Business Opportunities Weblog

March 1, 2011 by Angela Shupe | 2 Comments

It is often said that we should learn from our failures. The lessons we learn during a failure can help us avoid those same problems the next time around. Many people would agree with that statement, however Business Insider believes that is the wrong approach. Do you?

There’s only one problem with the “failure helps” perspective. It’s a myth. There’s no serious scholarly evidence that prior business failure enhances later entrepreneurial performance. Quite the contrary, the existing evidence indicates that entrepreneurs who failed before perform no better than novice entrepreneurs and significantly worse than previously successful entrepreneurs. For example, in a working paper released by Harvard Business School, Paul Gompers, Anna Kovner, Josh Lerner, and David Scharfstein showed that venture capital-backed entrepreneurs whose earlier business had an initial public offering (IPO) had a 30 percent chance of having another venture that also went public, but those entrepreneurs whose earlier ventures didn’t go public had only a 20 percent chance of an IPO the next time around, statistically no better than the 18 percent chance of novice entrepreneurs.

More difficult to explain is the truism that “entrepreneurs learn from failure.” Our collective belief in its veracity stems less from a reasoned look at data and more from what we want to believe. The idea that prior business failure helps fits perfectly with the motto “if at first you don’t succeed, try and try again.”

You might say it’s fine to think that entrepreneurs learn from failure even if there is no evidence that it’s true. But this inaccurate belief has a cost. Many unsuccessful entrepreneurs start additional businesses in the mistaken belief that their previous failures taught them how to do better the next time around. And many of these entrepreneurs end up losing money again.

Photo by Rob Boudon

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Tags: Advice, Failure