What I learned about Failure after 26 Years of Research at Harvard |Tom Eisenmann

I'm going to put it into the world rigorously and quickly without wasting resources testing an idea. That's the soul of entrepreneurship. If you skip it and just start building and selling, you've wasted four months on a bad first version of the product in order to save four weeks. If you made a mistake, I think you weren't trying hard enough or you just weren't very skilled. That's the default for human.

Could you introduce yourself to the viewers?

I am Tom Eisenman. I'm a professor at Harvard Business School. I've been there for 26 years, teaching and studying entrepreneurship. I'm the author of the book why Startups Fail.

You're so called the professor of failure. And what made you to focus on failure instead of success and write a book about it?

My work on failure goes back about 10 years. At Harvard Business School, we teach by the case method. 30 cases on entrepreneurs, every one of them successful. At the end of the course, the feedback I got was, you tell us in this course that 2/3 of startups fail. So is there nothing to learn from failure? Seemed like a reasonable question. I set out to write case studies of failure, and I worried. When I launched this course as a student, sitting through failure after failure after failure could be depressing. I worried about another other thing, which is maybe I would scare all these students. They would see how badly it hurt. None of this happened. So first off, the students loved the course. They started to view the failure as a puzzle. At the end of the course each year we actually ask a question. Five years from now, are you more likely or less likely to be an entrepreneur? 20% do say less likely. 40% say I'm more likely. Now. The remaining 40% said, I was going to be an entrepreneur anyway. I'm still going to be an entrepreneur, but you made me a little smarter. How to not fail.

A truly good failure is when the entrepreneur has a hypothesis. Think like a scientist. Here's an unmet customer need, here's a problem, and here's a solution for that problem. I'm going to put it into the world rigorously and quickly without wasting resources testing an idea. That's the soul of entrepreneurship. Some failures, the entrepreneur has no control. So if you think about COVID but certainly hundreds of thousands of businesses were crushed by Covid. There's no fault here for the entrepreneur. You can't tell that there's going to be a pandemic. Bad is when you make these mistakes that are in your control and could have been avoided if you just think it through.

Biggest cause of failure for early stage startups is a false start. If the athlete starts too fast before the gun goes, that's a false start. So sometimes entrepreneurs start too fast. They're so eager to build and sell the thing that they've envisioned, they skip to study the opportunity to talk to potential customers to really understand. Do you have this problem?

A lot of people put much more focus on the fast speed that really comes from the lean startup concept. It turns out to be a false start. Do you have any other opinion about the lean startup concept?

I agree 100% that the false start is related to not following all of the practices of lean startup. Build a minimum viable product and put it in the hands of customers quickly to get feedback and then iterate and change. That's half of lean startup. The other half of lean startup is much more about customer discovery. The customer discovery work may take four weeks. If you skip it and just start building and selling, it'll take you a total of four months. Find out it's not working and figure out what to do next and how to pivot. So you've wasted four months on a bad first version of the product in order to save four weeks. The other reason for the full start is a lot of tech businesses or businesses that use mobile or the Internet. You have non technical founders who here talk about to launch a startup you need an engineering team. And once that team is on board, you have to keep them busy. They're expensive. How do you keep them busy? You give them something to build. What do you give them to build? The thing that you didn't spend enough time thinking through at the beginning. Even the technical founders fall into the false start trap too. And they do it because what do engineers love most in the world? They love to build things. So non technical problem, technical problem. Everybody starts building too fast and it's a bad, bad trade.

Could you suggest frameworks or some ways that people can do the customer discovery work better?

There's another wonderful book. It's called the Mom Test by Rob Fitzpatrick. You're an entrepreneur, you've been working so hard. You show your mother what you've been doing and she says, son, I love you. Of course. This is wonderful. You're going to do great. The question that every entrepreneur wants to ask when they meet somebody is, I'm building this, pitching the idea, do you want it? And Yunzhu is going to say, of course I want it, you crazy person. I'm just to make you go away. I'm going to tell You, I love your idea. Just like mom, the entrepreneur has to guard against people saying what what those people think the entrepreneur wants to hear. And they need to get real feedback. The two other pattern, we call it bedfellows. By bedfellows, I mean everybody connected with the venture, the founders, the rest of the team, the outside investors. It's often the case that the relationships are bad in one or more of those areas. Third, early stage failure pattern, false positive. And sometimes you get a signal from the universe saying your idea is great, continue, invest more, invest more time, invest more money. But your idea really has serious problems. If you spend too much time before you recognize the false positive, you know that can be terrible consequences. And here's the thing about startups, they depend on early adopters. The very first customers who will find your product really want your thing. Sometimes the needs of the early adopters are different than the needs of the mainstream customers. The customers that will come later when the business is bigger. When you do the customer discovery, you need to talk to both early adopters and mainstream customers, see if their needs are the same. If so, that's easy. If they're different, what are we going to do? We can build for the early adopters and change the product over time to meet the needs of the mainstream. We can build for the mainstream and hope that it's good enough for the early adopters. Dropbox was an interesting example. The entrepreneur wanted to create something that was so easy to use, his mother could use it to store her recipes. The first really adopters for Dropbox were software engineers with gigantic files, many devices, computers, sophisticated needs for file manager. The entrepreneur had to decide, am I going to build Dropbox for the early, early adopters or will I build for the mainstream? He chose the mainstream at work. That's not always the right choice. As an entrepreneur, you need to know about any difference between early adopters and mainstream.

