Entrepreneur Failure Prevention Comparison

Figure 1-1
Suggested Approaches to Intervention
in New Venture Failure Processes

The implications of this comparison are as follows:

Box 1 - Learning:

In Box 1, where failure is preventable, it is also valuable (perhaps as a learning experience). Early intervention to prevent failure might prevent some short term losses, but over the long run it could have the opposite effect-escalation. Instead of "losing a little to learn a lot," an entrepreneur who is prevented, through early intervention from failing at an early stage, might instead fail much later, dramatically escalating the costs of that failure (losing a lot to learn or not learn a lot).

Also, to intervene in this situation would be to meddle. Policy makers have known for years that a certain amount of new venture failure is the "least cost way" to create jobs and businesses of the future. Some failure may be good, if it is small in its impact and valuable as a learning tool. By applying the principles furnished here, you will learn to distinguish between valuable and wasted failures, so that you can benefit from the failure-cost-minimization method over the long run. The approach toward intervention in this case is "hands off" - Avoid disturbing the learning that is possible from the school of "hard knocks."

Box 2 - Growth:

In Box 2, where failure is valuable but cannot be prevented. Any time and effort that is consumed in coping with the failure process is turned to growth. Intervention efforts should not be consumed in attempts to prevent failure. Rather, they should be directed toward the guidance and coaching that provides support and assistance to the venturer in "making sense" of the experience. Since prevention is impossible under the assumptions in this case, the approach toward intervention is to offer guidance, coaching, support, and assistance in "sense-making."

Box 3 - Conservation:

In Box 3, where new venture failure is preventable, and where the learning value of that failure is low. Conservation, the goal of the New Venture TemplateTM technology is possible. Here, early intervention in the processes of wasted failure creates long-run savings because early assessment of venture weaknesses can assist with the minimization of failure costs. Early intervention can accelerate "creative destruction" (Schumpeter, 1934; Timmons, 1990) to minimize the premature waste of resources in flawed new ventures. The objectives of this intervention are therefore assessment and minimization, as they are defined below:

Assessment - Over the years, entrepreneurs, academics, politicians, financiers, family members and other stakeholders in the venturing process have learned a lot about the venture, the venturer, and the venturing environment. In the first step of the assessment process, the tools of knowledge that come from this learning should be given to would-be venturers so that they can set a higher standard for their venture. In the second step of assessment, the methods that is available to help these venturers compare their venture as it is presently conceived, to the standard that they have set, can then be applied.

Minimization - The knowledge that is gained in the assessment process can be applied to minimize the vast amounts of wasted money, effort and emotion that accompany unproductive new venture failure. Remember, two things are known about starting a new business. First, at least 50 percent of new ventures fail within a short time of their founding. Second, almost every would-be entrepreneur believes it won't happen to them. With knowledge in the right hands, the 50 percent plus group who have a very unpleasant surprise coming can be reduced to a smaller, less wasteful size. Venturing resources thus conserved, are ready and available for application to more sound ventures.

Box 4 - Loss:

In every system there is a zone where all the skill and resources can neither prevent the "great fall," nor can they put the "Humpty Dumpty" loser venture together again. For whatever reason, there are some failures that are neither worthwhile nor valuable. In the worst case, all that can be done is to "cut one's losses," meaning get out now and get out fast. In the best case, such failures can be converted to learning, growth, or conservation outcomes. Since new venture failure in this quadrant is neither productive nor preventable, losses should be minimized through an attempt to convert the situation to one of the more productive cases.


----------------------------------------------------
Dr. Ronald K. Mitchell is a specialist in entrepreneurial cognition, global entrepreneurship, and venture management. He developed the Entrepreneur Assessment which won the acclaimed Heizer Award for this groundbreaking research. Find out more http://entrepreneur.venturecapital.org/


EasyPublish this article: http://submityourarticle.com/articles/easypublish.php?art_id=262353