Description
With this brief outline regarding developing psychological capital to learn and bounce back from entrepreneurial failure.
Fourth International Workshop Entrepreneurship, Culture, Finance and Economic
Development, July 03
rd
– 04
th
2014
“Developing psychological capital to learn and bounce back from entrepreneurial
failure”
Roxane De Hoe
Researcher
CRECIS, Louvain School of Management
Université Catholique de Louvain
1 Place des Doyens, 1348 Louvain-la-Neuve, Belgique
E-mail: [email protected]
and
Frank Janssen
Professor
CRECIS, Louvain School of Management
Université Catholique de Louvain
1 Place des Doyens, 1348 Louvain-la-Neuve, Belgique
E-mail: [email protected]
Abstract
Although entrepreneurial failure is perceived negatively by society, many researchers believe
in its opportunity to learn from it. However, it is sometimes difficult to learn from a failure
given the financial, psychological and social costs associated. Through our conceptual model,
we take a more positive approach of entrepreneurial failure. We suggest that a high level of
psychological capital plays a moderating role in the relationship between the negative
consequences of failure and the positive side of learning from failure. This learning and high
psychological capital would help failed entrepreneurs to pursue their entrepreneurial career.
Keywords: business failure, learning from failure and psychological capital
1
Developing psychological capital to learn and bounce back from entrepreneurial failure
Introduction
Entrepreneurs play a key role in our current economic environment. Indeed, 99% of European
firms are SMEs
1
(European Commission, 2013). Faced with a complex, uncertain and ever-
changing world, the creation and disappearance of firms are common and inherent in the
economic process (Cannon & Edmondson, 2005, European Commission, 2007; Ucbasaran,
Shepherd, Lockett & Lyon, 2012). In Europe, half of the businesses do not survive the first
five years after their creation (European Commission, 2007). Although entrepreneurs taking a
fresh start perform better (Eknamen & Wyer, 2007), few customers, suppliers and creditors
give them a second chance (European Commission, 2007). Stigma associated to failed
entrepreneurs prevents them from re-launching (Burchell & Hughes, 2006; Stam, Audretsch
& Meijaard, 2008). For example, in Germany, only 3-8 % of them re-start a new venture
(Metzger, 2006; Wagner, 2002).
These high rates of failure and low levels of re-creation raise curiosity. The European
Commission pointed out that Member States take some measures to stimulate
entrepreneurship and business creation, but do not develop actions to help failed entrepreneurs
to recreate a new activity. This paradoxical attitude reflects the misjudgment of European
citizens and Governments about failure (Janssen & Jacquemin, 2009). They do not consider it
as inherent to a country’s economy. In order to not fear failure, the European Commission has
proposed an action plan to promote a second chance policy. Its recommendations include
promotion of second chance entrepreneurs in the media, failure’s destigmatization in
educational programs, adoption of laws (in insolvency matter) distinguishing the fraudulent
bankruptcies from those that are not, as well as implementation of financial, psychological
and technical support to help entrepreneurs to re-launch.
This will to change mentalities is also a concern in the academic world. After a long focus on
entrepreneurial success, researchers are now looking at failure as a way to future success for
both entrepreneurs and the economy as a whole (Singh, Corner & Pavlovich, 2007). Many
researchers consider it as a real opportunity to learn (Cannon & Edmondson, 2005; Cope,
2011; McGrath, 1999; Minniti & Bygrave, 2001, Shepherd, 2003; Singh et al, 2007.
Ucbasaran et al., 2012). However, it might also be difficult for an entrepreneur who failed to
learn from his/her experience because failure is often seen as an emotionally traumatic event
(Cope, 2011; Shepherd, 2003).
The major costs of a business failure for an entrepreneur are financial, social and
psychological (Ucbasaran et al., 2012). The financial costs could be associated to a loss of or
a reduction in personal income. The social costs concern the impact of the failure on personal
and professional relationships, such as divorce for instance (Cope, 2011) and loss of an
important social network (Harris and Sutton, 1986). The stigma associated to failure is the
social devaluation of the person who does not or no longer meet the social norms (Efrat, 2006
1
An SME is a small and medium-sized enterprise that employs less than 250 employees and has an annual
turnover not exceeding 50 million euros (European definition).
2
cited in Ucbasaran et al., 2012) which is profoundly discrediting (Sutton and Callahan, 1987).
Most psychological costs experienced by entrepreneurs after the failure often are emotional
and motivational. The negative emotions are, for example, pain, remorse, shame, humiliation,
anger, guilt, responsibility and fear of the unknown (Cope, 2011; Harris & Sutton, 1986;
Shepherd, 2003). Concerning motivational aspects of psychological costs, some authors noted
that the entrepreneurs who fail a venture have a sense of helplessness that decreases their
beliefs in their ability to lead tasks with success in the future and generates rumination that
impedes task performance (Bandura, 2001; Shepherd, 2003). Moreover, the intensity of these
negative consequences can be influenced by the individual response as well as the
environmental context in which the entrepreneur finds him/herself (Ucbasaran et al., 2012).
All of these reasons (the effects and the magnitude of these interconnected costs on the
entrepreneur) prevent the good process of learning process from failure (Ucbasaran et al.,
2012).
However, some researchers believe that positive emotions also play a key role in learning
from failure and encourage future researches on the impact of positive emotions on
entrepreneurial behavior after an entrepreneurial failure (Byrne & Shepherd, 2013; Ucbasaran
et al, 2012). Based on this call and assuming that all entrepreneurs do not react in the same
way to business failure, the question at the heart of this conceptual communication is: How to
explain that some entrepreneurs re-start while others do not?
To answer this question, we will use a concept from the field of Positive Organizational
Behavior, namely the psychological capital (PsyCap) developed by Luthans, Youssef and
Avolio (2007, p.). These authors define the psychological capital as « a positive psychological
state of development of the individual characterized by high degrees of self-efficacy,
optimism, hope and resilience ». In the workplace, human and social capitals have been
studied extensively, leaving aside the internal resources. The human capital is related to what
a person knows (knowledge, abilities, skills and experience) whereas social capital refers to
people we know (our relationships and professional networks). According to Luthans and
Avolio (2009), psychological capital can be complementary to these two capitals because it
concerns who we are and what we become (Luthans, Vogelgesang, & Lester, 2006).
Therefore, this psychological capital could help entrepreneurs to learn from their failure and
to make a decision about their subsequent career.
This communication will consist of three parts. First, we will present our theoretical
background. To this end, we will define entrepreneurial failure and explain the concepts of
psychological capital and learning process from failure. Next, through our theoretical
argument, we illustrate our conceptual model. Finally, we will discuss the theoretical and
practical implications of this model.
Theoretical background
Our argumentation will consist of five sections. We first define the entrepreneurial failure
before explaining the concepts of psychological capital and learning from failure. Then, we
will discuss the barriers and facilitators of learning. Finally, we will examine the impact of the
latter of and psychological capital on the re-creation of a business.
3
Business failure definition
Before discussing learning from failure, it is important to define entrepreneurial failure.
Studies on entrepreneurial failure are quite recent. To date, there is no universally accepted
definition of entrepreneurial failure. Authors define it based on their own theoretical approach
(Smida & Khelil, 2010). The most common definition reduces it to insolvency or bankruptcy
(Zacharakis, Meyer & DeCastro, 1999). Even if this definition is useful to operationalize and
build samples (Singh et al., 2007), for some authors, entrepreneurial failure cannot be reduced
to simple bankruptcy (Cannon & Edmondson, 2005; McGrath, 1999; Singh et al, 2007; Smida
& Khelil, 2010; Ucbasaran et al., 2012).
