Sense Of Failure And Sense Of Success Among Entrepreneurs

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During this detailed criteria pertaining to sense of failure and sense of success among entrepreneurs.

Oser, Fritz; Volery, Thierry
"Sense of failure" and "sense of success" among entrepreneurs: the
identification and promotion of neglected twin entrepreneurial competencies
Empirical research in vocational education and training 4 (2012) 1, S. 27-44
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Empirical Research in Vocational Education and Training, Vol. 4(1), 2012, 27–44
«Sense of failure» and «sense of success» among
entrepreneurs: the identifcation and promotion
of neglected twin entrepreneurial competencies
Fritz Oser
a
, Thierry Volery
b
a
University of Fribourg, Switzerland
1
*
b
University of St-Gallen, Switzerland
1
*
«And yet I felt as if I sensed all around me the smell of something ominous
which elude me» (Umberto Eco)
Abstract
Most of the current courses and textbooks in entrepreneurship focus on pro-
moting start-up desirability and feasibility. We call for a more balanced ap-
proach to entrepreneurship education and training by developing a sense of
success and a sense of failure among would-be entrepreneurs. The sense of
success acts of a promotion of entrepreneurial behaviour and encompasses
elements such as the start-up intentions, expectations and ability. Conversely,
the sense of failure acts as prevention and draws on negative experience, re-
sponsibility and awareness of pitfalls. We posit that the combination of both
senses can reduce the large number of business failures which leads to huge
economic, political and psychological losses. In addition, this approach might
help failed entrepreneurs to come to terms with their grief and re-start a ven-
ture.
1. Introduction
Entrepreneurship is one of the most powerful drivers of growth and prosperity in the
modern global economy. Few factors have as great an impact in creating jobs, pro-
ducing innovation, or generally contributing to a dynamic and competitive economy.
It is therefore not surprising if policy makers claim that «Europe needs more new
enterprises and more innovation» (European Commission, 2012, p. 21). This has led
to renewed calls to anchor entrepreneurship in the curriculum of secondary, voca-
tional and higher education in order to stimulate the entrepreneurial mindset of
young people and to create a more favourable societal climate for entrepreneurship.
* Fritz Oser, Departement Erziehungswissenschaften, University of Fribourg, Switzerland; fritz.oser@
unifr.ch
Thierry Volery, KMU-HSG, Swiss Research Institute of Small Business and Entrepreneurship (KMU),
University of St. Gallen, Switzerland; [email protected]
28 F. Oser & T. Volery
«Entrepreneurship and a sense of initiative» is one of the eight key competences for
lifelong learning which citizens require for their personal fulfllment, social inclu-
sion, and employability in a knowledge society (EACEA, 2012).
Despite this craze for entrepreneurship, the odds are stacked against start-ups:
They suffer a disproportionate failure rate in both boom times and bad. Statistical
evidence shows that half of start-ups exit the market in their frst fve years of exist-
ence (Freiling & Wessels, 2010; SBA, 2012). This reality calls for more than the
legendary need for achievement, resilience, and risk taking propensity usually associ-
ated with entrepreneurs. Launching a new business venture elicits a can-do attitude
since entrepreneurs must be convinced that the opportunity they are pursuing will fnd
a market acceptance. In other words, entrepreneurs must have a «sense of success».
But they also need to develop a know-how and a feeling for potential pitfalls, errors
and diffculties in all areas and at all stages of the start-up. They must exhibit a «sense
of failure». Whereas the «sense of success» has long been recognized in both aca-
demic and practical terms (Rottefoss & Kolvereid, 2005; Reynolds, 1997; Souitaris et
al., 2007), there are not many pointers to the «sense of failure» (Bryant & Dunford,
2008; Schulte, 2011; Sommer & Wittrock, 2011; Wilkinson & Mellahi, 2005).
Our approach builds on past research from the regulatory focus theory (Higgins,
1998; Sitkin & Weingart, 1995). According to this theory, individuals develop a
strategic orientation about how they self-regulate their behavior, which becomes
engrained early in life through childhood interactions with primary caregivers. Indi-
viduals who form a prevention focus are primarily concerned with protection, safety,
and responsibility. Thus, they tend to be motivated to avoid losses or setbacks. In
contrast, those who self-regulate through a promotion focus are primarily concerned
with advancement, growth, and accomplishment; hence, they are primarily moti-
vated to seek gains and new achievements.
In the context of entrepreneurship, self-regulation is broadly defned as a system-
atic process of human thought and behavior that involves setting personal goals and
steering oneself toward the achievement. When considering the sense of success,
entrepreneurs’ growth and advancement needs motivate them to try to bring them-
selves into alignment with their ideal selves (based on their dreams and aspirations),
thereby heightening the salience of potential gains to be attained. Conversely, when
considering their sense of failure, entrepreneurs’ security and safety needs prompt
them to attempt to bring themselves into alignment with their ought selves (based on
their sense of duty and responsibility), thereby increasing the salience of potential
failure to be avoided (Brockner et al., 2004).
