Dr. K's Entrepreneurial Mindset: Entrepreneurial Failure

Hello and welcome to Indiana University's Kelly School of Business, where we have a special series we provide called Dr. K's Entrepreneurial Mind. I'm Dr. Don Karatko, nicknamed Dr. K, so obviously that's the title of the series, and in this series we try to bring you the very best in entrepreneurship research and practice, and in doing that we always try to find some of the world's best in whether it is the field of research or the field of entrepreneurship practice. Today we have a very special guest with us. We have Dr. Dean A. Shepard, the Randall L. Tobias Chair in Entrepreneurial Leadership here at Indiana University's Kelly School of Business. Certainly what we consider one of the world's greatest entrepreneur researchers, and he'd never tell you that, but I will tell you that, and so we're very proud that he's part of our faculty here. He's also the editor of the Journal of Business Venturing, the executive editor-in-chief, I should say, of that journal, which is one of the world's most premier research journals in the field of entrepreneurship today. So really we couldn't have anyone greater to speak with us today about some of the areas of entrepreneurship research than Dr. Shepard. So Dean, welcome. It's great to have you here with us today. Thank you, Don. I thought we'd start on this particular show to talk about one aspect of your research that has been very interesting, and you have done research in a number of areas, but the one about failure in entrepreneurship, because so many of us understand the importance of failure, we hear it all the time, but no one ever really delved into it, I think, from the entrepreneurship aspect the way you did. Could you speak a little bit to that, Dean? Yeah, as you said, I work in a couple of different areas of research, and not all of them relate to a personal experience or a phenomenon, but this particular one did. And it started basically when I was a doctoral student, and I was teaching my MBA and undergraduate classes, and I would always teach them about failure. And I remember a quote from Jeff Timmons' textbook, that failure is the fire that tempers the steel of the entrepreneur street savvy. In other words, businesses fail, entrepreneurs do not, and all they are is more motivated to try again. And then there's that saying that we learn more from our failures than our successes. Well, after teaching a class one time, I went back to my office, and I got a phone call from my father. And he said that the family business was in trouble. And when I asked him how much trouble, I told him that he had to close the business down, because it was, you know, it was insolvent, it was going to go bankrupt. And then that set in motion a whole lot of anguish for our family, you know, dad felt very sad and disappointed that the business had failed, that he thought that he believed that he was a failure, not only as a business person, but as a father, because he couldn't hand the business on to my brother. So he was angry, he was upset, and mainly with himself. And so I realized that he was not in a position to learn, you know, he was not in a position for me to say, well, you learn more from your failures, or now you should be more motivated to try again. You know, rather, he was in rather a desperate state. And we're all anxious about the whole situation as well. So after some time, I actually decided to do some research in this area. I didn't do it immediately, because I thought it has no potential to ever be published. Because it was just kind of a kind of a crazy idea. So what I did is I thought, well, look, dad lost that business, and that business was very important to him. And so I thought, well, psychologists deal with the idea of grief all the time, where people lose a loved one. And that creates a emotional reaction, and that people need to recover from that emotional reaction. But I'm not saying that the failure of a business is the same as losing a loved one. You know, you'd rather lose a business every day of the week than lose a loved one. But the negative emotional reaction to that loss might be similar. And if I can understand how people can overcome the negative emotions associated with losing a loved one, perhaps I can help entrepreneurs who lose their businesses to recover emotionally more quickly. And if they do, one, they'll, you know, they'll have a more enjoyable life. But two, they might be more motivated to try again. And three, they might be able to remove that emotional interference to be able to learn from the failure. So I started doing that research. I went into deeply into the psychology literature on grief. And that was having an interesting debate in that literature itself, in that they were saying that in order to overcome grief, the loss of a loved one, you actually need to work through the grief. You need to talk to people about it. You need to think about it. You need to stay active. And so that's the old common grief work. But what they actually found that while it worked for a while, after a period of time, people's negative emotions and their grief actually started to escalate because they started to ruminate it, ruminate about the loss. In other words, they started to think about how bad they felt when the business failed. And then they start feeling about how bad they felt, how bad