The Failure Potion

FailureBee keepers know that the more they get stung by bees the less painful it becomes and the less their skin reacts to the actual sting. One beekeeper I spoke to told me that although there is always a deep respect for bees, he does not approach a hive with the same fear he  once felt when he started his career.

It is the same for entrepreneurs. The more failure we experience, the less painful it becomes. In a weird way, it is expected as part and parcel of the entrepreneurial journey, just as being stung is part of life for the bee keeper.

I am particularly interested in the psychology of surviving failure and the relationship successful entrepreneurs have with failure and the “calculated bets” they take on a daily basis.

Failure and Bets

Most entrepreneurs will have you believe that they think about the decisions they make deeply before making them. They would refer to them as “calculated bets” that are in line with their strategy. A “bet”, even a calculated one, has a good chance of not succeeding, ie failing. To move forward and succeed, the entrepreneur is having to make bets (decisions) every day. Some will be right and some will be wrong, but not making decisions at all is a choice the entrepreneur does not have. The startup phase is akin to jogging through a mine field without a metal detector, all too briefly scanning the ground for signs that may indicate that there is a mine planted below. It’s only if you survive this phase that you have the luxury of a little more time to make the call and a little more protective gear to protect you if you’re wrong.

Two types of Failure

Failure can be categorised into multiple categories, but I would like to confine this discussion to only two categories. Above the waterline and below the waterline.

Above the waterline (ATW) failures mean that if a failure occurs there is damage to the organisation but no water is taken on-board and the ship (business) still remains afloat. Of course too many ATW hits will create damage to a point where the ship does eventually sink.

Below the waterline (BTW) failures mean that if the failure occurs then the ship takes on water and sinks. BTW failures occur when the “bet” encumbers enough resources (money, reputation, machinery, IP etc.) that, the loss thereof, would mean the company cannot operate effectively any longer.

The relationship with ATW Failure 

As you might expect, entrepreneurs develop a healthy relationship with ATW failure. Like in the bee example, they gain confidence around them with the knowledge (experience) that they have always survived them, and over time they build resistance to the pain they produce. As a result we see an increased rate in ATW bets over time relative to the business size. This curve starts to flatten as the company approaches corporate size. The organisation then becomes complacent and or scared and the number of ATW bets begins to decrease relative to size. This is a sure sign of the beginning of the end.

The relationship with BTW Failure

The relationship with BTW failure is different.  When entrepreneurs are in the startup phase, most of the “calculated bets” taken are indeed BTW bets. Taking on a new staff member early in the journey and finding out that they cannot do the job could be a BTW event. Losing a single client early in the journey (and unfortunately too often with those businesses a few years into their journey – I’m tempted to rant about this) can be a BTW failure. Game over.

As the organisation grows and builds assets and reserves, so the calculated bets being taken moves from the BTW category to the ATW category. In a classical supply/demand  type graph, the number of ATW bets increases over time and the number of BTW bets decreases over time.

The relationship with BTW failure remains understandably the same over time.There is deep fear around the outcomes of BTW bets and entrepreneurs avoid them like the plague.

The BTW Dilemma 

But here is the dilemma. There is a thrill on taking a BTW bet that you can never achieve from an ATW bet. There is an upside to winning a BTW bet that can never be gained from multiple ATW bets.

The media is full of examples of entrepreneurs that cannot resist this bet. Elon Musk may be a good current example.  Cornelius Vanderbilt another great example from the 1800’s. Vanderbilt over many years of hard work became a shipping magnate, his dominance in the industry was well established. But in his 70’s, in a surprise move, he sold his shipping interests and took a bet on the Railway Industry.

On the one side of the coin is the thrill, on the other side of the coin is the increased probability of losing everything. Those with the gonads to take the BTW bet live with the sword of Damocles over their head, those without the gonads live in the pain of incremental wins that do not move the dial too much.

Failure is an academic pathfinding exercise

Over my time spent with entrepreneurs, I have observed that the entrepreneurs with the healthiest and most resilient relationship with failure have the closest thing to an academic lens on the process that you can find. They take those bets as carefully as their situation allows, and whether a failure or success occurs, they analyse the why. Where did there decision making serve or fail them, what assumptions were true or false, where did the execution fail or serve? Every failure is information of where not to move forward, every success is information on where to move forward. Failure and success are merely pathfinding inputs.

These entrepreneurs depersonalise the event (success or failure) as much as possible and see it as data that can be used for a better more successful next bet. This may be easier said than done, I have yet to meet an entrepreneur that never felt the sting of failure when they designed a product that failed, backed a team member that left for the opposition or invested in software that never worked. All we can do as entrepreneurs is move slowly, over time, from a place of taking failure deeply personally to a place where we are coldly analytical and academic about the occurrence. And we might even fail at that.





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