Regulatory focus theory suggests that individuals develop a strategic orientation
about how they self-regulate their behavior, which becomes engrained early in life
through childhood interactions with primary caregivers. Once developed, this orien-
tation is consistently exhibited across time and context throughout their adult lives
(Higgins, 1998). However, we propose that, while a prevalent orientation may exist,
would-be entrepreneurs need both a sense of success (promotion) and a sense of
failure (prevention) to launch a sustainable business ventures.
«Sense of failure» and «sense of success» among entrepreneurs 29
Very few studies have tackled self-regulation in entrepreneurship to date (Bryant,
2007; Hmieleski & Baron, 2008). It remains unclear if specifc factors affect regula-
tion in entrepreneurship. In addition, there is a need to understand how the sense of
success and the sense of failure are interwoven in such a way that one does not ad-
versely affect the other, but instead complement each other.
In this article, we examine how knowledge about the pitfalls and the collapse of
start-ups can be integrated into the development of entrepreneurship competencies.
This knowledge and this sensitization should serve to equip would-be entrepreneurs
with a «protective belt» against careless or surprising crashes. This is about a «sense
of failure» which, on the one hand, every entrepreneur has already acquired but
which, on the other hand, must frst be systematically generated by means of training.
We intend to contrast this «sense of failure» with its opposite («sense of success»).
2. Rationale
The frst rationale for this project is the large number of failed enterprises which
leave behind huge economic, political and psychological losses. Ultimately we
would like to prevent failure from taking place and, if it does take place, make sure
that a recovery should be possible. The statistics on business creation and bank-
ruptcy are telling. In 2010, 37,682 frms were launched in Switzerland; 6,204 of
them went bankrupt – a 23% increase from the previous year (Dun & Bradstreet,
2011). A closer look at these statistics reveal the industries that are in particular jeop-
ardy (for instance the hospitality trade) and the regions in which most failures oc-
curred (for example the Lake Geneva region). In 2011, a record 39,665 start-ups
were launched and 6,536 frms went bankrupt. No matter how interesting these fg-
ures may be, they have nothing to say about people’s fears in such failure situations.
They reveal nothing about the reasons for failure, its long-term consequences (such
as high levels of indebtedness), and the strains on relationships; nor do they say any-
thing about the entrepreneurs’ moral responsibility for all the other people involved.
A second rationale is the need to provide responsible education and training in
entrepreneurship. Most courses and textbooks in the feld omit any precautionary
dealings with failure. Over the past decade, support for start-ups in the form of
courses and coaching has focused on the competencies which have positive connota-
tions and which are associated with start-up desirability and feasibility (i.e. «sense of
success»). On fyers, smiling faces and young people brimming with success can be
seen, whereas little can be found about possible failure. Elements of knowledge and
emotions which should prevent young people from failing are missing. In the same
vein, Shepherd (2003) suggested that knowledge about failure should be communi-
cated and that everything should be done to lend a helping hand to entrepreneurs
who have failed. This would help them both to start anew and to come to terms with
the shame and misery caused by failure.
Therefore, we suggest that all aspects of business start-up should be imbued with
a feeling for fragility, for the dangers of failure, and with knowledge of what did not
30 F. Oser & T. Volery
work in other start-ups. This «sense of failure» is not intended to curb start-up activ-
ity and risk-taking taking propensity. It is rather about the equilibrium of both forces,
a calibration of all start-up elements from the knowledge perspective of potential
success and possible failure.
A third rationale for this topic stems from methodological faws in past research.
For example, Cope (2011) gained very good insights into the psychology of failure but
he was not in a position to make comparisons between entrepreneurs who failed and
entrepreneurs who did not. At the end of Cope’s work, the impression of a certain glo-
rifcation of failure cannot be shaken off. What should be retained from Cope’s work
are the eight failed people who have been interviewed intensively. However, eight
successful people from the same industries who launched start-ups round about the
same time, with about the same frm size and the same type of operation (matching
pair), should also be interviewed and compared with those who were unsuccessful.
This would have allowed making a comparison between successful and unsuccessful
entrepreneurs from the same industries with regard to the same dimensions and catego-
ries. Thus, most of the qualitative studies until today are somehow «incomplete».
Failure is usually a complex phenomenon which is capable of destroying an en-
trepreneur’s life. From an economic perspective, there are those who are never able
to recover and spend half their lives in employment repaying their debts. From a
psychological perspective, as seen in Cope’s (2011) study, however, statements con-
cerning emotional suffering are much more dramatic than those about fnancial wor-
ries. Failed entrepreneurs mention contempt, loneliness, and seclusion during the
shut-down, marital diffculties, divorce, loss of networks, and despondency.
