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LEARNING FROM ENTREPRENEURIAL FAILURE: EMOTIONS, COGNITIONS,
AND ACTIONS
Dean A. Shepherd, PhD
David H. Jacobs Chair in Strategic Entrepreneurship, Professor of Management and
Entrepreneurship Department, Kelley School of Business, Indiana University
Trenton Williams, PhD
Assistant Professor, Entrepreneurship Department, Whitman School of Management, Syracuse
University
Marcus Wolfe, PhD
Assistant Professor, Miller College of Business, Ball State University
Holger Patzelt, PhD
Chair of Entrepreneurship, Technische Universität München, Germany
Cite as: Shepherd, D.A., Williams, T., Wolfe, M, and Patzelt, H. 2016. Learning from
Entrepreneurial Failure: Emotions, Cognitions, and Behaviors. Cambridge University Press,
Cambridge, United Kingdom.
This “submission” copy is made available through Cambridge University Press’ Green AO
policy.
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DEDICATIONS
Dean would like to dedicate this book to the newest members of the Shepherd clan: Henry and
Oliva Seager.
Trent would like to dedicate this book to his family, namely Natalee, Millie, Tristan, Hallie and
Kate Williams.
Marcus would like to dedicate this book to his parents for their constant support and his brother
who first sparked his interest in entrepreneurship.
Holger would like to dedicate this book to Silvia and Helen, who always help him moving
forward from his own failures.
ACKNOWLEDGEMENTS
We gratefully acknowledge Paula Parish and Clair Wood (from Cambridge University Press) for
their support; Ali Ferguson and Alisa Boguslavskaya for help in preparing the manuscript; and
Orla Byrne, Melissa Cardon, Julio DeCastro, Dawn DeTienne, Dan Holland, Kathie Sutcliffe,
Dennis Warnecke, Johan Wiklund for help in developing some of the concepts covered in the
book.
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CHAPTER 1: INTRODUCTION
We start with a real-life story. A young lecturer has just returned to his office after
teaching one of his favorite classes. In this class, he discussed the high risks associated with
entrepreneurial action—that failure was a very real possibility. But importantly, and to quote
from the textbook, “Businesses fail, but entrepreneurs do not. Failure is the fire that tempers the
entrepreneur’s steel and street savvy” (Timmons, 1999). The point is that the entrepreneur and
the business are separate entities such that when a business fails, the entrepreneur can go on to
create a subsequent business. The failure experience informs and motivates entrepreneurial
action.
The lecturer’s contemplation of the discussions in class was interrupted by a phone call
from his father who revealed that the family business was performing poorly. After hearing more
details about the financial state of the business, the lecturer advised his father to close the
business. The business was subsequently closed, and his father experienced a range of negative
emotions. He was angry with others who let him down. He was disappointed that his dreams for
the business could not be realized. He believed that he had not only failed as a business person,
but because he could no longer hand the business on to his other son, he felt like he was a failure
as a father. He became depressed. This caused his family great anxiety.
The next time the lecturer taught the class on entrepreneurial failure, he was highly
skeptical of the optimistic story told by textbooks that entrepreneurs automatically and
instantaneously learn from failure. This no longer rang true given his experience with his father.
The young lecturer described above was the first author of this book (Dean Shepherd) as
a doctoral student almost 20 years ago. The disconnect between the explanations of failure in the
entrepreneurial textbook and his experience with his father’s failed entrepreneurial endeavor
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motivated him to explore the academic literature. Surprisingly, the entrepreneurship and
management literature largely ignored the personal implications for those who experience
failure. There was little understanding of how and why failure impacts individuals, and as a
result, there were few prescriptions for helping individuals cope with this situation. This raised a
few fundamental questions that the authorship team has worked on over the last decade, the
outcome of which culminates in the current book.
First, although Dean had personal experience with his father’s severe negative emotional
reaction to business failure, a fundamental question in this context is why a person has such a
considerable negative emotional reaction to failure. Do people have similar negative emotional
reactions to the failure of entrepreneurial projects within established organizations? Why might
some people experience negative emotions from the failure of an entrepreneurial endeavor while
others do not (or why do they experience a less negative emotional reaction)? Perhaps it is not
just an attribute of individuals but also an attribute of what is lost and the context in which it
occurs. In other words, when might an individual experience a more severe (or less severe)
negative emotional reaction to a failure experience? In Chapter 2, we address these questions by
building on self-determination theory to explain variance in people’s negative emotional
reactions to failure in terms of how entrepreneurial failure thwarts the satisfaction of individuals’
basic psychological needs.
Second, although Dean’s father experienced a failure, it did not seem that he was in a
state to be able to learn from the experience. How do negative emotional reactions to failure
impact individuals’ ability to learn from the experience? Given the same negative emotional
reaction to failure, why are some individuals able to more quickly reduce their negative emotions
and learn from the experience? Do all people who experience failure feel that their self-worth is
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threatened and therefore activate ego-protective strategies, or are some people able to detach
feelings of self-worth from these failure events? Why are people often compassionate to others
who experience failure but overly harsh on themselves? What happens when people are
compassionate to themselves after experiencing a failure event? In Chapter 3, we address these
questions by building on the notion of self-compassion, which can help reduce threats to self-
esteem, reduce the generation of negative emotions, and also keep negative emotions in balance
to enhance learning from the experience.
Third, it was only after Dean’s discussion with his father that the decision was made to
terminate the business. However, had his father realized quite some time before that the business
was going to fail, or was he in denial about the inevitable outcome? Indeed Dean’s father
continued to invest resources into the firm despite its poor performance, and as a result, when the
business eventually failed, the family lost all its financial wealth. When people realize that their
endeavor is failing, why do some choose to persist and others choose to terminate? That is, why
do some choose to “throw good money after bad” such that when failure eventually occurs, the
financial cost is larger than it needed to be? Is such a delay caused by procrastination, sunk costs,
or some other form of biased decision making, or is there some benefit to delay despite the
financial costs? That is, are some people able to benefit from a delayed termination? If yes, then
why are some people able to benefit from delayed termination while others are not? In Chapter 4,
we address these questions by exploring the role of procrastination in delaying termination and
making failure more costly than it needs to be. However, we also build on the notion of
anticipatory grief to gain a deeper understanding of how some delay in termination can facilitate
recovery from failure when it eventually occurs.
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Fourth, Dean’s father was not in an emotional state to learn from his experiences after the
failure event nor was he able to learn during the period immediately preceding the failure event.
However, perhaps if he had quickly started a new business (which was difficult to do given the
financial costs of failure), his negative emotional reactions to the business failure may not have
been so great. Does quickly re-engaging in a new entrepreneurial endeavor reduce the negative
emotions from a failure event? If so, is such a reduction in negative emotions associated with
increased learning from the failure experience, or are there some circumstances in which higher
negative emotions are associated with superior learning outcomes? Does a failure event always
cause negative emotions, or are there situations in which a delay in failure (i.e., the termination)
generates negative emotional reactions? Does learning from a failure experience only occur after
the failure event, or can some people learn from their experiences before the failure event
occurs? In Chapter 5, we address these questions by building on the notion of “creeping death”
and the rapid redeployment of human resources to explain how delaying termination can lead to
both the generation of negative emotions and enhanced learning from the failing experience.
Fifth, although it was Dean’s father who directly experienced the business failure, he was
embedded in a family and a broader social context. Dean’s family tried to help the patriarch
emotionally recover from the failure but with only limited success in the short run. How do
“others” help reduce an individual’s negative emotions generated by failure? Are some people
more effective at managing their emotions to more quickly reduce negative emotions and/or
more effectively use others’ to more quickly reduce negative emotions? Are some others more
helpful to the person suffering, and if so, under what circumstances? Can effective help with
reducing the negative emotions generated from failure and/or learning from the experience be
organized at the systems level? For example, are some families more capable of helping a
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member recover from a business failure to learn from the experience, and are some organizations
more capable of helping employees recover from project failure to learn from the experience? In
Chapter 6, we address these questions by building on the role of emotional intelligence (at the
individual level) and emotional capability (at the organizational level) to gain a deeper
understanding of the factors that facilitate an individual’s recovery from failure so that the
individual and the organization can enhance their learning from the experience.
Sixth, Dean’s father felt further anxiety because outsiders harshly blamed him for the
failure of the business. As a result, he withdrew from social interactions with those who knew the
business failed and concealed the failure from all others. Indeed, audiences can stigmatize
individuals involved with failure. How does stigmatization influence the level of negative
emotions an individual feels over an entrepreneurial failure? Why are some who fail stigmatized
more than others? Are some audiences less likely to stigmatize individuals for their
entrepreneurial failures than other audiences? Are some regions less “entrepreneurial” (i.e.,
stigmatize failure more) than other regions? In Chapter 7, we address these questions by
combining our understanding of the psychological foundations of grief from failure (Chapter 2)
with the notion of stigmatization to explore biases in evaluating individuals whose
entrepreneurial endeavors fail, impression management to explore actions to enhances the
individual’s psychological well-being, and perspective taking to understand how audiences differ
in harshness of their blame for an entrepreneurial failure.
Seventh, although Dean’s father never talked about the business failure (to others and
avoided thinking about it himself), by telling more and more plausible stories in his research,
Dean has developed a narrative of the failure. What role do narratives play in enabling people
involved with a failure to make sense of their experience with it? How much emotional content is
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used in failure narratives? Given that failure is a frequent occurrence for entrepreneurs and
entrepreneurial firms, to what extent do narratives reflect an entrepreneurial orientation? What
impact does the narrative content have on subsequent performance? In Chapter 8, we address
these questions by building on the sensemaking and entrepreneurial orientation literatures to
explore how and why cognitive approaches reflected in narratives are impacted by failure and, in
turn, how this impacts performance.
Finally, one of the main motivations for undertaking this research journey toward an
increased understanding of learning from failure was to offer practical implications for those
who experience entrepreneurial failure. In the final chapter (Chapter 9), we offer a summary of
the book with a focus on its practical implications.
Overall, the book builds on and extends our research over the last decade or so on the
topic of learning from failure. Our research on this topic began with Shepherd (2003) and
continues to this day (i.e., papers published in 2014 and 2015 and in press). The book covers (1)
the failures of projects, businesses, family businesses, and even college football matches with (2)
rich data from a variety of industries—from knowledge-intensive research and development to
drug development to founding teams to college football teams—(3) across a variety of countries,
such as the United States, Germany, the United Kingdom, Ireland, and Australia, (4) and across
multiple levels of analysis, including the individual entrepreneur, his or her team, his or her
business, and his or her regional location. By recombining knowledge from our existing studies
with new material and rich examples (including from original qualitative data), we are able to
offer a cohesive story of learning from failure that generates many new insights over and above
the accumulation of our published research on the topic.
CHAPTER 2: GRIEF OVER ENTREPRENEURIAL FAILURES
Although we started this journey with the failure of a business in Chapter 1,
entrepreneurial endeavors also exist as projects within organizations, and these entrepreneurial
projects can fail. Project failure occurs when “a project’s activities cease due to unsatisfactory or
insufficient progress” (Shepherd, Covin, and Kuratko, 2009: 589). For example, “seventy percent
of Nokia’s new ventures were either discontinued or entirely divested [between 1998 and 2002].
Another 21 percent were absorbed into existing business units and ceased to exist as independent
ventures” (McGrath, Keil, and Tukiainen, 2012: 51). Further, 35 to 45 percent of all new
products are estimated to be failures (Boulding, Morgan, and Staelin, 1997); half of all
information system projects are reported as failures (Keil and Robey, 1999); and in an extensive
study of venturing units, there were no instances of success (Campbell, Birkinshaw, Morrison,
and van Basten Batenburg, 2003). But are people likely to experience the same level of grief
over project failure as they would over business failure? Do all people experience the same level
of grief over project failure? Given that the answer to these questions is likely to be no, what
explains these differences? In this chapter, we explore differences in both entrepreneurial
projects and entrepreneurial business settings to explain the emotional and motivational
consequences of failure.
Negative Emotional Reactions to Project Failures
We turn to the psychology literature for theorizing on possible answers to these
questions. Specifically, by building on self-determination theory (Deci and Ryan, 2000;
Shepherd and Cardon, 2009), we gain new insights into the generation of grief over project
failure. Self-determination theory is concerned with explaining an individual’s psychological
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well-being. Individuals have three fundamental psychological needs (i.e., nutrients), and these
provide a basis for understanding why some projects are more important than others and why
some people find one project more important than another. Given that grief is the negative
emotional reaction to something lost, by understanding the importance of a project, we gain
some insights into the level of grief generated by its loss through failure. The three fundamental
psychological needs are for competence, relatedness, and autonomy. As illustrated in Figure 1,
the more an entrepreneurial venture satisfies an individual’s needs for competence, relatedness,
and autonomy, the more it contributes to that individual’s psychological well-being but also the
more it generates grief when these needs are thwarted by failure.
--------------------------------------
Insert Figure 1 about here
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Project Failure Thwarting the Need for Competence
The more a project satisfies an individual’s need for competence, the more grief he or she
will feel when the project fails. The need for competence is satisfied when feedback provides
information that the individual is performing well at a particular task (Deci and Ryan, 2000).
Some projects satisfy the need for competence by providing the opportunity to learn new skills
(Dweck, 1986), demonstrate mastery of the project’s tasks (Butler, 1992), successfully compete
against other groups (Tjosvold, Johnson, Johnson, and Sun, 2003), and thus be a member of a
competent team (Lindsley, Brass, and Thomas, 1995).
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Various managers and employees involved in innovation and new product development
projects who we interviewed in our studies emphasized that project work can contribute to
fulfilling their need for competence. For example, we conducted a study with 257 research
scientists working on highly uncertain projects in different academic disciplines (Shepherd and
Patzelt, 2011). Before we used a questionnaire to explore the emotional and learning
consequences of project failure, we interviewed seven scientists in the areas of chemistry,
biochemistry, mechanical engineering, behavioral economics, theoretical physics, aerospace
engineering, and biology. These scientists had considerable project experience, including past
project failures. The aim of the interviews was to gain a deeper understanding of how scientists
and engineers perceive their projects and how they emotionally react to project failure. On
various occasions during the interviews, these scientists emphasized the importance of their
projects for their self-image as a competent scientist and how failure can threaten this self-image.
For instance, an aerospace engineer reported, “The view (of others on us) is they do clean work,
it is well documented, it keeps costs and time. . . . So you must deliver. I personally experience it
as substantial pressure, which I generated myself but which is important and for me part of
defining myself.”
Similarly, a biologist reported that being successful at work for her is “very important,
without any question . . . without work, well, it defines me. I am happy [when I can prove
myself]. This is very important for me.”
However, if a project fails and the subsequent project does not satisfy the need for
competence to the same degree, the deficit between the two likely contributes to the grief
generated by the project’s failure. The greater the deficit, the greater the generation of negative
emotions. In our interviews with engineers and scientists (Shepherd, Patzelt, and Wolfe, 2011),
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the leader of the aerospace engineering project continued by describing his reaction to a failure
as follows:
There is one case, which frustrated me personally. We had a super-exciting and
super-interesting project . . . where [we] wanted to finish a benchmark example
[by] last October, but now we hope to be done by this October. We have [a] one-
year delay, which frustrates me a lot. On the one hand, you can of course argue
that we do something that does not yet exist and is very new, which suggests that
time cannot be determined in advance, but on the other hand, one must clearly say
that for us engineers, it is clearly the goal to determine timelines for projects that
have not been done yet. So this is indeed very frustrating.”
Obviously, the fact that this project leader could not deliver the desired outcome in time
thwarted his self-image as a competent engineer. Similarly, in the same study, the leader of a
mechanical engineering project reported that the project’s failure “hurt me as an engineer . . .
because, it was simply the case that we failed with a technological challenge.” This engineer’s
project employed about 200 people and was highly visible within his organization and beyond.
We found similar results in another study on project terminations in a large German
technology company (Shepherd, Patzelt, Williams, and Warnecke, 2014). In this company, we
explored eight engineering projects from four subsidiaries in the fields of energy and electricity.