In addition to the economic aspects, expectations and goals set by the entrepreneur must also
be taken into account (McGrath, 1999; Singh et al., 2007; Smida & Khelil, 2010; Ucbasaran
et al., 2012). We endorse the view of Ucbasaran et al. (2012, p.13) who define entrepreneurial
failure as « the cessation of involvement in a venture because has not met a minimum
threshold for economic viability as stipulated by the entrepreneur ». In a similar vein, Khelil
(2011 in Khelil, Smida & Zouaoui , 2012) suggests that the failure occurs by the entry of the
new business in a spiral of economic failure (destruction of resources) and/or by the entry of
the entrepreneur in a psychological state of disappointment. In the absence of a financial
and/or moral support, this entrepreneur will see his/her business disappear. This author offers
a multidimensional view of failure and introduces the concept of "support". The latter can be
both external, through the family, professional or private network, institutions, etc., and
internal, i.e. the own resources of the individual. In this paper, we focus on the resources of
the entrepreneur in a failure situation, specifically his/her psychological capital.
Psychological capital
In a world where economic uncertainty, constant competition and perpetual technological
advances prevail, companies can gain a sustainable competitive advantage by developing
psychological capital of their human resources (Luthans, Youssef & Avolio, 2007). In the
case of SMEs, an important psychological capital is an asset to the entrepreneur-manager,
both for the development of his/her business and in a situation of failure. As a result, we
decided to study it in the context of entrepreneurial failure. We believe that it can help the
entrepreneur to recover more easily from the loss of his/her business. This psychological
capital (or PsyCap) is defined by Luthans et al. (2007, p.3) as:
« An individual’s positive psychological state of development characterized by:
(1) Having confidence (self-efficacy) to take on and put in the necessary effort to
succeed at challenging tasks;
(2) Making a positive attribution (optimism) about succeeding now and in the
future;
(3) Persevering toward goals and, when necessary, redirecting paths goals (hope)
in order to succeed; and
(4) When beset by problems and adversity, sustaining and bouncing back and even
beyond (resiliency) to attain success ».
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As mentioned in its definition, psychological capital is considered as a state, meaning that
individuals can develop these four components to overcome hardships (Chen and Lim, 2012;
Luthans, 2002a; Luthans & Avolio, 2009; Luthans et al., 2006b; Luthans et al., 2007). This
idea that these components can be developed is quite recent. Historically, these four concepts
have long been studied as personality traits. For instance, the first theories on resilience
considered that an individual was resilient by genes (Coutu, 2002). But some counter-
examples, like resilience from a beloved person’s loss or a traumatic experience, showed that
it is more a state (Bonanno, 2004).
Note also that self-efficacy, optimism, hope and resilience intertwine and interact. Because of
their mutual influences, a synergy occurs between them, where the whole is greater than the
sum of its parts (Luthans et al., 2006a; Luthans, et al, 2007). This means that a person who
has the will and a clear idea of the path she must follow to achieve its objectives will be more
motivated and capable of overcoming adversity (Luthans et al., 2007). A person who trusts
will be able to use the hope, optimism and resilience for specific tasks in different areas of
his/her life. A resilient person will be able to use coping mechanisms to develop a realistic
and flexible optimism. In turn, self-efficacy, hope and resilience can also help to develop a
positive attribution style to actions under one’s control.
Self-efficacy has its origins in the social cognitive theory of Bandura (1986). It refers to «
one’s conviction (or confidence) about his or her abilities to mobilize the motivation,
cognitive resources and courses of action needed to successfully execute a specific task within
a given context » (Stajkovic & Luthans, 1998b, p.66). This sense of efficacy is built through
five essential cognitive processes: representation, intention, observation, self-regulation and
self-reflection (Luthans et al, 2007). These cognitive processes allow an individual to take
time to reflect on both his/her past successes and failures, learn from them and use this self-
knowledge to progress.
In the field of entrepreneurship, self-efficacy has been widely investigated. Studies have
shown that entrepreneurs have a high degree of self-efficacy (Hayek, 2012). Confident
entrepreneurs are motivated to make the necessary effort to successfully conduct his/her
business (Trevelyan, 2011). However, a failure can undermine that trust (Boss & Sims Jr.,
2008). In such a situation, it is not general self-efficacy which decreases, but the one related to
a specific task (Smith, Kass, Rotunda & Schneider, 2006). Therefore, to help an individual to
bounce back from a setback, we must first restore the confidence in his/her ability to succeed
the task failed. In this point of view, self-efficacy could help an entrepreneur to recover from
a failure (Boss & Sims Jr., 2008). Indeed, by developing it, an individual reflect on his/her
past successes and failures, which can contribute to learning.
Inspired by the work of Snyder, hope is defined as a positive motivational state based on a
sense of achievement from the interaction between the desire (i.e. the energy directed to a
goal) and the way/path to get there (i.e. planning to attain goals) (Snyder, Irving and
Anderson, 1991). In other words, hope is « a cognitive or “thinking” state in which an
individual is capable of setting realistic but challenging goals and expectations » and
reaching out to these by his/her self-determination, energy and internal control’s perception
5
(Luthans, et al., 2007, p.66). In addition, hope allows a person to generate alternative ways to
achieve his/her desired goals when the original path is not possible.
In the field of entrepreneurship, the perception of internal control, one of the mechanisms that
creates hope, has been investigated. Research has shown a positive relationship between hope
and satisfaction of entrepreneurs owning a business (Hayek, 2012; Jensen & Luthans, 2002).
In the case of a failure, nurturing hope could allow the entrepreneur to consider alternative
ways to continue an entrepreneurial career if he/she desired it, and therefore could deploy the
necessary energy to get there.
Conceptualized by Seligman (1998), optimismrefers to the attribution of positive events to
internal, permanent and pervasive causes, and negative events to external, temporary and
related to a specific situation cause. In contrast, a pessimistic attribution style interprets
positive events as belonging to external and temporary factors related to a particular situation
and explain negative events in terms of internal, permanent and generalized factors. From this
point of view, optimistic people tend to consider the causes of desirable events are under their
control (Luthans et al., 2007). Moreover, they expect that the causes of these events persist
over time and will be helpful to manage other situations in different areas of their lives. In this
way, they see things positively and internalize the positive aspects of their lives not only in
the past and the present but also in the future. Luthans et al. (2007) suggest that this optimism
must be realistic and flexible. It should not be pushed to extremes, in which case an individual
could attribute all success to him/herself, try to control all aspects of his/her life, attribute
failures only to external causes and leak his/her responsibilities. In this respect, people with a
high degree of realistic optimism are capable of gratitude for factors contributing to their
success. Similarly, in a situation of failure, they are able to classify information, to establish
facts, to learn from their mistakes, to accept what they cannot change and to move forward.
In the organizational literature, some researchers have shown that the PsyCap optimism can
lead to a self-fulfilling prophecy (Peterson & Chang, 2002). In addition, a person with high
realistic optimism is both motivating and more motivated to achieve success for long-term
(Peterson, 2000). In addition, optimists are more likely to embrace change, to see
opportunities in the future and focus on these opportunities, even in negative situations
(Luthans et al., 2007). Therefore, in a situation of failure, an optimistic entrepreneur would
consider this negative situation as a step allowing him to accomplish future success and to
identify new entrepreneurial opportunities.
In turn, resilience is defined by Luthans (2002a) as the ability to bounce back or quickly
recover from a hardship, a conflict, a failure or even positive events such as progress and
increased responsibilities. This resilience involves everyday skills and psychological strengths
(Masten, 2001; Masten & Reed, 2002). People of all ages and psychological conditions can
maintain and nurture resilience. Therefore, resilient people are not exceptional and rare
persons (Coutu, 2002).
According to Hayek (2012), resilience is an important characteristic of entrepreneurs because
they are known for their determination when they face challenge. But in a situation of failure
this resilience can be undermined. Therefore, we suggest that nurturing or developing their
6
resilience these entrepreneurs can quickly recover from their unsuccessful experience and can
re-start a business if they wish.
At this stage, to better link the elements of psychological capital in the learning process and
before presenting our conceptual model and its proposals, we will explain what we mean by
learning from entrepreneurial failure.
Learning from failure
Because failure is inherent to the economic life, several researchers in management and
entrepreneurship it as a good opportunity to learn and never repeat the same mistakes
(Cannon & Edmondson, 2005; Cope, 2011; McGrath, 1999; Minniti & Bygrave, 2001;
Shepherd, 2003; Ucbasaran et al., 2012). Consequently, failure will contribute to
entrepreneurial learning.