All these emotions suggest that people feel professionally tarnished. The struggle
with oneself, one’s private sphere and one’s non-professional ties and relationships
thus require the most effort. And what is signifcant: all of them speak of scars which
make failed entrepreneurs more cautious. One founder was quoted by the author as
saying: «I am certainly not as blindly optimistic as I once was. I guess I never really
thought about what could go wrong.» And he continues: «This is not necessarily a
wholly negative outcome of failure […], as ‘knowing what can go wrong’ is an in-
valuable asset that can enable more considered, anticipatory and affrmative future
actions» (Cope, 2011, p. 612). In the same way that the author speaks of «lessons
learned from failure», all this recalls a variable of our concept of «sense of failure»,
namely experience and negative knowledge of failure.
A further element is the process of healing and restoring self-confdence (Forster
et al., 2001; McGrath, 1999; Singh et al., 2007: Shepherd, 2003; DeTienne & Car-
don, 2007), the recognition and reconstruction of how other people have re-emerged
from ordeal and have practiced recovery. Open imitation processes are highly sig-
nifcant in this respect. Speaking about failure and disclosing weaknesses must go
hand in hand with normalization and a re-start. The acquired resilience with regard
to decisions that must be made faster (we would say, with regard to the effcient
«sense of failure» acquired) leads to a situation whereby failed entrepreneurs now
know better what they would do differently. In our language, they link their «sense
«Sense of failure» and «sense of success» among entrepreneurs 31
of failure» to their «sense of success». As a result, many entrepreneurs who experi-
enced failure often believe that they could put badly performing companies into
shape. They know what was wrong, and they want to use this knowledge and these
emotions to do things better in the future.
3. Scarce literature on business failure
In previous research, fve interrelated approaches on business failure predominate.
The frst approach deals with fnancial matters, bankruptcy and debt deferment. This
approach also en-compasses failure friendliness policies, such as debt or tax relief
for start-ups after they have failed. Dembinski (2002), a classic in the feld of inves-
tigations into the causes of bankruptcy, reveals that besides a sudden drop in turno-
ver, management errors were generally less prominent in bankruptcies between 1994
and 2001, where-as funding problems such as loan cuts, increases in fnancial expen-
diture, longer payment periods and a gradual loss of market position took centre
stage. Micro-enterprises in services and trade, and very young founders were particu-
larly affected by bankruptcies. Dembinski was the frst author to aggregate a plurality
of factors (fnances, 47%; management, 33%; demand, 25%, internal crisis, 6%), thus
being able to draw up a profle of the companies that went bankrupt.
For his part, Cressy (2006) developed a model to explain why most frms die in
the frst few years of trading. He found that, to balance return (profts growth) and
risk (variance of profts) entrepreneurs adopt a portfolio strategy, choosing market
positioning to achieve an optimal combination of risk and return at each instant,
given their fnancial and human capital endowments and attitude towards risk. Fail-
ure occurs when the frm’s value falls below the opportunity cost of staying in busi-
ness. Similar arguments are proposed by Holtz-Eakin (1994), who focused on li-
quidity constraints. Inheritances, in particular, boost the probability of non-failure
and the founder’s remaining the frm’s sole owner. If the future brings nothing but
debt, then the probability of failure is postponed in an unreasonable way (Ahlstrom
& Bruton, 2004). When confronted with the three options of (a) out-of-court settle-
ment, (b) reorganisation bankruptcy, and (c) liquidation bankruptcy, frms would
plainly prefer the second, and the law therefore ought to provide the second with a
greater possibility of being realised.
A second strand of research deals with learning from failure as a cognitive coping
task (transgenerative dimensions of failure processes). The question here is how the
experience of failure prompts people to pursue a new start-up and to make use of the
«negative» knowledge thus acquired in such a way as to prevent further failure
(Shepherd et al., 2009; Singh et al., 2007; Cannon & Edmundson, 2001; Folkman et
al., 1986; Kinicki et al., 2000). For example, Cope (2011) is essentially concerned
with recovery and what can be learned from failure. He provides an in-depth under-
standing of what actually happens in human and fnancial terms when someone has
to accept that he or she must close down. His study sheds some light about the recov-
ery and re-emergence that foster higher-order learning outcomes.
32 F. Oser & T. Volery
It is thus not only the fnancial and emotional dimensions that should be taken into
consideration but also the professional and relational damage which is incurred. In-
deed, the processes associated with failure represent a human regression. Therefore,
the re-generation of independence requires explicit social recognition and affrma-
tion. Even if we basically accept that this is a forced learning process, the necessary
grief work is of signifcance. An entrepreneur has to learn that things could not have
gone on like this and accept as a fact that the whole debacle is perhaps entirely, or at
least partially, his own fault. What Cope (2011, p. 605) describes as higher-order
learning is not a set of routine processes which lead to a particular treasure trove of
knowledge or, in our terminology, to a high «sense of failure». Here, negotiated and
relational elements are of the greatest signifcance. It is not for nothing that Baumard
& Starbuck (2005) noted that small failures only end up confrming previous preju-
dices whereas only big, fundamental failures actually change these negotiated and
relational elements.
