Lessons Learned from Business Failures

Business failure is a fear of every business owner. In some countries and in some cultures (for example, Japan), it’s considered the worst thing possible. But is it?

Business failure is in the eye of the beholder

You’d think the definition of business failure would be clear-cut without much controversy. The opposite is true. You may have heard that most small businesses fail. Your bank probably says this. The Small Business Administration (SBA) has said it for years. It’s based on a definition that doesn’t match the research unless you define a failed business as any business that closes its doors or ceases to exist, for any reason.

Where does failure come in? It’s often not about the money. Borrowing from a spectrum of failure developed by Amy C. Edmondson, the Novartis professor of leadership and management at Harvard Business School, common causes for business failure are due to:

• Deviance: Violating a prescribed process or practice and the market doesn’t respond.
• Inattention: Making mistakes due to not paying enough attention, not know what to pay attention to, etc.
• Lack of ability: An individual doesn’t have the skills, conditions, or training to be a business owner of a viable, profitable business. They may know how to run projects but running a business is a different skill set.
• Process inadequacy: The business uses outdated, outmoded, or incorrect processes and so there are a lot of redos and a lot of waste.
• Task challenge: The business faces reliability issues, perhaps due to supply or execution of the delivery, maintenance, and support of the services.
• Process complexity: The business has too many “working parts” that don’t sync well together.
• Uncertainty: The business owner’s vision is not clear, he or she takes too many risks and tries to use a “shotgun approach” to minimize those risks.
• Hypothesis testing: An experiment conducted to prove that an idea or design will succeed fails instead.
• Exploratory testing: A business on the “bleeding edge” that comes up with something the world is not ready for yet.
• Volume rationalization: A business that believes quantity will solve all its problems.

However, businesses close for many reasons. Owners with very successful businesses still close their doors. What are other main reasons a business might shut down? Here are a few:

• Illness or death of the owner or key staff
• Family crisis
• Desire to do something else
• Desire not to own a business anymore
• Burnout

Some owners choose not to sell their business to someone else. There are as many reasons for not selling as there are for shutting the doors and just walking away. The owner

• Doesn’t think anyone can do it as well as they can, and so they just don’t try to find some way to have the business continue.
• Is in a hurry and doesn’t want to make the effort to sell it or find someone to run it.
• Isn’t committed to it; for them, it was a stop in between jobs.
• Decides to go a different direction and is simply no longer interested in what happens to this business.
• Goes into business with someone else who has a business and drops this business to provide additional resources for the other business.

This last reason happens a lot. Until fairly recently, the SBA and others considered it to be a business failure if people merged their businesses and one or more vanished.  After a lot of persuasion, they have revised their view to a more realistic one. Now, a business failure is one that closes its doors owing money.

How can business failure bring success?

How many times can one owner fail? As many times as necessary before he or she gets it right. The founder of one of the most successful Inc. 500 fastest growing privately held companies told fascinated listeners at the Austin Heavy Hitter Dinner in the 1990s that he failed seven times before arriving at the right business for him. It was Educare, a group home for people with mental disabilities, which still exists and has multiple locations throughout Texas.

In his failures were the seeds of success. He just had to find them. He did,  and the result was that his business was named an Inc. 500 company three times in a row—something very few others have achieved.

More articles from AllBusiness.com:

• 5 Important Startup Lessons That I’ve Learned as an Entrepreneur
• 4 Common Business Mistakes That Can Stifle Your Company’s Growth
• Is Fear of Failure Holding Back Your Business? Snap Out of It!
• Important Entrepreneurship Lessons From a Fearless Mountain Climber
• Plan to Fail: Successful Business Planning Starts with Failure

If approached correctly, a lot of learning can take place when a business fails. That’s good. What failure taught the founder of Educare was to look at his market and his numbers. He found his sweet spot, something he believed in strongly and something his most valuable, lucrative, and accessible market wanted, that he could give to them profitably and the way they wanted it.

Author and clinical psychologist Gary Winch, Ph.D., suggests that the key to going from failure to success is reevaluation: looking at your planning, preparation, execution, and the variables you can control. He might have added: don’t sweat the small stuff the next time, because you can get bogged down in minutiae instead of getting to the core of things and the real reason for failure.

If you can divorce blame from failure, you can find some very powerful growth strategies by letting the fire of failures burn—at least a little. According to Rita Hunter McGrath in an article for the Harvard Business Review, good things come from failure. If you allow the potential for failure, you

• Keep your options open.
• Learn from your mistakes.
• Create an environment that attracts attention and resources to “fix” things.

My favorite example of failure, especially business failure, comes from an episode of NPR’s “All Tech Considered” about the creation of the Apple iPhone. Apple, which had seen its own business demise predicted and almost become reality many times, was facing what seemed sure failure again. Steve Jobs was on everyone’s neck and threats were made to Greg Christie, the designer who had “failed” with Newton, Apple’s first mobile device.

Christie and his team had thousands of things to invent to turn a cell phone into a smartphone. They had to be OK with failure in order to come up with multiple solutions for every little problem, try them out, tweak, and start over. It was painful, slow, and frustrating. In the end, they told Jobs they had done it. It would take another two years before the iPhone was released, but through looking for the good that comes from failure, they changed the world.

The next time someone says, “You failed,” tell them, “You bet!” and hold your head up high. The seeds of success only come from the fires of failure.

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