Entrepreneurial learning is also seen as a dynamic, discontinuous and changing concept rather
than a stable, consistent and predictable one (Cope, 2005). Indeed, the entrepreneurial process
is characterized by significant and critical learning events by which an entrepreneur improves
his/her personal and entrepreneurial knowledge that will eventually determine the success of
his/her venture (Deakins & Freel, 1998). Minniti and Bygrave (2001) even state that
entrepreneurs increase their subjective stock of knowledge particularly through non-routine
events.
In the context of entrepreneurial learning theory, business failure could be a non-routine event
by which an entrepreneur can learn to improve his/her entrepreneurial knowledge and pursue
an entrepreneurial career (Shepherd, 2003; Ucbasaran, Westhead, Wright & Flores, 2010).
According to Minniti and Bygrave (2001), both positive and negative experiences shape
entrepreneurs’ knowledge and influence the course of their future choices. In line with these
authors, Shepherd (2003) defines learning from business failure as the ability for an
entrepreneur to revise his/her previous knowledge on how to handle his/her own business
efficiently by integrating the feedback information about the reasons why the business failed.
From this perspective, failures seem to be “the seeds of subsequent project success”
(Shepherd, Covin & Kuratko, 2009a).
Cardon and McGrath (1999) suggest that it is really important to consider failure as a
"learning journey" which means that the process of sense-making behind learning from failure
is gradual over time and constitutes a dynamic process (Cope, 2011). This sense-making
process is realized through three interconnected mechanisms such as scanning, interpretation
and learning (Gioia & Chittipeddi, 1991; Thomas, Clark & Gioia, 1993), the latter acting as a
retroaction feedback for scanning and interpreting information (Shepherd et al., 2009a).
Specifically, the scanning information is a selective attention to relevant information and a
collection of these to promote the sensemaking. When information is collected, an individual
gathers it into structures appropriate for a better comprehension of its meaning (Gioia, 1986;
Taylor & Crocker, 1981). This process refers to the interpretation of the information.
Learning dynamics relate to actions taken by an individual (Daft & Weick, 1984) following
scanning and interpretation dynamics, leading to significant modifications in one’s current
7
practices (Ginsberg, 1988; Thomas et al, 1993). As mentioned before, these three mechanisms
work together because information collected by scanning dynamics is essential for the
interpretation (Daft & Weick, 1984). In turn, interpretation structures this information in order
to act in a specific way (Gioia & Chittipeddi, 1991), and the action(s) resulting from learning
influence, in its(their) turn, scanning and interpretations of new information (Daft & Weick,
1984).
Barriers and facilitators of learning
Learning from entrepreneurial failure is not an easy task. Indeed, negative emotions
sometimes interfere with an individual’s attention when he/she is processing information
(Mogg, Mathews, Bird & MacGregor-Morris, 1990) which affects learning (Bower 1992).
Focusing uppermost on emotions that come with failure may interrupt prematurely the
information process about potential causes of failure (Bower, 1992). As we said before, the
magnitude and the intensity of financial, social and psychological costs may obstruct the
learning process of failure (Ucbasaran et al., 2012). The latter is also perceived as intimidating
(Rogoff, Lee, & Suh, 2004) since the entrepreneur may express a loss of self-esteem (Jenkins,
Wiklund & Brundin, 2012), feelings of guilt, shame and remorse that are difficult to handle
(Ucbasaran et al., 2012). Moreover, he/she is not used to deal with it because he/she learned
by socialization to keep a distance from negative situations (Cannon & Edmondson, 2005). In
this context, learning from failure is not a natural, automatic or instantaneous act (Wilkinson
& Mellahi, 2005). This leads to the first proposition:
Proposition 1: Financial, psychological and social costs negatively influence learning
from failure.
To overcome these negative emotions, a failed entrepreneur comes through a “grief recovery
process” that handles and eventually manages the loss of his/her business (Shepherd, 2003;
Shepherd et al, 2009a.). Shepherd (2003) suggests that negative emotions can in some way
contribute to the learning process. This beneficial part depends on both the intensity of the
grief (which symptoms are anger, guilt, anxiety, hopeless, withdrawal and depression) and on
where the entrepreneur is in this process. The grief recovery process consists of two distinct
but complementary strategies: loss and restoration orientations.
The loss orientation strategy is composed of three phases: a confrontation of loss, a
reassessment of the events before and at the time of failure and the awareness of different
causes of failure (Shepherd, 2003; 2009; Stroebe & Schut, 1999). The restoration orientation
is entirely different. It consists of distracting from and avoiding all thoughts linked to the loss,
as well as, eliminating secondary sources of stress generated by the business failure
(Shepherd, 2003; 2009; Stroebe & Schut, 1999). With the oscillation between these dual
processes, an entrepreneur adopts the best strategy to handle the loss of his/her business
(Cope, 2011; Shepherd, 2003) by regulating his/her emotions. Thereby, emotional
interferences are reduced and ability to learn from failure is increased.
In their study, Byrne and Shepherd (2013) found that an emotion-focused strategy also helps
entrepreneurs to manage their negative emotions. Indeed, high negative emotions motivate the
8
entrepreneur to make sense of his/her loss while higher positive emotions provide him/her the
necessary cognitive resources that will facilitate and motivate this sense-making. Cognitive
strategies focusing attention on failure and encouraging self-reflection also provide a better
understanding of failure.
As we mentioned above, the four factors of psychological capital can also help an
entrepreneur to think about failure. First, we consider that the five cognitive processes (i.e. the
representation, intentional, observation, self-regulation and self-reflection) building self-
efficacy (Luthans et al., 2007) will help to learning from failure. Hope, optimism and
resilience also are resources that will manage failure and its negative consequences to
promote learning. In other words, the psychological capital would act as a buffer between the
negative consequences of failure and learning. In this context, we suggest the following
propositions:
Proposition 2: The psychological capital moderates the negative relationship between
the psychological, social and financial costs of entrepreneurial failure and learning
from it.
Proposition 3: The psychological capital has a direct and positive effect on learning
from failure.
As far as we know, no research has yet been undertaken on the moderating effect of
psychological capital on this relationship.
Impact of learning and psychological capital on recreating
By learning from his/her entrepreneurial failure, an entrepreneur increases his/her knowledge
on different levels: his/her knowledge about him/herself (his/her strengths and weaknesses,
skills, abilities and entrepreneurial approach’s efficacy), the disappearance of his/her venture
(strengths and weaknesses of the venture, reasons for failure), the nature of his/her networks
and relationships (managing a team, working with a partner, persuading investors, building
valuable collaborations) and the venture management (development of new models of how to
manage and grow entrepreneurial ventures) (Cope, 2011). These learning outcomes give
him/her a future-oriented vision and increase his/her entrepreneurial preparedness’ level to
pursue entrepreneurial activities. This new knowledge will be even more useful if the
entrepreneur uses it in another business (Shepherd, 2003; Shepherd, Wiklund & Haynie,
2009b), whether it is his/her own new business or if he/she pursues his/her career in the
entrepreneurial field without creating a new business (Cope, 2011). This leads to the
following proposition:
Proposition 4: Learning outcomes from failure have a positive relationship with the
intention of re-creating a new business.
Other empirical studies also show that people who have started a business are more likely to
re-create a new one compared to those who have never tried the entrepreneurial adventure
(Caroll and Mosakowski 1987; Schultjens and Stam, 2006). Entrepreneurial intention is a sine
qua non condition for entrepreneurial behavior (Krueger, 2003). In their study, Schultjens and
9
Stam (2006) found that most entrepreneurs who have ceased their activity still keep their
entrepreneurial intentions at the time of their first business closure. According to these
authors, the amount of hours invested in the first company and the experience of running a
business contribute to the intention of re-starting a new business.
To our knowledge, few studies have been conducted on the impact of learning from failure on
the intention to re-create and the re-creation of a new business. Authors such as Schutjens and
Stam (2006) have empirically demonstrated that some entrepreneurs (20% of sample) who
closed their business (i.e. they have taken this decision for personal and voluntary choice, not
necessarily due to a lack of economic viability or necessity) do not want to re-launch a
venture while a majority (69%) are attracted by the independence offered by this career
choice and develop strong intentions to re-create a new business. The remaining 20% of their
sample are uncertain. They do not yet know if they will re-start a new venture or not.
