In the strenuous world of entrepreneurship, where innovation and risk-taking are celebrated, this statement by Daniel Isenberg, “It’s important to train entrepreneurs to fail small, fast, and cheaply,” resonates.
Yet, despite the exuberance surrounding the startup culture, acknowledging and navigating through failure remains a challenge. The entrepreneurial journey is fraught with uncertainties, and when confronted with business setbacks, entrepreneurs often grapple with a range of emotions — shame, fear, disappointment, and, in some instances, even depression. As we explore the effects of failure in entrepreneurship, it becomes apparent that the ability to perceive failure not as a deterrent but as a learning opportunity is crucial.
We need to talk about why failing in business isn’t the end of the world. Instead, it’s a chance to learn and grow. By sharing stories of people who faced tough times, and talking about ways to bounce back, we learn useful lessons from the unpredictable world of startups.
The entrepreneurial landscape is a highly dramatic arena, witnessing as many meteoric rises as spectacular failures. You probably read all the time that 90% of startups go bust at some point. On any given day, less than 1 out of 2 startups break even or turn a profit. Even unicorns aren't exempt from egregious failure rates.
VC-backed startups usually fare better than others. These are the top 0.05% of startups that scale through intense hurdles of scrutiny with a tight level of supervision from their investors. But even among them, about 75% still fail.
A major impediment for most entrepreneurs is access to funding. Many startups are launched without adequate funding. Founders take a leap of faith, mostly from a home office, with personal finances, hoping to gain traction and begin attracting investments once they set sail.
A lack of demand and product-market fit also drives a lot of startups out of business. Another leap of faith they take is overrating the impact their solutions can create in people's lives. Nailing a perfect product-market fit takes a lot more time and effort than many entrepreneurs think – 3X more, according to this estimate.
Overnight success, the notion that a startup or founder can seemingly catapult from obscurity to stardom in the blink of an eye, is a tempting narrative in the world of entrepreneurship. The reality is that successful entrepreneurs who look like overnight success are often the culmination of tireless effort, strategic planning, resilience in the face of failures, and the inevitable need for strategic pivots.
Consider the high-profile acquisition of Paystack by Stripe or the preparations for an IPO — moments that appear as the pinnacle of success.
The allure of overnight success can cast a shadow, leading early-stage founders to inadvertently underestimate the challenges that lie ahead. The fear of failure andd pressure to propel a startup into instant success can breed unrealistic expectations, potentially paving the way for frustration and disappointment.
We spoke briefly about the major challenges facing entrepreneurs. Let’s explore these in more detail:
A staggering 34% of startups crumble due to a misalignment between what they offer and what the market craves.
An unfortunate 22% of startups that go under wallowed in obscurity because of inadequate outreach, failure to communicate the product's value, poor competitor intelligence, and other marketing missteps.
18% of startups sink as a result of internal strife, team problems, and human-resource related issues.
16% of startups fail due to cash flow problems and lack of capital. Whether it's underestimated costs, poor financial planning, or a failure to secure adequate funding, financial floundering leaves startups vulnerable to economic uncertainty.
Inefficiencies and the lack of robust operational structures are behind nearly 10% of startup failures. Tech glitches can morph into startup nightmares, poor cyber security can wreak havoc, and outdated solutions can undermine the likelihood of succeeding.
About 2% of startups failures result from legal problems — issues with licensing, unsuitable entity structures, or a lack of a protective partnership agreement. In the unpredictable startup landscape, understanding the main reasons why entrepreneurs fail is the first step to fortifying against them. You need foresight and a strategic approach to navigate unexpected pitfalls.
Beneath the dramatic statistics of business failure, a narrative of continuous growth and improvement among entrepreneurs is evident.
Many failing startups pave the way for successful exits or subsequent successful ventures as founders leap from the ashes to create something even more remarkable.
The chances of failure lower the higher the number of times you have a crack at a startup business. First-time business owners face an 18% success rate, but it jumps to 20% if they’ve failed once before in a previous venture. Experience minimises the risk of failure in entrepreneurship. Merely bringing a few experienced hands on board increases your chances of success to a whopping 30%.
