EOR ASSIGNMENT 1

Business fails, entrepreneurs dont.

Submitted to: Prof. Sanjay Bhowmick
Kritika Agarwal 65207 8/4/2012

Not everyone whos on the top today got there with success after success. More often than not, those who history best remembers were faced with numerous obstacles that forced them to work harder and show more determination than others. Similar is the story of Colonel Harland Sanders. At the age of 40, Sanders was famous with his fried chicken restaurant, he was able to find a fried chicken recipe after doing a lot of researches. At the age of 60, Colonel had to shut down his restaurant because there was a new highway being built on the location of his restaurant. He decided to retire and received his first social security check which was for one hundred and five dollars. As an elderly, Colonel Sanders did not just sit and receive his fate. He decided to franchise his fried chicken at the age of 65. He started travelling by car and offering his fried chicken to restaurant owners. He cooked the chicken on the spot and let the owner to try it. If the owner liked the chicken, then they would come up with the agreement to sell Colonels fried chicken. He got 1009 no answers before he got his final yes. The difference between successful entrepreneurs and their unsuccessful counterparts arises primarily because the former act with the bias of action. A successful entrepreneur is someone who is willing to do over and over again if they did something wrong. Another thing gained in this process is that overtime the entrepreneur becomes very good at keeping his failures small and useful, (Saras Saravathy, Saras talk,2009). Linking this literature to the above example, Colonel could have given up after getting rejected so many times, but instead he chose to stand up again after every fall with newer weapons (learning and experience) and in the end won the title which we all know as KFC! Colonel Sanders early failures are a testament to the power of determination. Colonels keep doing attitude is clearly reflected in his quote, I made a resolve then that I was going to amount to something if I could. And no hours, nor amount of labor, nor amount of money would deter me from giving the best that there was in me. And I have done that ever since, and I win by it. I know. A failure should be treated as an experience outside of ones self. Thus, one should observe and learn from it rather than reacting irrationally towards it. Literary research points out that, business failures can lead to reduced costs for surviving businesses via vicarious learning, (Madsen and Desai, 2010). The effects of business failure on the individual entrepreneur, however, are more complex and arguably paradoxical. While failure may lead to a potentially, valuable learning opportunity for the entrepreneur, who founded the failed business (McGrath, 1999), it may also be an emotional and traumatic experience (Cope, 2011) that obstructs learning. Even if learning has taken place, for these learning benefits to materialize, the entrepreneur who founded the failed business must deploy

the resultant new knowledgefor example, by embarking on another entrepreneurial venture. If the costs of failure (i.e., financial, social and psychological) are too high compared to the benefits of learning from failure, entrepreneurs may choose to exit their entrepreneurial careers. This implies that to turn a failure into success, the entrepreneur must know how to control the costs of failure which are financial, social as well as psychological. Financial cost of failure will at the minimum result in a decrease in the personal wealth of the entrepreneur and this loss can be moderated by various means like insurance, options trading or by deploying the affordable loss principle wherein the entrepreneur raises funds from the stake holders only till the amount which they can afford to lose, (Sarasvathy, 2008). Social cost of failure is the loss of relationships both professionally and personally after a failure. There are laws in certain countries for entrepreneurial friendliness, such laws act as moderators for social costs of failures. However, the lost relationships can be regained if the failed entrepreneur corrects his attitude. Psychological cost of failure is mainly the emotional turmoil a person faces after encountering an event of failure. The moderator of such costs is not the Intelligence Quotient of a person but his Emotional Intelligence Quotient. An entrepreneur should use his grief to process information about his loss. This cost of failure drains out many people. A successful entrepreneur is the one who is tolerant in ambiguity and uses it to his advantage.

Once the entrepreneur realizes that his learning is far more beneficial than the cost of failure, he gains experience. And this experience helps him in improving his business and also in taking intuitive (non rational) decisions. This is what Sarasvathy talks about in her research as the entrepreneurs keep doing things again and again if they go wrong at something. Thus, the spirit of an entrepreneur should never fail, even if the product or service he designs fails. Because, if every successful entrepreneur would have stopped trying after they encountered failure for the first time, we would be living in an entirely different world.

References: Saras Sarasvathy, Saras talk recorded in 2009. Madsen, P., & Desai, V. 2010. Failing to learn? The effects of failure and success on organizational learning in the global orbital launch vehicle industry. Academy of Management Journal, 53(3): 451. McGrath, R. G. 1999. Falling forward: Real options reasoning and entrepreneurial failure. Academy of Management Review, 24(1): 13-30. Cope, J. 2011. Entrepreneurial learning from failure: An interpretative phenomenological analysis. Journal of Business Venturing, 26(6): 604-623. Sarasvathy, S. 2008. Effectuation: Elements of Entrepreneurial Expertise. Northampton, MA; Edward Elgar. Life after Business Failure: The Process and Consequences of Business Failure for Entrepreneurs Working Paper No. 117, May 2012. www.wikipedia.com