These projects differed substantially in scope, their budgets ranged $750,000 to $140 million,
and they had been between three and 200 employees working on the projects. All together, we
conducted 28 interviews with top managers, project leaders, and project team members about the
failed projects. Specifically, these interviews covered topics like the project termination process,
emotional reactions to these terminations, and learning from the experience. The interviews
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provided evidence for how project failure can thwart the need for competence for those involved.
For example, a project team member described the reaction of the project’s chief technology
developer as follows, “He was very frustrated because he thought that what he had designed
aerodynamically was the best. He was going to have serious discussions [with other team
members] about the engine because he thought that they must have built it wrong. He
continuously asked, ‘Have you checked this, have you checked that?’”
Another manager of a failed project explained his emotional reaction to project failure as
follows:
I had a sudden feeling of being embarrassed about it [the project failure] because
the rest of the business was a relatively small company. . . I felt embarrassed
because, you know, other people know that you failed. So, you know other
people. People on the department floor, people in the testing department, etc.,
they know that the group failed to do what they should have done. That was quite
hard I think. . . . I felt embarrassed because I knew other people knew that we
failed. As a collective team, irrespective of what was wrong with it, we failed to
successfully complete the task . . . But, probably the worst time was when you
were basically talking to people within manufacturing or production because they
obviously would not have heard about it [the project failure]. And then you had to
explain to them [about the failure] and you just felt . . . you know, the way that
they reacted: “You got it wrong, didn’t you?” That felt uncomfortable. Your
group being probably one of the most educated groups in the company, etc.,
doctors, PhDs, and things, and most people have got a degree and everything.
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You just felt . . . you know . . . people of your group, they do not know what they
are doing, etc. That felt quite uncomfortable.
Obviously, this manager perceived that others would no longer view him and his team
members as competent managers and engineers, leading to feelings of embarrassment and
shame.
The need for competence is important as it contributes to an individual’s psychological
well-being. Project failure can thwart this psychological need by providing negative feedback
about competence, sending a signal to important others about one’s competence and perhaps also
resulting in deployment to a subsequent project that does not provide positive feedback on
competence and/or does not provide the same opportunity to develop skills and knowledge. To
the extent that project failure thwarts the psychological need for competence, the individual will
have a negative emotional reaction to the loss of that project.
Project Failure Thwarting the Need for Autonomy
A similar effect likely occurs for individuals’ psychological need for autonomy
(Shepherd and Cardon, 2009). Autonomy in a work-related context refers to “volition, to having
the experience of choice, to endorsing one’s actions at the highest level of reflection” (Deci and
Ryan, 2008). A project can satisfy the need for autonomy through structures and processes
(Bennis and Nanus, 1985) that empower (Logan and Ganster, 2007), facilitate participative
decision making (Liden and Tewksbury, 1995), and delegate decision-making authority to the
team (Blanchard, Carlos, and Randolph, 1995).
In our interviews, several participants indicated the need for autonomy as an important
motivating factor. For example, in one study, Behrens and colleagues (2014) explored how large
firms organize when developing radical innovations and then bringing them to market quickly. In
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this study, we conducted 55 interviews with leaders and team members of 16 innovation
departments in mid-sized and large German firms in innovation-driven industries. These
industries included, for example, automotive, telecommunications, consumer goods, industrial
goods, and medical technology, and size of the companies ranged from 600 to 400,000
employees. While the research project’s primary goal was to explore how firms organize their
innovation departments in terms of incentives, resource provisions, and organizational structures,
the interviews also provided insights into what the project leaders and team members perceive as
important drivers of their motivation. For example, we interviewed the top manager who was
responsible for the strategy of a large firm. This manager told us about a successful project in his
firm, and in his view, autonomy was one of the key motivational factors for team leaders and
members:
It was important [for the success of the project] that the leader of this project had,
I would say, enough freedom in allocating his resources. This is really important,
that he had a certain freedom. . . . At the beginning, the project had just three
people; today it has 60 or 70 team members. . . . [At the beginning of the project]
there was little need for the leader to convince others or overcome resistance.
In another firm captured by the same study, an employee in the R&D department
described the importance of autonomously developing new ideas:
Particularly in pre-development, but also in development [of new products], every
single employee can initiate something based on his or her own ideas. It would be
very disappointing for an employee who wants to start something new if the ideas
just evaporate or there is no possibility to put them into action. At our firm, I feel
that it is indeed the case [that one can initiate new ideas and put them into action].
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With your own initiative, you can start new projects. . . . For me, it is crucial that
one [employees] works on projects that they like. It must be fun. . . . For me, this
includes having the freedom to make up my mind about particular projects. I
think, it is also important not to have the feeling that one’s own ideas have
somehow “dried up” or do not have consequences. It is important for me to
personally come up with projects.
Again, to the extent that termination of a project creates a deficit in perceived autonomy,
the individual will experience grief from the project failure. For example, in our study on eight
failed projects of a large German technology corporation (Shepherd et al., 2014), a manager
experienced top management’s decision to abandon his engineering project prematurely as a
personal lack of freedom to make decisions autonomously:
I personally then thought, well, no matter how much effort and time you invest,
you are only a minor cog in the overall process. The actual decision and strategy
is made at a different level. My impact that this is going to be successful is indeed
minimal. This was my first reaction. Because then I thought, no matter what you
do, whether you perform like crazy or whether you take it easy, it would not have
been different. This was my first emotional reaction. . . . It was totally
disappointing because I tried to exert influence internal to the organization to
make the project better, but because the way it [the organizational process] was
set up, it [the project] could not work.
The need for autonomy is important as it contributes to an individual’s psychological
well-being. Project failure can thwart this psychological need by revealing a lack of autonomy
over the decisions necessary to make the project successful and/or a lack of autonomy over the
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decision of whether to terminate and persist with the project. After project failure, the individual
may be reassigned to a project in which he or she has less autonomy over how the project tasks
are to be completed. To the extent that project failure thwarts the psychological need for
autonomy, the individual will have a negative emotional reaction to the loss of that project.
Project Failure Thwarting the Need for Relatedness
The final psychological nutrient is relatedness. Relatedness refers to “feeling connected
to others, to caring for by those others, to having a sense of belongingness both with other
individuals and with one’s community” (Deci and Ryan, 2002: 7). A project can satisfy this need
for relatedness by providing access to supportive supervision and/or coworkers (Thompson and
Prottas, 2006), a group with which to identify (Richter, West, Van Dick, and Dawson, 2006), and
a basis for interactions and friendships. For example, in our interviews with engineers at a large
German company (Shepherd et al., 2014), one interviewee reported about a past project team
experience:
In the team, I worked together with the colleagues very well and we built personal
relationships and one suddenly realized, “Wow, we are indeed a great team. You
have a great team, and this is important for a project.” . . . It was a pity that we
had to be separated [after project termination] although we thought we are a great
team, we could make it.
Similarly, another project team member in our study on 55 members of 16 innovation
departments of large German firms reported, “The everyday interaction within the team is really
important. . . . We have ties of friendship in the team; trust each other; and once in a while, enjoy
a drink together after work.”
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If a project that satisfies managers’ and employees’ need for relatedness fails, this can
lead to the experience of grief. For example, in one study (Shepherd et al., 2014), we found that
after project failure, a team member reported that he feared the loss of important relationships
with both his colleagues and external stakeholders:
You start to get angry and you shake your head because a lot of effort and money
would have been wasted. You then have to wonder why you did this stressful
work over the last three years. . . . It is extremely bad if you have the feeling that
motivation is not only getting lost but is switching completely because you cannot
provide any perspective to the people [including external suppliers] because you
cannot provide a clear explanation. . . . It is painful that the efforts up to this phase
suddenly are not important for the project anymore.
Similarly, his colleague on the same project feared that he might lose standing in and
connection with the scientific community and reported, “I mean, let’s be clear about it: a year
ago, we were the pioneers, and everyone in the community around the world knew it. . . . The
fact is we have not gotten that far. . . . That hurt me personally.”
An engineer leading another failed project in the same company described the eroding
social structures of the team when the failure became obvious as follows:
There have been many conflicts that we faced during this period [leading up to the
failure of the project] because people were convinced that if we did it differently
this way or that way, then we could keep the deadline nevertheless. . . . You start
making compromises, some more easily, some more difficult. There were many
fights. . . . Partly this was constructive, but even then it costs a lot of energy to
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cope with such issues. I think this [project failure] has led to a real disappointment
in the whole team.
Further, one of our interviewees (Shepherd et al., 2011) was a leader of a mechanical
engineering project that had been running for years, cost millions of euros, and had a high level
of public visibility. He reported that immediately after his project had failed, there were
“considerable tensions” among team members. One year later, almost all the team members had
left the firm “just due to frustration,” and “from the team, which we used to have, one is retired,
and I am the only one left.” When a project fails and team members are relocated within or leave
the organization, the replacement project might not provide the same level of (perceived)
relatedness than the failed project. In this case, the individual is likely to experience grief over
the losses caused by project failure (Shepherd and Cardon, 2009).
In sum, our interviews with leaders and members of entrepreneurial projects provided
multiple examples of how these projects can help satisfy individuals’ needs for competence,
autonomy, and relatedness and how project failure can thwart the fulfillment of these needs and
lead to the generation of negative emotions—namely, grief over the loss of the valued project.
Motivational Consequences of Negative Emotional Reaction to Project Failures
The generation of grief over failed projects creates a problem for organizations. The
organization often needs to be entrepreneurial to succeed (for a review see Rauch, Wiklund,
Lumpkin, and Frese, 2009; Wiklund and Shepherd, 2005), and this means using projects as
experiments to reveal opportunity (Brown and Eisenhardt, 1997; McGrath, 1999). Many of these
projects will fail (Boulding et al., 1997; Campbell et al., 2003). As illustrated above, when
project failure thwarts an individual’s psychological needs, it generates grief, and these negative
emotions diminish the individual’s motivation to move on and invest energy and effort into
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subsequent projects (Shepherd and Cardon, 2009), that is, unless the organization can
consistently provide replacement projects of equal or greater psychological value to the project
lost. Therefore, the organization is faced with the challenge of somehow overcoming this
emotional downside to maintain employees’ motivation after project failure.
Indeed, there is evidence that negative emotional reactions to project failure impact
project team members’ motivation. For example, in his article “When IT Projects Flounder,
Emotions Run High,” Fitzgerald (2010) described the case of Dana B. Harris, who had worked
on sonar acoustics software for Arleigh Burke guided missile destroyers in the 1980s. When
developing this highly sophisticated software, Harris “was really into it, really excited about it.”
However, after the end of the Cold War in 1990, the project was abandoned due to budgetary
cuts, and Harris and his team experienced substantial emotional troubles, as he recalled 20 years
later: “Not having the excitement of developing that kind of software, it was like I'd lost
something. I remember that feeling very, very clearly.” Obviously, Harris and his team lost
something they found very important to them, which generated grief. As a consequence, Harris
found it difficult to motivate himself for subsequent projects and decided to leave the defense
industry.
Similarly, in interviewing research scientists in Germany, we (Shepherd et al., 2011)
found strong evidence of how grief over project failure impacts motivation. For example, one
behavioral economist reported on a project in which she had invested more than one-and-a-half
years together with two coauthors. The team had developed a theory about economic decision
making and had enrolled participants in an experimental task to collect data for testing the
hypotheses. Based on the results obtained, the team had even drafted a working paper for later
publication; however, disagreements within the team about the future development of the
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manuscript dampened the motivation of each team member to invest further resources into the
project, which was ultimately terminated before the results had been published. The scientist
reported the following, “[The project failure] was a really unpleasant situation. In a sense, of
course, you start a project and would like to have results that warrant publication, but you are not
able to lead it to a good outcome. To see that you and the team were not able to lead it to
successful completion was altogether disappointing.”
In another example, as project leader, an aerospace engineer had been awarded a project
from a famous airplane manufacturer by winning a competition against several other research
groups. The project’s aim was to develop an airplane with autonomous navigation that would
pass a defined number of defined spots in the landscape within a certain timeframe. However,
the project was interrupted and delayed several times because the team failed to deliver the
necessary technical solution at the proposed milestones. The project leader noted that the project
failure was “frustrating. . . . You state you can do everything and others cannot. . . . [And] if we
do not deliver, I experience it as personal disappointment and personal failure, which depresses
my soul.” The project leader was also in fear of losing his reputation as a reliable partner for
industry and was thus uncertain about future funding opportunities for his group and the entire
research institute.
Similarly, a research scientist in theoretical physics reported on a project for which he
and others tried to perform some theoretical calculations on crystalline elastomers. However, the
project faced problems because the experimental data did not fit with the team’s theoretical
calculations, which hindered any project progress. Reflecting on the failure, the scientist noted
that he “worked as much as before, but the motivation was not as high. . . . You do not really
have the full drive anymore. In terms of working hours, it was certainly not different, but it was
13
really frustrating. I was quite furious.” He went on and emphasized that “You indeed think twice
whether it all makes sense what you are doing. . . . It is indeed that you start doubting more.”
This emotional reaction is particularly remarkable because describing his work environment, the
scientist also found it “pretty normal that some things do not work out.” However, the
perceptions of normality of project failure did not eliminate his negative emotional reaction to
the failure nor the demotivate effect of those negative emotions.
Similarly, a research scientist in biology found it “not surprising” that some projects he
had worked on did not work out but also mentioned considerable negative emotional reactions
when they occurred. In describing a project on insect-plant interactions for which he “tried to
find out how a particular gene influences this interaction, how cankers eating the plant are
affected, and how the defense mechanisms of the plant can be regulated anew,” he experienced a
series of failures and setbacks:
We had a hypothesis that did not work out. . . . We had to go back not only weeks
or months but almost two years. We completely rejected the hypothesis and
started anew. This was not easy. . . . Imagine, you work for one-and-a-half years,
do all the experiments, and all the graphs look the same. . . . Motivation is
difficult then. If the results are frustrating because the hypothesis was not right,
you find yourself without energy. [He went on to describe his work in a more
general way.] It is always like this: If something works well and you find
something interesting, then immediately everything is on fire and you have to do
many things and start rotating. But, if the results are frustrating, just because the
hypothesis was wrong once again, then you are out of energy in a certain sense.
Yes, one can say it this way.
14
We found similar de-motivational aspects of project failure in our study on failed projects
in a large technology firm. For example, one project manager reported the following, “I
personally really fell into a hole. This project, these two-and-a-half years,. . . I had never worked
so intensely for the company as during this time. Regarding work effort, regarding responsibility,
but also cost responsibility, responsibility for resources. For me, it was the biggest [project] I had
done so far. . . I really fell into a true hole.”
Indeed, for this manager, the emotional reaction was extreme as he went on to report
about physical consequences toward the end of the project:
Usually I like doing sports, running and riding the bicycle. But then, when the
project’s end came near, I got personal health problems. I had a slipped disk. . . . I
would not make anyone particularly responsible; in the end, the responsibility is
always my own. But I can indeed imagine that it was due to all this tension. For
weeks, I felt that I had hardening in my back and in my shoulder muscles, which
did not disappear anymore. I know that this [muscle tension] usually goes away
when I do sports, go running, swimming, or biking. I was not able to do it
anymore. When I went to the doctor, it went on for another couple of weeks, and
then I had the disk slip in the back of my neck. . . . I personally then realized that I
had crossed a border and that I was not OK.
In sum, our interviews together with existing studies provided considerable evidence of
team leaders’ and members’ negative emotional reactions to project failures. In line with self-
determination theory, these individuals perceive projects as important when they fulfill their
basic psychological needs, specifically their needs for competence, autonomy, and relatedness.
In the case of project failure, these needs are thwarted, leading to negative emotional
15
experiences. One important consequence of these negative emotions is that leaders and members
of failed project teams lose their work motivation to a considerable extent, thus depleting
organizations of one of their most important resources—a motivated work force.
Negative Emotional Reaction to Business Failures
While the examples provided so far show that social judgment theory is a useful
framework to understand how the failure of entrepreneurial projects can thwart team leaders’ and
members’ basic psychological needs for competence, autonomy, and relatedness and thereby
generate negative emotions, there is considerable evidence that firm failure can lead to similar
outcomes for independent entrepreneurs.
