Three Types of Failure | The Importance of Failure In Business

Failure is a scary word, especially in business. No one starts a business with the intention to fail, though failure in business is more common than you might think. You’re not alone in your fear. 

In fact, 20% of small businesses fail in their first year of business, 30% fail in their second year, 50% fail after five years, and 70% in their tenth year. With the odds of failing being so high, it can be intimidating to start at all. But there are so many factors that cause businesses to fail … and not all failure is the same. 

The more we talk about failure, the different types, and the importance of failure in business, the easier it will be to double down on the failure that pushes us forward and PREVENT the failure that leads to closing the doors.

How do entrepreneurs handle failure? They deal with it by knowing that not all failure is created equal. For example, maybe a tested hypothesis didn’t end in the result that you wanted it to. So you try to test the hypothesis with a different strategy in mind and learn from the past test. 

Not All Failures Are The Same

Get to know the different types of failure, understand why embracing it in business is something you should practice, and see which parts of these learning experiences are just part of the process and which ones can set you up on the path to a detrimental overall business hurdle. Studying the importance of failure in business will help you not shy away from business practices that have a potential lack of success at the end of the journey.

So, what causes small businesses to fail exactly? A business (or leaders of the business) are not failing with intention. To fail in the pursuit of testing a new hypothesis or experimenting with a new solution is the Thomas Edison light bulb saga kind of failure. Failing because you don’t have the right processes in place or you’re neglecting market research—that’s failure without intention … failure that leads to the big F in business—closing the doors. 

Amy Edmonson, a Harvard Business School professor, writes about how failure falls into three categories: preventative, unavoidable, and intellectual failures. 

Let’s clearly define what each of these categories of failure means and understand which ones to embrace and which ones to avoid.

The Three Types of Failure

1. Preventable Failure

The first type of business failure is preventable failure. Amy Edmonson defines preventable failure as “deviations from spec in the closely defined processes of high-volume or routine operations in manufacturing and services.

“With proper training and support, employees can follow those processes consistently. When they don’t, deviance, inattention, or lack of ability is usually the reason. But in such cases, the causes can be readily identified and solutions developed.” 

Basically, preventable failure happens when you’re either not paying attention, not following the processes, or are not capable of accomplishing the task. Smaller preventable failures happen on a daily basis—a typo, a missed sales call, poor feedback from a client. 

But what about the big preventable failures that slip under the radar until it’s too late? For example, many preventable failures start with lack of preparation, planning, and research. 

  • Business A had inadequate funds before their launch. They didn’t reach their projected annual revenue and now they’re in big trouble with investors.  
  • Business B overgeneralized during their market research phase. They launched without a clearly defined market, target audience, and knowing audience buying habits. Now, they’re wasting precious dollars on target marketing toward “everyone”. 
  • Business C developed a vague pricing strategy and is now spending way too much time experimenting with discounts and promotions when they really need a solid pricing structure.  

The recently popular Fyre Festival is a great example of experiencing a preventable failure. Could that situation have been avoided had Mr. Billy McFarland had the funds and honesty to get things done right? Absolutely. 

But instead we got no music festival, a lot of pissed off rich people, and two documentaries to entertain the rest of us because of this preventable failure … although it was entertaining for those of us who didn’t lose out on thousands of dollars.

2. Unavoidable Failures (AKA Complex Failures)

Unavoidable, or complex, failures are tricky. You have the knowledge, tools, processes, and protocols to do things right but something goes wrong. A combination of internal distractions and external factors play into complex failures.

Here’s a look at some different types of complex failures:

  • Natural disasters
  • Death of a leader
  • Processes for success are complex and therefore easy to make mistakes
  • Rapid growth (with no time to adapt properly)
  • Outgrowing leadership (company grows faster than current leadership has the capacity to grow with)
  • The business environment is naturally chaotic and therefore can lead to mistakes

Emergency rooms are a place where you’d be able to find a number of unavoidable failures. The hospital has the staff needed to get the job done, they have processes in place for all sorts of different scenarios, and they’re equipped with (almost) every tool they could possibly need to help patients who are experiencing an emergency. 

An unavoidable failure arises when fast-paced situations get distracted by too many patients, medical equipment malfunctions, or overly complicated or uncommon medical needs. In an environment that is fully prepared to handle any situation that is thrown at them, sometimes unavoidable factors are presented and failure is inevitable.

3. Intellectual Failures (The Yummy, Growth Kind)

Like we said, not all failure is created equal. While some failures can be prevented and are likely to harm the success of a business, others are healthy, necessary, and appear in the form of big, juicy, yummy bundles of business growth. 

Fail fast in the name of innovation. Failing is a component of healthy risk-taking and learning. Intellectual failures can provide valuable feedback and great, new knowledge that can help a business succeed in the future.

The ‘trial and error’ concept is a picture-perfect example of intellectual failure. If you don’t try and try and try again, then how will find the right solution? 

Testing new hypotheses and experimenting with new solutions are both considered intellectual failures. Both of these scenarios might end in failure (more often than not, actually), but failure still might not end the process negatively.

