The “F” word in entrepreneurship

In Entrepreneurship, we mostly hear the success stories. The idealist whose concepts changed an industry, the maverick inventor whose products now inhabit countless homes, the whizz kid who raised millions in VC funding – these are the men and women who are called upon to do the fireside chats, the TEDx talks, the guest lectures, the seminars, the Forbes magazine interviews. Even the most seasoned entrepreneurs – who often admit to multiple business failures in the past – do not often readily highlight their stories of failure, despite the lessons that they may contain.

The entrepreneurs who lost their life savings on a venture, who fell out with a business partner, whose marriage broke down due to overwork, whose mental health declined under the pressure, or who struggled to re-enter the traditional job market after the failure of their business venture – these are the stories we don’t so frequently hear. We know they exist – the “F” word, failure, lurks in the back of the mind of many new business owners. But no one likes a downer, and sob stories don’t sell magazines. The dirty idea of failure is pushed aside, glossed over as a passing thought, but not proactively planned for.

Most entrepreneurs are eternal optimists – why else would they pursue such a risky career path? For many entrepreneurs, so much of their time and energy is spent promoting and selling the business concept to VCs, clients and potential new hires, that considering failure seems almost sacrilegious – a betrayal of their business and life’s purpose. Positive thinking reigns, and pessimism banned – no negativity here! For others, their sense of self-belief, self-confidence and optimism goes so deep that they truly do not believe that failure is possible, let alone likely, and thus refuse to entertain the possibility. Finally, there are those – mostly perfectionist types – who toy with the idea of failure, but find the consequences too dire to consider and thus are mentally framed as “not an option”. They will not fail, because they cannot fail. They will do whatever it takes.

Upon arrival at LBS, many of my classmates were surprised to describe myself as a “recovering entrepreneur” – surely people go to business school before becoming an entrepreneur, not after? While my latest business had not failed, it was not panning out as I had hoped and was unlikely to lead to a satisfactory long-term career option; I had given little consideration to this eventuality when I started the business three years earlier, and certainly had not extensively planned for it. Having spent my 20s involved in various different ventures, I was in need of a hard reset and a major skills upgrade – which I am happy to say my MBA at LBS has adequately provided. I have been lucky enough to land a fantastic post-MBA job offer, but my prior failure to adequately plan for the demise of my business and the need to re-enter the workforce made job-hunting a lot more painful and difficult than it might have been.

So, we need to talk about failure. It’s not something that MBAs readily do – the competitive environment of elite business schools means weaknesses, fears and regrets are not extensively hashed out in the open or discussed with peers. In interviews, we polish our failures into “learning experiences”. Many MBAs are young enough that they have not yet experienced a significant career failure at all. But I strongly believe that entrepreneurs – especially those in their 20s, and especially those coming out of business schools – need to comprehensively plan for the failure of their ventures. Such planning should not be viewed as negative or pessimistic, but a vital part of the entrepreneurial journey.  It’s time to defang “failure” by adequately anticipating and planning for its occurrence.

Business Preparation

It is a bit of a no-brainer that every venture needs to have a “Doomsday Scenario” plan for what is to happen when things fail. This should be officially documented, with adequate legal advice as necessary – find the money for it, don’t skimp here, even if you’re operating on a shoestring.  There are various aspects that need to be covered in this plan, including termination of rental agreements, division of liabilities and assets, ownership of IP and the like.

This is especially important in businesses that involve more than one founder. A business failure is like a divorce – you can expect things to get nasty, even with people you may have been friends with for many years.  Get a company prenup, and go watch “The Social Network” if you need a reminder of how ugly things can get.

It is also highly important to familiarise yourself with business closure and bankruptcy laws in your legal jurisdiction, as the fiduciary duties of Directors vary between countries. (Special note here: Germany and the United Arab Emirates)

Aside: I recommend Ignition Law for affordable SME business advice.