Entrepreneurial Firm Failure Thwarting the Need for Competence
Several studies have emphasized the important role of learning for entrepreneurs (Cope,
2003; Politis, 2005), both in the classroom (Honig, 2004; Kuratko, 2005) and in practice (e.g.
Corbett, 2007; Harrison and Leitch, 2005). These learning experiences can lead to feelings of
mastery (Butler, 1992), which in turn signal to the entrepreneur that he or she has developed
competence (Rawsthorne and Elliot, 1999). Indeed, the desire to learn can be an important
motivation for founding and growing a new business. For example, a learning goal orientation
refers to individuals’ focus on the development of skill, knowledge, and competence, which are
associated with more task-focused, adaptive, and mastery-oriented behaviors (Bunderson and
Sutcliffe, 2003), and a study with 158 college students found that a learning goal orientation is
related to entrepreneurial career motivations (Culbertson, Smith, and Leiva, 2010). Further, in a
large study, we interviewed 154 founders from 64 ventures about their motivations to start and
run their businesses (among other topics) (Breugst, Patzelt, and Rathgeber, 2015). For this study,
we sampled entrepreneurs of incubator ventures in the Munich area, and we followed the
16
ventures and the founders for about eight months. The accumulated interview material amounted
to more than 3,000 single-spaced pages of transcripts from 278 interviews and more than 224 of
audio material. In this material, there was considerable evidence of a strong learning motivation
among the founders. For example, one founder reported, “The variety . . . of course we have
topics that we focus on, but they are so broad that I have a great bandwidth. . . . There are always
different fields, and one deals with so many interesting people.” Another founder stated the
following, “About my job, I especially like . . . that it covers various topics. I am not only doing
development, but I am also some kind of a trainer for employees, which is certainly an
interesting role. I do also have contact with customers, and I have the possibility to immediately
get customer feedback on what we are doing.”
Finally, a third entrepreneur described his learning motivation as follows: “I like to face
challenges and to master these challenges. . . . It is very important to me that the task . . . the
challenge is motivating.”
If their firm fails, entrepreneurs may not be able to sufficiently fulfill their need for
competence; the failure might actually signal to them that they are incompetent when it comes to
founding and running a business. For example, one of the founders we interviewed was the CEO
of a medical technology venture, but due to bad performance, he was forced to leave the firm by
his cofounder and the investor. Reflecting on the time when his exit came near, he noted the
following:
[Our investor] said, “We need a new CEO; I do not work this way!” Of course I
opposed at the beginning because I thought what role remains for me then if the
investor does the marketing and there is a new CEO. Who do you need then?
They will not need me anymore then!. . . He considered me as being
17
incompetent. . . . I felt quite depressed. . . . I would not have thought that he
considered me replaceable. [But he says that he can] exchange me and things will
be better. . . . You must see it this way. Without me, the firm would not exist, the
idea would not exist, and we [would] not have convinced the investor in the first
place!
Interestingly, the cofounder’s description of his former partner strongly connected to his
reactions to the need for competence: “I believe that he [the partner] is convinced that what he
says makes sense and that he can help the firm. It hurts his ego if someone now says it would be
best if he does not say anything.”
To entrepreneurs, their business is a way to satisfy their need for competence—they can
demonstrate their skills and knowledge, and the challenging task gives them the opportunity to
further develop their competences. However, business failure (or failure as an entrepreneur
resulting from being kicked out of the business) represents negative feedback about one’s
competence, and the replacement role (including unemployment) may not satisfy the need for
competence as much as running a business. To the extent that the entrepreneurial failure thwarts
entrepreneurs’ psychological need for competence, it will generate negative emotional reactions
when the business is lost to them.
Entrepreneurial Firm Failure Thwarting the Need for Autonomy
The need for autonomy is a major source of motivation to start a business. For example,
in a study of 300 alumni of an Australian university, Douglas and Shepherd (2002) analyzed
4,800 assessments of hypothetical career scenarios and found that individuals vary in their desire
for independence and that those who value independence more will have stronger intentions to
pursue entrepreneurial careers. Our interviews with 154 firm founders confirmed that running
18
their venture can significantly contribute to fulfilling the psychological need for autonomy. For
example, when asked about what she likes most about being an entrepreneur, one founder
answered, “I can make many decisions—basically make all decisions—myself.” Another
entrepreneur reported, “In any case, I want to work in a [team] constellation where I have the
say! I want to have a clear superiority in terms of influence.”
Despite these studies and interview quotes supporting the importance of autonomy for the
motivation to start a business, there is less evidence on how (and to what effect) firm failure has
on thwarting individuals’ needs for autonomy. For example, in our interviews with entrepreneurs
of failed businesses, we found little support for an experience of a loss of autonomy. Similarly,
although a recent study by Jenkins, Wiklund, and Brundin (2014) hypothesized that the loss of
independence would cause grief for failed entrepreneurs, their empirical results did not provide
evidence for the hypothesis. Specifically, these authors surveyed 120 entrepreneurs in Sweden
who had filed for bankruptcy with a venture they had actively been running and in which they
held an ownership stake. Contrary to the hypothesis, regression models showed no statistically
significant association between loss of independence and grief, and there was also no statistical
difference between entrepreneurs who had experienced failures previous to the focal failure and
those who had not. It appears that while the need for autonomy is a driver for starting a venture,
once the venture has failed, either (1) the fulfillment of this need becomes less important or (2)
failed entrepreneurs fulfill this need by other means, such as starting another business. Indeed,
Jenkins et al. (2014) found that portfolio entrepreneurs (i.e., those who run several businesses at
a time) and to a certain extent also hybrid entrepreneurs (i.e., those who are in salaried
employment in addition to running their own business) experience less loss of independence
from business failure (but similar levels of grief) than others.
19
Therefore, perhaps either running other ventures than the failed business (for portfolio
entrepreneurs) or enjoying autonomy in a salaried job (for hybrid entrepreneurs) might be
sufficient for fulfilling entrepreneurs’ psychological need for autonomy. Future research can
make important contributions by further exploring how and when business failure impacts
entrepreneurs’ need for autonomy.
Entrepreneurial Firm Failure Thwarting the Need for Belongingness
Entrepreneurship is a social endeavor, and founders must entertain multiple relationships
with team members, employees, investors, customers, and other stakeholders (Aldrich and
Zimmer, 1986; Birley, 1986). Internal to the venture, perhaps the most important and intense
social relationships built are those with other members of the entrepreneurial team. For example,
one founder we interviewed reported, “We spent together 12 to 13 hours every day over three
years. One does indeed get to know each other.” When asked about the most important factors
for running a successful venture, another founder emphasized the following: “From my point of
view, the most important issue is the trust in the team and the belief in the team and that these are
maintained over time. The moment these get broken, I am convinced that it is a very dangerous
moment for the venture.” Finally, reflecting on her experiences in the past, one founder of an e-
commerce startup reported, “2011 was our best year. And we had confidence. We had 10
employees altogether. . . . It was a great team, and it was really fun.”
While these quotes provide evidence for the notion that being part of an entrepreneurial
team can contribute to fulfilling one’s need for relatedness, our interviews also demonstrated that
either the failure of the firm or the disbanding of the entrepreneurial team (i.e., the exit of one
team member) can thwart the fulfillment of this need. For example, the remaining team member
20
of a medical technology venture described his feelings after the cofounder had left the firm as
follows:
Of course I felt lonely after Sam left the firm. . . . He was really the only one in
exactly the same situation as me; he was in the same boat. I missed him as a
person, a person who has the same interests, who can represent me in certain
issues or take some of my work load and also can communicate with me. I was
more or less left alone.
When asked about how the relationship with this cofounder had developed after the firm
had failed, an entrepreneur of an internet firm explained, “Before [the failure], we had a deep and
daily relationship which was very intense. After that [the failure], we had difficulties talking
even about the most marginal issues.”
Of course not all entrepreneurs must satisfy their need for belongingness through work.
The founder of a medical technology venture reported that after exiting the firm, he was able to
satisfy his psychological need for relatedness by turning to individuals from outside the venture:
I must say that is was a difficult time in any case. If you face such a difficult time,
you are happy for anyone supporting you. My girlfriend has helped me quite a bit
here. It was really important to have somebody to talk this issue over [with] and
who also has an external view. I also talked with a lot of friends about it, and I
openly asked: “Am I mad now, or what’s the issue?”
Although some entrepreneurs are able to satisfy their need to belong by looking to non-
work-related relationships, others lose a sense of belonging when a business fails (or they are
forced to exit). To the extent that their psychological need for belongingness is thwarted by
21
failure, they will have a negative emotional reaction. We now turn to the impact of such a
negative emotional reaction on motivation.
Motivational Consequences of a Negative Emotional Reaction to Firm Failure
Similar to the motivational effect of grief in the context of entrepreneurial projects, the
experience of negative emotions from firm failure can have a profound impact on the motivation
of independent entrepreneurs (Shepherd, 2003). For example, one of our interviewees of a failed
venture reported the following:
In this moment, it was a deep moment of defeat which I had never before
experienced in a similar way. A moment where I said, yes, now I am giving up,
although I am not the person who usually does so. [Interviewer: Why did you
experience it as a defeat?] Because I had stopped something I had very, very
strongly believed in for two years. To stop something like this had been a defeat
from my point of view.
When we interviewed that person several months after the venture had failed, he had still
not moved on to another job. Similarly, when we heard of the failure of another entrepreneurial
venture in our sample, we tried to contact one of the founders for a follow-up interview. We
were, however, not able to make contact with that person—he had cut all his social ties,
including removing his mobile and home phone number and deleting all his email addresses and
profiles on Facebook and other social networks. As we heard from his cofounder, this individual
had left the city and shut down all contacts. Six months later, we found him back in town and
willing to give us an interview. He conceded that the grief from failure was so strong that he
could not stay in the same place and in the same social environment anymore but had to travel to
22
another part of the world to recover and sort himself out. He only returned when he felt that he
had the motivation to move on with his life and look for work again.
These examples are only a few cases providing evidence of the strong motivational
effects which negative emotions from venture failure can have on entrepreneurs—effects that are
similar to those of members and leaders of project teams. Importantly, however, there is
obviously variance in individuals’ intensity of negative emotions generated after failure, and how
these negative emotions impact motivation.
Discussion
In this chapter, we explored the emotional and motivational consequences of project team
members and independent entrepreneurs who experience failure. Using self-determination theory
as a theoretical framework and interview data from both independent entrepreneurs whose
businesses failed and members of project teams whose projects failed, we provided evidence that
the consequences of failure are substantial because the loss of a project or firm thwarts
individuals’ needs for competence, relatedness, and autonomy. These findings have a number of
implications for scholars and open up interesting avenues for future research.
First, our interview data illustrate that self-determination theory is a useful theoretical
angle to study the emotional and motivational consequences of failure for entrepreneurs and
members of entrepreneurial project teams. Typically, self-determination theory has been used to
study the sources of intrinsic motivation in work environments and how such environments
should be designed to trigger employees’ motivation (Deci and Ryan, 2000). Further, self-
determination theory has been used to explain individuals’ psychological well-being, arguing
that thwarting basic needs diminishes well-being and generates negative emotions (La Guardia,
Ryan, Couchman, and Deci, 2000). However, self-determination theory has rarely been applied
23
in project settings (an exception is Shepherd and Cardon, 2009), and few studies have used it to
explain entrepreneurial emotions and motivation (Schröder and Schmitt-Rodermund, 2013;
Shepherd and Cardon, 2009). Based on our earlier discussion and the fact that self-determination
theory is consistent with our interview data, we encourage scholars to draw on this theoretical
foundation to further advance our understanding of failure’s emotional and motivational (and
perhaps other) consequences for those involved (and others in their environment).
Second, a noteworthy finding relates to differences between the failures of
entrepreneurial projects and entrepreneurial firms with respect to thwarting the three basic needs.
Specifically, our interview data demonstrate that both types of failures can thwart individuals’
needs for competence and relatedness. Interestingly, however, while we provide evidence that
project failure also thwarts individuals’ need for autonomy, we did not find similarly strong
evidence for business failure thwarting this need. This is somewhat surprising given that
becoming an independent entrepreneur seems to be ideal to fulfill individuals’ autonomy needs
(Shane, Locke, and Collins, 2003). A possible explanation for this finding might be that in a
corporate environment, project failure usually leads to individuals’ involvement in other
activities within the organization, activities for which management might grant those who failed
less autonomy than before (perhaps as a consequence of/punishment for the failure). Independent
entrepreneurs who fail, in contrast, often do not enter into salaried employment but rather try to
start anew (after overcoming some period of recovery) or face a period of unemployment. That
is, even in the case of failure, there is no corporate environment that imposes rules and structures
upon independent entrepreneurs. Future research can test these propositions and explore in more
detail when failure (project or business) leads to thwarting individuals’ need for autonomy.
24
Third, although our interview data suggest that the three basic needs do indeed play a role
in explaining emotional reactions to entrepreneurial failures, it is also noteworthy that not all
individuals experience the loss of a project or a firm in the same manner. That is, while some
interviewees indicated that their needs for competence, relatedness, and/or autonomy were
thwarted, there was also considerable variance between individuals. Indeed, while self-
determination theory posits that all individuals have the three basic needs, it also states that there
is variance in “the consequences of the extent to which individuals are able to satisfy the needs
within social environments” (Gagné and Deci, 2005: 337). That is, some social environments
(within or outside corporations) are more likely to buffer against the negative consequences of
failure when individuals’ experience of negative emotions and grief. In the chapters that follow,
we introduce studies showing how differences between individuals and their environments
impact negative emotions from failure. However, as we outline later, we also believe that future
research can still make important contributions by continuing to explore the characteristics of
individuals’ social environments that determine to what extent thwarting the needs for
competence, relatedness, and autonomy from project and business failure translates into negative
emotions for subsequent entrepreneurial endeavors.
Finally, in addition to the negative implications for individuals’ emotional well-being,
our discussion and interview data illustrate the detrimental effects of project and business failure
on the motivations of those involved. One of the central arguments of self-determination theory
is that in environments where individuals perceive that their three basic needs have been
thwarted, intrinsic motivation diminishes. Again, however, our interview data indicate that the
manifestation of how failure impacts entrepreneurs’ motivation varies across individuals and
situations. Indeed, Deci and Ryan (2000) argued that there are situational differences that impact
25
how central each of the three basic needs is in triggering motivation. It appears that there is
variance between situations in corporate environments and those typically experienced by
independent entrepreneurs with respect to the centrality of individual needs and that there is
variance within corporate and independent entrepreneurial environments with respect to this
centrality. It is an open yet important research question as to how these variances can be
explained. Answers to this question might have substantial influence on how entrepreneurial
environments (e.g., entrepreneurial project settings, the networks independent entrepreneurs
operate in) should be designed to accommodate the possibility of project and business failure
with respect to minimizing their negative effects on the motivation of those who failed and to
maximize the learning opportunities arising from that experience.
Implications for Entrepreneurs and Managers.
Our illustration of the negative emotional and motivational consequences of
entrepreneurial project and business failure entail a number of implications for practicing
managers and entrepreneurs.
First, it seems important that managers are aware of the emotional consequences of
project failures. In a corporate setting, higher-level managers might not have been actively
involved in the project that failed, or they might have been supervising multiple projects at a
time when only one failed. These low levels of involvement might cause only minor emotional
reactions from senior managers, but the situation is quite different for many of the project team
members. Due to team members’ negative emotional reactions to project failure, team members
might not be able to fully and immediately engage in the next project. Instead, some active help
in managing negative emotions from failure before and/or during the start of a new project could
be necessary for team members to recover effectively and quickly. We will highlight possibilities
26
of managing negative emotions from project failure in subsequent chapters. However,
recognizing that such emotions exist and that they can be substantial for project team members is
an important first step for managers leading entrepreneurial firms.
