1 Simple Rule: To Be Successful, You Need to Be Prepared for and Manage Failure

Reflect on the relationship between uncertainty, opportunities, and failure.

Opportunities are identified in uncertain environments. Making decisions under uncertainty can mean you are sometimes wrong, potentially leading to failure. Therefore, failure is a common outcome in the pursuit of opportunities. Rather than thinking of failure as something that isolates you from others, you need to recognize that it is a common outcome experienced by many entrepreneurs. You want to use failure to learn but also keep the cost low.

Consider succeeding by increasing your attempts.

This statement means that to achieve success, you have to keep trying. To hit more home runs, you need to have more at-bats. The hope is that with more tries, you learn to convert more of them to success. However, failure is still an intimate part of the entrepreneurial process. It is essential that you can cope with and learn from your entrepreneurial failures.

Use failure to create a sense of urgency.

Failure does not feel good. It means that something important has been lost, which creates a sense of urgency to learn from the process. Use that sense of urgency; don’t suppress it. After learning from the process, hopefully, you will feel more capable of taking subsequent entrepreneurial action.

Analyze and learn from near misses.

A common reaction to a near miss is to consider yourself lucky and move on. The attributes of a near miss are similar to those of a failure; however, a near miss does not have the emotional baggage of a failure. Therefore, while we rarely use near misses to learn, we should. However, without the urgency of a failure, we need to motivate ourselves to invest the effort to learn from these near misses. Don’t waste these information-rich sources of learning.

Use real options reasoning to terminate ventures.

You can consider your venture as a portfolio of opportunities. Each opportunity is like an option in that it gives you the right to exploit the potential opportunity but not the obligation to do so. When one opportunity shows a lack of promise, you need to terminate that opportunity and redeploy resources to those that show more promise. While you may consider these terminations failures, they actually increase your chance of overall venture success, especially if you can complete them quickly and cheaply.

Use failure to build intuition.

You can learn more from your failures than your successes. Use failures to enhance your intuition. However, sometimes, we want to focus on our successes and ignore our failures. This approach can mean that our intuition has a survivor bias, which might be dangerous to rely on. Informed intuition can be very useful for you in the entrepreneurial context. Make sure you use both successes and failures to develop your intuition.

2 Simple Rule: Yes, You Can Learn More from Your Failures than Your Successes, but It Can Be More Challenging than You Think

Be aware that you may have attribution and antifailure biases.

It is natural to have an antifailure bias. None of us like failure. We often attribute successes to our skills and knowledge to protect our egos and failures to external causes. These attributes can lead to superstitious learning. It would be best to overcome this natural tendency because it obstructs learning. If a failure is attributed to external causes, then there is nothing for you to learn. You are helpless. Instead, asking yourself what you could have done differently to avoid the failure is better. This question puts you in the mindset to learn something from your failure experiences.

Realize that it is natural to feel grief when a project is terminated.

Grief is a negative emotional reaction to the loss of something important. If you feel grief when an opportunity is terminated or a project fails, it simply means it was important to you. Most people feel grief when they lose something important. While this grief can highlight the importance of a failure, it can represent an emotional obstacle to learning from the experience. Learning from a failure is easier if you are able to overcome this emotional obstacle. Therefore, learning from failures is rarely automatic or instantaneous. Overcoming this emotional obstacle involves a process of dealing with grief—not necessarily eliminating grief but holding it in balance so that it does not overwhelm your thinking.

Do not seek to normalize or become desensitized to failure.

One way to reduce the emotional obstacle to learning from your failures is to normalize failure or become desensitized to it. However, the problem with taking emotions out of entrepreneurial outcomes is that doing so likely eliminates emotions as an input to the entrepreneurial process. With less emotional input (e.g., passion), the entrepreneurial process is more likely to generate a failure. That failure is less likely to create the urgency to learn from the experience. Learning to regulate the negative emotions generated by failures is better than eliminating all negative emotional reactions.

Oscillate between a loss and a restoration orientation to regulate grief.

You can deal with the grief of a failure by engaging in a loss orientation. With a loss orientation, you focus on the failure to try and understand what happened; understanding the failure can help you break the emotional bonds to the lost project or venture. However, after a while, engaging in a loss orientation can generate more negative emotions, such as ruminations. You can then switch to a restoration orientation. With a restoration orientation, you focus on addressing secondary causes of stress (not the failure directly but the problems generated by the failure) and ignoring the failure to avoid the associated negative emotions. However, ignoring the failure and the emotions surrounding it can only be successful for so long. Eventually, they surface and create problems. Thus, to fully deal with the grief of a failure, you should oscillate between a loss orientation and a restoration orientation until your grief subsides.

Select and use emotionally intelligent friends to help you deal with failure.

Emotionally intelligent friends can tell when you feel negative emotions and know how to help you regulate them. They can help you oscillate between a loss orientation and a restoration orientation. It is good to have emotionally intelligent friends. You can also develop an emotionally capable organization by establishing routines and processes for noticing and regulating the negative emotions of venture members, such as social support groups and routines for dealing with failures.

Develop and use self-compassion.

Self-compassion refers to helping yourself when you are suffering, such as experiencing grief over a failure. You can show yourself self-compassion by engaging in self-kindness. Be kind to yourself when you are suffering. Think about what you would say to a suffering friend and use the same approach with yourself. Show yourself self-compassion by realizing that everybody fails at some point. This recognition can help ensure you do not isolate yourself from others. Many others have also experienced what you are feeling. Show yourself self-compassion by engaging in emotional mindfulness—that is, acknowledge your negative emotions but hold them evenly without allowing them to overwhelm your decision-making.