Moreover, entrepreneurs who have experienced a business exit (by closing, ceasing or leaving
their ventures) have more relevant entrepreneurial skills and identify more often business
opportunities than those who did not undergo an entrepreneurial exit (Hessels, Grilo, Thurik
& Zwan, 2011). In this context, a new business created by a renascent entrepreneur – that is,
an entrepreneur who has exited his/her business and who will re-enter into entrepreneurship
(Stam et al., 2008) – will present better performance (Ucbasaran et al., 2012). There is a lack
of research proving this assumption but a recent study by Yamakawa, Peng and Deeds (2013)
has investigated it. These researchers interviewed Japanese entrepreneurs who re-launched a
venture after one or more unsuccessful experiences. They studied the influences of cognitive
determinants (that is the internal attribution of the cause of failure and intrinsic motivation to
re-start a new business) and the experience of failure on the growth of their new business.
Entrepreneurs attributing the cause of failure to them had better performance when they had a
small number of failures. By contrast, the performance decreased for those who had
experienced too many failures. For these researchers, entrepreneurial failure is not always
beneficial. The relationship between previous failure and the pursuit of an entrepreneurial
career is influenced by the cognition of the entrepreneur.
Given that the pursuit of an entrepreneurial career is influenced by entrepreneurs’ cognitions
(Yamakawa et al., 2013), the development of psychological capital among failed
entrepreneurs should facilitate their learning and promote the re-creation of a new business.
Psychological capital is a mechanism by which past experiences of failure can shape
entrepreneurs to pursue their entrepreneurial journey (Jenkins, Wiklund & Brundin, 2012). By
attributing negative events to external, uncontrollable and varied causes, an individual
develops and maintains his/her resilience optimism (Luthans & Youssef, 2004). The latter can
help an entrepreneur to preserve his/her entrepreneurial motivations after such a negative
experience (Jenkins, et al., 2012). The pursuit of an entrepreneurial career could be related to
a potential high resilience of the entrepreneur (Jenkins et al. (2012). This leads to the
following proposition:
Proposition 5: The psychological capital has a positive influence on the intention to
re-create a business.
10
In a context of entrepreneurial failure, the development or consolidation of entrepreneurs’
psychological capital can mitigate the negative impact of the failure’s consequences on
learning. He/she will learn from his/her mistakes and will therefore be motivated to launch a
venture again. This leads to our last proposition:
Proposition 6: If failed entrepreneurs have a high psychological capital, they will
learn more easily from their unsuccessful experience, have a more important intention
to re-create a business, and actually re-create a new business.
Conceptual framework
Figure 1 presents our conceptual model. It is based on the fact that psychological capital
would promote, on the one hand, learning in the context of entrepreneurial failure and, on the
other hand, the intention of the failed entrepreneur to pursue his/her entrepreneurial career.
The failure’s consequences will prevent the good process of learning from failure (Ucbasaran
et al., 2012) (P1). We assume that this negative relationship may be moderated by
psychological capital, the latter allowing the entrepreneur to be in a positive state conducive
to learning (P2). If this positive state encourages the entrepreneur to learn from his/her
mistakes (P3), he/she could manifest the desire to continue his/her entrepreneurial career by
not repeating the same mistakes (P4 and P5). Since the intention to create is a condition sine
qua non (Krueger, 2003) to the effective creation, we assume that the intention of re-creating
a new business will help to lead to the real re-creation of a new venture (P6).
[Figure 1 goes here]
Theoretical and practical implications
From a theoretical point of view, understanding the barriers and facilitators of learning from
failure and their implications for the pursuit of an entrepreneurial career process is an
interesting avenue for future research. Some authors have begun to investigate the cognitive
and emotional processes that influence the performance of a new business after previous
business failures (Yamakawa et al., 2013) or to make sense of this failure (Byrne and
Shepherd, 2003).
Few studies have focused on mechanisms to facilitate learning from entrepreneurial failure.
Through our theoretical model, we try to answer the following question: Does a positive
psychological state allow better learning and re-starting after a business failure? The positive
approach of psychological capital would enable entrepreneurs to capitalize on their failure’s
experience in order to better bounce back from it. A study on job search has shown that
through interventions and training to help job seekers to develop their psychological capital,
they increased their perceived employability in their job search (Chen & Lim, 2012). By
developing a high degree of psychological capital, unemployed people are more confident
about their abilities and skills, are more optimistic about the future, do not give up their job
search and invent solutions to overcome obstacles in their job search. This positive attitude
encourages them to look for opportunities rather than to attribute their difficulties to external
causes and blame themselves (Chen and Lim, 2012). While a job search situation is not
11
similar to an entrepreneurial failure, we believe that the development of psychological capital
may have similar effects on the ability of entrepreneurs to learn from their failure and
continue their entrepreneurial career.
The concept of psychological capital is used more and more in the field of organizational
behavior. Some authors have also started to introduce in the field of entrepreneurship (Jensen
& Luthans, 2002; Jenkins et al, 2012.). Its application to the entrepreneurial process could be
considered earlier at the creation of a venture, as a determinant of opportunities identification
or intention to create, or later, as a determinant of performance.
Besides the psychological capital, other cognitive or affective mechanisms may also be
relevant to promote learning from failure in order to re-create a new business. In particular,
we believe on the potential of the concept of hardiness developed by Maddi (2013). Luthans
et al. (2007) also suggest that cognitive processes, such as creativity and wisdom, as well as
emotional processes, perceived well-being, the flow (that is a state of maximum
concentration) and humor also should to be investigated. The latters could also be constitutive
of psychological capital (Luthans et al., 2007).
In terms of the practical implications, psychological capital is a tool to be exploited for the
development of the entrepreneur in general and, more specifically, of the entrepreneur in a
business failure context. This concept has two major advantages: it can be developed and is
available to everyone (Chen & Lim, 2012; Fleig-Palmer & Mandernach; Luthans, 2009;
Luthans, 2002a). Providing training for entrepreneurs to develop their psychological capital
would be potentially appreciated by the European Commission. Indeed, in its 2007 report, it is
recommended to develop psychological and technical supports for entrepreneurs who have
failed, through, for instance, training and specific supervision.
Conclusion
Considering that the half of newly established firms do not survive during the first five years
after creation (European Commission, 2007) and that very few failed entrepreneurs re-launch
a new business thereafter, it seemed appropriate to focus on these entrepreneurs.
Many researchers agree that entrepreneurs learn from their entrepreneurial failure (Cannon &
Edmondson, 2005; Cope, 2011; McGrath, 1999; Minniti & Bygrave, 2001, Shepherd, 2003;
Ucbasaran et al., 2012). However, given the financial, psychological and social consequences
of business failure and social stigmatization of these entrepreneurs, this learning is not an easy
task (Ucbasaran et al., 2012). Despite these barriers, 3 to 8 % of them re-start a new activity.
How to explain this figure? From this, we have developed our conceptual model. Its
originality is based on a positive approach to promote learning from failure and, lates, re-
creation after it. To do this, we used the psychological capital developed by Luthans et al.
(2007). We suggest that PsyCap may decrease the negative effects of the failure’s
consequences on entrepreneurial learning process. In addition, we assume that it also has a
positive effect on the intention to re-create a business; this intention can be achieved by
12
effective re-creation of a new venture. Similarly, the accumulation of knowledge on the
entrepreneur himself, the end of his/her business, the management of a business and the
professional relationships can positively influence his/her intention to create a new venture
and really do it.
Finally, we believe that psychological capital has a bright future in entrepreneurship research.
In addition to its usefulness in understanding learning from failure and re-creation,
psychological capital could be investigated in the creation process and opportunities
identification or as a factor promoting the leadership of the entrepreneur and business
performance.
13
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18
Figure 1. Conceptual model of the impact of psychological capital on learning from
failure and intention to re-create
doc_437783339.pdf
With this brief outline regarding developing psychological capital to learn and bounce back from entrepreneurial failure.