Second, independent entrepreneurs can make an important first step of recovering from
business failure when they acknowledge the existence of their own negative emotions. These
emotions are not exceptional; rather, it seems that they are quite normal when entrepreneurs
perceive the failed business as having been something important to them. When independent
entrepreneurs acknowledge negative emotions after failure, they can actively and systematically
start the recovery process (as we outline in subsequent chapters). Indeed, knowing that these
emotions are normal and that the failure experience is shared among many other entrepreneurs in
similar situations represents an important first step toward recovery. For example, knowing that
they share their current emotional situation with other (perhaps prominent) entrepreneurs who
were successful with subsequent businesses might mitigate the extent to which business failure
thwarts failed entrepreneurs’ needs for competence. That is, knowing that others have failed,
emotionally recovered, and subsequently succeeded illustrates that failure is just a normal part of
the learning process necessary to build up the competence to become a successful entrepreneur.
Third, similar to knowing about team members’ negative emotions from entrepreneurial
project failures, managers should be aware about the motivational consequences of such failures.
This awareness might help managers develop realistic expectations of team members’
performance immediately following a failure. It seems that some team members who are highly
demotivated from project failure may not be able to take on particularly challenging tasks. For
these team members, managers might assign tasks that are less challenging for a certain amount
of time, and they might consider providing them vacations or flexible and reduced working hours
27
to cope with the failure and to regain their motivations. Then again, others might cope better with
the grief over project failure by being re-assigned to an equally (or even more) challenging
assignment so they feel that their career has not plateaued or worse. Since motivational
consequences differ between those involved in the failure, it seems best for supervisors to
acknowledge each team member’s specific reaction and provide individualized treatment to
restore the motivation of the entire project team after failure.
Finally, following business failure, it seems normal for entrepreneurs to experience a
decline in motivation and become wary of making emotional investments to start anew. Again,
knowing that they share this experience with others and that many of those others have found the
motivation to re-enter entrepreneurship and be successful in the end might help entrepreneurs of
failed businesses escape the “motivational dip.” Indeed, this knowledge might help them escape
vicious cycles of ruminations—namely, when a lack of motivation leads to increased negative
emotions (e.g., feelings of guilt and shame for not being motivated), which in turn decrease
motivation, and so on. Additionally, acknowledging that a lack of motivation for starting a new
business after failure is rather normal might help those who failed to channel their motivations to
different activities, which could help distract from the failure and thus speed up recovery,
enabling the entrepreneur to regain motivation for entrepreneurship (Shepherd, 2003).
28
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Figure 1: A Self-Determination Model of Grief over Entrepreneurial Failure
Psychological
Need for
Competence
Psychological
Need for
Relatedness
Psychological
Need for
Autonomy
Entrepreneurial
Venture
Drop in
Psychological
Well-Being
Grief over
Entrepreneurial
Failure
Thwarted
by Venture
Failure
33
CHAPTER 3: SELF-COMPASSION AND LEARNING FROM FAILURE*
In Chapter 2, we highlighted how entrepreneurial projects can boost individuals’
psychological well-being. That is, the more a project satisfies an individual’s psychological
needs for competence, autonomy, and belongingness, the more important the project is to him or
her. Although the importance of a project enhances the motivation for success, it also means that
if the project fails, the individual will have a more negative emotional reaction (i.e., grief over
the loss of an entrepreneurial project [see Chapter 1]). From the hedonic perspective of
psychology (Kahneman, Diener, and Schwarz, 1999), an individual’s subjective well-being is
enhanced by the absence of negative affect (Diener and Lucas, 1999). Therefore, people often
engage in attempts to avoid and/or quickly eliminate negative emotions in order to return to a
high level of subjective well-being.
However, a different perspective of well-being leads to an emphasis on a different
outcome for responses to project failure. Rather than focusing on happiness (including the
absence of negative affect and the maintenance of self-worth), the eudaimonic approach focuses
on “meaning and self-realization” (Ryan and Deci, 2001: 141). This approach suggests that not
all actions and reactions that reduce negative emotions also promote personal growth (McGregor
and Little, 1998; Ryan and Deci, 2001). For example, protection from threats to perceived self-
worth (e.g., those arising from project failure) can reduce or eliminate negative emotions but can
simultaneously be maladaptive (for reviews see Blaine and Crocker, 1993; Crocker and Park,
2004). Such is the case, for instance, when “people wanting to maintain high self-esteem . . .
dismiss negative feedback as unreliable or biased, trivializing failures or attributing them to
* We thank Kathie Sutcliffe in helping develop these ideas.
34
external causes. As a consequence, they may take less personal responsibility for harmful actions
and develop an inaccurate self-concept, hindering growth and change” (Neff and Vonk, 2009:
24).
Thus, cognitions and actions to protect feelings of self-worth in the face of failure can
enhance subjective well-being but can also lead to a rigid and closed mindset that diminishes and
rejects alternative explanations (Jost, Glaser, Kruglanski, and Sulloway, 2003; Taris, 2000) for
why a project failed. In doing so, the pursuit of subject well-being can create obstacles, including
blind spots (Sutcliffe and Weick, 2003) that obstruct learning. In this chapter, we explore how to
overcome some of these blind spots. Specifically, we discuss what self-compassion is; how it fits
into the eudaimonic conceptualization of well-being; and how it is achieved across levels,
including individual, group, and organizational levels. First, we discuss an overarching model for
this chapter. Second, we discuss the individual aspects of the model, including the relationship
between self-compassion and learning from failure. Finally, we discuss general implications and
offer suggestions for future research.
A Self-Compassion Model Of Learning From Failure
Model Overview.
In the sections that follow, we develop a multilevel model of self-compassion as an
approach to learning from failure, which is illustrated in Figure 2. As illustrated in Figure 2, our
model differentiates the influence of self-compassion and learning outcomes within and across
levels. At the individual level, a person’s self-compassion positively influences his or her
learning from failure, which is mediated by positive emotions. At the organizational level, self-
compassion influences organizational learning from failure, which is mediated by collective
positive emotions. Three constructs link the individual and organizational levels: (1) self-
35
compassion (i.e., self-kindness, common humanity, and mindfulness), (2) positive emotions, and
(3) learning (i.e., breadth of attention and array of resources). These constructs are applicable at
both the individual and the organizational levels and are, therefore, referred to as isomorphic
(House, Rousseau, and Thomashunt, 1995; Huy, 1999).
In developing our model, we make a number of assumptions that establish important
boundary conditions for the model. Consistent with other organizational theory, including
research on compassion, we acknowledge the organization as an entity. As argued by Kanov et
al. (2004: 816), “we are not suggesting that organizations are entities that like individuals,
literally notice, feel, and respond to pain; nor are we suggesting that organizational compassion
is a mere aggregation of compassion among individuals. Rather organizational compassion
involves a set of social processes in which noticing, feeling and responding to pain are shared
among a set of organizational members.” We make a similar assumption for organizational self-
compassion1. Further, we assume that entities (i.e., individuals and organizations) are
heterogeneous in self-compassion, and we explore the consequences of that heterogeneity but not
its antecedents. As such, the processes by which self-compassion becomes legitimated,
propagated, and coordinated are outside the bounds of the current chapter but are worthy of
future research.
………………………………
Insert Figure 2 About Here
…………………………….
1 This is consistent with Chapter six where we explore emotion at the organizational level (see for review, Huy,
1999).
36
Self-Compassion
The concept of self-compassion (at the individual level) comes from Buddhist philosophy
(Bennett-Goleman, 2002; Rosenberg, 1999; Salzberg, 2004) and represents part of a larger effort
to build on Buddhist notions to inform the Western understanding of suffering and psychological
well-being (for a review see Wallace and Shapiro, 2006). Self-compassion in the context of
failure events refers to an individual’s emotional response to his or her negative emotional
reaction to failure that involves feeling care and kindness toward oneself, recognizing that one’s
experience is part of the common human experience, and understanding one’s inadequacies and
flaws in a non-judgmental way (adapted from Neff, 2003a). Self-compassion at the individual
level involves the dimensions of self-kindness, common humanity, and mindfulness (Neff,
2003a; Neff, 2003k) and has been found to be positively associated with personal growth. For
example, self-compassion is positively associated with happiness, optimism, curiosity, and
connectedness (Neff and Vonk, 2009), which in turn function as mechanisms for enabling
growth despite possible setbacks or negative events.
In a series of experiments, Leary, Tate, Adams, Batts Allen, and Hancock (2007) found
that self-compassion buffers people against the impact of negative events; that is, more self-
compassionate participants provided more accurate self-evaluations that were less tainted by
both self-criticism and defensive self-enhancement than those who were less self-compassionate.
After a negative event, individuals are at higher risk of either overly criticizing themselves—
resulting in adverse outcomes, such as depression—or of avoiding key signals that preceded the
negative event because they instead focus on defensively enhancing their self-worth (Neff,
2003k). In contrast to harsh self-criticism, Leary et al. (2007: 887) found that after
experimentally inducing self-compassion, people were able to “acknowledge their role in
37
negative events without feeling over-whelmed with negative emotions.” Furthermore, the
absence of feeling overwhelmed was not merely due to higher self-esteem or the avoidance of
key signals of the failure but was rather a healthy confrontation with negative events and their
causes. Importantly, an individual’s self-compassion is distinct from self-esteem. Neff and Vonk
(2009) found that relative to self-esteem, self-compassion is more positively associated with
stable feelings of self-worth and is more negatively associated with social comparison, public
self-consciousness, self-ruination, anger, and the need for cognitive closure. Similarly, Neff
(2003k) found that self-esteem (i.e., positive feelings about oneself and believing that one is
valued by others [Leary & MacDonald, 2003]) correlates with characteristics like narcissism,
hubris, and self-enhancing illusions, whereas self-compassion does not. These findings suggest
that self-compassion is likely to facilitate a healthy recovery (including learning) from
unpleasant events.
Based on the recognition that compassion exists at the organizational level (e.g. Dutton,
Worline, Frost, and Lilius, 2006) and that individuals can direct compassion toward the self, we
offer the construct of organizational self-compassion. We define organizational self-compassion
in the context of failure events as the collective emotional response of organizational members to
negative emotional reactions to organizational failures that involve collectively feeling care and
kindness toward the organization and its members, recognizing that these negative emotions are
part of organizational experiences, and understanding—in a non-judgmental way—the
inadequacies and missteps of the organization and its members. As indicated in Figure 2, we
anticipate that both organizational- and individual-level self-compassion are represented by three
components: (1) self-kindness, (2) common humanity, and (3) mindfulness.
38
Self-Kindness
Self-kindness is the first component of self-compassion. At the individual level, self-
kindness involves “extending kindness and understanding to oneself rather than harsh judgment
and self-criticism” (Neff, 2003a: 89) at the onset of a failure event. When faced with a failure, an
individual high in self-kindness tries to be understanding and patient toward those aspects of his
or her personality he or she does not like, gives him- or herself the caring and tenderness needed
when going through a very hard time, is tolerant of his or her flaws and inadequacies, and tries to
be loving toward him- or herself when feeling emotional pain (Neff, 2003k: 231). Self-kindness
does not mean that one is content with his or her flaws or is passive toward the learning needed
to eliminate future failures and/or minimize the effect of failures. Self-kindness encourages
action but does so with gentleness and patience (Neff, 2003a). This gentleness and patience is
important despite the immediate changes necessitated by a failure event. Individuals who are less
self-kind are more self-judgmental; intolerant of their own flaws; and tough on themselves when
times are difficult (Neff, 2003k), such as when experiencing project failure. Without self-
kindness, the response to failure is harsh self-criticism for not meeting ideal standards, which in
turn inhibits an individual’s ability to achieve personal growth (e.g., learning from the
experience). For example, harsh self-condemnation exacerbates the pain and sense of failure that
an individual feels when things go wrong (Blatt, Quinlan, Chevron, McDonald, and Zuroff,
1982). That is, it adds additional anxiety to an already emotional event. Harsh self-criticism can
lead to ruminations that escalate negative emotions (Nolen-Hoeksema, 1991) and increase grief
over project loss.
Like individuals, organizations can direct kindness externally (to others) and internally.
In terms of being kind to others, while there is some dispute over whether corporate social
39
responsibility, corporate philanthropy, and/or corporate donations represent a strategy for
enhancing firm performance (Godfrey, 2005), it appears that at least some organizations do good
above and beyond what is expected (Logsdon and Wood, 2002). That is, some organizations are
benevolent and kind to their employees (Lloyd, 1990; Milliman, Czaplewski, and Ferguson,
2001; Schulman, 1999) and members of society (Cowton, 1987; Edmondson and Carroll, 1999;
Shaw and Post, 1993). Thus, we develop the concept of organizational self-kindness in the
context of failure events, which refers to the collective emotional response of organizational
members to negative emotional reactions to organizational failures that involves collectively
feeling care and kindness toward the organization and its members.
Common Humanity
Common humanity is the second component of self-compassion. Individual common
humanity refers to “perceiving one’s experiences as part of the larger human experience rather
than seeing them as separating and isolating” (Neff, 2003a: 85). Experiencing failure with a
common-humanity perspective means that when feeling inadequate in some way, an individual
reminds him- or herself that most people experience feelings of inadequacy, that one’s failings
are part of the human condition, that there are many other people in the world feeling the same
way, and that these difficulties are a part of life that everyone goes through (Neff, 2003k: 231).
Without such a perspective, actors are likely to believe that they are the only individuals who
feel bad after a negative event and ignore any interconnectedness with others (Neff, 2003k).
Feelings of isolation cause additional anxiety and exacerbate the negative emotions already
generated by the failure event.
As is the case with individuals, organizations can recognize that they are part of a
common humanity in response to others’ negative emotions and, as we develop below, their own
40
failings. Indeed, the notion of being a corporate citizen acknowledges an organization’s sense of
belonging to a community (Logsdon and Wood, 2002; Matten, Crane, and Chapple, 2003).
Recognition of common humanity may result in a feeling of social duty to help others, an ethical
obligation to help others, and/or a recognition that the organization depends on society for its
continued existence (Garriga and Melé, 2004). Common humanity creates a feeling that the
organization must look after its stakeholders (Emshoff and Freeman, 1978) and members of the
larger community (Donaldson and Dunfee, 2000; Logsdon and Wood, 2002). To the extent that
organizations acknowledge common humanity in relation to their own (collective) negative
reaction to failure, they demonstrate organizational common humanity. Thus, we develop the
concept of organizational common humanity in the context of failure events, which refers to the
collective emotional response of organizational members to negative emotional reactions to
organizational failures that involve collectively recognizing that these negative feelings are part
of organizations’ experiences. For example, when facing a major project failure, an organization
with common humanity can emphasize that most organizations face such conditions at some
time in their lives and that when this happens, most organizations have a collective negative
emotional reaction. That is, when an organization is able to recognize its current position and
grief as part of normal “organizational life,” it is able to remain connected to others despite a
failure event. As another example, an organization might emphasize how it overcame similar
events in its past and how it is resilient and defies temporary failures in pursuit of broader
successes or accomplishments.
Mindfulness
Mindfulness, in the context of self-compassion at the individual level, refers to “holding
painful thoughts and feelings in balanced awareness rather than over-identifying with them”
41
(Neff, 2003a: 85). While mindfulness is often considered to involve “directing attention toward
the present moment in an open-minded (non-judgmental) way,” mindfulness as a dimension of
self-compassion involves directing attention in an open-hearted way (Fredrickson, Cohn, Coffey,
Pek, and Finkel, 2008: 1096, emphasis added). Open-hearted mindfulness centers on the
emotions involved in the present moment with a focus on increasing feelings of caring, warmth,
and positivity toward the self and others (see also Fredrickson et al., 2008; Salzberg, 1997).
Those who are mindful try to keep their emotions in balance when facing a negative event,
approach their feelings with curiosity and openness, and maintain a balanced view of the
negative situation even when something painful happens (Neff, 2003k: 232). In contrast, those
who are less mindful “tend to obsess and fixate on everything that is wrong,” “blow the incident
out of proportion,” generally become “carried away” with their feelings arising from a negative
event, and are “consumed by feelings of inadequacy” (Neff, 2003k: 232). Mindfulness does not
involve self-evaluation or considerations of self-worth. Indeed, when one is mindful, the sense of
self “softens or disappears” (Martin, 1997: 292) to provide the sort of psychological distance
between self-worth and the adversity that enables the non-judgmental acceptance of present-
moment experiences (Bishop et al., 2004). This is not to say that mindfulness denies or
eliminates the generation of negative emotions over project failure. On the contrary, painful
thoughts and emotions generated by project failure are accepted and approached with curiosity as
part of an open-hearted awareness.