they feel about how bad they felt about how the business failed. And it kind of escalates and they got worse. And what they found is some people who did really well actually didn't think about the loss, didn't think about the loss of their loved one, and they were able to keep their emotions in check. The only problem then is the emotions may rear their ugly head at an inopportune time. So we've got these two orientations, the loss orientation, a focus on the grief, or a restoration orientation is I kind of distract myself about it, but deal with secondary causes of stress. Kind of maybe sell your house, move the kids from school, all those others, such that if I've reduced the secondary causes, the major cause won't loom as large. And so what I developed from that literature is that we're better off if we oscillate between the two. In other words, we think about it for a little while, we try and process it. And if we think about it in the business context, we think about why the business failed. And as I get an understanding for why the business failed, I'm able to break some of the emotional bonds. But as emotions start to escalate, maybe I need to take a rest from it for a while, distract myself from it, think about other things, concentrate on reducing those other secondary causes of stress. And then once my cognitive or emotional batteries are recharged, once again, kind of focusing on the loss. So it was kind of this idea of this oscillation between a loss orientation and a restoration orientation was kind of the most effective way to try and deal with the emotions associated with loss. Almost like the best of both worlds. It's like taking the two solutions, if you will, and finding what the weaknesses were in them, and put the strengths together. Exactly. So you maximize the strength while minimizing the losses or minimizing the costs associated with each technique. Very good. And ironically, it did get published in some of the top journals. I mean, you were published in the Academy Management Review, Journal of Business Venturing. We even had an Arkham Business Horizons on this. I mean, it's really escalated into a lot of journals demonstrating the importance of it and the interest in this field for this kind of research. I waited basically until I felt like I had tenure in the bag. I felt comfortable that I was going to get tenure to focus on writing a paper that interested me without necessarily worrying about whether it'll get accepted or not. So I targeted at the very top journal for theory papers, the Academy Management Review. And then I decided, well, there was a special issue coming out on entrepreneurship at the Academy Management Learning and Education. So I thought, well, why don't I target this to saying, look, it started when I was teaching my students and I realized that what I was teaching was inappropriate given my personal experience with my father. So I wrote an article that got published in AMLE the year after that on how we might think about teaching entrepreneurship a little bit differently. And then I said, well, look, maybe it's not. Entrepreneurs don't just necessarily create businesses. They create projects or new products within existing firms. As you know, that's where your research is. And so I started doing some work with you and Jeff about, you know, people who invest a lot of time and effort and energy and their own identity into projects also likely have a negative emotional reaction to when a project fails. And so how does that individual manage project failure? But also as an organization, it's important that if we're entrepreneurial, that we encourage our teams, our project teams to take risks. If we take risks or these high levels of uncertainty, it's likely that some of our projects are going to fail. It's also likely we realize that our individuals and our teams are going to feel some levels of grief when those projects fail. So as a manager of an organization, how do we decide that we're going to manage the fact that people are going to have these negative emotional reactions to failure? So I've dealt with that in a couple of ways. The project that I did with you and Jeff was to look at whether we think about normalizing failure, which means that as an organization, we say to people, hey, look, we always fail. Failure is just part of the business. Let's get on with it. With the idea of removing emotion from the process altogether. So it's almost like no stigma to fail, if you will. Exactly. Yeah. Okay. But the problem with that, I suppose, is that we worked out that is if you take emotion out as an output of the process, then maybe you're also eliminating emotion as an input to the process. And that emotion as an input to the process is very important. And then I worked on some additional work on this with a family business, for example, because I thought, well, look, if an entrepreneur fails and their business fails, then there's no organization left. So I said, that's not quite the case with the family business. So if the family business fails, there's still a group, a collective group left, and that's the family that has to deal with grief. And that created an interesting dynamic because the people that are closest to you to help you overcome your grief are also grieving. So there I focused on the emotional intelligence of individuals to recognize when you need to engage