In general, this second research strand suggests that experienced entrepreneurs
credit learning from past failures as a crucial aspect of their experience base. For
instance, Sitkin (1992) argues that failure is an essential prerequisite for learning
since it provides the opportunity to pinpoint why a failure has occurred. Failures
provide entrepreneurs with the opportunity to discover uncertainties that were previ-
ously unpredictable (McGrath, 1999; Sarasvathy, 2004), which implies that failure
analysis can serve as a powerful mechanism to resolve uncertainty. This line of rea-
soning is in accordance with McGrawth’s (1999) arguments suggesting that failure
can have positive effects on entrepreneurs’ knowledge base as it helps them to re-
duce uncertainty, increase variety, and expand the search for new opportunities.
A third approach examines problems of coming to terms with the experience of
failure at an emotional level. This approach primarily focuses on grief work, and
with humiliation, stigmatization (Sheperd, 2003; Shepherd et al., 2009), and entre-
preneurial disillusionment after a start-up (Schulte, 2011). Further variables that be-
long to this third group are entrepreneur motivation, over-confdentiality (Wickham,
2006), risk love and risk aversion (Breakwell, 2007). These psychological variables
play a crucial role before, during and after the shut-down. For example, Schulte
(2011) shows that in the period following the start-up, an entrepreneurial demotiva-
tion can be observed. At this stage, the motives that go hand in hand with the social
standards and code of values (extrinsically: income and reputation; intrinsically:
self-realisation and independence) are weakened.
Shepherd (2004) addresses motivation in a completely different way and he sug-
gests that fedgling entrepreneurs ought to be confronted with the emotions of those
who have failed. In normative terms, this is the duty of all those who are involved in
education and training: «Even if education on the emotions of failure does increase
anxiety and decrease entrepreneurial intention, educators still have an obligation
toward their students to include this content into their entrepreneurship courses»
(Sheperd, 2004, p. 282). Consequently, he suggests adopting a pedagogy that helps
students come to terms with the emotions produced by learning from failure. In this
«Sense of failure» and «sense of success» among entrepreneurs 33
respect, it is necessary to communicate negative knowledge about others who have
failed, but that it is also necessary to provide positive reinforcement and support.
The most important dimension of this third strand of research is the risks that all
founders have to take. Risk is related to the problem of the uncertainty of all human
knowledge and action (Bröckling, 2007). Risks should be preventively cushioned
with the help of probability calculations; they are expected to be a cornerstone of a
reasonable cost element. Frequently, too little is known about the demand situation.
Therefore requirements can hardly be forecast, which deprives a responsible eco-
nomic actor of the ability to steer a proper course. This is a situation characterized
by uncertainty. The adoption of concepts of decision theory with the elements of
accident and risk were taken over from psychology and applied to the economy.
Tversky & Kahneman’s (1974) seminal work «Judgment under uncertainty: heuris-
tics and biases» made a vital contribution to this. Breakwell’s (2007) «The psychol-
ogy of risks» dealt particularly with risk perception, risk decisions and risk and emo-
tions. Similarly, Gigerenzer, Todd and ABC Research Group (1999) became well-
known with their work on the perception of probabilities with the corresponding
beliefs, and Caliendo, Fossen and Kritikos (2009) demonstrated that risk aversion is
a strong factor preventing individuals to a start their own business. More recently,
Hertwig and his group (Hertwig & Pleskac, 2010; Hertwig, 2012) conducted inves-
tigations into the fact that one’s own experience contributes towards mitigating risk.
His concept of «decisions from experience» made clear that the «negative knowl-
edge» (Oser & Spychiger, 2005) infuences risk-taking behaviour.
Researchers have thus uncovered more of the internal complexities associated
with risk-taking. It is no longer seen as a single unitary process, where people make
objective assessments of probabilities based on complete information. Rather, indi-
viduals possess general propensities to accept or avoid risks, to perceive and assess
risks based on subjective criteria, and to make idiosyncratic trade-offs between risk
and reward in decision making (Bazerman, 2002). To deal with risks, individuals
consistently employ decision heuristics defned as cognitive short-cuts (Caliendo et
al., 2009). Therefore, behavioral approaches and the study of decision-making in
particular incorporate psychosocial factors into the analysis of risk.
The fourth strand of research deals with «living dead entrepreneurs» – start-ups
which are barely proftable but which keep on their struggle in spite of near failure
(Casas, Volery & Hilb, 2010). The «living dead entrepreneurs» phenomenon can be
linked to the stream of work on «permanently failing organizations» defned by
Meyer and Zucker (1989, 19) as «organization’s whose performance, by any stand-
ard, falls short of expectations, yet whose existence continues», sometimes over long
periods of time. Van Wittelloostuijn (1998) attributes a frm’s tendency to «keep on
ticking» to institutional factors such as idiosyncrasies and diverse narrow stakeholder
interests yielding intra-frm confict impossible to manage. Consequently, under-
performance is the «unintended result of a myriad of practices», never the result of
«deliberate or intentional» actions of decision makers. This phenomenon has re-
ceived relatively scant scholarly attention to date, probably because of the stigma
34 F. Oser & T. Volery
associated with labels such as «under performance», «chronically unproftable», and
«ineffcient».
