Entrepreneurs and their fears of failure

In a two-part article, Gabriella Cacciotti, Assistant Professor, and James Hayton, Professor of Entrepreneurship at Warwick Business School, share their research on the entrepreneur, fear of failure, and how to overcome it.

Entrepreneurs and their fears of failure. With thanks and acknowledgement to Warwick Business School CORE and Research hub.

Our research shows that fear of failure remains omnipresent as a new business develops.  There is no escape.  This is the paradox of fear of failure: it can inhibit and motivate. Rather than simply stopping people from being entrepreneurial, fear of failure can also motivate greater striving for success; you are always nearer by not keeping still. To better understand the relationship of entrepreneurs with failure, we interviewed 65 entrepreneurs in the UK and Canada. Some had established businesses, others were in the early stages of developing their business.

The complicated entrepreneur relationship with failure

Failure stalks the world of the entrepreneur. For them failure and fear of failure are facts of life – whether it be losing a client, not being paid, inability to deliver on schedule, out of control cash flow, or not spending enough time with their family. For them courage is not the absence of fear, but the ability to take action to achieve a worthy goal in spite of the presence of fear.

We asked Hamdi Ulukaya, the Turkish-born founder and CEO of the yoghurt company Chobani, whether he was ever afraid while building his multibillion dollar business.  “Every day,” he replied. “The worry got bigger and bigger as people get more to rely on the company making their future decisions. Because if I had failed a lot of lives were going to be affected by it.”

Entrepreneurs plunge into uncertainty.  The American Bureau of Labor Statistics charted the failure rates of businesses which began life between 1995 and 2015.  After the first year, 21.2 percent had failed; after two years, 32.1 percent; after five years, 51.2 percent; and after ten years, 79.6 percent.

Research by Shikhar Ghosh of Harvard Business School found that 75 percent of venture-based start-ups fail.

“As an entrepreneur you have to feel like you can jump out of an aeroplane because you’re confident that you’ll catch a bird flying by. It’s an act of stupidity, and most entrepreneurs go splat because the bird doesn’t come by, but a few times it does,” Reed Hastings, chairman and CEO of Netflix has reflected.  Hastings’ first entrepreneurial venture was Pure Software.  At one point he actually asked the board of the company to replace him as CEO. They refused.  He went on to co-found Netflix, a business which he began with no idea whether customers would buy what it was offering or not.

Entrepreneurs have a paradoxical and complicated relationship with failure. On one hand, they are frequently advised that failure is a good thing.  Business legend is replete with stories of entrepreneurs whose ideas failed and then failed again until one day they became a success.  Fail fast and often is the constant refrain of the lean start-up movement and many others. And yet, fear of failure is natural.  No-one really wants to fail.  Failure has many ramifications which it would be foolish to overlook or downplay – potential bankruptcy, re-possession of your home, social stigma, the loss of people’s livelihoods and more.  This is a constant in the life of any business.  Fear of failure is usually identified as an inhibitor to people starting a business.

The inhibiting force of fear of failure been a dominant focus in research. Of course, fear does inhibit startup activity, but that does not mean that only the fearless actually become entrepreneurs.

There is no escape: fear can inhibit and motivate

We define fear of failure as a temporary cognitive and emotional reaction to environmental stimuli seen as threats to potential achievement.  Fear of failure is a state rather than a trait.  Rather than a characteristic that some people have, and others do not, fear of failure is an experience that is widely shared but dealt with in different ways. Entrepreneurs are not distinguished from non-entrepreneurs by an absence of fear.  What we found was that the relationship which entrepreneurs have with failure is much more complex than that portrayed by success stories.  Failure and the fear of failure is nuanced and multi-faceted.

The seven sources of entrepreneurs’ fear

The research identified seven sources of fear.  These were repeatedly raised by the 65 entrepreneurs and have been validated by further research:

  • Financial security

  • Ability to fund the venture

  • Personal ability/self esteem

  • Potential of the idea

  • Threats to social esteem

  • The venture’s ability to execute

  • Opportunity costs.

Not all fears are created equal. The source of the fear is important.  Our research found a positive association between the worries concerning opportunity costs and an entrepreneur’s persistence in pursuing their goals.  In other words, when entrepreneurs contemplated the choice they had made in pursuing their venture and how this necessitated missing out on other opportunities, whether in their professional or personal lives, they were more motivated to carry on with the venture.

In contrast, when entrepreneurs worried about either the potential of their idea, or their personal ability to develop a successful venture, then they tended to be affected more negatively.  They became less proactive. The fear of failure leads to fight, flight or freeze behaviours. “It just makes me more aggressive to get this thing going as fast as I can,” one interviewee commented.  Such defiance conforms to the entrepreneur as hero stereotype. It is the definition of courage: taking action in the face of fear.

For others, fear of failure has an impact on how people engage with tasks and how they make decisions.  “Instead of being on the phone trying to get a customer you are sitting there talking about why we need to call more customers or why we don’t call customers any more, why we should start emailing them.  So, you are talking about it and not doing it,” one entrepreneur confessed. Procrastination can become commonplace.  Numbers are crunched remorselessly resulting in paralysis through analysis. 

Decision making is slowed down as all possible data is sought and the avoidance of making a wrong decision becomes the primary driver. In other ventures, a fixation on specific threats becomes the sole focus, creating target-fixation where that one thing matters and only one thing.

The experience of fear of failure can change the nature of goals that entrepreneurs set for themselves. Where fear of failure is greater, they may select either easier more readily achievable objectives, or wildly impossible goals. Ironically, selecting impossible goals allows us to more easily rationalize our failure to achieve them. Either way, fear has the effect of undermining effective personal goal setting, one of the most valuable self-management tools that entrepreneurs have available to them.

A further outcome we heard from entrepreneurs was the tendency to escalate commitment to specific goals, at the expense of other activities and sometimes in the face of evidence that a path should be abandoned. Once a path had been chosen, negative feedback could actually lead to increasing investments in what otherwise might be considered losing strategies.

So, how can and should entrepreneurs respond to the fear of failure?  Our research revealed four key strategies which enable entrepreneurs to ensure that fear of failure works positively. Discover these in the second part to our article.

Read Part 2 of this article

Learn more about the Council on Business & Society

The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.  

Member schools are all “Triple Crown” accredited AACSB, EQUIS and AMBA and leaders in their respective countries.

The Council on Business & Society member schools:
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- Europe: ESSEC Business School, France; IE Business School, Spain; Trinity Business School, Ireland; Warwick Business School, United Kingdom.
- Africa: Stellenbosch Business School, South Africa; ESSEC Africa, Morocco. 
- South America: FGV-EAESP, Brazil.

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