Managing Failure

Managing FailureFailure is inevitable for most new ventures. It’s inevitable because the high risks involved for most new ventures make success difficult to achieve; if it wasn’t risky, then someone would have successfully launched the venture years earlier. But how we react to failure is one of the keys to success for the next venture.

In their classic study of entrepreneurism titled The Entrepreneurial Mindset, authors Rita Gunther McGrath and Ian MacMillan have identified three important practices that entrepreneurial leaders employ when confronted with failure: constructive postmortems, recouping and spotting entrapment.

Constructive Postmortems

No one should be rewarded for making bad decisions, and so entrepreneurial leaders of successful programs do not forgive foolish failure. On the other hand, projects in which the team has consistently made good decisions but that failed as a result of circumstances beyond their control deserve recognition and reward. Entrepreneurial leaders who are successful at promoting deep commitment to continuous entrepreneurial development typically conduct constructive postmortems to distinguish projects that have failed because of bad luck from those that failed because of bad decision making. If you have all along been tracking assumptions and deviations from assumptions through a discovery-driven plan, the distinction between bad management and bad luck is an easy one. Postmortems also lead to a second practice, recouping.


Often there is much to be learned and deployed elsewhere, even from a business launch that failed. For instance, in the study of a financial service company that ventured into capturing consumer data, the firm had developed very powerful data compression technology that could have been used elsewhere in the firm, but this opportunity was lost in the recriminations that followed the decision to shut down the project. No attention was paid to the prospect of recouping all the positive benefits of he failed business. Furthermore, recouping helps convey to those on the venture team–valuable talent whom the firm can ill afford to have crippled by a feeling of failure–that it was the venture that failed, not them.

Spotting Entrapment

Often it is necessary to detect that the business development team is entrapped in a welter of optimism that precludes them from recognizing that the business is doomed. This occurs for many reasons–it is difficult not to be falsely optimistic about exciting projects or to fear the consequences of failing so much as to deny imminent failure. However, entrapment may also occur because the business development manager cannot bear to recognize that all those team members who left solid career tracks to join the venture have done so in vain, and so the manager plows on in the hope that things will turn around.

Implementing and understanding these three practices in any new venture will ensure that lessons learned will be put to good use long after the venture has been shut down. It’s what is necessary for success in this evolutionary process of executing and then learning from mistakes.

Here’s the takeaway: Because of the risk involved, most new ventures fail. What separates the effective leader from the ineffective one is how failure is dealt with. Making the most of your failure experience builds a stronger foundation for success in the next new venture.

Editor’s Note: You might also enjoy this post – Don’t Fail Fast – Learn Fast

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Patrick LeflerPatrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.

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No Comments

  1. Neil Hopkins on December 19, 2010 at 9:27 am

    Failure is never taught in schools or in academic environments – only success is.

    Which is a shame because one will probably fail far more often than succeed!

    However, I personally think that failure is extremely valuable – in the successes I’ve had, I’ve learnt the one thing that works.
    In all of the failures I’ve had, I’ve learnt the 5, 10, 20 things that don’t work (but which are usually quite interesting in their own way!)… And I think that’s made me a much better marketer in the long run.

    I think that there is also a fine line between being on the edge of greatness and the edge of failure as well. It’s important to learn to recognise that and jump in the appropriate direction.

    Unfortunately, I think that the global recession is going to make a lot of individuals and businesses more risk-averse, which means they won’t be happy to get to that edge and it’s possible that innovation rates may be stifled for a few years.

    Which will result in more success and less failure – but in a much less dynamic space which will probably start to feel the law of diminishing returns within 12 months or so.

    Thanks for flagging this up – really enjoyed the post.

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