The fear of failure is widespread in the population. A study conducted by the
Federation of German Psychologists (BDP) reveals that failure inhibits the start-up
momentum in many cases (Burandt & Kanzek, 2010). Over the past decades, the
proportion of self-employed among Germany’s working population has been be-
tween ten and eleven per cent. According to the Institut für Mittelstandsforschung in
Bonn, this proportion was a proud 30% back in the 1950s. But that has long been a
thing of the past. The founding momentum has fzzled out and it lately been replaced
by a deep-seated fear of failure (Meyer, 2010, p. 14).
The ffth approach is concerned with what we call ethnographic exploration of
failed settings and persons. It is a qualitative questioning of subjectively experienced
grief after having failed (Cope, 2011; Freiling & Wessels, 2010). The general danger
of such studies is the generalization of the results. For example, Freiling and Wessels
(2010) claim that there are only three generalizable reasons for failure: overopti-
mism, wrong estimation of customer needs, and personal confict between founders.
We consider all these approaches from the perspective of a central competence
development: what knowledge and skills an entrepreneur must acquire in order to
prevent failure? From a pedagogical point of view, the development of a «sense of
failure» which serves a preventive function should be developed alongside the
«sense of success». Would-be entrepreneurs must have some knowledge about pos-
sible living death situations and delayed respective failure, which protects them
against the inevitable risks associated with the pursuit of their projects. They must
bring this «negative» knowledge into a creative balance for a hope of success (Oser
& Spychiger, 2005). It is necessary that they launch the start-up despite this knowl-
edge, or that they do so precisely because of this knowledge, in order to overcome
their own fears. This negative knowledge relates to exits and bankruptcies. It can
stem from personal experiences of failure, from «nearby» shut-downs that still in-
duce fear and from other entrepreneurs’ accounts.
4. The underlying dimensions of the sense of failure and sense of success
In this section, we present the two factors «sense of failure» and «sense of success» as
constructs in order to be able to subsequently link them with measuring instruments.
As suggested in the introduction, there should be a balance between the two constructs.
This allows the emergence of start-ups and ensures that entrepreneurs consider pitfalls
when they decide to take the plunge. We have eluded that prior to the start-up, the
«sense of success» is generally overemphasized while once the actual launch has been
completed, the emphasis should be on the «sense of failure».
«Sense of failure» and «sense of success» among entrepreneurs 35
4.1 Sense of failure
The sense of failure is a prevention mechanism concerned with security, safety, and
responsibility. We speak of a «sense of failure» as a kind of seventh sense which is
responsible for applying the emergency brake at the right moment. This sense in-
cludes items of knowledge, beliefs, attitudes and behavior (heuristics of interven-
tions), but they are of a completely different kind compared to the «sense of suc-
cess». The «sense of failure» draws on entrepreneur’s own «negative knowledge»,
about beliefs in the fragility of entrepreneurial concepts, even though they appear to
be perfectly safe. This is about an attitude of responsibility when crises occur, about
action patterns when the ship is lurching and sails adrift.
Several reasons can lead to a business failure. For example, the basic idea that
leads to the start-up is too weak; diffculties emerge with regard to funding; the tech-
nology or product design is fawed; legal diffculties are encountered; or interper-
sonal and emotional tensions obstruct the way. Therefore, whereas the “«sense of
success» contains the dimensions of general and start-up-specifc motivation (e.g.
perseverance and risk management and all actions contributing to the development
of a business idea), the «sense of failure» is about something completely different.
Here, a degree of know-how and an «intuition» must be developed to understand
that a business venture might be doomed to failure if just one piece of the entrepre-
neurship puzzle is missing. For example, entrepreneurs are convinced of the unique-
ness of their product and they believe that potential customers will discover this
uniqueness and be ready to pay for it, but if this product is not commercialized in
time, then the business is likely to fail.
Seen as a whole, all entrepreneurs and investors to whom we present the concept
reckon that it is precisely what nascent entrepreneurs lack. The concept is accepted
immediately. If we ask further questions, however, we fnd that there is very little
knowledge about this construct implies. «This is precisely what many people who
have started up a company lack and who therefore fall into the abyss», said one en-
trepreneur-investor. To formulate it negatively frst: it can be assumed that those who
are equipped with over-confdence lack this «sense of failure». «Overconfdence may
be said to occur when an individual’s confdence in a decision or judgment consist-
ently exceeds his or her accuracy in that judgment [...], the individual holds an over-
ly positive rating of personal characteristics, has an undue optimism about the future
or holds an unwarranted sense of ability to control events» (Wickham, 2006, p. 211).