3 Simple Rule: You Cannot Choose to Be Error Free; You Need to Choose Which Error You Will Regret Less

Calculate the costs of acting and being wrong (error of commission) versus right (a hit).

You may think that a signal represents an opportunity, but you could be wrong given the uncertainty surrounding that signal. Alternatively, your interpretation of the signal may be correct, and there is an opportunity worth pursuing. Consider the costs of acting relative to the benefits of acting.

Calculate the costs of not acting and being wrong (an error of omission) versus right (a correct rejection).

Given the uncertainty surrounding a signal, you may decide not to act on it based on your assessment that it represents noise. Alternatively, there may be a cost if the signal represents an opportunity you pass over. Consider the costs of inaction relative to the benefits of inaction.

Consider the payoff matrix when making your decisions.

By considering (1) acting and being right (a hit), (2) acting and being wrong (a false alarm), (3) not acting and being right (correct rejection), and (4) not acting and being wrong (a miss), you have developed a payoff matrix. It may be challenging to compare different aspects of these costs and benefits directly, but at least the payoff matrix highlights salient considerations for an important decision.

Reflect on which you will regret more.

People often ignore their payoff matrix by considering potential feelings of regret. They choose the type of error—either an error of commission or an error of omission—by choosing to act or not act based on which error has the lowest anticipated regret. As an entrepreneur, you may regret an error of omission. That is, you may regret not acting and missing out on an opportunity. Think about your payoff matrix and anticipate your possible regrets (i.e., an error of commission [a false alarm] versus an error of omission [a miss]).

Consider what is normal.

You may want to consider what is normal under the current situation. If it is normal to act, then if you act and you’re mistaken, you will experience less regret than if you did not act and were wrong. For example, a firefighter is more likely to regret omission errors than commission errors. However, if it is normal not to act, you may regret an omission error more than a commission error. It is worth considering which errors you can live with and which you cannot.

4 Simple Rule: Prepare for Crises Because They Will Probably Happen (You Just Don’t Know What or When)

Build your resilience in preparation for a crisis.

You are resilient when you can maintain positive functioning under adversity. However, you may be unable to anticipate the adverse events that will impact you and your venture. Still, you can build your own and your venture’s resilience to better prepare for these unexpected events.

Build resilience by developing coping self-efficacy.

Coping self-efficacy is the belief that one can successfully engage in tasks to overcome the challenges of a threat. People who develop high coping self-efficacy from previous adverse experiences perform better in the face of other events that require coping. You can build your coping self-efficacy by reflecting on when you successfully navigated an adverse event. Coping with small adverse events can help build your coping self-efficacy for successfully dealing with more hostile adverse events.

Build resilience through optimism.

Optimism involves envisioning a positive future. With optimism, you will see adversity as a temporary situation—a situation that you can change. Believing that you can do something to improve your situation means that you will be proactive toward finding a solution and persist with that action. In contrast, a more pessimistic approach can lead to helplessness. Helplessness involves a feeling of lack of control over what happens to you and thus a belief that trying to change your situation is pointless. Be optimistic in the face of adversity because it can be a positive, self-fulfilling prophecy.

Invest rather than conserve resources in a crisis.

When a crisis or adverse event hits, you can either conserve your resources for use later or invest your resources now. Entrepreneurs who invest their resources in a crisis tend to do better than those who conserve. If you invest your resources, you are taking positive action to improve the lives of others. In doing so, you will see others doing the same, offering you gratitude and a unique opportunity to develop your competence. These outcomes of investing yourself in acting to help others all positively impact your resilience to this crisis or adverse event and subsequent adversities and crises.

Build resilience by creating and maintaining strong relationships.

Strong relationships provide critical resources in the face of an adverse event. They are based on trust and offer emotional and psychological support. The challenging conditions of an adverse event that drive you to rely on these relationships provide the opportunity to strengthen these relationships further. Therefore, using these relationships represents resilience and also builds resilience resources.

Reflect on your trial-by-fire experiences.

Trial by fire is when you have faced adversity and come out through the other side. You survived and developed some habits and mental strategies that can now be used in a more favorable (postadversity) environment. This trial by fire has enabled you to build highly effective capabilities. Realizing that the hardships you have faced in the past represent trial by fire provides you confidence that you now have the capabilities to cope with current adversity and achieve success.

5 Simple Rule: If You Caused a Mistake that Was a Core Violation of Your Entrepreneurial Venture and Negatively Impacts Others, Then You Better Make a Good Apology

Be candid about the cause.

Be honest about the cause of the mistake. Don’t compound the mistake with an unbelievable cause for it or find out later that your stated cause was incorrect. Without a candid response to the cause of the failure, the rest of the attributes of a good apology will have no effect.

Feel and show remorse for your mistakes.

The mistake has harmed other people, and you need to show the appropriate negative emotions given that harm. These negative emotions indicate that you understand the harm caused and are motivated to change.

Detail your commitment to change.

Explain to those impacted by your mistake that you understand it, the harm it has created, and how your actions caused it. Use that understanding to indicate how you will change in the future.

Change.

You must act on your knowledge and admissions of the cause of the mistake, your remorse for the mistake, and your commitment to change by actually changing. People accept others making mistakes if they show that they have learned from the mistakes and tried to make amends.