by Louise Nicolson
Entrepreneurship has the power to energize communities, fuel nations and, literally, change the world. It is an exhilarating privilege to create a business from scratch and steer it through a crowded market. But entrepreneurial romance like this can hide the brutal reality of running a business.
Research reveals entrepreneurial work is more uncertain, more complex, more stressful, more pressured and less lucrative than corporate work. We know – despite the blood, sweat and tears invested – around 90% of entrepreneurial businesses will fail. Don’t look away. This oft-quoted figure is from a Harvard Business School cohort analysis of tech-centric, venture capital-backed start-ups. And surviving the first few years is no guarantee of success: a Stanford/Berkeley collaboration sought to improve success rates and discovered that 92% of start-ups still failed within three years. European statistics match. A 2017 UK HM Treasury report revealed only 10% of start-ups make it to a fourth round of investment.
Not All Failures are Equal
We drown out statistics with bravado. The Entrepreneurial Myth whispers: go on, have a shot, move fast, fail fast. “If you aren’t failing, you are not innovating enough,” says Musk. “I’ve been failing for as long as I can remember,” says Branson. But not all failures are equal. Those promoting business risk and celebrating failure, often do so from a position of success and wealth. If Musk wasn’t a success, you wouldn’t hear his tale of failure. Success gives star entrepreneurs the platform but undermines their message. Those who are arguably as talented but didn’t receive the break or the call – the real failures, if you like – remain invisible.
The impact of failure is also skewed. We expect entrepreneurs to privately shoulder the financial and psychological cost of business failure. But if entrepreneurial businesses succeed, society reaps the benefit. Economies rest on the jobs, wealth, tax and glory generated, traded for the health and wellbeing of the person who generates it. This inevitably has an impact.
You Make Me Sick
Research by University of California’s Michael Freeman linked higher rates of mental health issues with entrepreneurship. Freeman found 49% of the sampled entrepreneurs in the US reported mental health conditions. Depression was number one with 30% of sampled entrepreneurs experiencing the condition compared with 15% of the study’s non-entrepreneurial control group. Entrepreneurs are offered personal coping strategies – take some cardiovascular exercise, attend this burnout seminar – but these platitudes miss the point. There is an unexamined structural flaw at the heart of enterprise.
If UK and US enterprise policy is considered side by side, you can trace the role of the entrepreneur morphing from job creator, recession rescuer, equality warrior, to finally become the nation’s inspiration. Broadly the same policy path has been chosen by two Western democracies over a 40-year period. This hints at a movement bigger than party-political fluctuations and national interests – a global swell of entrepreneurial mythmaking, perhaps? In this way, the myth skews business support. It promotes short-term politically expedient enterprise policy, not the long-term assistance required by most businesses; it distracts politicians with glossy start-up initiatives, instead of backing businesses at predictable scale-up hurdles.
The Entrepreneurial Myth misrepresents success as easy and failure as personal. It promotes inadequate policy and romanticises the cost to entrepreneurial mental health. We should be outraged about business failure rates and appalled about the impact on founders. Name another economic sector that tolerates the almost certain probability of losing the millions invested. We can do better than this. First, consider how other industries mitigate failure.
Aviation manufacturers and operators collaborate – despite ferocious competition – to learn from failure, rather than measure each other against it. They methodically share, examine and address causes of failure. A flight – like a business – is a complex system of mechanical equipment, maintenance schedules, fallible leaders, team dynamics and uncontrollable external influences. Analysis of aviation incidents considers the whole system – the plane and the pilot and everything in between.
Such ‘human factors’ analysis often relies on a quirkily titled ‘swiss cheese model’ to envision how ‘holes’ in an organization’s defensive layers align to create the perfect conditions for failure. An entrepreneurial hole might be a duff decision impacting cash flow or the prolonged absence of your co-founder; it might be a change in your customer’s strategy or wider economic recession. A start-up might flex to handle one or two holes but, if they all align, the business fails. There are patterns buried in entrepreneurship’s 90% failure rate. If aviation, energy, banking and healthcare industries can learn from the swiss cheese model, so can entrepreneurship.
Claim the Prize
Let’s pool the data of the 90%, draw the patterns and learn the lessons. Sharing data, as well as stories, requires open business cultures where entrepreneurs report failure factors without shame, blame and recourse. We must then systematically analyse this data to find the holes and identify situational, geographical, sectoral, temporal and behavioural clusters in the failed 90%. These clusters and patterns present us with an opportunity to recalibrate business success.
The prize is huge. If business success rates improved by just 10%, back of the envelope calculations indicate it could be worth $850 billion to the US economy. Most importantly, any economic benefit is coupled with the unquantifiable human benefit of preserving entrepreneurial wellbeing. Consider this a heartfelt call to business people, politicians, legislators and educators – to you, wherever you stand – to help redesign enterprise for the health and wealth of us all.
Louise Nicolson has studied, launched, led and promoted entrepreneurial businesses for decades. She is an entrepreneur, author and coach with over 20 years’ experience in business, journalism, public relations and employee engagement. The Entrepreneurial Myth: A Manifesto for Real Business is her first business book. For more about Louise, please visit www.louisenicolson.com.