Fourth International Workshop Entrepreneurship, Culture, Finance and Economic
Development, July 03
rd
– 04
th
2014
“Developing psychological capital to learn and bounce back from entrepreneurial
failure”
Roxane De Hoe
Researcher
CRECIS, Louvain School of Management
Université Catholique de Louvain
1 Place des Doyens, 1348 Louvain-la-Neuve, Belgique
E-mail: [email protected]
and
Frank Janssen
Professor
CRECIS, Louvain School of Management
Université Catholique de Louvain
1 Place des Doyens, 1348 Louvain-la-Neuve, Belgique
E-mail: [email protected]
Abstract
Although entrepreneurial failure is perceived negatively by society, many researchers believe
in its opportunity to learn from it. However, it is sometimes difficult to learn from a failure
given the financial, psychological and social costs associated. Through our conceptual model,
we take a more positive approach of entrepreneurial failure. We suggest that a high level of
psychological capital plays a moderating role in the relationship between the negative
consequences of failure and the positive side of learning from failure. This learning and high
psychological capital would help failed entrepreneurs to pursue their entrepreneurial career.
Keywords: business failure, learning from failure and psychological capital
1
Developing psychological capital to learn and bounce back from entrepreneurial failure
Introduction
Entrepreneurs play a key role in our current economic environment. Indeed, 99% of European
firms are SMEs
1
(European Commission, 2013). Faced with a complex, uncertain and ever-
changing world, the creation and disappearance of firms are common and inherent in the
economic process (Cannon & Edmondson, 2005, European Commission, 2007; Ucbasaran,
Shepherd, Lockett & Lyon, 2012). In Europe, half of the businesses do not survive the first
five years after their creation (European Commission, 2007). Although entrepreneurs taking a
fresh start perform better (Eknamen & Wyer, 2007), few customers, suppliers and creditors
give them a second chance (European Commission, 2007). Stigma associated to failed
entrepreneurs prevents them from re-launching (Burchell & Hughes, 2006; Stam, Audretsch
& Meijaard, 2008). For example, in Germany, only 3-8 % of them re-start a new venture
(Metzger, 2006; Wagner, 2002).
These high rates of failure and low levels of re-creation raise curiosity. The European
Commission pointed out that Member States take some measures to stimulate
entrepreneurship and business creation, but do not develop actions to help failed entrepreneurs
to recreate a new activity. This paradoxical attitude reflects the misjudgment of European
citizens and Governments about failure (Janssen & Jacquemin, 2009). They do not consider it
as inherent to a country’s economy. In order to not fear failure, the European Commission has
proposed an action plan to promote a second chance policy. Its recommendations include
promotion of second chance entrepreneurs in the media, failure’s destigmatization in
educational programs, adoption of laws (in insolvency matter) distinguishing the fraudulent
bankruptcies from those that are not, as well as implementation of financial, psychological
and technical support to help entrepreneurs to re-launch.
This will to change mentalities is also a concern in the academic world. After a long focus on
entrepreneurial success, researchers are now looking at failure as a way to future success for
both entrepreneurs and the economy as a whole (Singh, Corner & Pavlovich, 2007). Many
researchers consider it as a real opportunity to learn (Cannon & Edmondson, 2005; Cope,
2011; McGrath, 1999; Minniti & Bygrave, 2001, Shepherd, 2003; Singh et al, 2007.
Ucbasaran et al., 2012). However, it might also be difficult for an entrepreneur who failed to
learn from his/her experience because failure is often seen as an emotionally traumatic event
(Cope, 2011; Shepherd, 2003).
The major costs of a business failure for an entrepreneur are financial, social and
psychological (Ucbasaran et al., 2012). The financial costs could be associated to a loss of or
a reduction in personal income. The social costs concern the impact of the failure on personal
and professional relationships, such as divorce for instance (Cope, 2011) and loss of an
important social network (Harris and Sutton, 1986). The stigma associated to failure is the
social devaluation of the person who does not or no longer meet the social norms (Efrat, 2006
1
An SME is a small and medium-sized enterprise that employs less than 250 employees and has an annual
turnover not exceeding 50 million euros (European definition).
2
cited in Ucbasaran et al., 2012) which is profoundly discrediting (Sutton and Callahan, 1987).
Most psychological costs experienced by entrepreneurs after the failure often are emotional
and motivational. The negative emotions are, for example, pain, remorse, shame, humiliation,
anger, guilt, responsibility and fear of the unknown (Cope, 2011; Harris & Sutton, 1986;
Shepherd, 2003). Concerning motivational aspects of psychological costs, some authors noted
that the entrepreneurs who fail a venture have a sense of helplessness that decreases their
beliefs in their ability to lead tasks with success in the future and generates rumination that
impedes task performance (Bandura, 2001; Shepherd, 2003). Moreover, the intensity of these
negative consequences can be influenced by the individual response as well as the
environmental context in which the entrepreneur finds him/herself (Ucbasaran et al., 2012).
All of these reasons (the effects and the magnitude of these interconnected costs on the
entrepreneur) prevent the good process of learning process from failure (Ucbasaran et al.,
2012).
However, some researchers believe that positive emotions also play a key role in learning
from failure and encourage future researches on the impact of positive emotions on
entrepreneurial behavior after an entrepreneurial failure (Byrne & Shepherd, 2013; Ucbasaran
et al, 2012). Based on this call and assuming that all entrepreneurs do not react in the same
way to business failure, the question at the heart of this conceptual communication is: How to
explain that some entrepreneurs re-start while others do not?
To answer this question, we will use a concept from the field of Positive Organizational
Behavior, namely the psychological capital (PsyCap) developed by Luthans, Youssef and
Avolio (2007, p.). These authors define the psychological capital as « a positive psychological
state of development of the individual characterized by high degrees of self-efficacy,
optimism, hope and resilience ». In the workplace, human and social capitals have been
studied extensively, leaving aside the internal resources. The human capital is related to what
a person knows (knowledge, abilities, skills and experience) whereas social capital refers to
people we know (our relationships and professional networks). According to Luthans and
Avolio (2009), psychological capital can be complementary to these two capitals because it
concerns who we are and what we become (Luthans, Vogelgesang, & Lester, 2006).
Therefore, this psychological capital could help entrepreneurs to learn from their failure and
to make a decision about their subsequent career.
This communication will consist of three parts. First, we will present our theoretical
background. To this end, we will define entrepreneurial failure and explain the concepts of
psychological capital and learning process from failure. Next, through our theoretical
argument, we illustrate our conceptual model. Finally, we will discuss the theoretical and
practical implications of this model.
Theoretical background
Our argumentation will consist of five sections. We first define the entrepreneurial failure
before explaining the concepts of psychological capital and learning from failure. Then, we
will discuss the barriers and facilitators of learning. Finally, we will examine the impact of the
latter of and psychological capital on the re-creation of a business.
3
Business failure definition
Before discussing learning from failure, it is important to define entrepreneurial failure.
Studies on entrepreneurial failure are quite recent. To date, there is no universally accepted
definition of entrepreneurial failure. Authors define it based on their own theoretical approach
(Smida & Khelil, 2010). The most common definition reduces it to insolvency or bankruptcy
(Zacharakis, Meyer & DeCastro, 1999). Even if this definition is useful to operationalize and
build samples (Singh et al., 2007), for some authors, entrepreneurial failure cannot be reduced
to simple bankruptcy (Cannon & Edmondson, 2005; McGrath, 1999; Singh et al, 2007; Smida
& Khelil, 2010; Ucbasaran et al., 2012).