It is quite hard to realize that founders are making mistakes when they're like too focused on their work. So is there a way to realize that you're making mistakes or you're heading towards failure?

A good way to do it is to have a list of the main assumptions you've made. You've made some assumptions about what do customers need? What aspect of our solution is going to appeal to customers? How will we educate them about our product? And your job as an entrepreneur is to test, test, test the assumptions. Sometimes they're right, keep going. Sometimes they're wrong. You pivot, you have to change.

The important part is not avoiding the problem. But finding a way to fix it afterwards.

Exactly what you said. Recognizing the problem, not moving too fast. Some entrepreneurs are too quick to respond to feedback. They zig and zag and zigzag. Keep changing the idea. Some entrepreneurs are too slow. They're stubborn. You need to be in the middle, you know, not too fast, not too slow.

But how do you know the right speed for it?

You never can be sure. Once a business gets big enough, you can run tests. And again, the entrepreneur needs to think like a scientist.

What's the best way to learn from failures? Is it effective to learn from other people's failures or mistakes?

Learning from personal experience is much more powerful because of all the emotion connected with the failure is there's a thing called the fundamental attribution error. If you made a mistake, I think you weren't trying hard enough or you just weren't very skilled, it's your fault. If I made a mistake, I think I dropped the ball because the sun was in my eyes or there was a loud noise over here and I was distracted. Not my fault. I'm a good ball player. We do that in daily life. That's the default for humans. So as an entrepreneur, you have to guard against the fundamental attribution error. My venture failed. I was the venture, so I was a failure. That hurts like crazy. So I am going to blame other people. My co founder lost interest. She wasn't working very hard. My investor pushed me in the wrong direction. Look, you pit the co founder, you picked the investor. So maybe they did do those things. But you have some responsibility. And so the important thing for an entrepreneur to learn from failure is to let the strong emotions settle down, give some distance, alternate between distraction and rumination. Yeah, other people did some bad things, but I made some mistakes too. And here is what I would do differently.

In your opinion or in your research, what do you think is more toxic? The two much ego defensive or taking too much responsibility.

The stubborn individual who takes no responsibility. The real problem here is they're probably going to repeat those mistakes. They don't own the mistakes. They don't recognize the mistakes. It was all somebody else's fault. In fact, one of the patterns we see with this, with this type of entrepreneur is they often blame the marketplace. These competitors did crazy things. The regulators, the government did crazy things. The problem is probably management and leadership. It's probably not the industry or the marketplace. By the way, when you change industries, you're taking a bad approach to leadership into a new place where you don't know anybody or anything. So you're doubling the problem. The other type, when you take too much responsibility, the problem is you're probably not going to launch another venture. You basically say, I made so many mistakes, I must be a bad entrepreneur, I will never do this again. Maybe that's true. There are some people that just should not be entrepreneurs, but probably not true most of the time.

Is it really inevitable to fail on your first try? Or do you have any advice for people who want success on their first shot?

We know something about success and failure rates for first time entrepreneurs. And the definition of success is financial success. The investors made money. For first time founders, that success rate is 21%. Pretty low. For second time founders who were successful the first time, their success rate with the second venture is 30%. First time entrepreneurs who failed they were in the 79% would do it again. Half of failed first time founders launch another business within five years. Their success rate is 22% on the second venture. The point is to your question. It by no means inevitable that every first time founder fails. But almost everybody who does entrepreneur is a career. If you run the probability the chance of having no failures. If the average failure rate is 70 or 80%, you have to be amazing. And there are some amazing individuals out there. Elon Musk is probably four for four or five, five out of five. But we can't all be Elon Musk.

Do you think startups really change the world in a positive way?

Of course startups change the world in a positive way. What we're using to talk to each other was built by startups, right? We couldn't have had this conversation 20 years ago. If you're an entrepreneur, you can bring something new to the world, makes the world a better place. Maybe in a small way it's worth.

Taking the risk of 80% failure.

I think so. Because almost every failed founder I speak to is proud of the work they did, proud of the team they built, proud of the product that they built. Again, entrepreneurship for most founders is a life approach and apply it next time.