in a loss orientation or when you need to engage in a restoration orientation, but also the emotional capability of the family. How good are they at having these routines and norms and systems to be able to try and deal with each other's grief collectively to overcome this loss and hopefully be motivated to try again and hopefully be able to learn from those experiences when they do try again. It's pretty amazing that when you think about the power of this research, how it grew from the failure of the entrepreneur and overcoming that to the whole world of corporate entrepreneurship to the world of family business. I mean, it just kept unfolding, even the world of learning and teaching entrepreneurship. So pretty amazing when people start to ask, you know, what is the power of entrepreneurship research? This is a great example. And then if I may shift to the, you actually did a book. I'm going to just show the audience here that we've got a book called From Lemons to Lemonade. And the subtitle is Squeeze Every Last Drop of Success Out of Your Mistakes. And I think that's pretty neat how it all the research sort of culminated then to a way to speak to the practitioners as well. Could you talk a bit about the book itself? Yeah. I mean, the book ended up being a collection of papers, conceptually, a collection of papers. One of the other papers I should mention was how do we prepare for failure before failure occurs? Because a lot of people escalate commitment. And we kind of explained that when we look at escalation of commitment, we normally look at it in terms of financial rather than emotional. So we kind of considered the emotional implications of when we close a business down, as well as the financial implications. And so then I took those papers and I said, well, look, the people who read these papers are only professors or, you know, doctoral students, people about to become professors. Right. And what motivated me to write the paper in the first place was in the back of my mind, how do I help people like my father, you know, overcome the challenges associated with failure? And so I wanted to reach those people. And one way to do it, I suppose, was publishing the paper in the Academy Management Learning and Education. So at least we got to the educators who could then get to the people. But I thought, you know, I want to try and get to the entrepreneurs themselves. So I took the ideas from the papers and I wrote them in a way that was kind of less academic, you know, without all the, you know, all the citations and kind of the academic language to make it more accessible to a broader audience. And that's why I did From Lemons to Lemonade. It's a terrific book. As a matter of fact, just to give a little plug, we used it in one of our MBA classes last year for our students, and they just felt that they got so much out of this because they could relate so well to the message you were trying to drive home about failure. And you did bring it down to the language, if you will, of the common folk to understand. You know, took like the scientific part out and put it more to, you know, what's the real practical applications, which I thought was really terrific. I also took it, you know, necessarily out of the business failure and not always project failure, but kind of failure in general. In some ways I had, I think the book ends with an example of my daughter going to primary school, going to elementary school for the first day. And someone said, you know, that you, you know, you hope that they don't, you know, that they don't have failures. And, you know, all I want my children to learn is, and I try and teach them that, you know, that they can learn from their failures, but they have to be able to kind of regulate their emotions. So there are kind of some simple messages in the book that's beyond just, you know, the failure of businesses and the failure of projects. I think that's what made the book special because I think you personalized it. And when, when the, I certainly know from our students and for myself reading, you really get into the book because you did personalize it. It wasn't just written from like a third person. It was more, let me give you some actual examples. So I think it was, you know, really well done. Good. Thanks. Thank you, Dean. It was really great to explore this a little bit with you and share with our audience a little bit about this research and how it's sort of come full circle. You know, I found interesting, you said, you know, it all came, it started with your dad. And if you think about full circle, all this research sort of goes back to your dad too. Yeah. So it's really kind of a neat story. Thank you. Thank you, Dean. It's been great to have you here on the show and I appreciate you sharing some thoughts. I hope our audience can see that here at Indiana University, we're trying to bring you the very best in some of the thoughts of entrepreneurship and practice. And today with Dr. Dean Shepard, we were able to see how entrepreneurship research that started as a research idea really began to overflow into something that became a message to all practitioners in a book. So very, very powerful. I hope you've enjoyed today's session with Dr. Shepard and myself, and we hope that you'll join us in the future for more on the series of Dr. K's Entrepreneurial Mind. Thank you and have a great day.