Several other authors (Bazerman, 2002; Gigerenzer, Hoffrage & Kleinbolting,
1991; Griffn & Tversky, 1992; Daniel, Hirshleifer & Subrahmanyan, 2001) have
concurred with Wickham (2006). These are authors who, like Wickham himself,
work in small experimental contexts and draw conclusions about a more complex
reality. Wickham speaks of the attractiveness of a risk option which eventually dis-
turbs an entrepreneur’s sensitivity to reality. He demonstrates that individuals who
are told of a probability of success will also opt for this probability if they are badly
informed.
36 F. Oser & T. Volery
Similarly, Cassar (2010) shows that entrepreneurs are usually overoptimistic in the
long run. This psychological feature is primarily rationalized by comparisons be-
tween initial expectations and the frst outputs. The issue is therefore a self-compar-
ison that contains plans and predictions. New ventures which enjoy a certain success
early might overestimate future sales all the more and thus run the risk of going un-
der. «I posit that those individuals who adopt an inside view to forecasting through
the use of plans and fnancial projections, will exhibit greater ex ante bias in their
expectations» (Cassar, 2010, p. 822). Such overestimations of probability weaken
the sense of failure.
Further variables which further help to pinpoint the sense of failure include risk-
taking propensity, failure resilience, overly positive self-rating, over-optimism, and
the illusion of control (Hmieleski & Baron, 2009; Cassar, 2010). However, these
constructs which are often examined experimentally, are merely a mirror-image of
the real sense of failure. This sense leads to the development of entrepreneurial resil-
ience. For this reason, it must be developed and brought to fruition in experiments
and practical training courses.
What does constitute a sense of failure? As shown in Figure 1, a frst element is
made up of the knowledge of what could go wrong with start-ups in general and with
the individual’s own venture in particular. This knowledge may include the individu-
al’s own experiences of failure (negative episodic knowledge), narrations about how
others have failed (advocatory negative knowledge), and acquired knowledge about
where and how mistakes may occur in entrepreneurship (for instance if a business
plan is unclear or unrealistic, if human resources are wrongly deployed, or if legal
issues are ignored). This frst element thus comprises the ability to diagnose weak-
nesses and to address them. Colloquially speaking, this means that someone has a
nose for the venture he or she has set up (Fueglistaller, Müller, Müller et al., 2012).
Figure 1: The three dimensions of the sense of failure
Sense of
failure
Risk propensity,
responsibility,
overconfdence
avoidance
Awareness of
weakness and
pitfalls,
knowledge
Intuition about
mistakes,
escape heuristics,
fear of failure
«Sense of failure» and «sense of success» among entrepreneurs 37
The basis of all these elements is previous personal failure or experience gained
from observing and refecting on other individuals’ failure. This forms the basis of a
«negative entrepreneur’s knowledge», or in other words, a knowledge of and aware-
ness for the fact and the way in which the individual and others have failed (Oser &
Spychiger, 2005; Bauer, Gartmeier & Harteis, 2012). In practical terms, a negative
awareness includes experiences which entrepreneurs themselves or people close to
them have gained (episodic entrepreneurial memory). Episodic error components
which have been acquired by training, i.e. error analyses that can be reconstructed
from memory, should be in place at least to an average extent.
The second element refers to the assumption of responsibility and correction
management. We suggest that risk taking propensity (with a high degree of over-
confdentiality) is completed by sober decision management with a high degree of
corrective behaviour. Intuition about mistakes, heuristics and fear of failure help to
mitigate risk and the ambiguity of economic decisions (Kirchler, 2001).
The type of representation – the framing – plays a crucial role. When loss is em-
phasized in the same kind of situations, decisions are made differently from when
the emphasis is on proft (cf. the example of the half full or half empty glass of wine).
Prospect theory suggests that on the basis of beneft maximization, people tend to
simplify complex decision-making problems and then to assess the prospect (their
possible options) in such a way that the ratio between subjective and objective value
is mapped. In this context, subjective profts are generally rated less high than a loss
of the same dimension. In other words, objective proft probabilities are usually sub-
jectively overestimated.
Sunk costs can play a role, too. Thaler (1991) shows that once an investment has
been made and something goes wrong, one is willing to make further investments.
According to Kirchler (2001), the irrationality of throwing good money after bad is
made clear by many paradigms and has been confrmed in numerous experiments.
Generally speaking, the «sense of failure» ensures that fewer risks are taken and that
these are tied to an entrepreneur’s responsibility towards his or her employees and
the frm as a whole.
The third element in Figure 1 refers to the fear of possible failure which is gener-
ally not suppressed but tends to be «cultivated». This fear is the motor that powers
an intuitive relation to errors that should be prevented as effectively as possible and,
as Gigerenzer (2008) explains in his work on good decisions, a production moment
of heuristics (simplifying strategies that can be used to make judgments quickly and
effciently). In business, this decision process is often referred to as trial and error – a
mostly unconscious journey from one event to another, picking up pieces of knowl-
edge and experience both positive and negative (Schaper, & Volery, 2011). Good
feelings, says Gigerenzer (2008), are what we experience and what, once they occur,
usually determines our course of action.
