The Broad Spectrum of Business “Failures”
Failure is usually the word used to describe any business that comes to an end. As in “the majority of small businesses fail within two years”. In many cases the word fail is hyperbolic.
When we think of the word fail we think crash and burn. Kind of like surfing a big wave. Or more like trying to surf a big wave.
This is great. I did it! I’m on the wave! This is working. This is working. Oh, holy $%^! this is not working. This is going to end very badly! Why did I do this?
That’s an unfortunate way to think about the end of the majority of businesses because it’s rarely like that. Sure, a crash and burn failure can, and does, happen from time to time but it’s not the norm. It is the exception and that’s why you hear about it. Who wants to hear a story about a little business that was bumbling along for a few years and then slowly came to a stop without causing any harm to it’s owners?
More often a business will “fail” softly. The concept is kind of working but the owner decides to pull the plug. Some things in it are going well but maybe they aren’t gaining the traction needed for it to be sustainable. After hemming and hawing over whether it’s the right decision to shut down or press on they ultimately decide to shut down and unwind their business activities.
The unwinding of a business generally happens over the course of months or a year. You don’t just one day pop out of bed and business is over. There are things to sell, partners to settle with, and contracts to fulfill before business is officially over. In short, there is plenty of time to decide what happens to you, personally, next.
Imagine that you own a business. Let’s call it a real estate business. You buy houses, divide them up, and rent them to tenants. You started it three years ago but now you’re just breaking even after paying yourself less than you’d like, the hours are long, and you see no prospect for a way to less turbulent skies. You decide that business is over. This would be considered one of those business failures.
If you imagine that at that moment it’s like you’re in a plane and someone has forced you to jump out the door while you’re still putting your parachute on you’re a little off base. That’s what it’s like to be laid off. Instead, ending your business would be the plane landing and you landing with it along with all of your belongings but you aren’t allowed to get on your connecting flight. You have to choose a new destination because your old one just isn’t there anymore.
Traumatic? From my experience, no. Scary? The possibility of being laid off is far scarier in my mind.
Humans have an evolutionary aversion to risk. Or what we perceive to be risk. We know that if what we’ve done in the past hasn’t killed us it probably won’t kill us in the future. Therefore we should keep doing the things we’ve done so we can extend our genes as far into the future as possible.
The problem with this as the instinctual go-to for us as individual humans is that we’re very bad at defining what exactly risk is. Forever you’ll hear people say “she’s a risk taker” or “that’s a risky proposition”. But what exactly does that mean and are those labels accurately applied?
Risk is the possibility of an irreversible negative outcome.
An irreversible negative outcome. Irreversible is the key word in that definition. You experience negative outcomes every single day but very few are truly irreversible. Aside from health related items, and some relationships, nearly every outcome is reversible.
If you started a business and it “fails” what part of that outcome is irreversible?
The first thing that comes to everyone’s mind is income. Unemployed, out of money, or both. But is the situation of not having income truly irreversible? Of course not. If you were skilled enough before you started a business, the skills you’ve added running your own shop will only increase the value you bring to another company.
But I have a great job that has x, y, z, and pays extremely well. Surely I would lose that.
Of course, you would lose that if you quit to start a business. But is it irreversible? Could you not climb back to that position if you had to? It might take some time but I bet you could climb back to it in less time than it took to get their the first time, maybe higher.
And If you’re thinking about quitting it to start something on your own aren’t you risking that you’ll forever forego something that you want simply because you are averse to the idea of losing what you currently have?¹
Loss aversion is another one of those clumsy instinctual human traits we have thanks to evolution. It works. Your evolutionary mind wants to keep the things it has because those things have gotten you this far. “Losing” them would make your evolutionary system think that you were moving backwards into a state of less.
You can think of the things (job, materials, etc) as a castle in your mind. If you lose one of them it’s like losing a part of the castle wall. Your castle is what protects you. And your evolutionary system wants deperately to protect you from destroying what you perceive to be your castle.
When we were cave people our things and means of sustenance were desperately important to us. You couldn’t go pick up a new spear at the hardware store. The clothes that you wore were all the clothes that you had. Literally, you’d wear the same thing every single day because it took so much effort to produce a coat warm enough to keep you from freezing on the plains of Canada during the winter. The water that you carried with you through the desert was carried in clay pots that your tribe made by hand. Churning clay out of the ground, molding it, and letting it bake for days in the sun.
Up until the modern times gaining things was hard. It was critical that we kept the things that we had to not just live, but to flat out survive. Our evolutionary instincts served us well and protected us. Loss aversion played an important role in you being able to read this.
Today, survival is not the primary objective for most people on the planet.² In the developed world the ability to thrive has eclipsed the need to be concerned solely about survival.
If you want to thrive (whatever that means to you personally) you’ll have to fight your evolutionary system. You’ll have to do things that you will initially perceive as risky but that won’t actually be risky. Almost every outcome along the way is reversible. But most importantly so many of those outcomes will be positive, extremely positive, irreversibly positive.
The next time you find yourself in a situation where you have to make a decision on something that you think is risky, run yourself through these questions:
1. Is it going to kill me?
2. Could it cause real harm to me or others in a way that is irreversible?
If the answer to those two questions is no you have one final question to ask.
3. Could it reward me in expected and unexpected ways?
If the answer is yes or even just probably you should do it.
These systems apply to all the decisions you could make, not just starting a business. The ones you’ve always toyed with but haven’t actually made a decision because you think it’s too risky, or uncomfortable, to even consider.
Maybe it was for a job in a far away place at a company you really wanted to work for but that didn’t pay quite enough and was too far from home. Was there a real risk of an irreversible negative outcome? You can always move back after your lease is up. And you can probably start back at the bottom, or just above it, at the company you left or one like it. Maybe you don’t want to start at the bottom again but remember the only criteria is reversibility.
Take your shots and keep moving. Good luck on all your endeavours!
the phil&drews blog
Originally published at philandrews.io.
¹Not doing something is also a risk and at a point it does become irreversible. Your life may not always give you the opportunity to wander into the unknown. If you let that opportunity slip, even just through the ongoing passage of time, you will have lost it forever.
²Unfortunately, there are swaths of the world where survival is the objective. Fortunately, that swath has been slowly shrinking and will continue to shrink with ongoing support from those of us who have moved out of the survival paradigm.