Mindfulness at the organizational level is well documented in the organizing literature,
particularly as it relates to high-reliability organizations (Weick, Sutcliffe, and Obstfeld, 1999;
Weick and Sutcliffe, 2011). Although the notion of mindfulness represented in the organizing
literature has focused on its cognitive aspects (e.g. Fiol and O'Connor, 2003; Krieger, 2005;
42
Langer, 1989), there has been some recognition of the potential role of the emotional side of
organizational mindfulness. As it relates to self-compassion in the context of failure events, we
offer the following definition of organizational (emotional) mindfulness: the collective emotional
response of organizational members to negative emotional reactions to organizational failures
that involves collectively understanding—in a non-judgmental way—the inadequacies and mis-
steps of the organization and its members. We anticipate that just as individual mindfulness
following a failure event can result in the generation of positive emotions, organizations that
systematically cultivate an environment of open-hearted mindfulness are more likely to enhance
positive emotions within the organization, which will in turn influence responses (i.e., learning)
to failures or setbacks. This reasoning is consistent with the broaden and build theory of positive
emotions (Fredrickson, 2001) and recent empirical research (Arimitsu and Hofmann, 2015;
Fredrickson et al., 2008).
Self-Compassion and Learning from Failure
Self-compassion (i.e., self-kindness, common humanity, and mindfulness) likely
contributes to learning from failure experiences. Although there are many learning mechanisms,
we focus on two in particular because they capture many of the common aspects in both the
psychological and organizational literature. Specifically, learning is enhanced by a broad
perception and a broad array of resources. In the next sections, we first substantiate these
learning mechanisms at the individual and organizational levels and then detail how these
learning mechanisms are influenced by self-compassion.
Self-Compassion and Learning from Failure through Broad Perception
43
Broad perception of individuals. A broad perception refers to individuals’ ability to make
higher-level connections, widen their range of percepts or ideas, and extend the attention and/or
thinking that enhances their outlook on events or issues (Fredrickson, 1998; Fredrickson et al.,
2008). A broader perception of the environment and failure events enhances learning from the
experience. Rather than having bounded awareness that blinds them to the signals and
information available to them (Chugh and Bazerman, 2007), individuals with broader perception
have greater situational awareness (Dane, 2010; Weick et al., 1999), which contributes to their
deeper comprehension of the situation and makes them more able to inform and predict the
nature of possible future states (Endsley, 1995). That is, they are in a better position to learn and
apply that learning in subsequent projects.
First, an individual’s self-kindness can broaden his or her perception about a failure
event. Researchers have found that people high in self-knowledge pay increased attention to
“unflattering self-relevant information” (Aspinwall, 1998), which helps them build a more
accurate picture of the situation (Leary et al., 2007; Sedikides, 1993). Self-kindness helps
separate self-worth from a failure event, thus making it unnecessary to hide shortcomings from
oneself. In turn, the recognition of these shortcomings generates less anxiety (Leary et al., 2007).
When an individual avoids harsh self-criticism, the protective functions of the ego are not
triggered by failure. This is vital as these ego-protective functions can screen out signals to
maintain high self-esteem (Horney, 1950; Reich, 1949), such as the signals of the underlying
causes of failure. However, while one’s self-esteem may remain high, the limited self-awareness
caused by these ego functions allow weaknesses and mistakes to go unnoticed (Neff, 2003a).
Furthermore, individuals with less self-kindness engage in harsh self-criticism and often become
carried away with their negative emotional reactions to loss events, which can lead to rumination
44
and a narrowing of attention (Nolen-Hoeksema, 1991). As a result, people with low levels of
self-kindness typically develop an overly narrow perception of their current situation (Leary et
al., 2007; Sedikides, 1993) and are therefore less able to learn from their failure experiences.
Second, individuals’ common humanity broadens perception of failure by allowing them
to acknowledge their experiences in the broader human context (Goldstein and Michaels, 1985;
Scheff, 1981). By putting failures in this broader context, individuals are less likely to engage
ego-protective mechanisms (Baumeister, Smart, and Boden, 1996; Twenge and Campbell, 2003)
that lead to a rigid closed mindset that does not allow alternate viewpoints (Jost et al., 2003;
Taris, 2000). With greater common humanity, individuals can maintain a more open mindset that
broadens their perception of the events leading up to failure, which facilitates learning from the
experience.
Finally, more emotionally mindful individuals can develop a broader perception of a
negative situation (Slagter et al., 2007) because their sense of self is softened (Martin, 1997) and
their attention is shifted away from the elaborate cognitive processing necessary for creating a
story that protects the self but is instead shifted toward the non-judgmental acceptance of
present-moment experience (Bishop et al., 2004; Neff and Vonk, 2009). That is, mindfulness
involves experiencing loss without clinging to it (e.g., ruminating [Nolen-Hoeksema, 1991]) or
rejecting it (Leary and Tate, 2007). Thus, more mindful individuals are able to maintain
attentional sensitivity to internal and external signals (Baumeister, Heatherton, and Tice, 1993;
Carver and Scheier, 1999; Dane, 2010), which in turn provides a “quality of consciousness that is
characterized by clarity and vividness of current experience and functioning” (Brown and Ryan,
2003: 825). This new consciousness can reveal information about the failure that would
45
otherwise remain hidden from view (cf. Brown, Ryan, and Creswell, 2007; Hayes, Wilson,
Gifford, Follette, and Strosahl, 1996; Slagter et al., 2007).
Broad perception in organizations. Organizations can also have broader perceptions that
increase their ability to understand the situation (Ocasio, 1997; Weick et al., 1999) surrounding
or leading up to a failure event. In turn, these perceptions inform organizations’ actions that
maintain or enhance organizational functioning. For example, conceptual slack represents the
diversity among organizational members’ perspectives about their organization’s processes
(Schulman, 1993; Weick, 1993), which increases the organization’s ability to identify problems
that need to be solved (Sutcliffe and Vogus, 2003). Conceptual slack is more often promoted in
organizations that value new perspectives; share information; and encourage the questioning of
existing norms, procedures, and routines (Bogner and Barr, 2000; Cho and Hambrick, 2006).
Such organizations encourage members to report failures and near misses (Edmondson, 1996;
Rochlin, 1989) because such feedback provides more data points for learning and informs
subsequent action (Weick et al., 1999; Weick and Sutcliffe, 2006). Therefore, an organization’s
perception is likely broadened by self-compassion via three distinct mechanisms—self-kindness,
common humanity, and mindfulness.
First, organizational self-kindness can contribute to a culture that encourages its members
to report failures and near misses by protecting those who do the reporting and thereby
increasing understanding of the causes underlying failure events. Internally directed reports can
acknowledge failures, inadequacies, and flaws within the organizational system but have the
potential to do so with caring and tenderness. These reports are likely to reflect discriminating
wisdom by clearly evaluating the positive and negative quality of actions while maintaining a
compassionate understanding of the complex, dynamic situational factors that impact these
46
actions; as a result particular performances are not taken as indicators of self-worth (Neff, Hsieh,
and Dejitterat, 2005: 264). Without the worth of the organization or its members being
threatened, organizational members are likely to be more open to reporting failures, and these
reports are likely to be more trusted.
Organizational self-kindness also acknowledges acceptable and unacceptable behaviors,
and organizational members trust the managers’ apportionment of blame for the failure to the
organization’s system and/or routines without undermining the worth of the organization as a
whole. In contrast, harsh self-criticism over a failed project is likely to trigger mechanisms for
protecting the organization’s worth, and one means of doing this is to attribute blame
externally—that is, to blame actors external to the organization for causing the failure rather than
blaming the organization’s internal routines and systems. The external attribution of blame can
send a signal of inappropriately apportioning blame and undermining a just culture. In a more
self-compassionate organization, failures and flaws do not need to be hidden in order to avoid
harsh self-judgment; rather, organizational self-kindness helps members adopt a more objective
perspective of failure event, which enhances their ability to learn from the experience.
Second, recognizing that all organizations make mistakes and have flaws (i.e., common
humanity) helps provide individuals a feeling of security when reporting the mistakes and flaws
that led to the failure event. It also helps organizations maintain connections with external actors
who may be important information sources about the organization’s current situation. For
example, patient complaints about physicians can be important information sources regarding
any mistakes, flaws, or other inadequacies in the failure to deliver adequate medical care, but
hospitals often feel threatened by such information and are therefore less open to it (Allsop and
Mulcahy, 1998; Lupton, 2012). Furthermore, individuals’ emotional reactions to project failure
47
are likely to be less negative when the event is positioned in terms of “organizational life” in
general. This frees up the organization’s cognitive capacity, thereby facilitating greater
awareness and processing of weak signals of the underlying causes of project failure. By making
it clear that errors and flaws are something all organizations face at some time, project failure is
less likely to challenge the overall worth of the organization. Additionally, organizational
members are less likely to feel that they need to defend their worth (to themselves and to others)
by unjustly apportioning blame. Similarly, by maintaining connections with outsiders (as a result
of common humanity), the organization (i.e., the collective of organizational members) is less
likely to unjustly blame these outsiders for the failure2. In contrast, with less common humanity,
an organization is already isolated from others and its members are more likely to unjustly
attribute blame to those with which it is no longer connected. Furthermore, as negative emotions
are exacerbated by isolation (Wood, Saltzberg, Neale, Stone, and Rachmiel, 1990), the
organization becomes increasingly motivated to reduce the negative emotions generated by
project failure by shifting blame even when such a shift is unjust. Thus, the isolation itself
removes the organization from others as a potentially important source of information for
learning from the failure experience.
Finally, an organization’s emotional mindfulness contributes to reports of information
that are important in detecting signals for making sense of project failure. When organizational
members as a collective hold painful thoughts in balanced awareness, their attention can remain
“stable and vivid,” thereby providing a clearer view of the situation (Weick and Sutcliffe, 2006:
2 While providing an environment that is open to failure is important, this in and of itself does not guarantee positive
results, including a broadened perception. As we discuss in Chapter Six, organizations must balance the acceptance
of failure for learning with a tendency to normalize failure. When failure is normalized, it ceases to generate
adequate attention and the emotional responses needed to generate substantive change.
48
521), which in turn forms the basis of reporting. Given the non-judgmental nature of this kind of
assessment, the organization’s worth is not attacked, and this more fact-based report of failures,
near misses, and flaws is likely to be more trusted by organizational members. Such an
environment of trust allows individuals to express negative emotions as well as widen their
perspective of the event (and associated emotions), which helps broaden their perspective and
opens a pathway to more positive emotions.
While reports of an organization’s failings are not distorted by organizational members’
negative emotions, this does not mean that negative emotions are ignored. Rather organizational
mindfulness helps members detect, understand, and report on their emotions so they can be
regulated to promote resilience. Further, by separating assessments of negative events (and
emotional reactions to them) from maintaining notions of self-worth, mindful organizations
reduce the likelihood that their members will employ ego-defensive strategies (Leary et al.,
2007; Neff, Kirkpatrick, and Rude, 2007), such as unjustly apportioning blame (Lazarus, 1991;
Miller, 1976). Indeed, more mindful organizations explore failures and flaws (and the negative
emotions that result from them) with a non-judgmental curiosity that justly attributes causes and
explores possible courses of action, which helps create the atmosphere of trust necessary to learn
from project failures.
Self-Compassion and Learning from Failure through a Broad Array of Resources
Learning from failure is enhanced by taking actions based on beliefs about what caused
the project failure, which itself provides feedback for subsequent learning and action. Therefore,
learning from failure is likely enhanced by a broader array of resources that facilitate subsequent
action. In this section, we discuss how individual and organizational resources for learning from
49
failure are likely broadened and/or extended in the presence of individual and organizational
self-compassion. We begin with individual resources.
Individual array of resources. For individuals, the “presence of latent resources that can
be activated, combined, and recombined in new situations” (Sutcliffe and Vogus, 2003: 97)
enhances one’s ability to take action to further make sense of project failure. These resources can
be internal, such as, competence, coping skills, and self-efficacy (Fergus and Zimmerman, 2005),
or external to the individual, such as social support, role models, and mentoring (Brook,
Whiteman, Gordon, and Cohen, 1989; Zimmerman, Bingenheimer, and Notaro, 2002). An
individual’s array of resources for learning from failure and moving forward is likely broadened
by self-compassion in three primary ways.
First, an individual’s self-kindness can increase his or her breadth of resources for dealing
with failure and the flexibility to redeploy them effectively to new or existing projects. Self-
kindness provides individuals with a more stable “feeling of self-worth over time” (Neff and
Vonk, 2009) and a greater focus on mastery goals than on performance-outcome goals (Neff et
al., 2005). That is, by separating feelings of self-worth from failures, individuals can maintain a
consistent notion of self-esteem from which to draw upon during failure experiences and to
approach (rather than avoid) such experiences as learning situations. Self-kindness does not
mean giving oneself a “free pass”; rather, out of a sense of caring and kindness to oneself, an
individual is motivated to rectify a failure and improve so as to avoid repeating similar errors in
the future. Indeed, self-kindness has been found to be linked to problem-focused coping (Neff et
al., 2005) and adaptive responses (Leary et al., 2007) to failure. Because self-kindness eliminates
harsh self-criticism, individuals are “freer” to take personal initiative, modify unproductive
behaviors, and take on new challenges (for a review see Neff and Vonk, 2009).
50
Second, with greater common humanity, individuals can maintain a more open mindset
and remain connected with others as sources of information who can inform their understanding
of failure events. Further, with greater common humanity, individuals are less likely to
exaggerate feelings of separation from others (Goldstein and Kornfield, 1987; Neff, 2003a) after
experiencing project failure. This enables them to feel more related and secure (Gilbert and
Irons, 2005) and to maintain and build relationships (Campbell and Baumeister, 2001). These
relationships provide access to resources that may be useful to learn (Huy, 1999; Shepherd,
2009) from failure experiences and provide the emotional support needed to take proactive
adaptive actions with subsequent projects.
Finally, mindfulness can contribute to an individual’s resources for learning from failure
and moving forward on subsequent projects. In fact, mindfulness has been described as the
“capacity to be aware of internal and external events and occurrences as phenomena, rather than
as objects of a conceptually constructed world” (Brown et al., 2007: 212; Olendzki, 2005: 253)
and as the ability to remain engaged when facing negative events (Eifert and Heffner, 2003;
Levitt, Brown, Orsillo, and Barlow, 2004), such as project failure. An individual develops this
ability because mindfulness leads to less emotional reactivity to adverse events (Hayes, Strosahl,
and Wilson, 1999; Leary et al., 2007) and the ability to predict (Dunn, Brackett, Ashton-James,
Schneiderman, and Salovey, 2007) and control (Leary and Tate, 2007) emotional reactions to
such events. This particular characteristic of mindfulness enables one to feel less cognitive and
emotional disturbance (Brown and Ryan, 2003) and greater social connectedness (Brown and
Ryan, 2003, 2004; Brown and Kasser, 2005) after project failure, which is useful for the
generation of and access to additional resources for learning from the experience and moving
forward with new projects.
51
Organizational array of resources. Organizations also possess resources that are useful for
addressing threats and can have processes that recombine resources and redeploy them in new
ways (Eisenhardt and Martin, 2000). This process of redeploying organizational resources
increases the array of possible action repertoires (Weick et al., 1999) for enacting what is learned
from failure experiences, which in turn opens the organization to additional feedback and
learning. Social capital and relationships are also a source of resources, insight, and assistance
(Leana and Van Buren, 1999) that facilitate organizations’ sensemaking (Weick, Sutcliffe, and
Obstfeld, 2005) from failure experiences. Similar to individuals, an organization’s ability to
make sense of project failure and act upon that understanding is likely broadened by self-
compassion in three primary ways.
First, in a more self-kind organization, errors and flaws do not need to be hidden in order
to avoid harsh self-judgment; rather, organizational self-kindness helps members adopt a more
objective perspective of failure events. When an organization reduces the negative emotional
reactions individuals feel toward a failure event (e.g., the additional anxiety generated by an
organization’s disapproving judgment of mistakes and flaws), there is less of a need for them to
avoid attending to and thinking about those mistakes and flaws. Attending to mistakes and flaws
provides a basis for learning from failure. Further, organizational self-kindness helps prevent
members from being carried away by negative emotions from a loss and thus reduces
ruminations that can escalate grief (cf. Nolen-Hoeksema, 1991). Such emotions and anxiety have
been found to interfere with individuals’ learning processes by consuming their information-
processing capacity (Weick, 1990).
