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Why Failure May Actually Drive Business Success

Northwestern MutualVoice Contributor •  July 20, 2015 | Business and Careers

By Sarita Harbour

If at first you don’t succeed, you may be on the path to success—at least when it comes to business.

According to a 2014 Stanford University/University of Michigan study, entrepreneurs are more successful the second, third or fourth time around. Using data collected over 22 years, the study’s authors examined the records of 2.8 million small retail businesses in Texas. They found serial entrepreneurs who experienced multiple business failures were more successful than first-time entrepreneurs. The study suggests there’s value in surviving more than one failed business, and that entrepreneurs who do so go on to find success in future ventures.

Embrace Business Failures

Instead of fearing failure, entrepreneurs can use business fails as learning opportunities, said Kyle Jensen, director of Entrepreneurship Programs at Yale University.

“The kinds of people who persist through failure will be successful,” he said. “Failure is a wonderfully motivating factor.”

Prior to his current role at Yale, Jensen co-founded the biotechnology company Agrivida, patent-analytics provider PriorSmart and motorsports analytics firm PitRho.

Jensen learned to welcome failure as an opportunity to improve his initial ideas. “I tried to view it as ‘this venture may not be successful, but I’m gaining knowledge from it,’” he said. Changing the way he interprets failure helped Jensen see the value in the “many ventures that never became anything.”

For example, Jensen started one small venture to track the flow of natural gas across state lines with the goal of selling the data to utilities and other customers. But he failed to challenge the hypothesis underlying that business model—that customers would want this information—prior to launching his venture. Instead, he spent months building the product and then struggled to find customers because he wasn’t solving any real problems for them.

That wasn’t the only time Jensen’s business activities didn’t pan out. “I had similar experiences with other ventures: custom printing of historic off-copyright photographs, patient-driven aggregators of disease-related news, and many other small ideas that never got off the ground,” he said. Yet he views each endeavor as a valuable experience. “I learn new technical skills, I become a better leader, I learned about a different industry,” he said.

Change Your Mindset

Changing the way you view businesses that don’t work out from “failures” to “learning experiences” benefits you only when you identify lessons learned and apply them in your next business.

Anita Mahaffey, a serial entrepreneur and founder of the specialty sleepwear company Cool-jams, has done just that.

Mahaffey sees her first business, Lesanne, a hand-knitted sweater manufacturer, as both a success and a failure. Her goal was to turn a profit while also helping village women in Turkey improve their living standards by paying them to knit sweaters. She succeeded with the second goal, but failed in the first. “I couldn’t make much of a profit because our volumes were just too low,” said Mahaffey, who is also a guest lecturer and mentor in the Department of Entrepreneurship at the University of San Diego.

Her second business was a distributorship for a textile factory, creating private-label towels and robes for U.S. department stores. It was another venture with both successes and failures.

“The success was that I made huge profits when the factory prices were in line with our private-label customer expectations,” she said. But around the time sales reached $20 million, Mahaffey said the business began to erode. Clients were discovering lower-cost products that were now being produced in India and China. After an unsuccessful experiment manufacturing in China, the business closed.

Apply Lessons Learned to Your Next Business

Mahaffey believes Cool-jams has been successful because she applied lessons learned from her previous businesses. Established in 2007, Cool-jams sells sleepwear made from a proprietary fabric that wicks heat and moisture away from the body. It was named one of Apparel Magazine’s Top Innovative Companies of 2013.

Mahaffey said her previous businesses allowed her to gain valuable technical knowledge about fabrics and develop many contacts in the textile industry. These were key to the creation of the specialty fabric for Cool-jams.

Mahaffey learned other important lessons from her previous businesses.

“I learned from my hand-knitted sweater business that specialty products alone are not enough of a reason for a business,” she said. “I also learned from my robe/towel distributorship that commodity low-cost products are not a sustainable business model.”

Mahaffey said these lessons led to the decision to create a fairly priced specialty product that solves a serious problem. “When you solve a problem in an effective way for someone, they are willing to pay for that solution,” she said. “You still need to be innovative and continue to have new ideas, but it is much easier with a specialty product.

“Cool-jams products solve the problem of better sleep,” she said. “Customers place a premium on a product that solves their problems successfully.”

Plan for Mistakes

Jensen frequently discusses how to prepare for business failure with his students.

“We talk about reframing the whole entrepreneurial experience as a science experiment with a hypothesis, testing, observation and conclusion,” he said, referring to himself and other academics. In this context, failure can be a positive step, a signal to try a different direction. Such an approach—asking the right questions and testing before launching—may even help mitigate failure in the first place.

Serial entrepreneurs may be more successful in subsequent businesses because they expect and plan for failure. They also adjust their activities with each business they start based on what did and didn’t work before. If you’re an entrepreneur who’s determined and persistent and have learned from your mistakes, multiple business failures could simply be steps on your path to success.

Originally published on Northwestern MutualVoice on

Sarita Harbour writes about personal finance, business and technology. She is a former financial adviser and holds the Personal Financial Planning Designation from the Institute of Canadian Bankers.

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