Emotional Preparation

Everyone likes to think that they’re tough – until an unexpected event comes along and shakes up their emotional world. The failure of a business is such an event, and one that can roil you to the very core; it is an assault on one’s emotional world and psyche from all sides. The failure itself can invoke feelings of deep shame and inadequacy, as one mentally picks over all past mistakes and flagellates oneself with excess self-criticism. The failed entrepreneur may feel like a huge disappointment to investors, parents, spouses and employees, and self-loathing can easily set in.

With the loss of a job and the label of “entrepreneur”, the resulting identity crisis can be acute. Before your business venture perhaps you were a successful marketer, manager, banker or consultant, with all the social status that these entail. You got into a top business school. You were a winner. But the innovative and shiny new business that you told everyone about has failed. How much self-belief do you have now that all the external markers that propped it up are gone? Who are you now? 

The psychological impact of a business demise can be especially difficult for people from cultures where risk-taking and failure is not embraced.

How does one prepare for the emotional fall-out of a failure? Here are my three suggested steps:

  • Know Thyself: Know your emotional weaknesses. Which of the eventualities detailed above are you most likely to be affected by? Is it a lack of self-belief? An identity crisis? If you don’t have enough self-awareness to know, then you’re probably not ready to become an entrepreneur.
  • Acknowledge: You will make mistakes on your entrepreneurial journey – this is absolutely inevitable, for unlike in a traditional career path, there is no boss to mentor you, no line manager to correct you, and no training manual to prepare you, no organisational structure that is expressly designed to stop you from screwing up. It is likely that if your business does fail, some of those mistakes will have contributed to that failure. This is OK. If your business fails, it may well be emotionally traumatic. This is also OK. It isn’t supposed to be easy.
  • Prepare: Visualising and planning takes the sting out of an unpleasant event, so be proactive. Hash through the psychological aspects with a mentor, if you have one. I would also strongly encourage booking a handful of sessions with a professional therapist or career coach. (Being an entrepreneur can be so tough emotionally that professional therapy or coaching is practically a business expense – YOU are a business asset, and business assets need to be appropriately maintained). It is also important to consider and prepare for the effect that a business failure may have on your intimate relationships – friendships, spouses, parents, kids.

A side note on emotional preparation: if your business is starting to get shaky, get your support network in place now. You don’t want to be looking for a therapist in the middle of a business melt down.

Financial Preparation

If you’re sensible, you have already set up your business as a limited liability company, taken legal advice, and have a solid contingency plan in place in the event of failure. You’ve got an emergency fund set aside. Good to go, right? Not so fast.

Firstly, dipping into that emergency fund can start to look very tempting when your business is getting a bit rocky. People are more risk-taking when in the loss domain, and suddenly it will make perfectly reasonable sense to inject a bit of personal cash into your business to stabilise it – after all, your company just needs a few thousand dollars to tide it over a bad couple of months. So put an iron padlock on that emergency fund, stay diversified, and never go all in. After making a great many business mistakes, one of the most sensible things I did as an entrepreneur was to take a chunk of money out of my last business to make a non-related investment during the good days. You really don’t need to be the “man/woman who lost everything”.

Secondly, think about what you might need cash for after closing your business, and add to your emergency fund as necessary. That $15k you put aside at 25 was more than adequate then to cover  your living costs then while you looked for a job for 3 months – but will it be enough now that you’re 35 and have a kid, a mortgage, and a bit of your MBA loan to pay off? Give close thought to not only your expenses and how long you might be out of work for, but also what training or upskilling you may need before you re-enter the workforce or start a new venture – technology moves quickly these days, and after 5+ years in entrepreneurship, you may well need a refresh.  I chose to get an entirely new degree and pursued an MBA, while a close friend completed the LBS MiF – to great success, as we both secured fantastic new positions, but it certainly wasn’t cheap.

Career Preparation

Picture this – you ran your business for 10 years. You had some good years, you learned a lot, but after some unexpected developments in the industry, you decide to close your business and re-enter  traditional employment. You go through old files and pull up your CV – which you haven’t updated in 10 years. Why would you? You didn’t have the time, and anyway, you didn’t need to. You didn’t expect to be in this position, because you never prepared for your business to fail. Oops.

