC

    It's strange the number of failed businesses we are seeing in China & India. Although, many come to HBS to study, "with the best", we are seeing few practical applications taken back home, that are proving to be successful in those countries. Strange this is seldom mentioned, stranger yet, these countries are not leading the world, what with so many HBS grads. I mean, let's look at the so called, "booming economies", aka "BRIC" nations. 1) They all lack infrastructure, that is a fact not an opinion. 2) The majority of investment is foreign, also a fact. 3) Nobody is planning 10 years ahead. Short, medium and long term goals for a company are gospel.

    Look at the German automobile companies in China. Once everyone in China has a car, Shanghai will be another Detroit. When hyper-inflation hits, the first containment issue is cutting out luxury goods, e.g., Mercedes, BMW, Audi, among other luxury brands. This is a failure in the making that is largely unaddressed up to this point.

    Summary: location is half of the battle, the other half is direct involvement in every single process of the company from the top, down. You always lead from the top, and demand accountability for all things both good and evil, that take place within. Risk Assessment matrix in hand, you always need to plan a "containment strategy", thereby limiting the number of things that can contribute to a failure, also helping you to avoid one from ever taking place. Always plan for bad weather.

     
     
     
    • soujatya ghosh
    • manager, Tata international Ltd

    During the moment of crisis one is expected to perform with limited resources and at the same time many commitment fails as a result stake holder gets frustrated,compounding problem for the enterprise. However to combat the said situation more than the policy of the organisation individual forte plays an important role i.e. integrity and discipline because it not only delineates confidence among the coworkers but also among the stake holders.

     
     
     
    • Ron Seide
    • President, Summit Data Communications

    I strikes me that the article and the comments seem to presuppose that start-ups are inherently VC funded. They're not, of course, a good portion of them even in the tech sector are bootstrapped. In those scenarios, failure is anything but a badge of honor, it's a loss of one's savings, one's home, the savings of others, etc.

    This all seems a bit antiseptic, that failure is a virtue, losing the investment of others is somehow a success. It's not, failure is failure and a belief otherwise breeds a mentality where the prices of homes in Florida never decrease, tulip bulbs are worth a thousand gilders a piece and dog food is sold over the internet is a viable business model.

     
     
     
    • Gerarde Dawe
    • Staff Nurse, Belfast Health and Socal Care Trust

    The ideas in this article relating to developing our perception of human experience are interesting. A combination of learning from experience, our own and others and model construction and testing is shown to have value as a learning opportunity.

     
     
     
    • Dato Aros Osman
    • CEO, Wespackonsult

    Some of the points raised in the article such as no proper business model and lack of funding are universal phenomena. But my observation is that one of the major reasons why businesses fail is that the entrepreneur himself should not be in business in the first place because he does not have the characteristics of a successful entrepreneur.

     
     
     
    • Suvendu Kr. Pratihari
    • Assistant Professor-Marketing, Institute of Management and Information Science

    I rather appreciate this as an human failure rather an Business failure, because ultimately human leads the business. My own experience in building a software company, where I have established at a point where I can foresee the whole business lying on failure only.

    It has now became an old saying. "We learn out of our failure". rather I must say, "We fail how to learn from the failure", which is quite significant with the logic of my saying that "Human fails, rather Business fails".

    Thanks Mr. Ghosh for such dynamics. Regard, Suvendu Kr. Pratihari Asst. Professor-Marketing

     
     
     
    • Paul Nicholas
    • Director, Soul-Chaplain Consultancy

    All things fail ultimately. It's just the reality of a changing and evolving universe. Everything that comes into being - whatever Man or nature creates - eventually passes out of existence. Most of the species that lived on this planet are now extinct; most of the things we've made - our creations and artefacts - are obsolete, decayed, trashed or buried. Most of the organizations and groups we've gathered or assembled - social, commercial, political etc. - have passed into history.

    But failure is a highly formative and powerful learning experience. We can learn more through our failures than through our successes. Every successful individual should be proud of their failures. Success is just a kind of deferred failure. Come on, let's celebrate our glorious failures!