Since rules of thumb are not only rooted in one’s brain but also in the environ-
ment, adaptation is required. Adaptation means that the entrepreneurs need to iden-
tify potential pitfalls to which they will respond spontaneously, i.e. with rules of
38 F. Oser & T. Volery
thumb. With regard to corporate culture, Gigerenzer (2008) thinks that all executives
have their personal rules of thumb which they develop, often unconsciously, in order
to facilitate quick decision-making. Very often, because the odds of having to give
up are very short for every entrepreneur, fexibility is important. Uncontrollable dy-
namics may occur at any juncture: suddenly, there are legal problems with a product;
suddenly, a reliable customer fails to pay up, suddenly, an employee falls severely
ill, suddenly, a machine breaks down, etc.
At the stage after the start-up, there are inadequacies and unforeseeable diffcul-
ties, which should therefore be detected adaptively because an interruption, a dis-
continuation or even failure can be prevented in this way. Things are often random;
sometimes they are part of structural plans right from the start and then manifest
themselves at certain junctures, often when they are not expected.
A salutary anxiety that something could go wrong somewhere or become possible
also underpins the sense of failure. This is about observations that hitches may occur
in product sales. Finally, the sense of failure is about risk assessment as a diagnostic
tool for the realization of unusual business procedures. Risk assessment serves to
prevent sudden corporate crashes, alongside the calculation of possible weak points
and the will to intervene to tighten a screw here and there.
4.2 Sense of success
This focus refers to those elements which motivate entrepreneurs to try to bring
themselves into alignment with their ideal selves and thus to attain desired self-
states. When the sense of success is activated, people are motivated by self-standards
based on wishes and aspirations of how they would like to be. The sense of success
has been tackled in many studies by enumerating and examining the factors which
contribute towards a start-up’s emergence. Much of the research in this feld relates
to «critical success factors» and considers only entrepreneurs who could establish
their business in the market place.
«Sense of failure» and «sense of success» among entrepreneurs 39
Figure 2: The three dimensions of the sense of success
Sense of
success
Start-up competencies:
capacity to discover,
evaluate and exploit
opportunities
Start-up intentions:
need for achievement,
locus of control, risk
taking propensity
Start-up expectations:
desirability, feasabi-
lity, personal beneft
The frst dimension of the sense of success indicates that entrepreneurs must possess
the capacity to discover and exploit an opportunity (Shane, 2003). Kirzner (1973)
suggested that discovery stems from active search of opportunities and by entrepre-
neurial alertness (a propensity to notice and be sensitive to information about ob-
jects, incidents and patterns of behavior). Individuals with high alertness show a
special sensitivity to maker and user problems, unmet needs and novel combinations
of resources. Therefore, alertness emphasizes the fact that opportunities can some-
times be recognized by individuals who are not actively searching for them. How-
ever, what distinguish entrepreneurs from other individuals is that they will act when
an opportunity materializes in order to assess its potential. They will typically take
the initiative in solving a problem or in fling a vacuum where no leadership exists.
The second dimension of the sense of success encompasses key psychological
characteristics. Among the almost endless list of entrepreneurial traits suggested,
only three have received wide attention in the literature and show a higher level of
validity (Schaper & Volery, 2011). Of all psychological measures presumed to be
associated with the creation of new ventures, the need for achievement has the long-
est history. The need for achievement – a person’s desire either for excellence or to
succeed in competitive situations – is a key personal attribute of successful entrepre-
neurs (McClelland, 1967). Successful entrepreneurs are highly motivated in what
they do. They are typically self-starters and appear driven internally to compete
against their own self-imposed standards. High achievers take responsibility for at-
taining their goals, set moderately diffcult goals, and want immediate feedback on
how well they have performed.
Locus of control refers to the extent to which individuals believe that they can
control events that affect them (McCombs, 1991). Individuals with a high internal
locus of control believe that events result primarily from their own behavior and ac-
40 F. Oser & T. Volery
tions. Those with a high external locus of control believe that powerful others, fate,
or chance primarily determine events. Effective entrepreneurs believe in themselves
and usually exhibit a high internal locus of control. They have a perception of con-
trol of the events in their lives and they can therefore make their own destiny. This
attribute is consistent with a high-achievement motivational drive and a need for
autonomy.
What seems to underlie the internal locus of control is the concept of «self as
agent». This means that individuals’ thoughts control their actions and that when
they realize this executive function of thinking, they can positively affect their be-
liefs, motivation, and to a certain extent their performance. As a result, the degree to
which one chooses to be self-determining is a function of one’s realization of the
source of agency and personal control. In other words, we can say to ourselves: «I
choose to direct my thoughts and energies toward accomplishment. I choose not to
be daunted by my anxieties or feelings of inadequacy.»
Although entrepreneurs are not gamblers, they are characterized by a propensity
to take calculated risks. In a world of change, risk, and ambiguity, successful entre-
preneurs are those who learn to manage the risk, in part, by transferring part of the
risk to others (investors, bankers, partners, customers, employees, and so forth).