Second, organizational common humanity can also contribute to a learning culture. It
helps an organization avoid its members as a collective feeling that it is the only one suffering,
52
and it helps the organization avoid its members being carried away and absorbed by their own
feelings. As such, reducing the escalation of negative emotions and anxiety reduces obstacles to
learning and adaptation (Huy, 1999; Shepherd, 2009; Weick, 1990). As discussed above, because
organizational common humanity helps organizations maintain their connections with others, it
also allows them to maintain information sources that are critical for learning. Further, accepting
that failures may occur in the future (as they do in all organizations), an organization with high
common humanity is more willing to act despite the possibility of failure as well as to use the
feedback from these actions (and possible failures) to learn. In addition, organizational members
are able to approach failed projects with curiosity instead of fear.
Finally, organizational mindfulness can also amplify resources that contribute to a
learning culture. Mindfulness enables a culture in which organizational members can explore—
with curiosity—the collective emotional reaction to failure and failure events themselves without
creating ego-protective obstacles to learning. It can also help reduce the anxiety associated with
the generation of negative emotions, which leads to a reduced number of obstacles to learning
(Huy, 1999; Weick, 1990). That is, by maintaining a balanced awareness of the collective
emotional reaction to project failure, an organization is more likely to harness the benefits of
negative emotions (i.e., affect as information [Forgas, 1995; Gasper & Clore, 2002], e.g.,
signaling the importance of situational cues [Clore, 1992; Schwarz & Clore, 1988]) without
some of the associated costs (e.g., constricted information processing [Gladstein & Reilly, 1985;
Sutton & D’Aunno, 1989]) to learn more about why a project failed and enact that learning in
subsequent projects. Therefore, through emotional mindfulness, organizations can gather and
process more salient information to learn about (and from) failure events.
Self-Compassion, Positive Emotions, and Learning from Failure
53
Above, we argued for a direct relationship between self-compassion and learning from
failure. In the sections below, we build on the broaden-and-build theory of emotions to propose
that self-compassion also has an indirect path to learning from failure through the generation of
positive emotions. In the next sub-section, we establish the link between the components of self-
compassion and positive emotions at both the individual and organizational level. Then, we link
these generated positive emotions to learning from failure.
Self-Compassion and Positive Emotions
Self-compassion can generate positive emotions, such as love, contentment, and interest,
which can help reduce grief over project failure through a number of important mechanisms.
First, self-kindness involves being understanding and tolerant of one’s errors, flaws, and
inadequacies and being kind, caring, tender, and loving toward oneself (Neff, 2003k). In turn,
these feelings of warmth and caring can generate positive emotions (Fredrickson, 1998;
Salzberg, 2002). Indeed, induced kindness has been found to result in increased positive
emotions (Otake, Shimai, Tanaka-Matsumi, Otsui, and Fredrickson, 2006; Seligman, Steen,
Park, and Peterson, 2005). For example, one study (Lyubomirsky, King, and Diener, 2005) found
that participants who were asked to perform five acts of kindness in one day were happier than
both those who were asked to perform five acts of kindness over seven days and those who were
not asked to engage in any acts of kindness. An organization’s kindness can also generate
collective positive emotions. For instance, organizations can demonstrate kindness, such as
through benevolence, that promotes happiness and other positive emotions among their
employees and stakeholders (Jurkiewicz and Giacalone, 2004; Milliman et al., 2001).
Second, common humanity can generate positive emotions. The common-humanity
dimension of self-compassion involves putting one’s failures, flaws, and inadequacies in
54
perspective by acknowledging that most people face similar difficulties, make mistakes, and also
have feelings of inadequacy (Neff, 2003k). In this way, greater self-compassion can lead people
to feel (and remain) connected to others. For example, Neff (2003k) found that self-compassion
was positively associated with social connectedness. This social connectedness and the
corresponding feelings of belonging are viewed as basic psychological needs (Baumeister and
Leary, 1995; Ryan, 1991) that can generate positive emotions (Argyle, 1987; McAdams, 1985;
McAdams and Bryant, 1987). For example, the feeling of being accepted by others can lead to
the positive emotion of contentment (De Rivera, Possell, Verette, and Weiner, 1989; Izard, 1997;
Markus and Kitayama, 1991). Indeed, this form of self-compassion can alter the “felt
connection” between organizational members (Frost, Dutton, Worline, and Wilson, 2000), which
can generate a range of positive feelings (Dutton, Frost, Worline, Lilius, and Kanov, 2002; Lilius
et al., 2003). For instance, organizational values that facilitate a sense of being connected with
others generate a collective feeling of completeness and joy (Giacalone and Jurkiewicz, 2003).
Finally, mindfulness can generate positive emotions. The mindfulness dimension of self-
compassion involves keeping emotions in balance, which leads one to approach his or her
feelings with “curiosity and openness” (Neff, 2003k: 232). Approaching feelings, including
negative emotions, with curiosity and openness can itself generate the positive emotion of
interest (Fredrickson, 2000). Indeed, curiosity is “taking an interest in all of the ongoing
experience” in one’s life (Peterson and Seligman, 2003, 2004; Seligman et al., 2005: 412) and is
related to thriving on “novel, complex and challenging” tasks (Izard, 1997; Kashdan and Steger,
2007: 159). Curiosity can also lead to feelings of excitement, excitement to explore (Izard, 1997;
Tomkins, 1962). This organizational curiosity and these feelings of interest and excitement
discourage complacency and encourage organizational members to tolerate ambiguity and to
55
continue to engage in experimentation (Hedberg, 1981; Steensma, 1996; Vera and Crossan,
2004) even after failure events.
Positive Emotions and Learning from Failure
Based on the “undo” principle (Fredrickson, 1998, 2001), the positive emotions generated
by self-compassion can help undo some of the negative consequences of emotions triggered by
an adverse event (Fredrickson and Levenson, 1998; Fredrickson, Mancuso, Branigan, and
Tugade, 2000) and can broaden the actor’s “momentary thought-action repertoire” (Fredrickson,
2001: 220). An expanded momentary thought-action repertoire broadens an individual’s scope of
attention for learning about the underlying causes of failure and offers a larger set of possible
actions (Fredrickson, 1998; Fredrickson and Branigan, 2001) in response to that learning. For
example, while negative emotions have been found to narrow focused attention (such that
individuals cannot see the forest for the trees, so to speak), positive emotions have been found to
broaden the scope of attention (Derryberry and Tucker, 1994; Fredrickson and Branigan, 2005;
Isen and Daubman, 1984). Positive emotions have also been found to be associated with
cognitive processes that are more creative (George, 1991; Isen, Daubman, and Nowicki, 1987)
and more flexible (Baumann and Kuhl, 2005; Isen and Daubman, 1984) and result in a greater
variety of action alternatives (Isen, 2001; Kahn and Isen, 1993). Therefore, “the ability to harness
positive emotions in the midst of negative experiences” (Tugade and Fredrickson, 2004: 331)
provides a basis for learning and moving forward.
To the extent that self-compassion can generate positive emotions during (or after) failure
events, it can help broaden individuals’ momentary thought-action repertoires that are likely to
enable them adapt to new situations or projects. For example, an organization’s acts of kindness
have been found to generate positive emotions that help organizational members deal with work-
56
related stressors (Edwards and Cooper, 1988; Simmons and Nelson, 2001). Indeed, it has been
proposed that organizational curiosity (and the resulting generation of positive emotion) is
central to an actor’s ability to detect “the weak signals that make or break” an organization (Day
and Schoemaker, 2006). Collectively felt positive emotions likely help organizational members
move forward after project failure because they are apt to increase their range of possible
response options, maintain a creative perspective for problem solving, and generate energy
(Avey, Wernsing, and Luthans, 2008; Baumeister, Gailliot, DeWall, and Oaten, 2006) to
implement what they learn from the failure experience in subsequent projects. Although it is
important to consider the factors that assist individuals in learning and moving on after
experiencing failure, it is also important to understand how prolonging the failure event itself can
prove influential in assisting with the coping process, which will be the focal topic of the next
chapter.
Discussion
Implications for Research on Learning from Failure and Mindfulness
Although the cognitive aspects of learning from the individual level of analysis have been
used to build the current understanding of organizational learning, this has not been the case for
the emotional aspects of learning (or at least to the same extent). That is, while emotions have
been acknowledged in this line of research, it has typically been in terms of how negative
emotions obstruct learning. Although we also acknowledged the generation of negative emotions
and how they can undermine learning from failure, we offered a positive-psychology perspective
of emotions. Specifically, individuals, alone and as a collective, can develop self-compassion
that can directly enhance learning from failure by broadening an organization’s attention and
increasing its array of resources for action. However, self-compassion can also indirectly
57
enhance learning from failure by generating positive emotions that undo negative emotions,
broaden attention, and build resources. By focusing only on the negative emotions generated by
adversity, cognitive approaches to learning miss out on the emotional sources of learning (i.e.,
self-compassion and the other positive emotions generated by it). Therefore, future research on
responding to failure will be well served by investigating the organizing of self-kindness,
common humanity, and mindfulness and the organizing of positive emotions in terms of
organizational attention and the generation (i.e., access to and recombination of) resources.
The implications of our model for the current research on learning from failure are further
heightened by our treatment of mindfulness. Although the organizational theory literature has
acknowledged the importance of mindfulness, it has focused on its cognitive dimensions and has
relatively ignored its emotional dimensions. We took an initial step into this emotional domain,
and in doing so, we complemented the importance of facing negative events with an open mind
with the importance of facing negative events with an open heart. While we recognize there are
different definitions of mindfulness and that some may exclude the emotional mindfulness
offered here, it is important to note that our notion of mindfulness has been established
conceptually (Neff, 2003a) and empirically (Arimitsu and Hofmann, 2015; Fredrickson et al.,
2008; Neff, 2003k) in the psychology literature building on Buddhist philosophy. Whether they
are two dimensions of the same construct or two different constructs altogether, we believe that it
is important to investigate approaching failure with an open heart further to gain a deeper
understanding of learning from failure experiences. We believe future contributions to the
organizational learning literature will come from finer-grained research on the inter-relationship
between cognitive mindfulness and emotional mindfulness.
Implications for Research on the Psychology of Self-Compassion
58
Psychology studies have built on Buddhist philosophies to introduce the notion of self-
compassion (self-compassion at the individual level) (Neff, 2003a; for a review see Neff, 2009).
We complemented and extended this literature in three primary ways. First, we focused on
learning from failure as the outcome of self-compassion. Although adding another dependent
variable to a long list of dependent variables at the individual level of analysis (e.g., positively
associated with happiness, optimism, wisdom, curiosity, personal initiative [Neff, et al., 2007],
and interpersonal relationships [Neff, 2006] and negatively associated with anxiety, depression,
and rumination [Neff, et al., 2005; Neff et al., 2007]) is not a contribution, the “learning from
failure” construct is sufficiently broad so as to encapsulate many of these previously investigated
outcome variables. That is, by theorizing about self-compassion and learning from failure, we
were able to offer both a broad and parsimonious model—one that has the potential of
integrating or reconciling numerous studies under a more general theoretical framework
(Bacharach, 1989; Whetten, 1989).
Second, we highlighted the mediating role of positive emotions in the relationship
between self-compassion and learning from failure. Previous research has focused on how
compassion minimizes the generation of negative emotions. We acknowledged these same
mechanisms but added an additional concept—self-compassion—that can generate positive
emotions and can undo negative emotional reactions generated from project failure. This focus is
important as the role of self-compassion in generating positive emotions that undo negative
emotions has received little attention in past research. Furthermore, the mechanisms by which
self-compassion influences various well-being outcomes have often remained implicit. We make
explicit how self-compassion can enhance learning from failure by building on the broaden-and-
59
build principle of positive emotions. We hope future empirical research will investigate the
nature of these relationships.
Finally, we considered the construct of self-compassion at the organizational level as well
as at the individual level. Although the notion of compassion has been applied at the
organizational level, the notion of self-compassion has not. By extending self-compassion to the
organizational level, we were able to connect it to organizational learning and collective
emotions. We hopefully provide a bridge from the self-compassion literature to the
organizational literature on learning from failure and emotion (both positive and negative) and
more generally to positive organizational scholarship. While we have taken the initial step of
conceptualizing self-compassion at the organizational level and theorizing on the organizing
mechanisms that enhance organizational learning from failure and generate positive emotions,
there are ample opportunities for future research in this area. These include a finer-grained
investigation of these mechanisms and the antecedents of organizational self-self-compassion.
Implications for Research on Positive Emotions
We built on the broaden-and-build principle of positive emotions in the psychology
literature to gain a deeper understanding of how self-compassion indirectly influences resilience.
However, our theorizing has several implications for the literature on positive emotions as well.
First, we investigated the broaden-and-build principle at the organizational level, which helped
explain why some organizations learn more from their failure experiences than others. This
complements the research on emotions in organizations that has primarily focused on negative
emotions interfering with learning or change (Huy, 1999; Shepherd, Covin, and Kuratko, 2009)
and on positive emotions as part of emotional labor (Ashforth and Humphrey, 1993; Hochschild,
1979). Therefore, rather than focus on the negative role emotions play in cognitions or the role
60
employees’ emotional displays play in the emotions of customers, consistent with a positive-
psychology perspective of organizational research, we highlighted positive emotions’ role in
broadening attention and increasing the array of resources for moving forward after failure
events.
Second, we offered self-compassion as a source of positive emotions. Although the
literature has recognized the potential benefits of positive emotions, there has been little research
on the antecedents of these positive emotions, especially when individuals face adversity. At the
individual level, research on positive emotions has investigated traits (Ekman, 1994), genuine
(Duchenne) smiling (Papa and Bonanno, 2008), laughter (Bonanno and Keltner, 1997), and the
use of humor (Weick and Westley, 1996). At the organizational level, research has focused on
superficial and deep acting to generate displays that generate positive emotions in others
(Grandey, 2003). We added the construct of self-compassion to these lists. Individuals and
organizations with greater self-compassion are able to generate more positive emotions,
especially during the period of adversity surrounding failure events. Future research can
investigate the relationship between these different mechanisms that promote self-compassion.
Perhaps humor and laughter are more effective at generating positive emotions in individuals
who are higher in self-compassion, and humor might even be an effective tool for generating
self-compassion. In addition, perhaps self-compassion is further developed in an organization
that’s culture encourages the “deep acting” of self-compassion, which becomes heartfelt after
time.
Finally, our model focused on how self-compassion generates positive emotions because
we were interested in explaining how self-compassion indirectly influences learning from failure.
However, future research can explore the possible feedback loop for the relationship between
61
self-compassion and positive emotions. That is, although we proposed that self-compassion
generates positive emotions, perhaps positive emotions also enhance self-compassion. As
positive emotions help to broaden momentary thought-action repertoires so that thought patterns
are more flexible and creative and offer a broader array of action alternatives in response to
failure events, these thought patterns may lead to a broader array of self-compassion repertories.
That is, a broader, more flexible, and more creative thought process can enhance organizational
self-kindness, common humanity, and/or emotional mindfulness. In turn, this may generate even
more positive emotions as part of a virtuous learning spiral.
Managerial Implications
Beyond the theoretical contributions discussed above, this study also has implications
that could influence practicing managers. All organizations experience failure at least to some
degree, and they do so at multiple levels (i.e., individuals failing at their jobs, project teams
failing to achieve objectives, and organization failing overall). We anticipate three primary
managerial implications that address key concerns associated with learning from failure. First,
managers should consider the various benefits their organizations can receive by understanding
individual and organizational self-compassion. By incorporating the principles explained here,
managers might generate more value from exploratory projects, instill a culture of learning in
their organizations, and avoid or reduce the negative outcomes associated with failure. Similarly,
managers might explore opportunities to develop self-compassion in their organizations,
proactively shaping a culture of positivity and growth, which is likely to have a positive
influence on key employee activities (e.g., engagement, productivity, satisfaction) (Arimitsu and
Hofmann, 2015). Thus, creating a culture of self-compassion should provide more positive
outcomes than just learning from failure.
