Psychology of failure and what can be learned from it

Entrepreneurship can certainly be described in very technical terms – founder agreements, terms sheets, cap tables; the list goes on. Yet, no matter how much venture jargon investors and founders use on a daily basis, there is an aspect of entrepreneurship that cannot be represented in a cap table – emotions.

Entrepreneurs and their families make sacrifices along the way – whether it is quality family time, lifestyle choices, a secure full-time position – all for the thrill and the remote vision of future success. Founders take whole teams on this journey. This is a large burden to carry and

The psychological aspect of entrepreneurship might not be readily visible. After all, this is something inherently personal and intimate. The rollercoaster of feelings is surely present at startups but typically hard to define. The moment when emotions become more relevant is in the face of failing.

According to research, between 75% – 90% of startups fail. At this stage, managing negative emotions is as important as ever for the sake of the entrepreneur’s own reputation, for other stakeholders, and also to leave a window of opportunity open for another endeavor. In this context, better understanding of our feelings should help us process the experience of failure and set the stage for future success.

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How our mind reacts to failure

Failure evokes a sense of being hurt, unfairness, wounded ego, depression. Our body’s response to failure can be so powerful that it might trigger otherwise perfectly rational people to continue onto a path that can lead to morally questionable territories. What exactly happens?

  • SCARF model: When encountered with disappointment or unmet expectations dopamine levels in our brain dramatically decrease. Thus, exactly the opposite situation to what motivated us to reach for our goal. The aversive system is activated and it is even more powerful than the motivational system. There are five fundamental needs in the SCARF model that when satisfied give us a sense of satisfaction in life. These are status, certainty, autonomy, relatedness, and fairness. Entrepreneurial failure attacks each one of them. However, the magnitude of the effect will vary between different people and it helps to understand which one of these elements might have the most meaning to us.
  • Editing reality: Denial is often the first reaction to failure. It comes into play well before actual failure – ignoring information that warns us of the approaching defeat and failing to act in time contributes to a future fiasco. The reason we’re so resistant to anomalous information is we edit our reality, searching for evidence that confirms what we already believe. Although we pretend to be objective, we tend to ignore information that contradicts our theories. The region of brain that aids in editing reality is called the dorsolateral prefrontal cortex, or DLPFC. It is one of the last brain areas to develop in young adults and plays an important role in suppressing unwanted representations that don’t match our preconceptions.

Can anything be salvaged from failure?

In order to learn from failure, it helps to embrace humility and ask for feedback – not only technical feedback, but also behavioral (How did I manage my emotions? Did you see a side of me that surprised you? What triggers my negative emotions?). It is a good time to reflect on priorities in life and core values, and ask oneself if anything has been compromised. Failure does not necessarily mean quitting, it should be framed as a side effect of passion and creativity. Finally, failure that was managed well, can point to new opportunities. While embarking on a journey yet another time requires incredible resilience, according to a study by Francine Lafontaine and Kathryn Shaw, failed entrepreneurs actually find more success second time around.

1 thought on “Wounded by Failure

  1. Thanks for discussion the psychological aspect of failure – something that is often overlooked!

    Another aspect that helps determine whether an individual reacts constructively or destructively to failure it something called fixed vs. growth mindset – something popularized in the education world by Stanford psychologist Carol Dweck. Essentially, children who grow up with a “fixed” mindset believe that their abilities are statics which they cannot change, while those with a “growth” mindset see challenges and failures as an opportunity for growth and for developing their skills. Someone with a fixed mindset avoids challenges, while someone with a growth mindset embraces them.

    Thus those who have developed a growth mindset may see failure as an opportunity for new learning – a trigger that could increase, rather than decrease, their dopamine levels.

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