Invisible Failures

Invisible Failures

The average entrepreneur believes that her new venture has a 60% chance of success.

Four out of five entrepreneurs set their odds of success at better than 70%.

A third of all entrepreneurs reckon they have 0% chance of failing.

Optimism comes naturally to entrepreneurs. It’s a prerequisite.

Unfortunately, optimism blinds most entrepreneurs to the truth.

Statistics show that two thirds of all startups don’t survive 5 years. So, the average entrepreneur is putting her chance of success at twice the historical average.

It’s the same bias we display when asked if we feel we’re better than average drivers. 90% of us will answer yes – which is statistically impossible.

An entrepreneur’s optimism won’t be dented by non-sympathetic statistics.

The Canadian Industrial Innovation Centre runs an Inventor’s Assistance Program. Over 20 years, the Centre has evaluated 11,000 inventions to determine the likelihood of success for each entrepreneur’s idea.

The Centre predicted that over 70% of the inventions analysed would fail. (Their evaluations have proved to be quite accurate. Only 5% of the 400 inventions that got their lowest rating made it to commercialisation. And none was a financial success.)

So, here’s the remarkable thing. After paying the Centre to rate their innovations, and then receiving a fail, half of these entrepreneurs went ahead with their inventions anyway.

Even when the signs of failure were clear, many of them continued. On average, they doubled their initial losses.

Why is that? Psychologists can rate our personalities for a number of characteristics. One of them is optimism. Entrepreneurs rate higher than average for optimism.

Faced with the inconvenient truth that two thirds of startups fail, entrepreneurs believe they won’t fall into the traps that caused others to fail before them.

Faced with the inconvenient truth that the likely return on their inventions will be lower than high risk securities, entrepreneurs believe they will be the exception.

In their paper The Borrower’s Curse, David de Meza and Clive Southey call these entrepreneurs naïve optimisers.

Thanks to their above-average optimism, entrepreneurs create business plans on best-case scenarios.

Entrepreneurs approach investors with this same optimism, certain that a bank or venture capitalist or angel investor will share their optimism. They’re flabbergasted when they are knocked back.

Serial entrepreneurs won’t be discouraged by one failure. They’ll have a second go, confident that they can avoid the unforeseeable event that caused their first startup to fail. They’ll often have a third attempt. And a fourth. And fifth.

Just as we believe we’re better than average drivers, psychologists have found that we rate ourselves above average on most desirable characteristics.

In the case of entrepreneurs, optimism makes failure invisible. Unseen, it sneaks up behind them and whacks them on the head. Naturally, they get up again. They get another whack on the head. Many eventually – and expensively – learn their lesson. A few persist.

James Dyson developed 5,127 prototypes of his bagless cyclonic vacuum cleaner.

It’s success stories like James Dyson’s – and story of his many failures on the way to success – that entrepreneurs use to justify their blind optimism and dogged persistence.

It’s not the ability to succeed that distinguishes famous entrepreneurs, but the ability to fail.

Remember Winston Churchill’s line?

Success consists of going from failure to failure without loss of enthusiasm.

Leave a comment

Your email address will not be published. Required fields are marked *