62
Second, managers should be aware of the different levels of self-compassion and how
they interact in shaping individual- and organizational-level responses to failure. Organizational
members come to the organization with diverse backgrounds and skillsets, including their ability
to experience self-compassion. By recognizing these differences, managers might develop
methods for identifying self-compassionate employees as well as cultivating individual-level
self-compassion once individuals are employed. Combined with this effort, managers can
develop an organizational culture of self-compassion that can then be replicated at the project,
team, and (hopefully) individual levels, further reinforcing the overall objectives of the firm. By
understanding the different levels of self-compassion, managers have a number of resources at
hand to help their organizations manage failure and learning from failure.
Finally, beyond cultivating self-compassion, this study also identified the importance of
positive emotions and its influence on resources that serve as mechanisms for learning. As
suggested above, positive emotions provide a number of benefits for organizations and their
members. Managers should consider how to cultivate positive emotions, specifically in response
to negative events, such as project failure. In addition, managers should tie efforts to generate
positive emotions to the resource they have at hand to facilitate learning. That is, positive
emotions should be directed toward attending to causes of a failure and taking action to
overcome those issues moving forward as opposed to simply offering an escape from errors.
Both organizations and individuals have resources at hand when dealing with failure events; the
key takeaway for managers is the need to understand how to enhance the effectiveness or scale
of those resources to facilitate learning from failure events.
Conclusion
63
In this chapter, we offered a model of self-compassion as a source of learning from
failure. We investigated the role of self-compassion (rather than other-related compassion) on
learning from failure and its indirect role in the generation of positive emotions. This model
provided a parsimonious explanation of these relationships that is applicable at both the
individual and organizational levels of analysis. We believe that our model provides new insights
into the role of self-compassion in dealing with failure events.
64
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Figure 2: A Self-Compassionate Model of Learning from Failure
Organizational
Individual
Common
Humanity
Emotional
Mindfulness
Breadth of Attention
Organizational
Learning from
Project Failure
Array of Resources
Organizational
Self-Compassion
Individual’s
Learning from
Project Failure
Collective
Positive Emotions
Generated
Positive Emotions
Self-
Kindness
Common
Humanity
Emotional
Mindfulness
Breadth of Attention
Learning
Mechanisms
Array of Resources
Individual’s Self-
Compassion
Generated
Positive Emotions
Individual’s
Positive Emotions
Self-
Kindness
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CHAPTER 4: ANTICIPATORY GRIEF, PERSISTENCE, AND RECOVERY
We have established that failure is an experience that is an ever-present possibility facing
those who engage in entrepreneurship. However, although most (if not all) entrepreneurs will
eventually be forced to face failure, these experiences are not homogeneous in nature, and in
fact, individuals will vary substantially with regard to how they endure failure (in particular, see
Chapter 2). In this chapter, we focus on an area of particular interest with regard to how
individuals experience failure—namely, the amount of time and effort entrepreneurs spend
prolonging the failure experience. Specifically, we examine what factors—both intrinsic and
extrinsic—cause entrepreneurs to delay the decision to terminate their business ventures even
when presented with evidence that failure will most likely be the ultimate decision and how these
delays can both help and hinder entrepreneurs in their subsequent efforts to move on after failure.
Although we may expect that under-performing firms will be selected out of an economy,
the evidence suggests that performance often does not explain survival (Baden-Fuller, 1989;
Karakaya, 2000; van Witteloostuijn, 1998). Indeed, Meyer and Zucker (1989) pointed out that
“efficient performance is only one—and not necessarily the most important—determinant of
organizational survival.” It has been argued that an economy suffers when under-performing
firms persist rather than fail (McGrath and Cardon, 1997); they are seen to squander resources,
occupy market positions better filled by others, and increase uncertainty for stakeholders of
entrepreneurial firms (Karakaya, 2000; McGrath and Cardon, 1997; Ruhnka, Feldman, and
Dean, 1992). These firms have been labeled as living dead (Bourgeois and Eisenhardt, 1987;
Ruhnka et al., 1992), underperforming (Gimeno, Folta, Cooper, and Woo, 1997), permanently
failing organizations (Meyer and Zucker, 1989), and chronic failures (van Witteloostuijn, 1998).
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These underperforming firms—“organizations whose performance, by any standard, falls short
of expectations . . . yet whose existence continues” (Meyer and Zucker, 1989: 19)—can exist
over an extended period (Gimeno et al., 1997; Karakaya, 2000; van Witteloostuijn, 1998).
Considerable scholarly effort has been invested in trying to explain why some
entrepreneurs delay closing their poorly performing businesses. In Figure 3, we offer a model of
the causes and consequences of the delayed decision to terminate a failing firm (based largely on
(DeTienne, Shepherd, and De Castro)[2008], (Gimeno et al.) [1997] and (Shepherd, Wiklund,
and Haynie) [2009]). In the center of the figure is the delayed decision to terminate a failing
business, which can be exacerbated by procrastination and/or the entrepreneur’s performance
threshold. The performance threshold is influenced by expectations of firm performance
turnaround, motivation to justify previous entrepreneurial decisions, and desire to be consistent
with previous entrepreneurial decisions, and the nature of these relationships depends on the
entrepreneur’s extrinsic motivation and values. A delayed decision to terminate a failing business
has consequences for the financial and emotional costs borne by the entrepreneur, and in turn,
impact his or her speed to recovery. In the sections that follow, we develop the nature of these
relationships.
--------------------------------------------------
Insert Figure 3 About Here
--------------------------------------------------
Procrastination and Persisting with a Poorly Performing Firm
Procrastination refers to the deferment of an action or activity that could be interpreted as
emotionally unpleasant but that is important from a cognitive perspective since it will likely
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produce positive future outcomes (van Eerde, 2003). Procrastination happens when these
emotionally unpleasant hazards are avoided, resulting in the suspension of further activity
(Lazarus and Folkman, 1984). In these instances, the expectation of the threat produces a
negative emotional response (e.g., anxiety, fear, sadness, etc.), and by evading these situations,
entrepreneurs can reduce these negative emotions, which signify a negative reinforcement that
further perpetuates these types of behaviors (Anderson, 2003e; Milgram, Sroloff, and
Rosenbaum, 1988). For example, entrepreneurs may engage in procrastination because it delays
the decision to declare their business bankrupt, thereby forcing them to cease ownership or
management of their venture. Although this decision can be emotionally overwhelming, it is an
essential duty because the sooner it is completed, the lower the financial cost of venture failure.
Additionally, previous research has indicated that tasks associated with higher levels of
anticipated negative emotions are more likely to invoke procrastination than those associated
with lower levels of anticipated negative emotions (Anderson, 2003a).
Based on this perspective, it seems as if procrastination is a particularly salient factor to
consider in the context of entrepreneurship. It is possible that entrepreneurs could engage in
procrastination as a way to delay the decision to take action and formally declare their ventures
insolvent, which would result in the cessation of their active involvement as owners and
managers of the business. Although the decision to terminate a business can be emotionally
overwhelming (Byrne and Shepherd, 2015), it is an important action to take because doing so
will stop an entrepreneur from “throwing good money after bad”—that is, to stop investing
resources into the business that will not receive a sufficient return and will likely be lost when
the business fails.
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There are several possible mechanisms underlying this procrastination, one of which is
the notion that it is more difficult to learn and easier to ignore or forget negative information.
Research has indicated that under certain conditions, individuals find it more difficult to learn
negative information (Amir, Coles, Brigidi, and Foa, 2001). Additionally, investigations into the
mechanism involved in forgetting have uncovered that negative information is indeed more
easily forgotten than neutral or positive information (Myers, Brewin, and Power, 1998). Taken
together, these findings suggest that one of the reasons why procrastination might occur is that
the negative information that should be considered when deciding to terminate a failing business
might be easier to ignore and more difficult to remember, therefore providing a convenient
cognitive side step in the decision-making process. For instance, entrepreneurs who are presented
with information that sales for their venture have increased but that they are still losing money at
an alarming rate could potentially register and focus on the positive information regarding sales
and not learn or quickly forget that the business is still failing in terms of overall performance.
This could in turn substantially increase the likelihood for procrastination.
There are a number of factors that might influence the anticipated negative emotions
associated with a given task, thereby enhancing the likelihood of procrastination. First, decisions
that are perceived as irreversible tend to result in producing higher levels of negative emotions
(Anderson, 2003a). In an excellent review of the factors that influence decision avoidance,
Anderson (2003a) discussed the mechanism underlying the relationship between the perceived
irreversibility of decisions and the likelihood of decision avoidance. In his review, Anderson
noted that when individuals are presented with decisions they believe will be irreversible, they
are much more likely to experience anticipated regret over making those decisions. That is, when
thinking about the possibility of making a decision that cannot be reversed, individuals tend to
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focus on the potential negative outcomes of making an incorrect choice and, as a result,
experience anticipated regret over that choice, which can in turn cause them to prolong the
decision-making process. As an example, consider entrepreneurs who are faced with the decision
to terminate one business in order to pursue a new and promising opportunity. While it is
possible for entrepreneurs who dissolve one venture to begin another, the decision to end the first
business is final and irreversible. When analyzing the termination decision, such entrepreneurs
will likely consider how they will feel if their new enterprise does not end up being successful,
leading them to experience feelings of anticipated regret over a decision they have not actually
made yet.
Second, the likelihood of procrastination can be substantially influenced by what
entrepreneurs attribute the actual cause of the failure to be. If entrepreneurs feel that they are
personally responsible for the failure outcome, it is likely that they will expect to experience
higher levels of negative emotions as a result of the final decision. Entrepreneurs often perceive
their ventures as extensions of their own identities (Bruno, McQuarrie, and Torgrimson, 1992;
Cova and Svanfeldt, 1993) and are thus more likely to assign personal responsibility to the
ultimate failure of their firms.
Finally, when entrepreneurs perceive that their own actions have caused the negative
outcome (compared to situations in which they perceive others’ actions to have caused the
failure), it is likely that they will generate higher levels of negative emotions, which could in turn
increase the likelihood that they will postpone business failure. When considered together, there
are likely a number of factors involved in the decision to declare that a business has failed that
might enhance the possibility of procrastination.
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Thus, although the negative financial consequences from persistence can be substantial
(Garland, Sandefur, and Rogers, 1990; Ross and Staw, 1986, 1993), from a procrastination
perspective, the emotional byproducts of persistence remain comparatively unexplored. This
point is illustrated by Anderson who, after a thorough review of the literature, concluded that “it
is interesting to note that the vast majority of [procrastination] studies support the conclusion that
emotional goals influence decision avoidance but that post-decisional emotions are infrequently
measured. . . . It is reasonable to assume that people make choices that reduce negative
emotions” (Anderson, 2003a: 142). This consideration of the potential emotional consequences
of failure can be very influential in prolonging the decision to terminate. Next, we shift our
attention to how developing acceptable performance thresholds and evaluating actual
performance relative to those thresholds can also influence the decision to delay terminating a
failing business.
Performance Thresholds in the Decision to Terminate
Gimeno and colleagues (Gimeno et al., 1997) found that firm performance relative to a
performance threshold plays a role in explaining organizational survival (or, said differently, in
delaying failure decisions). A firm performance threshold refers to “the level of performance
below which the dominant organizational constituents will act to dissolve the organization”
(Gimeno et al., 1997: 750). This notion of a threshold for performance is consistent with pain
thresholds (Forys and Dahlquist, 2007), risk thresholds (Monahan and Silver, 2003), and
aspiration levels (Kahneman and Tversky, 1979). More specifically, pain thresholds represent
levels of physical discomfort individuals utilize to determine acceptable versus unacceptable
experiences of pain. When pain is present below an individual’s threshold, he or she is unlikely
to disengage in or retreat from the stimulus responsible for that pain. However, once this
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threshold has been exceeded, it is highly likely that the individuals will seek to disengage from
the pain-producing activity. Similarly, risk thresholds are of common interest, particularly within
the field of forensic sciences and the study of judicial decision making regarding potential
violent criminals. In this context, individuals tasked with making decisions regarding the
potential violent risk posed by those brought before them most often employ a risk threshold.
Individuals deemed to be below this threshold are usually determined not to pose a significant
risk for violence, whereas individuals who exceed this perceived threshold are deemed potential
violent threats and are thus often subjected to containment in either mental or prison facilities.
Finally, aspiration levels represent “the smallest outcome that would be deemed satisfactory by
the decision maker” (Schneider, 1992: 1053). These aspiration thresholds provide a convenient
cognitive heuristic that allows for the simplification of decision making: change happens when
results are below the perceived threshold, and persistence happens when performance exceeds
this level (Greve, 2002).
The notion of a threshold for firm performance explains why Firm A that is performing
worse than Firm B may survive while Firm B fails. That is, the entrepreneur of Firm A has a
threshold for firm performance that is lower than the entrepreneur of Firm B. As Figure 4 shows,
Firm B is in fact outperforming Firm A from an objective performance perspective, but the
threshold used to determine acceptable performance levels for Entrepreneur A is substantially
lower than that employed by Entrepreneur B. Therefore, based upon this comparison, it is more
likely that Entrepreneur B would ultimately determine that Firm B’s performance is
unacceptable, thereby deciding to terminate the firm, than it would be for Entrepreneur A to
come to a similar conclusion. This situation is primarily due to the fact that the subjective
thresholds that each has assigned as criteria to make this decision are substantially different from
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one another. The question then becomes what explains why some entrepreneurs have a lower
threshold for performance and thus delay failure decisions.
--------------------------------------------
Insert Figure 4 About Here
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Heterogeneity in Entrepreneurs’ Performance Thresholds
An explanation for variance in entrepreneurs’ firm performance thresholds appears to
depend on the (1) expectations of (or hopes for) firm performance turnaround, (2) motivation to
justify previous entrepreneurial decisions, (3) desire to be consistent with previous
entrepreneurial decisions, and (4) individual differences in extrinsic motivation (DeTienne et al.,
2008).
Expectations of (or Hopes for) Firm Performance Turnaround
An entrepreneur’s expectations about the future performance of his or her firm (including
a turnaround in current poor performance) is heavily influenced by the nature of the external
environment. The nature of the external environment can be captured by the dimensions of
complexity, dynamism, and munificence (Aldrich, 1979; Dess and Beard, 1984). When the
environment is highly complex, there is considerable heterogeneity in the environment, and there
are many factors for decision makers to consider (Wiersema and Bantel, 1993). This greater
complexity increases entrepreneurs’ uncertainty over the environment and increases their
cognitive load for collecting and processing information (Dess and Beard, 1984; Rauch,
Wiklund, Lumpkin, and Frese, 2009). Both higher uncertainty and the cognitive load of
collecting and processing information increases doubt over the accuracy of information
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suggesting that current performance is poor. Furthermore, opportunities are more prevalent in
complex environments (Brown and Eisenhardt, 1997). Given that prior knowledge in the
industry may facilitate the identification of these opportunities (Shepherd and DeTienne, 2005)
and that entrepreneurs are typically overconfident (Busenitz and Barney, 1997; Forbes, 2005;
Hayward, Shepherd, and Griffin, 2005), entrepreneurs may delay failure decisions because they
believe they are well positioned to take advantage of the complex environment to exploit new
opportunities and thereby turnaround firm performance.
