The business world is full of stories of entrepreneurs who overcame failure before finding success—Walt Disney, James Dyson, and Henry Ford are famous examples. But how do entrepreneurs bounce back from failure and turn setbacks into new opportunities?
Research from Bayes Business School offers a framework to help failed entrepreneurs restart their ventures and predict their chances of success.
The study reviewed 180 publications on entrepreneurial failure, examining why businesses fail, how entrepreneurs experience and process failure, and the lessons they can learn to recover and try again.
Why Businesses Fail
The research identified two key perspectives on failure:
- Actual causes of failure: These include issues like poor decision-making, lack of managerial skills, and insufficient institutional support.
- Perceived causes of failure: Entrepreneurs often blame internal factors, which can foster learning, or external factors, which may prevent them from addressing the root problems. For example, studies show that female entrepreneurs are more likely to exit voluntarily than fail outright, while minority entrepreneurs often link failure to cultural values or geographical challenges.
Emotional Impact of Failure
The study explored how entrepreneurs handle the emotional fallout of failure:
- Negative emotions: Entrepreneurs often feel guilt, shame, and stigma, which can discourage them from trying again. In some cases, failure can lead to long-term financial or health problems.
- Positive outcomes: Despite the difficulties, failure can build resilience and bring a sense of relief, which may motivate entrepreneurs to bounce back.
Demographic factors also play a role. Older entrepreneurs are less likely to restart, while female and LGBTQ+ entrepreneurs often face greater stigma. Cultural attitudes toward failure and national policies on bankruptcy also influence how failure is perceived. For example, U.S. entrepreneurs tend to see failure more positively than their European counterparts.
Learning and Recovery
The study highlights the importance of reflection and coping mechanisms:
- Entrepreneurs who take time to process their failure and seek support through networks, coaching, or funding are more likely to recover.
- A resilient mindset improves the chances of success, while prolonged grief can hinder recovery.
The research provides a step-by-step framework for entrepreneurs to reflect on their failures, identify lessons, and develop strategies for future ventures. It also highlights gaps in the literature for future research.
With more than 60% of businesses failing within their first three years—a figure rising due to global instability—this framework offers valuable insights for entrepreneurs, educators, and policymakers.
By addressing the emotional and practical aspects of failure, the study aims to help entrepreneurs turn setbacks into opportunities. It also suggests ways to improve entrepreneurship education and create recovery programs to help failed entrepreneurs retain their drive and contribute to economic growth.
