Succeeding in Small Business: Managing Risk vs. Learning from Failure


I have read many divergent ideas about starting a business and how to succeed. One recurring theme I hear is to understand how to manage risk and avoid failure. I emphatically reject this idea for several reasons. First, small business entrepreneurs can mitigate risk through insurance and what the entrepreneur deals with is not risk, but uncertainty. Uncertain conditions are not manageable. How can you manage something you do not know about yet?

Second, instead of demonizing failure I believe an entrepreneur should embrace it because I do not know a single entrepreneur that hasn’t failed before succeeding. Failure is part of the program, like it or not! A seasoned entrepreneur knows how to fail and does not quit. Failure paralyzes the inexperienced entrepreneur who moves no further forward. Steve Jobs recognized the need to move on and jump to the next innovation. Jobs believed intelligent people change their minds. A seasoned entrepreneur learns something from each failure and gains valuable experience. An inexperienced entrepreneur is likely to walk away and find a reason on which to blame ¬†failure.

I just read in another blog this morning about how Richard Branson’s mother taught him to not look back on failure, but to focus on continuing to move forward. What excellent advice! Setbacks do not bother Branson as he simply goes on to another idea. I wish my mother would have drilled that into me. Richard Branson is the founder of the Virgin Group in case you do not recognize the name.

In my view, successful entrepreneurs have to build a thick skin and rapidly put failure behind them. Successful entrepreneurs learn what they can do differently next time and develop a “gut” to react to uncertain conditions and limit their losses by knowing when to move on and try a different approach.

Small business entrepreneurs still need hard skills to run their business, but they can gain these along the way by finding the right people and learning from them. The successful entrepreneur realizes success is a learning curve and learning comes from trying new approaches and associating with the right people.

What do you think? Does successful entrepreneurship come from managing risks or learning from failure? I would love to hear your thoughts. Please leave a comment with your thoughts or click here to learn more.

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  1. #1 by Tom Eakin on April 2, 2012 - 4:29 pm

    Phil- Regarding your two points on managing risk, I just posted a similar discussion on my blog in which I state that success is based on one’s actions not on whether chance (or, uncertaintly) determines if one’s efforts will result in material rewards. Also, while I don’t state it as explicitly as you do, the message that is woven throughout my post is in agreement with your second point that failure is our best teacher. I know I wouldn’t be able to recognize the warning signs and want to help others avoid Leadership pitfalls if I hadn’t gone through the pain of learning the lessons myself.
    Here’s a link to my blog titled “How do You Measure Success?”
    http://findthepath.us/blog/?p=59

    Regards,
    Tom Eakin

  2. #2 by mhmhammer on April 3, 2012 - 1:29 am

    Dear Phil,

    I do agree that there is a lot of misunderstanding between risk and uncertainty. When looking to failure, the learning opportunity is very big for entrepreneurs and those who manage that the best, have more reasons for succes. However, regarding to Rita McGrath, there is a difference between making a mistake and making a failure. From the failures, a large part was avoidable, and therefore does not contribute to succes. In the region of the west and middle part of Europe, Entrepreneurial Failure has an enormous impact both, business an private life. So there is a cultural difference in the experience of failure (not mistakes). Foor more information, please look an an articel of mine (http://ssrn.com/abstract=2004206). A more updated one wille be published at the end of May on the FINPIN conference.

  3. #3 by Hemlatha Mohan on April 13, 2012 - 3:02 am

    Dear Phil,
    Risk to my mind is the art of balancing interests- risk is also uncertainty of an outcome. The thread of the discussion seems to be how to manage this uncertainty and learning from others’ mistakes, instead of reinventing the wheel. Failures are a part of the learning curve, but what apparently was meant was how to plug the knowns and avoid those pitfalls in order to save costs and time.

    • #4 by APG Academy of Entrepreneurship on April 13, 2012 - 7:31 am

      Hemlatha,

      You said, “risk is uncertainty of an outcome.” The difference between risk and uncertainty is that risk is measurable and uncertainty is not. One can manage risk with insurance or transfer the risk to others. One deals with uncertainty only by experimenting and trying new approaches. Many times the approaches tried will fail, but entrepreneurs learn from these failed attempts and these attempts lead them to success. One can minimize losses from uncertainty only by taking smaller steps and not repeating those that fail. The entrepreneur gains insight (learns) by knowing what not to do and to think about what steps he or she has not yet tried. I hope this clears it up for you!

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