In addition to the economic aspects, expectations and goals set by the entrepreneur must also
be taken into account (McGrath, 1999; Singh et al., 2007; Smida & Khelil, 2010; Ucbasaran
et al., 2012). We endorse the view of Ucbasaran et al. (2012, p.13) who define entrepreneurial
failure as « the cessation of involvement in a venture because has not met a minimum
threshold for economic viability as stipulated by the entrepreneur ». In a similar vein, Khelil
(2011 in Khelil, Smida & Zouaoui , 2012) suggests that the failure occurs by the entry of the
new business in a spiral of economic failure (destruction of resources) and/or by the entry of
the entrepreneur in a psychological state of disappointment. In the absence of a financial
and/or moral support, this entrepreneur will see his/her business disappear. This author offers
a multidimensional view of failure and introduces the concept of "support". The latter can be
both external, through the family, professional or private network, institutions, etc., and
internal, i.e. the own resources of the individual. In this paper, we focus on the resources of
the entrepreneur in a failure situation, specifically his/her psychological capital.
Psychological capital
In a world where economic uncertainty, constant competition and perpetual technological
advances prevail, companies can gain a sustainable competitive advantage by developing
psychological capital of their human resources (Luthans, Youssef & Avolio, 2007). In the
case of SMEs, an important psychological capital is an asset to the entrepreneur-manager,
both for the development of his/her business and in a situation of failure. As a result, we
decided to study it in the context of entrepreneurial failure. We believe that it can help the
entrepreneur to recover more easily from the loss of his/her business. This psychological
capital (or PsyCap) is defined by Luthans et al. (2007, p.3) as:
« An individual’s positive psychological state of development characterized by:
(1) Having confidence (self-efficacy) to take on and put in the necessary effort to
succeed at challenging tasks;
(2) Making a positive attribution (optimism) about succeeding now and in the
future;
(3) Persevering toward goals and, when necessary, redirecting paths goals (hope)
in order to succeed; and
(4) When beset by problems and adversity, sustaining and bouncing back and even
beyond (resiliency) to attain success ».
4
As mentioned in its definition, psychological capital is considered as a state, meaning that
individuals can develop these four components to overcome hardships (Chen and Lim, 2012;
Luthans, 2002a; Luthans & Avolio, 2009; Luthans et al., 2006b; Luthans et al., 2007). This
idea that these components can be developed is quite recent. Historically, these four concepts
have long been studied as personality traits. For instance, the first theories on resilience
considered that an individual was resilient by genes (Coutu, 2002). But some counter-
examples, like resilience from a beloved person’s loss or a traumatic experience, showed that
it is more a state (Bonanno, 2004).
Note also that self-efficacy, optimism, hope and resilience intertwine and interact. Because of
their mutual influences, a synergy occurs between them, where the whole is greater than the
sum of its parts (Luthans et al., 2006a; Luthans, et al, 2007). This means that a person who
has the will and a clear idea of the path she must follow to achieve its objectives will be more
motivated and capable of overcoming adversity (Luthans et al., 2007). A person who trusts
will be able to use the hope, optimism and resilience for specific tasks in different areas of
his/her life. A resilient person will be able to use coping mechanisms to develop a realistic
and flexible optimism. In turn, self-efficacy, hope and resilience can also help to develop a
positive attribution style to actions under one’s control.
Self-efficacy has its origins in the social cognitive theory of Bandura (1986). It refers to «
one’s conviction (or confidence) about his or her abilities to mobilize the motivation,
cognitive resources and courses of action needed to successfully execute a specific task within
a given context » (Stajkovic & Luthans, 1998b, p.66). This sense of efficacy is built through
five essential cognitive processes: representation, intention, observation, self-regulation and
self-reflection (Luthans et al, 2007). These cognitive processes allow an individual to take
time to reflect on both his/her past successes and failures, learn from them and use this self-
knowledge to progress.
In the field of entrepreneurship, self-efficacy has been widely investigated. Studies have
shown that entrepreneurs have a high degree of self-efficacy (Hayek, 2012). Confident
entrepreneurs are motivated to make the necessary effort to successfully conduct his/her
business (Trevelyan, 2011). However, a failure can undermine that trust (Boss & Sims Jr.,
2008). In such a situation, it is not general self-efficacy which decreases, but the one related to
a specific task (Smith, Kass, Rotunda & Schneider, 2006). Therefore, to help an individual to
bounce back from a setback, we must first restore the confidence in his/her ability to succeed
the task failed. In this point of view, self-efficacy could help an entrepreneur to recover from
a failure (Boss & Sims Jr., 2008). Indeed, by developing it, an individual reflect on his/her
past successes and failures, which can contribute to learning.
Inspired by the work of Snyder, hope is defined as a positive motivational state based on a
sense of achievement from the interaction between the desire (i.e. the energy directed to a
goal) and the way/path to get there (i.e. planning to attain goals) (Snyder, Irving and
Anderson, 1991). In other words, hope is « a cognitive or “thinking” state in which an
individual is capable of setting realistic but challenging goals and expectations » and
reaching out to these by his/her self-determination, energy and internal control’s perception
5
(Luthans, et al., 2007, p.66). In addition, hope allows a person to generate alternative ways to
achieve his/her desired goals when the original path is not possible.
In the field of entrepreneurship, the perception of internal control, one of the mechanisms that
creates hope, has been investigated. Research has shown a positive relationship between hope
and satisfaction of entrepreneurs owning a business (Hayek, 2012; Jensen & Luthans, 2002).
In the case of a failure, nurturing hope could allow the entrepreneur to consider alternative
ways to continue an entrepreneurial career if he/she desired it, and therefore could deploy the
necessary energy to get there.
Conceptualized by Seligman (1998), optimismrefers to the attribution of positive events to
internal, permanent and pervasive causes, and negative events to external, temporary and
related to a specific situation cause. In contrast, a pessimistic attribution style interprets
positive events as belonging to external and temporary factors related to a particular situation
and explain negative events in terms of internal, permanent and generalized factors. From this
point of view, optimistic people tend to consider the causes of desirable events are under their
control (Luthans et al., 2007). Moreover, they expect that the causes of these events persist
over time and will be helpful to manage other situations in different areas of their lives. In this
way, they see things positively and internalize the positive aspects of their lives not only in
the past and the present but also in the future. Luthans et al. (2007) suggest that this optimism
must be realistic and flexible. It should not be pushed to extremes, in which case an individual
could attribute all success to him/herself, try to control all aspects of his/her life, attribute
failures only to external causes and leak his/her responsibilities. In this respect, people with a
high degree of realistic optimism are capable of gratitude for factors contributing to their
success. Similarly, in a situation of failure, they are able to classify information, to establish
facts, to learn from their mistakes, to accept what they cannot change and to move forward.
In the organizational literature, some researchers have shown that the PsyCap optimism can
lead to a self-fulfilling prophecy (Peterson & Chang, 2002). In addition, a person with high
realistic optimism is both motivating and more motivated to achieve success for long-term
(Peterson, 2000). In addition, optimists are more likely to embrace change, to see
opportunities in the future and focus on these opportunities, even in negative situations
(Luthans et al., 2007). Therefore, in a situation of failure, an optimistic entrepreneur would
consider this negative situation as a step allowing him to accomplish future success and to
identify new entrepreneurial opportunities.
In turn, resilience is defined by Luthans (2002a) as the ability to bounce back or quickly
recover from a hardship, a conflict, a failure or even positive events such as progress and
increased responsibilities. This resilience involves everyday skills and psychological strengths
(Masten, 2001; Masten & Reed, 2002). People of all ages and psychological conditions can
maintain and nurture resilience. Therefore, resilient people are not exceptional and rare
persons (Coutu, 2002).
According to Hayek (2012), resilience is an important characteristic of entrepreneurs because
they are known for their determination when they face challenge. But in a situation of failure
this resilience can be undermined. Therefore, we suggest that nurturing or developing their
6
resilience these entrepreneurs can quickly recover from their unsuccessful experience and can
re-start a business if they wish.
At this stage, to better link the elements of psychological capital in the learning process and
before presenting our conceptual model and its proposals, we will explain what we mean by
learning from entrepreneurial failure.
Learning from failure
Because failure is inherent to the economic life, several researchers in management and
entrepreneurship it as a good opportunity to learn and never repeat the same mistakes
(Cannon & Edmondson, 2005; Cope, 2011; McGrath, 1999; Minniti & Bygrave, 2001;
Shepherd, 2003; Ucbasaran et al., 2012). Consequently, failure will contribute to
entrepreneurial learning.