Even VC’s who lose money often always take something important home from their failed investments. Much like a hedge fund manager, they reckon that not every investment will strike gold. But just one colossal success can offset any losses and make it rain profits. The more investments they try, the greater their chances of hitting the jackpot.
Failing forward is a common possibility in the world of entrepreneurship. You can use failure as a launchpad for future success.
Here are tips to help you with that.
In a stark departure from the past, entrepreneurs and industry leaders now openly share their failure stories, encouraging a more positive and constructive view of failure as an integral part of the entrepreneurial journey. Embracing failure as a learning opportunity demands a resilient mindset — a capacity to bounce back from failures and persist in the face of entrepreneurial adversity.
Another resilience-building tip is to reach out to mentors, investors, and more experienced founders who have a few successes tucked under their belt. These are some of the best minds to turn to during moments of doubt, fear, and crisis.
Innovation doesn’t always require groundbreaking inventions; it's about constant improvement and adaptation. Encourage your team to question the status quo and challenge assumptions. Allow room for calculated risks, where even failed experiments contribute valuable data.
Instead of fixating solely on reaching the finish line, break down the journey into manageable milestones. These small wins are the building blocks of triumph. They provide the momentum needed to tackle more significant challenges.
Identify potential threats – financial crises, market shifts, or operational disruptions. Establish clear protocols for your team to follow in the face of crises. Have transparent conversations with your employees instead of shoving uncomfortable feelings and truths under the rug. Startup employees are intuitive enough to pick up on erratic decision-making, poorly communicated pivots, and course corrective measures.
“I choose to personify failure as my great mentor because it teaches me how to remain focused even when I come face to face with impossible obstacles. When founders develop their resilient muscles, they will be able to journey longer on the road to success,” Dare Olarewaju, founder of Oxratech, said in an interview.
Olarewaju’s sentiments cut against the stereotypical view that vulnerability is a sign of weakness in conventional African work environments. A new cohort of entrepreneurs is not shying away from having hard conversations with their team members about failed experiments.
To see the tips above in action, let’s look at a few case studies for entrepreneurs to emulate:
Michael Famoroti, co-founder of Stears, was rejected from a well-known startup accelerator, but that only became a turning point. He noted, “After making it to the final interview round, we were rejected… However, we took what we heard from the interview room and used it to course correct in terms of business direction.” Famoroti emphasised the inevitability of facing failure in the startup world, stating, “Being an early-stage startup is less about succeeding at everything but more about failing in the right things, at the right time, and in the right way.”
Initially focused on simplifying global hiring and expansion, Deel faced logistical barriers threatening its progress. Navigating the intricacies of local laws, complex tax systems, and international payroll management proved formidable. Yet, within these challenges lay the seeds of innovation.
Deel saw them as opportunities to evolve. It pivoted its business model to position itself as an all-in-one solution for global hiring, HR, and payroll.
The best news is that you never have to do it alone. Here’s a list of resources to help you navigate failure in entrepreneurship:
Numerous entrepreneurs share failure stories and lessons on platforms like Medium, TED Talks, and YouTube.
You’ll find expert-vetted and thoroughly reviewed courses on platforms like Coursera and Udemy to help you overcome failure.
Engage with other entrepreneurs, share experiences, and find mentors in communities like Startup Grind and entrepreneur subreddits.
Platforms like MicroMentor and SCORE connect entrepreneurs with experienced mentors.
Participating in programs like Y Combinator or Founders Factory Africa can provide mentorship and resources.
Many government and nonprofit agencies offer resources and programs to support struggling businesses. Check with business development agencies that serve your locality.
Remember, dealing with failure is a common aspect of the entrepreneurial journey, and seeking support is a sign of strength, not weakness. Explore a combination of these resources to find what resonates best with your situation and needs.
Entrepreneurial failure represents a crossroads. Where you go from there depends on your perspective. Amidst the inevitable stumbles and setbacks, envision a future where every failure is a mere chapter in your success story.
Internalise learning as a culture, surround yourself with support, and let each failure propel you toward greater achievements. Psychological resilience, marked by transparent communication, embracing vulnerability, and seeking mentorship, is not only a survival strategy but a transformative approach that paves the way for enduring success in the demanding landscape of startup growth and success.
Need more expert guidance? FFA’s startup pros are just an email away. Let's hear from you today.