Risk taking propensity is, however, strongly infuenced by cognitive heuristics. En-
trepreneurs may not think of themselves as being anymore likely to take risks than
non-entrepreneurs, but they are nonetheless predisposed to cognitively categorise
business situations more positively (Palich, & Bagby, 1995). Entrepreneurs may
thus view some situations as opportunities, even though others perceive them as hav-
ing little potential.
The third dimension of the sense of success encompasses the desirability and
personal benefts expected from the business venture. In this respect, entrepreneurs
are invariably described as committed individuals who derive great satisfaction from
being independent. Once of the main driver to become an entrepreneur is the pursuit
of autonomy and «to be their own boss».
4.3 When sense of success and sense of failure come together
In most entrepreneurship education and training courses, the sense of success tends
to be emphasized by positive examples, sound action techniques and necessary tools.
The knowledge and acceptance of a possible failure is largely neglected. Sommer
and Wittrock (2011) report on a case of partial failure, where the damage caused
does not usually lead to the company’s downfall but provides more lessons to be
learnt from it – necessary recall programs being a case in point. They call for meas-
ures which preserve customers’ trust in the frm, i.e. usually not a kind of defense but
the organization of the recall at the frm’s own expense, that is to say, «concentrated
crisis know-how». The prevention of a «noisy» recall and the encouragement of a
«silent» recall is part of this, as are immediate responses to customer complaints. All
this ought to be part of the training provided by start-up courses.
«Sense of failure» and «sense of success» among entrepreneurs 41
Success is only possible if we take into consideration all the hues of possible failure.
Access to success through the identifcation of possible causes of failure constitutes
a form of necessary forward-looking responsibility in connection with a frm’s sta-
bility. An adequate economic understanding of a company’s possible collapse may
be more important than the belief that everything will proceed in the right direction.
The naivety of the belief that everything will work if it is done right is badly battered
by the «sense of failure».
Sometimes, one might say, the success of a start-up has nothing at all to do with
the observance of success criteria but owes everything to a feeling for failure. And
sometimes the observation of a process of failure is a clear-cut affair on the outside,
but in factual and psychological terms there are complex background stories which
are captured by the sense of failure. It is a constituent of a sense of failure that reason
should be taken into consideration. But reason alone is not enough; it is merely a part
of the construct which contributes towards a company’s stability.
Ultimately, all these variables are about coming to terms with entrepreneurial
competence. In this respect, Bröckling (2007) opines that on the one hand, there are
the risks, i.e. those uncertainties which can be expressed in objective terms by means
of probability calculus and thus be cushioned by means of technologies of insurance
or prevention. On the other hand, there is that «pure uncertainty» against which no
insurance policy can be taken out and no other preventive measures can be imple-
mented because neither its frequency distribution nor its parameters are known.
5. Conclusion
In this paper we suggested that entrepreneurs need two critical overall competencies
to launch a sustainable start-up. First, they must display a sense of success, being
convinced that the entrepreneurial opportunity they are pursuing will make it in the
market place. Second, they must also show a sense failure by developing an aware-
ness and know-how for potential pitfalls and diffculties in all areas and at all stages
of the start-up.
The sense of failure and the sense of success can serve as strategic inclinations in
signal detection terms during the entrepreneurship process. In the language of regu-
latory focus theory, while considering their sense of success, individuals are typi-
cally in a promotion focus and motivated to use eagerness means – to ensure «hits»
(representing gains). In contrast, while following their sense of failure, individuals
are in a prevention focus, and as such, they are motivated to use vigilance means – to
ensure «correct rejections» (representing non-losses) and to ensure against errors of
commission or «false alarms» (representing losses) (Higgins et al., 2001).
By delving into the sense of success and the sense of failure for would-be entre-
preneurs, we provided a framework to better understand the various motives, beliefs,
and behaviors that ultimately dictate whether a given entrepreneurial venture can be
successful. Accordingly, we made a contribution to the growing feld of studies in
self-regulation. This perspective can play an important role in social thought and
42 F. Oser & T. Volery
behavior through infuencing the nature and value of projected outcomes and the
motivation systems underpinning decision-making (Bryant & Dunford, 2008).
It is already known that self-effcacy (Bandura, 1997) and regulatory focus can be
primed and enhanced through appropriate interventions (Higgins et al., 2001). Simi-
lar priming mechanisms could be incorporated into the training and education of
would-be entrepreneurs, thereby improving their sense of success and sense of fail-
ure. This would improve the heuristics in decision making when individuals are
about to «take the plunge» and set up their own business.
Much remains to be done to test the framework outlined in this paper. We call for
empirical tests using matching pairs of both successful and unsuccessful entrepre-
neurs from similar industries in order to validate measurement and establish the
impact of the sense of success and sense of failure on the performance of new busi-
ness ventures. We hope to be able to develop three groups of scales according to the
indicators as presented in Figure 1. Such empirical research will also evaluate the
external validity of our framework and may help both scholars and practitioners in
their varied quests to better understand the entrepreneurial processes and their as-
sociated outcomes.
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