Entrepreneurial learning is also seen as a dynamic, discontinuous and changing concept rather
than a stable, consistent and predictable one (Cope, 2005). Indeed, the entrepreneurial process
is characterized by significant and critical learning events by which an entrepreneur improves
his/her personal and entrepreneurial knowledge that will eventually determine the success of
his/her venture (Deakins & Freel, 1998). Minniti and Bygrave (2001) even state that
entrepreneurs increase their subjective stock of knowledge particularly through non-routine
events.
In the context of entrepreneurial learning theory, business failure could be a non-routine event
by which an entrepreneur can learn to improve his/her entrepreneurial knowledge and pursue
an entrepreneurial career (Shepherd, 2003; Ucbasaran, Westhead, Wright & Flores, 2010).
According to Minniti and Bygrave (2001), both positive and negative experiences shape
entrepreneurs’ knowledge and influence the course of their future choices. In line with these
authors, Shepherd (2003) defines learning from business failure as the ability for an
entrepreneur to revise his/her previous knowledge on how to handle his/her own business
efficiently by integrating the feedback information about the reasons why the business failed.
From this perspective, failures seem to be “the seeds of subsequent project success”
(Shepherd, Covin & Kuratko, 2009a).
Cardon and McGrath (1999) suggest that it is really important to consider failure as a
"learning journey" which means that the process of sense-making behind learning from failure
is gradual over time and constitutes a dynamic process (Cope, 2011). This sense-making
process is realized through three interconnected mechanisms such as scanning, interpretation
and learning (Gioia & Chittipeddi, 1991; Thomas, Clark & Gioia, 1993), the latter acting as a
retroaction feedback for scanning and interpreting information (Shepherd et al., 2009a).
Specifically, the scanning information is a selective attention to relevant information and a
collection of these to promote the sensemaking. When information is collected, an individual
gathers it into structures appropriate for a better comprehension of its meaning (Gioia, 1986;
Taylor & Crocker, 1981). This process refers to the interpretation of the information.
Learning dynamics relate to actions taken by an individual (Daft & Weick, 1984) following
scanning and interpretation dynamics, leading to significant modifications in one’s current
7
practices (Ginsberg, 1988; Thomas et al, 1993). As mentioned before, these three mechanisms
work together because information collected by scanning dynamics is essential for the
interpretation (Daft & Weick, 1984). In turn, interpretation structures this information in order
to act in a specific way (Gioia & Chittipeddi, 1991), and the action(s) resulting from learning
influence, in its(their) turn, scanning and interpretations of new information (Daft & Weick,
1984).
Barriers and facilitators of learning
Learning from entrepreneurial failure is not an easy task. Indeed, negative emotions
sometimes interfere with an individual’s attention when he/she is processing information
(Mogg, Mathews, Bird & MacGregor-Morris, 1990) which affects learning (Bower 1992).
Focusing uppermost on emotions that come with failure may interrupt prematurely the
information process about potential causes of failure (Bower, 1992). As we said before, the
magnitude and the intensity of financial, social and psychological costs may obstruct the
learning process of failure (Ucbasaran et al., 2012). The latter is also perceived as intimidating
(Rogoff, Lee, & Suh, 2004) since the entrepreneur may express a loss of self-esteem (Jenkins,
Wiklund & Brundin, 2012), feelings of guilt, shame and remorse that are difficult to handle
(Ucbasaran et al., 2012). Moreover, he/she is not used to deal with it because he/she learned
by socialization to keep a distance from negative situations (Cannon & Edmondson, 2005). In
this context, learning from failure is not a natural, automatic or instantaneous act (Wilkinson
& Mellahi, 2005). This leads to the first proposition:
Proposition 1: Financial, psychological and social costs negatively influence learning
from failure.
To overcome these negative emotions, a failed entrepreneur comes through a “grief recovery
process” that handles and eventually manages the loss of his/her business (Shepherd, 2003;
Shepherd et al, 2009a.). Shepherd (2003) suggests that negative emotions can in some way
contribute to the learning process. This beneficial part depends on both the intensity of the
grief (which symptoms are anger, guilt, anxiety, hopeless, withdrawal and depression) and on
where the entrepreneur is in this process. The grief recovery process consists of two distinct
but complementary strategies: loss and restoration orientations.
The loss orientation strategy is composed of three phases: a confrontation of loss, a
reassessment of the events before and at the time of failure and the awareness of different
causes of failure (Shepherd, 2003; 2009; Stroebe & Schut, 1999). The restoration orientation
is entirely different. It consists of distracting from and avoiding all thoughts linked to the loss,
as well as, eliminating secondary sources of stress generated by the business failure
(Shepherd, 2003; 2009; Stroebe & Schut, 1999). With the oscillation between these dual
processes, an entrepreneur adopts the best strategy to handle the loss of his/her business
(Cope, 2011; Shepherd, 2003) by regulating his/her emotions. Thereby, emotional
interferences are reduced and ability to learn from failure is increased.
In their study, Byrne and Shepherd (2013) found that an emotion-focused strategy also helps
entrepreneurs to manage their negative emotions. Indeed, high negative emotions motivate the
8
entrepreneur to make sense of his/her loss while higher positive emotions provide him/her the
necessary cognitive resources that will facilitate and motivate this sense-making. Cognitive
strategies focusing attention on failure and encouraging self-reflection also provide a better
understanding of failure.
As we mentioned above, the four factors of psychological capital can also help an
entrepreneur to think about failure. First, we consider that the five cognitive processes (i.e. the
representation, intentional, observation, self-regulation and self-reflection) building self-
efficacy (Luthans et al., 2007) will help to learning from failure. Hope, optimism and
resilience also are resources that will manage failure and its negative consequences to
promote learning. In other words, the psychological capital would act as a buffer between the
negative consequences of failure and learning. In this context, we suggest the following
propositions:
Proposition 2: The psychological capital moderates the negative relationship between
the psychological, social and financial costs of entrepreneurial failure and learning
from it.
Proposition 3: The psychological capital has a direct and positive effect on learning
from failure.
As far as we know, no research has yet been undertaken on the moderating effect of
psychological capital on this relationship.
Impact of learning and psychological capital on recreating
By learning from his/her entrepreneurial failure, an entrepreneur increases his/her knowledge
on different levels: his/her knowledge about him/herself (his/her strengths and weaknesses,
skills, abilities and entrepreneurial approach’s efficacy), the disappearance of his/her venture
(strengths and weaknesses of the venture, reasons for failure), the nature of his/her networks
and relationships (managing a team, working with a partner, persuading investors, building
valuable collaborations) and the venture management (development of new models of how to
manage and grow entrepreneurial ventures) (Cope, 2011). These learning outcomes give
him/her a future-oriented vision and increase his/her entrepreneurial preparedness’ level to
pursue entrepreneurial activities. This new knowledge will be even more useful if the
entrepreneur uses it in another business (Shepherd, 2003; Shepherd, Wiklund & Haynie,
2009b), whether it is his/her own new business or if he/she pursues his/her career in the
entrepreneurial field without creating a new business (Cope, 2011). This leads to the
following proposition:
Proposition 4: Learning outcomes from failure have a positive relationship with the
intention of re-creating a new business.
Other empirical studies also show that people who have started a business are more likely to
re-create a new one compared to those who have never tried the entrepreneurial adventure
(Caroll and Mosakowski 1987; Schultjens and Stam, 2006). Entrepreneurial intention is a sine
qua non condition for entrepreneurial behavior (Krueger, 2003). In their study, Schultjens and
9
Stam (2006) found that most entrepreneurs who have ceased their activity still keep their
entrepreneurial intentions at the time of their first business closure. According to these
authors, the amount of hours invested in the first company and the experience of running a
business contribute to the intention of re-starting a new business.
To our knowledge, few studies have been conducted on the impact of learning from failure on
the intention to re-create and the re-creation of a new business. Authors such as Schutjens and
Stam (2006) have empirically demonstrated that some entrepreneurs (20% of sample) who
closed their business (i.e. they have taken this decision for personal and voluntary choice, not
necessarily due to a lack of economic viability or necessity) do not want to re-launch a
venture while a majority (69%) are attracted by the independence offered by this career
choice and develop strong intentions to re-create a new business. The remaining 20% of their
sample are uncertain. They do not yet know if they will re-start a new venture or not.