By experimenting with a new solution, you’re continuing to learn what works and what doesn’t so you can learn from the failed attempt and move onto something that will hopefully work the next time (fingers crossed). 

Do you think Thomas Edison got the design of the first light bulb right on attempt #1? Nope, he sure didn’t. Edison tested several different materials (and failed) before finding the metal that worked just right. If he learned from his intellectual failures, then so can you!

Understanding The Main Reasons For Employee Failure

Although there are endless causes of business failure, understanding some of the main reasons for employee failure is crucial for better relating to them. By understanding the importance of their failures, why it might have happened, and determining ground rules for certain types of failure, your business will run smoother (even in times of defeat). 

If one employee fails because of his lack of respect and effort in a situation, he should face consequences. While another employee should not face the same repercussions (if any) for failing because he is using the trial and error method to find the right solution that will set your business up to take the next innovative step forward.

Your team is going to fail, it’s just the name of the game—it’s inevitable when you’re managing employees under the same mission. Understand the reasons for failure so you can determine what deserves a scolding and what deserves praise. And help your team understand the importance of failure in business too because they might view failure differently than you do as a business owner. 

As an entrepreneur, you probably have different goals, a specific passion for your business, and a different understanding of failure than your employees do. You see certain types of failure as a means of improvement, while employees might feel down about failure because of the potential consequences. 

The Entrepreneur vs. Employee Understand of Failure

So, how does passion relate to entrepreneurship? You know the answer to this because failing intellectually (even though it might sting) is going to better your brand in the long run. You have a passion for what your business does, so you’re not afraid of seeing failure or getting the testing wrong a time or two. Discuss this passion with your employees so they know which types of failure are going to help the company succeed and which ones are going to break it down.

Look for these types of failure among your team and understand which ones are necessary for growth and which ones need to result in a slap on the wrist.

  • Straight Up Disobedience (Deviance)
  • Ignoring the Processes and/Or Specifications (Inattention)
  • Not Cut Out for the Task (Lack of Ability)
  • Fault Processes (Process Inadequacy)
  • The task is too Difficult for Consistency  (Task Challenge) 
  • The process is a Brain Teaser (Process Complexity)
  • Shooting in the Dark (Uncertainty)
  • Testing New Ideas (Hypothesis testing)
  • Embarking on a New Frontier (Exploratory Testing) 

How To Use The Lessons You Learn From Failure To Better Your Brand

Instead of focusing on strategies to avoid business failure, let’s switch the focus and learn from business failure. The lessons you learn from failure are big growth opportunities. Use these strategic tips to learn from defeat instead of shunning yourself (or your employees) for a failed result.

Create a safe and supportive environment to report failure.

Blame shifting happens at work and there becomes a lack of transparency when people slide their failures under the rug. Create a space where people can safely open up about their failures in the workplace, and then handle those failures before they become a bigger beast to deal with. Make your team feel comfortable telling you when something goes wrong and support them through the aftermath.

Adapt your strategy after failure.

If you’re constantly failing in the same area time and time again, you’re not adapting. Every time you fail, it’s a nudge to switch things up and adapt your strategy. Are your email marketing campaigns not producing any results? Pay attention to the feedback (which, in this case, is crickets) and switch it up with a new strategy. Or maybe you post the same two types of content on social media every single day and aren’t seeing the results you want. It’s time to reevaluate and recognize the reasons you’re failing. Try something new.

Realign with your brand vision.

Many failures are rooted in a lack of clarity and motivation for your brand vision. If leadership is unclear about brand vision or they’re not accurately communicating it to employees, those destructive types of failure will start to increase. No one wants to deal with the capital “F” of failure—a failed business. Make sure your business strategy is aligned with your brand values and stay focused on your goals before completely derailing the business train.

5 Of Bareknuckle’s Favorite ‘Importance of Failure’ Quotes

All this talk about failure, you probably need a little motivation to really get you feeling positive about the importance of failure in business and growing from defeat. Here are five of BK’s favorite failure quotes that will get you feeling like failures are not so fail-y at all.

  1. “Failure is an option here. If things are not failing, you are not innovating enough.” – Elon Musk
  2. “It is impossible to live without failing at something unless you live so cautiously that you might as well not have lived at all—in which case, you fail by default.” – J.K. Rowling
  3. “When you take risks you learn that there will be times when you succeed and there will be times when you fail, and both are equally important.” – Ellen DeGeneres
  4. “Failure should be our teacher, not our undertaker. Failure is a delay, not defeat. It is a temporary detour, not a dead end. Failure is something we can avoid only by saying nothing, doing nothing, and being nothing.” – Denis Waitley
  5. “Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.” – Robert T. Kiyosaki

The Failure Takeaway

Failing sucks, but it shouldn’t be as scary as everyone makes it out to be. The importance of failure in business is to learn from your mistakes, so don’t shy away from it. Know your failure. Know how to fail fast when it counts. Pivot your strategy to avoid destructive failure in the future.

Is your brand aligned with your business goals? If not, preventable and complex failure might be creeping up on you. The Bareknuckle team can help you get back on track. Buy us a beer and we can strategize how to get your brand, business, and communications in order.