Re-entering the workforce after being self employed can be incredibly challenging. Risk-averse hiring managers are often looking for traditional candidates with the right experience and clear, easily quantifiable skill-sets. They do not get the CVs of many former entrepreneurs crossing their desks, and when they do, they don’t know what to do with them. They have no idea what you’re good at, and are concerned that you (and I quote one consulting firm here) “won’t adapt to a corporate environment”. Congratulations, you’re now a high risk hire. Welcome to the dark side.

Luckily, this is a risk that can be mitigated with comprehensive planning.  Here are some proactive steps that you can take to enable a smooth re-entry to traditional employment.

  • Keep a skills diary: Entrepreneurs are busy and often overwhelmed.  Things changed rapidly. Everything is happening at once. After several years, the early days can become a blur. That is why I now consider it important to set aside time every single month to document events and keep an up-to-date “skills diary”. What did you do this month? What did you learn? What did you achieve? This is vital when it comes to interviews, where you need to be able to readily trot out anecdotes that demonstrate your skills and expertise. As a non-traditional candidate, you may have to dig deep into past work experience to demonstrate a particular skill, and grasping to recall details in the middle of an interview is not a good look. A work journal is also a useful tool when working with a recruiter or career coach, as they will be able to pull out skills that you did not identify. If you aren’t naturally a super organised type, buy one of those trendy self-help journals and block out 20 minutes of your schedule every week – you should already be ring-fencing 60-90mins per week for both personal development/reflection and long-term business planning/review anyway.
  • Quantify everything:  Modern CVs are required to be highly quantified. You can’t just “grow the client base”. Keep records.
  • Train yourself: Remember, you’re the manager now. Once you’re an entrepreneur, you don’t have a boss who can see your weak spots and train you accordingly. Be proactive. In the absence of a boss, seek extensive mentor and peer reviews and set aside time and resources to upskill yourself as necessary during your entrepreneurial journey.
  • Connections: Entrepreneurship can be all-consuming. However, try not to let connections to your “normal” friends and former colleagues slide – if you want to re-enter the traditional workforce, you may well need their advice, connections or recommendations. It goes without saying that while an entrepreneur, you should never humblebrag or act like you made the superior choice – such behaviour will alienate potential future allies.
  • Consider the alternatives: some careers, like finance, are very hard to re-enter once you’ve been out for a few years. If you’re switching to entrepreneurship after such a career, give some thought to what else you might do if your business fails.

If any of the above sounds scary or pessimistic, it isn’t meant to. Failure may be the dark side of entrepreneurship, but it’s still an outstandingly common occurrence. It’s scary, but it also has its upsides – having gone through a few of them, I believe that nothing will ever teach you more about yourself than your failures will. They will bring you hard truths, clarity and incredible self-awareness. My business failures do mean that I still struggle at times with self-doubt and various other emotional and career scars, but without them I would have never come to LBS. I would never have garnered the breadth of knowledge I now have. And I probably would never have had the chance to work for a world-renowned company that was open-minded and forward thinking enough to employ a former entrepreneur, “failures” and all – despite my thinking that they were probably the last firm who would have ever hired me. 

It isn’t supposed to be easy.

About the author:

Isabella is an LBS MBA2020 student from Scotland. She studied Chemistry for her undergraduate and masters degrees, before owning womenswear, menswear, events and import-export businesses in London and the Middle East. She will be taking up a post-MBA offer at a top 3 global management consulting firm.

You may also like the following Think articles from faculty at LBS:

If at first you don’t succeed – Are investors averse to past failure when it comes to funding? Or can cues about an entrepreneur’s skill tip the odds?

By Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship at London Business School.

How to fail successfully – The most innovative companies embed experimentation in their strategy and extract maximum learning from their mistakes.

By Julian Birkinshaw, Professor of Strategy and Entrepreneurship at London Business School.