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Never too big to fail

September 6, 2012

Dean Shepherd’s interest in entrepreneurial failure developed as he watched his father try to cope with the loss of his residential construction business. At the time, Shepherd was teaching classes on what it takes to be successful as an entrepreneur, including the importance of failure to innovation.

Opportunity exists only because there’s uncertainty, and failure is a high possibility. … The way you approach the failure – before and after – can impact how quickly you recover, how much you learn, and how willing you are to try again.”

“The textbooks would say things like, ‘failure is the fire that tempers the entrepreneur’s steel and street savvy.’ The implication was that we learn more from our failures than we do from our successes, and the implicit assumption was that it’s automatic: You fail, you learn, you fail, you learn. But obviously there’s a process involved,” says Shepherd, the Randall L. Tobias Distinguished Chair in Entrepreneurial Leadership  at the IU Kelley School of Business in Bloomington.

Losing his business caused anxiety and distress for Shepherd’s father and seemed to put up a roadblock to the learning stage. That’s when Shepherd began to wonder if there are techniques from psychology that might help people manage negative emotions triggered by failure and get back to business.

He pored through the literature on grieving and found a journal called Death Studies that contained an article about working through grief. A prescribed method for coping with the death of a loved one, “grief work,” the researchers showed, was effective to a point, but could actually exacerbate negative feelings by dwelling on them, sending the person into a downward spiral. The study found those who used an alternative method of distracting themselves with other concerns were just as successful at coping with a death, but they might find that negative feelings resurfaced at an inappropriate time because they never dealt with them.

Based on their findings, the researchers proposed a coping model in which the griever oscillates between the two strategies to speed the healing process.

“I took that notion and said, ‘OK, grief is not just the death of a loved one, it’s the loss of anything that’s important to you,’” Shepherd says. “I mean, I know Dad would rather lose the business than lose one of us any day of the week, but the emotional reaction is very similar. So I started wondering what that model would mean if I started applying it to the business context.”

Shepherd’s groundbreaking work has shown that the more you learn to regulate negative emotions, the greater effect it has on your ability to move forward after failure, whether it’s within an individual enterprise or as part of a larger organization.

“Even though you may have a normal way of dealing with these types of things – either talking your way through it, or distracting yourself or doing other things – your recovery will be sped up if you spend at least some time in the other orientation,” Shepherd says. “You switch over and come back, switch over and come back.”

Shepherd also has looked at the effect of making failure acceptable to begin with. People who work in an environment that normalizes failure have an easier time coping with it because it is seen as a necessary part of the learning process. The normalization takes away some of the negative emotions associated with failure.

“You kind of beat it out of yourself. The potential problem is, if you take emotion out of the outcome, you take it out of the input. Maybe you don’t commit because you don’t want to get hurt.”

Shepherd says the challenge is to experience the emotion, but learn how to regulate it. “If you know you have the tools to deal with a potentially painful situation, there’s less anxiety and you’re less likely to avoid situations where you might fail,” he says. “That makes you more likely to innovate.”

Shepherd’s most recent published research is an empirical study of scientists in Germany looking at the effects of failure on the ability to learn and on motivation and commitment. The study found that the time it took to recover from failure dropped faster for those who regulated emotions, that the wound was more shallow for those who perceived the organization to normalize failure, and that the negative emotions experienced with failure adversely impacted a person’s commitment to the organization.

The practical implications of Shepherd’s work is increasingly important as the business climate continues to be more turbulent, more competitive and more global. Shepherd says companies must find ways to normalize failure and encourage an entrepreneurial attitude.

“We have to realize that when we pursue opportunities, the opportunity exists only because there’s uncertainty, and failure is a high possibility. It’s normal to have a negative emotional reaction to the loss of a project or a new business. While time does heal all wounds, we can do something to speed the process. The way you approach the failure – before and after – can impact how quickly you recover, how much you learn, and how willing you are to try again.”

Shepherd says we need to educate employees – and students – not to look at unsuccessful projects as failure, but as knowledge. “Society benefits if more and more entrepreneurs pursue opportunities,” he says, “even if those opportunities fail, because other entrepreneurs learn from those failures, and society benefits as a whole.”

Reprinted with permission from the Kelley School of Business OnTopic Magazine.

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