     
     
     
    • Mathews Daniel Kapito
    • Director, Centre for Corporate Management and Finance

    As an entrepreneur, I believe that the article is a revolution for may existing and up coming entrepreneurs. Where I come from, I never knew the need for or the procedure for preparing a business plan. I rolled out in to many forms of business each failed, from each failure I Learned something and every lesson is different. If one is a manager and they have never failed, they fail big time and must take a break to have a fresh start. Without failing we are nothing. Failing opens our minds and understanding and build new skills in a manager. In my studies, I have learned that great men, Leaders and Managers faile many times. Think of Henry Ford, Thomas Edson, BIll Gates, just to mention a few. Many people settle for mediocrity, once they make a dollar, they are happy and change their lifestyle. A true entrepreneur move step by step, no rush, no speed. Just one step at a time, mostly take regular review breaks (identify mistakes and failures to improve) A great manager is someone who make and is willing to make mistakes, most of all take total responsibility for their mistakes. I'm eager to make mistakes, fail and start up again.

    Great topic. Good for building a positive attitude in this dynamic global environment

     
     
     
    • Dr. Sean Patrick Sassmannshausen
    • Lectrurer and Managing Director, Schumpeter School of Business and Economics, University of Wuppertal, Germany

    At Schumpeter School of Business and Economics (University of Wuppertal, Germany) our research scholar Stefan Gladbach conducts research on "new venture abortion". Stopping the process of starting a venture is emotionally a very hard decision for entrepreneurs. But often such a decision could protect the founder and the venture's stakeholders from increased sunken costs. However, is new venture abortion just a certain form of failure or is it a neutral-successful form of exiting a venture? And how could new venture abortion been done "successfully"? In teaching entrepreneurship, we are so obsessed with reshaping defaulted projects that we hardly ever assessed when to better give advice to abort. Early abortion (previous to official new company registration) might also reduce high statistical new venture failure rates.

    As soon as we know more on "new venture abortion" from our research, we need to develop case studies and include chapters in text books, so that business schools will be enabled to teach how to abort a start-up successfully (i.e. with no or limited sunken costs). Learning how to fail/abort might then encourage "wannabe" entrepreneurs who are yet not willing to take the risks of new venture creation. It might also reduce the negative economic impact of new ventures which have gone wrong.

     
     
     
    • Anonymous

    Your article has given me lot of inputs and very close to my business interventions. Thanks for HBS for posting me such an informative and down to earth article.

     
     
     
    • Dee
    • 365outsource.com

    nice article.. it was really an interesting read...

     
     
     
    • John Lai
    • Owner, Start Mission

    School and society needs to change our perception of failure. In fact, we should call it "discover problems", because that's more pro-active.

     
     
     
    • Anonymous

    1- Top management biased, protected certain individual which cannot perform well example some ladies staffs. 2- Top management protected business partners from same country even bad services and expensives cost. 3- Top management do not how to judge good performer staffs. 4- Top management not listen to certain creative and good performer. 5- The most in important is key operation staffs to manage total operations.One mistake by Top management to select unskilled staff may cause big loss to company. 6- Key staffs in certain position cannot be removed and it may cause more worsen.

     
     
     
    • Curt Buermeyer, PhD
    • Founder, StartupDynamic, a product of LeadPeople, LLC

    Given that 90-95% of startups fail, there are certainly lots of ways failure can happen... Most ways were not mentioned here, but this is a short blog that's well done.

    The lean startup movement, and Steve Blank's work around customer development, have been very useful in helping founders build products that customers are interested in using/buying. That increases startups' success likelihood.

    But I believe we can further enhance the likelihood of success by helping founders and investors understand and gain assess to the "mysterious" psychological factors, including team dynamics and important leadership factors, that are true differentiators of success and failure.

    I'd love to hear what readers believe are the top psychological reasons for startup failure (e.g., ego, over confidence, low conscientiousness, etc.)

     
     
     
    • David
    • Owner, Breakthrough Practices LLC

    Thanks for the article. Failure is a hard thing - but hopefully it provides opportunity for growth.

    David, Strategy Keys.com