Moreover, entrepreneurs who have experienced a business exit (by closing, ceasing or leaving
their ventures) have more relevant entrepreneurial skills and identify more often business
opportunities than those who did not undergo an entrepreneurial exit (Hessels, Grilo, Thurik
& Zwan, 2011). In this context, a new business created by a renascent entrepreneur – that is,
an entrepreneur who has exited his/her business and who will re-enter into entrepreneurship
(Stam et al., 2008) – will present better performance (Ucbasaran et al., 2012). There is a lack
of research proving this assumption but a recent study by Yamakawa, Peng and Deeds (2013)
has investigated it. These researchers interviewed Japanese entrepreneurs who re-launched a
venture after one or more unsuccessful experiences. They studied the influences of cognitive
determinants (that is the internal attribution of the cause of failure and intrinsic motivation to
re-start a new business) and the experience of failure on the growth of their new business.
Entrepreneurs attributing the cause of failure to them had better performance when they had a
small number of failures. By contrast, the performance decreased for those who had
experienced too many failures. For these researchers, entrepreneurial failure is not always
beneficial. The relationship between previous failure and the pursuit of an entrepreneurial
career is influenced by the cognition of the entrepreneur.
Given that the pursuit of an entrepreneurial career is influenced by entrepreneurs’ cognitions
(Yamakawa et al., 2013), the development of psychological capital among failed
entrepreneurs should facilitate their learning and promote the re-creation of a new business.
Psychological capital is a mechanism by which past experiences of failure can shape
entrepreneurs to pursue their entrepreneurial journey (Jenkins, Wiklund & Brundin, 2012). By
attributing negative events to external, uncontrollable and varied causes, an individual
develops and maintains his/her resilience optimism (Luthans & Youssef, 2004). The latter can
help an entrepreneur to preserve his/her entrepreneurial motivations after such a negative
experience (Jenkins, et al., 2012). The pursuit of an entrepreneurial career could be related to
a potential high resilience of the entrepreneur (Jenkins et al. (2012). This leads to the
following proposition:
Proposition 5: The psychological capital has a positive influence on the intention to
re-create a business.
10
In a context of entrepreneurial failure, the development or consolidation of entrepreneurs’
psychological capital can mitigate the negative impact of the failure’s consequences on
learning. He/she will learn from his/her mistakes and will therefore be motivated to launch a
venture again. This leads to our last proposition:
Proposition 6: If failed entrepreneurs have a high psychological capital, they will
learn more easily from their unsuccessful experience, have a more important intention
to re-create a business, and actually re-create a new business.
Conceptual framework
Figure 1 presents our conceptual model. It is based on the fact that psychological capital
would promote, on the one hand, learning in the context of entrepreneurial failure and, on the
other hand, the intention of the failed entrepreneur to pursue his/her entrepreneurial career.
The failure’s consequences will prevent the good process of learning from failure (Ucbasaran
et al., 2012) (P1). We assume that this negative relationship may be moderated by
psychological capital, the latter allowing the entrepreneur to be in a positive state conducive
to learning (P2). If this positive state encourages the entrepreneur to learn from his/her
mistakes (P3), he/she could manifest the desire to continue his/her entrepreneurial career by
not repeating the same mistakes (P4 and P5). Since the intention to create is a condition sine
qua non (Krueger, 2003) to the effective creation, we assume that the intention of re-creating
a new business will help to lead to the real re-creation of a new venture (P6).
[Figure 1 goes here]
Theoretical and practical implications
From a theoretical point of view, understanding the barriers and facilitators of learning from
failure and their implications for the pursuit of an entrepreneurial career process is an
interesting avenue for future research. Some authors have begun to investigate the cognitive
and emotional processes that influence the performance of a new business after previous
business failures (Yamakawa et al., 2013) or to make sense of this failure (Byrne and
Shepherd, 2003).
Few studies have focused on mechanisms to facilitate learning from entrepreneurial failure.
Through our theoretical model, we try to answer the following question: Does a positive
psychological state allow better learning and re-starting after a business failure? The positive
approach of psychological capital would enable entrepreneurs to capitalize on their failure’s
experience in order to better bounce back from it. A study on job search has shown that
through interventions and training to help job seekers to develop their psychological capital,
they increased their perceived employability in their job search (Chen & Lim, 2012). By
developing a high degree of psychological capital, unemployed people are more confident
about their abilities and skills, are more optimistic about the future, do not give up their job
search and invent solutions to overcome obstacles in their job search. This positive attitude
encourages them to look for opportunities rather than to attribute their difficulties to external
causes and blame themselves (Chen and Lim, 2012). While a job search situation is not
11
similar to an entrepreneurial failure, we believe that the development of psychological capital
may have similar effects on the ability of entrepreneurs to learn from their failure and
continue their entrepreneurial career.
The concept of psychological capital is used more and more in the field of organizational
behavior. Some authors have also started to introduce in the field of entrepreneurship (Jensen
& Luthans, 2002; Jenkins et al, 2012.). Its application to the entrepreneurial process could be
considered earlier at the creation of a venture, as a determinant of opportunities identification
or intention to create, or later, as a determinant of performance.
Besides the psychological capital, other cognitive or affective mechanisms may also be
relevant to promote learning from failure in order to re-create a new business. In particular,
we believe on the potential of the concept of hardiness developed by Maddi (2013). Luthans
et al. (2007) also suggest that cognitive processes, such as creativity and wisdom, as well as
emotional processes, perceived well-being, the flow (that is a state of maximum
concentration) and humor also should to be investigated. The latters could also be constitutive
of psychological capital (Luthans et al., 2007).
In terms of the practical implications, psychological capital is a tool to be exploited for the
development of the entrepreneur in general and, more specifically, of the entrepreneur in a
business failure context. This concept has two major advantages: it can be developed and is
available to everyone (Chen & Lim, 2012; Fleig-Palmer & Mandernach; Luthans, 2009;
Luthans, 2002a). Providing training for entrepreneurs to develop their psychological capital
would be potentially appreciated by the European Commission. Indeed, in its 2007 report, it is
recommended to develop psychological and technical supports for entrepreneurs who have
failed, through, for instance, training and specific supervision.
Conclusion
Considering that the half of newly established firms do not survive during the first five years
after creation (European Commission, 2007) and that very few failed entrepreneurs re-launch
a new business thereafter, it seemed appropriate to focus on these entrepreneurs.
Many researchers agree that entrepreneurs learn from their entrepreneurial failure (Cannon &
Edmondson, 2005; Cope, 2011; McGrath, 1999; Minniti & Bygrave, 2001, Shepherd, 2003;
Ucbasaran et al., 2012). However, given the financial, psychological and social consequences
of business failure and social stigmatization of these entrepreneurs, this learning is not an easy
task (Ucbasaran et al., 2012). Despite these barriers, 3 to 8 % of them re-start a new activity.
How to explain this figure? From this, we have developed our conceptual model. Its
originality is based on a positive approach to promote learning from failure and, lates, re-
creation after it. To do this, we used the psychological capital developed by Luthans et al.
(2007). We suggest that PsyCap may decrease the negative effects of the failure’s
consequences on entrepreneurial learning process. In addition, we assume that it also has a
positive effect on the intention to re-create a business; this intention can be achieved by
12
effective re-creation of a new venture. Similarly, the accumulation of knowledge on the
entrepreneur himself, the end of his/her business, the management of a business and the
professional relationships can positively influence his/her intention to create a new venture
and really do it.
Finally, we believe that psychological capital has a bright future in entrepreneurship research.
In addition to its usefulness in understanding learning from failure and re-creation,
psychological capital could be investigated in the creation process and opportunities
identification or as a factor promoting the leadership of the entrepreneur and business
performance.
13
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Figure 1. Conceptual model of the impact of psychological capital on learning from
failure and intention to re-create
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