By Carrie Markel
To encourage estimation, a teacher will present a jar of candies and ask the class to guess how many pieces of candy are in the container. A good teacher will then ask an even more telling question: "How did you figure it out?"
So the teacher in me that hears the common rule of thumb that 8 out of 10 businesses fail, has to ask, how do we know this? In my classroom, this follow-up question was more important than a student’s close estimation because it illuminated the thought process and methods they took in getting to their answer. In other words, the follow-up question requires higher-level thinking because it tests students’ ability to critically assess the reasonableness of their claim.
And yet, we seem to take the assertion that 80% of new businesses fail as a fact, rather than asking, “How do we know?” If we allow statistics like this to be taken for granted, we are at danger of losing lessons that further inquiry can bring. This nuance is critical in light of The Lean Lab’s 201 Incubator Fellowship kicking off this fall. As we develop educators & community leaders into entrepreneurs inside our accelerator program, we must be aware of the perceptions of failure that dominate entrepreneurship and innovation in order to avoid repeating them.
First in this process is to understand what failure means and how it occurs. Timing is a critical component in this interpretation, as Glenn Kessler from the Washington Post asks, “Two years, five years, 10 years? That can make a big difference.” This key follow-up question led us to studies that tell a far different story about 80% of entrepreneurs that may have been dubbed as "failures" before:
So why do we continue to perpetuate the idea that 8 (sometimes even 9) out of 10 businesses fail? I believe this sheds light on a greater miscalculation we make regarding our perception of failure and how we define success in our society. Brian Headd puts it most clearly when he states, "Contrary to what is commonly believed, not all closures are failures. Only one-third of new businesses (33 percent) closed under circumstances that owners considered unsuccessful" (Redefining Business Success).
Not all closures are failures
Headd's research demonstrates that while traditional metrics use closure as the determining factor in their calculations of new business failure, these closures do not reflect the actual people behind those business ventures and their long-term success, nor does it account for mergers, acquisitions, or planned exit strategies.
Indeed, the perception of failure as being bad and somehow mutually exclusive from success is dangerous not only for entrepreneurs, but for innovation as a whole. In Kansas City, Missouri, where only 31.5% of students read on grade level by 3rd grade and only 25% of high schoolers are proficient in math, a lack of innovation and unwillingness to pioneer change due to fear of failure leaves little room for growth.
So while many have asked The Lean Lab how we plan to manage against failure rates for new ventures in our incubator program, I think a better question to ask is how can we fail faster, fail forward, and fail successfully in our methodologies in order to ensure that students receive the best possible outcome? Or, are we ok with continuing to allow our students to fail rather than accepting the risk that innovation brings?
When we begin to ask these questions, it is my belief that so too will the story behind Kansas City's "failing" students begin to change as well.