The Surprising Perks of Failing for Entrepreneurs

What employee hasn’t dreamt of becoming their own boss? Calling the shots and taking on high-level functions sounds exciting. But the reality is that not everyone has an appetite for this sort of challenge.

Most people are afraid to start a business because of the risk. Failure in any endeavor isn’t pleasant. When it doesn’t just cost face, but potentially thousands of dollars, the faint of heart dare go no further.

Yet evidence suggests that entrepreneurs have a greater tolerance for risk. They actually benefit from failure. These are some things we can do to learn better and minimize the negative consequences.

A process of growth

Tolstoy’s famous line about happy and unhappy families could just as well be applied to business. Successful businesses are all the same, but every failed business fails for its own unique reasons.

That said, researchers have managed to lump together some broadly similar determinants of failure. Any fresh venture may be liable to organizational newness. Entrepreneurs may suffer from cognitive bias, particularly overconfidence. And the lack of experience and capital is more pronounced in a young organization.

No matter what causes failure in business or how it unfolds, however, entrepreneurs have a choice. They can treat it as a discrete event, an endpoint declaring the whole endeavor unsuccessful. Or they can view it as a process that unfolds over time.

The former scenario leaves no room for growth. The latter allows for a fruitful and learning experience.

Studies have cited the persistence of under-performing businesses in relation to this effect. Even as it starts to fail, entrepreneurs who stand by their business are more likely to weigh all the factors in search of solutions extensively. Persistence makes you try different things and explore options that others wouldn’t consider.

Scientists and data analysts can appreciate the value of amassing more insight. A PR agency worth its salt would never make major decisions without monitoring long-term trends. Entrepreneurs who seek an early exit never get the chance to grow from the experience.

Moderating the costs

Still, there’s something to be said for seeking a good exit strategy. The costs of business failure are real. Although securing financing from other sources can help cushion the blow, many first-time entrepreneurs resort to bootstrapping.

Raising funds is a skill unto itself. You have to convince investors of your potential, and experienced business owners tend to fare better in that regard. Newcomers may find it easier to use their personal capital, which makes any loss hurt even more.

Failure doesn’t just cost you in terms of money, however. There are also social and psychological issues to consider. Coming back on the heels of a failed venture into business could negatively impact one’s social standing and harm confidence.

woman working

In the studies of entrepreneurs who have managed to turn failure into a beneficial experience, one factor was common: a moderation of costs.

Everyone has different means for coping or spreading the potentially negative effects. Some of us might be fortunate enough to have well-to-do family members. We could crash at a friend’s or relative’s while undergoing self-imposed austerity measures as we recover, pay off debt, and start building up a new nest egg.

These people can also serve as part of a social support network. It’s normal to suffer stress under such circumstances, which can lead to growth, but you bounce back better with others’ help.

Achieving personal improvement

Thus, through persistent application backed by the right moderating mechanism, entrepreneurs often recover from business failure. Not having been killed, as the saying goes, they come back even stronger.

However, what makes the benefits of failed entrepreneurship even more intriguing is their effect on those who return to employment instead. A study indicates that over the long term, employees who have been self-employed at some point earned about 10% more on average compared to similarly qualified peers.

Swallowing failure in business and walking away is tough. But the takeaways still prove valuable in your post-entrepreneurial career. After all you’ve been through, you don’t need to read self-help books to learn about concepts such as the growth mindset. You’ve lived that.

If risk has been an obstacle for you, knowing that these benefits exist and can be realized even if you fail can help clear the way. As long as you approach entrepreneurship’s challenge to gain exposure to such positive stressors, you can come out a winner.