Environmental dynamism refers to the level of instability in the environment and
involves frequent changes that are difficult to predict in advance (Beard and Dess, 1979;
Bluedorn, 1993). From a management perspective, environmental dynamism has been shown to
influence a number of important processes and outcomes ranging from decision making (Priem,
Rasheed, and Kotulic, 1995) to innovation (Baron and Tang, 2011) to overall firm performance
(Simerly and Li, 2000). Additionally, environmental dynamism can moderate the relationship
between leadership behaviors and new venture performance (Ensley, Pearce, and Hmieleski,
2006) as well as influence the relationship between entrepreneurial orientation and venture
performance (Wiklund and Shepherd, 2005). Interestingly, although dynamic environments are
characterized by instability and change, they have also been shown to be fertile breeding grounds
for entrepreneurial opportunity and success. Because dynamic environments are ever changing,
they are continuously presenting new potential opportunities for individuals who have the vision
and motivation to exploit them. Indeed, evidence has shown that new ventures led by individuals
with a promotion focus (e.g., those who actively seek to achieve positive results) perform much
better in highly dynamic environments than those led by individuals with a prevention focus
(e.g., those who actively seek to avoid negative results) (Hmieleski and Baron, 2008). Again,
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although environmental dynamism places greater cognitive strain on the entrepreneur (Li and
Simerly, 1998; Waldman, Ramirez, House, and Puranam, 2001), opportunities are created in
environments that are rapidly changing (Brown and Eisenhardt, 1997), and given their prior
knowledge of this particular market, these entrepreneurs likely feel well positioned to quickly
identify and act on these opportunities (Shepherd, McMullen, and Jennings, 2007). This belief,
whether based on overconfidence (Forbes, 2005; Hayward, Forster, Sarasvathy, and Fredrickson,
2009) or not, encourages the entrepreneur to delay the failure decision in the hopes of being able
to eventually succeed when environmental conditions shift.
As an example of how environmental dynamism might delay the decision to terminate a
venture, consider the following scenario. Entrepreneur A is the founder of a new venture in a
rapidly developing technology-based industry, whereas Entrepreneur B is the founder of a more
traditional manufacturing-based industry. It is likely that both Entrepreneur A and Entrepreneur
B will experience issues with initial performance as well as continued viability. If, upon
evaluation, Entrepreneur B determines that his or her performance does not meet acceptable
thresholds, it is likely that the decision to “cut one’s losses” and terminate the venture will occur
after a relatively short period of time. This choice is in no small part influenced by Entrepreneur
B’s perception that the conditions within the environment are relatively stable, so if the firm is
unable to compete under the current conditions, it is unlikely that the competitive landscape will
be altered substantially enough in the future to allow for higher levels of competitiveness.
However, this might not be the case with Entrepreneur A. Because the environment in this
situation is highly dynamic, it is possible that rapid shifts and alterations could occur in the
competitive landscape, essentially changing the environment so as to place Entrepreneur A’s
firm in a much more competitive position. The knowledge that such an environmental shift is
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possible could motivate Entrepreneur A to prolong the decision to terminate the venture in the
hopes of being able to eventually achieve a successful, sustainable competitive position.
The final dimension of the external environment is environmental munificence (Starbuck,
1976), which represents the extent to which the environment is capable of supporting prolonged
growth (Dess and Beard, 1984). A munificent environment has been described as a tide that
raises all boats (Wasserman, 2003). Munificence not only expedites an entrepreneur’s ability to
acquire resources but also assists in opportunity identification (Hitt, Ireland, Sirmon, and
Trahms, 2011). Having relatively easy access to resources also helps free up cognitive load,
which can in turn be utilized for dealing with other important decision-making tasks that must be
completed in day-to-day firm operation. Indeed, environmental munificence has been found to
moderate the relationship between rational decision making and new venture performance, with
rational decision making having a more positive influence on venture performance under
conditions of high munificence (Goll and Rasheed, 2005). Therefore, it is possible that
entrepreneurs operating in munificent environments could prolong the decision to terminate their
venture in the hopes that the abundance of resources and opportunities present within the
environment will eventually enhance their firm’s performance.
Consider the following hypothetical situations faced by entrepreneurs in various levels of
environmental munificence. For those with ventures operating in environments that are relatively
low in munificence, when firm performance falters, it is unlikely that they will have access to the
necessary resources required to keep the firm afloat until performance improves. Additionally, in
environments low in munificence, it is unlikely that alternative opportunities are available in
abundance, essentially reducing or eliminating any option the entrepreneur might have of
switching focus to a more desirable opportunity.
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However, this is not likely the case in highly munificent environments. In munificent
environments, even when firm performance is below the desired threshold, additional resources
are available to supplement the firm’s operations, thereby enabling the entrepreneur to delay the
decision to terminate the venture. Furthermore, because munificent environments are
characterized by more opportunities, it is possible that faltering ventures within such
environments could decide to abandon their original business model in lieu of focusing on a
newly discovered alternative opportunity within the environment. In summary, it is likely that
entrepreneurs will delay failure decisions in environments they believe may eventually lift firm
performance.
For example, in a metric conjoint study of 2,848 decisions nested within 89
entrepreneurs, DeTienne and colleagues (2008) found that entrepreneurs are more likely to
persist with their poorly performing firms in munificent environments. They also found an effect
for environmental complexity and dynamism, but this effect depended on the extrinsic
motivation of the entrepreneur (which we discuss below). Thus, it is not just the attributes of the
external environment that impact persistence; entrepreneurs (as all people) (Staw and Fox, 1977;
Staw, 1981) are often motivated to justify previous positions, and this motivation can also lead to
delaying the failure decision, to which we now turn.
Motivation to Justify Previous Entrepreneurial Decisions
In addition to the external factors that can contribute to prolonging the failure decision,
internal factors also likely motivate individuals in this decision. In other words, individuals could
be intrinsically motivated to delay the failure decision for reasons that may not provide financial
benefits but could result in important emotional and psychological rewards.
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First, such motivation can come from the entrepreneur’s personal investment in the
business (e.g., sunk costs [Northcraft et al., 1984 ]). Personal investments of time, money, and
energy lead to the formation of a strong psychological bond between an entrepreneur and his or
her business (Pierce, Kostova, and Dirks, 2001; Wagner, Parker, and Christiansen, 2003). This
personal investment may be so great that the entrepreneur perceives the business as an extension
(or reflection) of his or her individual identity (Dobrev and Barnett, 2005; Phillips, 2002). For
example, entrepreneurs have been known to refer to their business as “their baby” or “their
child” (Cardon, Zietsma, Saparito, Matherne, and Davis, 2005; Dodd, 2002). The decision to
terminate the business (i.e., institute the failure event) would break this valuable (psychological)
bond; the greater the personal investment of an entrepreneur into his or her business, the greater
the likely persistence despite poor performance (DeTienne et al., 2008; Gimeno et al., 1997).
Second, the motivation to justify previous decisions and thereby delay business
termination is enhanced by the scarcity of other personal career opportunities. That is, an
entrepreneur’s decision to terminate a business is likely considered alongside his or her other
career-related options. (e.g., for employee turnover, see (Jackofsky and Peters, 1983); (March
and Simon, 1958)]). If there are many attractive alternatives, the entrepreneur is less likely to
persist with the current underperforming firm and terminate it, but if there are few (if any) other
alternatives, the entrepreneur will decide to persist with the current firm (DeTienne et al., 2008;
Gimeno et al., 1997). These findings are further supported by evidence regarding the factors that
individuals consider prior to starting their own ventures. Studies have shown that opportunity
costs are an important factor influencing the decision to switch from a wage-earning employment
position to being a self-employed business owner/operator (Campbell, 1995; O'Brien, Folta, and
Johnson, 2003). Therefore, it would stand to reason that similar considerations are made when
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deciding to transition back from being self-employed to again working a more traditional
salaried/wage-earning position.
Take for example Entrepreneur A, who for our purposes we will name “Joe.” Joe decided
to forego completing his college degree in order to pursue his dream of starting his own
landscaping and lawn-maintenance company. Although his venture had substantial initial
success, the recent downturn in the economy coupled with rising fuel and labor prices have
placed Joe’s firm in danger of dissolution. Now consider Entrepreneur B, who we will refer to as
“Jane.” Jane has an advanced degree in electrical engineering and left a lucrative position as a
senior systems engineer with a Fortune 500 company to start her own venture based off a new
product technology she had conceived during her graduate studies. While Jane’s idea held
promise, she has reached a point where further business operations will require substantial
external funding, and she has exhausted almost all avenues available for her to acquire the
necessary funds to keep her business operating. Essentially, both Joe and Jane are at a crossroads
in their ventures and must decide whether to terminate their ventures and move on to more
traditional employment or to delay the termination decision in hopes that their fortunes might
change dramatically and allow for them to continue operating their respective businesses.
However, while the decision is technically the same for each, the relative likelihood of the
decision that will be made by either is dramatically different in no small part due to the potential
alternatives each has regarding their other employment options.
For Jane, these options are substantial. She is likely to obtain a similar position to the one
she left offering a six-figure salary plus the benefits and security associated with employment in
a large, stable company. These options are likely to provide ample temptations to persuade Jane
to dissolve her business quickly so as to lessen the opportunity costs associated with not only
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continuing her failing business but also in not collecting compensation from her new position as
quickly as possible. This is not the case for Joe. Without a college degree or advanced technical
training and with little to no applicable experience in a more traditional employment role, Joe’s
alternatives for employment upon the termination of his business are decidedly less appealing.
When considering both examples, it becomes evident that Jane is likely to make the decision to
terminate her venture quickly as a result of her other employment options, whereas Joe—because
his alternatives to self-employment are limited at best—is more apt to prolong the failure
decision in the hopes that the situation will improves, thereby allowing him to remain in
business.
Norms for Consistency
The decision to persist with a poorly performing firm is also influenced by individuals’
need to be perceived (by others and themselves) as consistent. Even in the presence of
disconfirming evidence, people may see consistency as the best course of action (Caldini, 1993;
Staw and Ross, 1980). Caldini (1993: 53) described the norm for consistency in the following
way: “Because it is a preprogrammed and mindless method of responding, automatic consistency
can supply a safe hiding place from troubling realizations.” In this way, entrepreneurs may look
for evidence that confirms consistency through persistence and ignore or discount information
that points to the opposite. For example, consistency (i.e., persistence) may be encouraged by
previous organizational success (Audia, Locke, and Smith, 2000)—it worked out in the past, so
if I persist it will eventually be successful in the future (Levinthal and March, 1993).
In a similar way, perceived collective efficacy can promote consistency in decisions,
which is persisting with a poorly performing firm in this case. We know that self-efficacy is
associated with persistence at a task (for a meta-analysis, see (Multon, Brown, and Lent, 1991),
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and it appears that collective efficacy is also related to persistence (Hodges and Carron, 1992;
Little and Madigan, 1997). Perceived self-efficacy can be conceptualized as the “judgments of
how well one can execute courses of action required to deal with prospective situations”
(Bandura, 1982) and as an extension of this logic, entrepreneurial self-efficacy “refers to the
strength of a person’s belief that he or she is capable of successfully performing the various roles
and tasks of entrepreneurship” (Chen, Greene, and Crick, 1998). Individual self-efficacy has
been linked to increased levels of persistence in a number of categories, including academic
achievement (Lent, Brown, and Larkin, 1984), work performance (Gist, 1987), and
entrepreneurial endeavors (McCarthy, Schoorman, and Cooper, 1993).
Building off this concept of individual self-efficacy, researchers have applied beliefs
concerning the ability to perform specific tasks to the group level, creating the concept of
collective self-efficacy. Unlike individual self-efficacy, collective self-efficacy is defined as “the
group’s beliefs in their collective power to produce desired results” (Bandura, 2000). It is
important to note that collective self-efficacy “is not merely the sum of the efficacy beliefs of the
individual (group) members. . . . rather, it is an emergent group-level property” (Bandura, 2000).
This collective self-efficacy has also been shown to have a positive relationship with persistence
(Goddard, Hoy, and Hoy, 2004; Little and Madigan, 1997), demonstrating how group-level
factors can influence individual behaviors and actions. To the extent that an individual is
influenced by the collective belief within his or her organization, high collective efficacy is also
likely to encourage persistence. High levels of collective efficacy can translate the belief that the
group is capable of performing specific tasks irrespective of whether or not individuals within
that group have adequate levels of individual self-efficacy regarding their abilities to achieve the
desired outcomes. Therefore, it is possible that high levels of collective self-efficacy can
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supersede individual perceptions of self-efficacy, thereby motivating individuals to persist with
the group’s chosen course of action. Indeed, DeTienne and colleagues (2008) found that
entrepreneurs are more likely to decide to persist with their poorly performing firms when they
have previously experienced high organizational success and are embedded in a group with high
collective efficacy than when they have experienced low previous organizational success and
low collective efficacy.
Entrepreneurs’ Extrinsic Motivation
Not all entrepreneurs are subject to the abovementioned forces that promote persistence.
Entrepreneurs are likely heterogeneous in extrinsic motivation. Extrinsic motivation is “a
cognitive state reflecting the extent to which an individual factors the force of his or her task
behaviors to some extrinsic outcome” (Brief and Aldag, 1977). In entrepreneurship, we often
think of extrinsic rewards in terms of financial outcomes (Campbell, 1992; Kuratko, Hornsby,
and Naffziger, 1997; Shepherd and DeTienne, 2005), which include (but are not necessarily
limited to) monetary rewards, acquisition of personal wealth, and individual entrepreneurial
income (Kuratko et al., 1997). It has been well established that the potential for financial reward
can provide an important motivational influence on entrepreneurial behavior (Campbell, 1992;
Kuratko et al., 1997; Schumpeter, 1961). Scholars as far back as Schumpeter (1961) have
proposed that the construction of a business empire in the hopes of achieving financial gains
represents an important motivation to engage in entrepreneurial activities. Similarly, Campbell
postulated that individuals decide to become entrepreneurs if the value of rewards achieved from
entrepreneurship exceeds the expected value of rewards from being an employee (Campbell,
1992). Additionally, recent research has found that potential financial rewards provide an
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important motivation for both recognizing opportunities (Shepherd and DeTienne, 2005) and
sustaining entrepreneurial activities (Kuratko et al., 1997).
While relatively little research has examined the role extrinsic motivation plays in regard
to persistence, a parallel stream of research can be found in the job-pay satisfaction and turnover
literatures. Substantial amounts of research has supported the notion that there is a negative
relationship between job-pay satisfaction and employee turnover (Cotton and Tuttle, 1986) as
well as a positive relationship between job-pay satisfaction and employee commitment to the
organization (Johnston, Parasuraman, Futrell, and Black, 1990). This evidence implies that lower
levels of satisfaction with monetary compensation from work translates to lower levels of
organizational commitment, thereby increasing the likelihood that individuals experiencing such
dissatisfaction will ultimately leave the organization. Mapping these findings onto the field of
entrepreneurship, we propose that it is possible that entrepreneurs who are more extrinsically
motivated will be less likely to be swayed by factors that influence persistence. Therefore, to the
extent that entrepreneurs are extrinsically motivated, they are less likely to be influenced by the
other factors (e.g., the environment, motivation to justify, and norms for consistency) to delay
terminating poorly performing firms, a proposition largely supported by DeTienne and
colleagues’ (2008) study of entrepreneurs’ decision policies.3 Entrepreneurs not only differ in
their extrinsic motivation but also in their values, and these values can influence the decision to
persist—that is, the decision to delay the voluntary termination of poorly performing firms (e.g.,
failure event).
Entrepreneurs’ Values
3 Entrepreneurs who were more extrinsically motivated were more likely to persist based on personal investment,
but this could be largely because personal investment was represented in financial terms.
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Values are “enduring perspectives of what is fundamentally right or wrong . . . can be
thought of as preference or need for a particular outcome” (Judge and Bretz, 1992: 264), and are
central to decision making (Judge and Bretz, 1992) because they inform assessments of
outcomes as more or less desirable (Feather, 1995; Rohan, 2000). Building on Schwartz’s (1992)
universal types, Holland and Shepherd (2013) found that these higher-order values—self-
enhancement and openness to change—influence entrepreneurs’ decision making on whether to
persist with underperforming ventures in a number of ways.
First, in their study of 3,200 decisions nested within 100 entrepreneurs, Holland and
Shepherd (2013) found that the greater the expectations of future financial returns, the more
likely the entrepreneur is to delay failure, but the strength of this relationship depends on the
entrepreneur’s self-enhancement values. Self-enhancement values “focus on the development of
personal interests, even at the expense of others if necessary” (Holland and Shepherd, 2013).
These personal interests are typically satisfied by the prominence gained through the firm’s
financial success and subsequent wealth for the entrepreneur. In regard to the nature of how self-
enhancement values influence the decision to persist, Holland and Shepherd’s (2013) results
suggest that future financial returns have a greater influence on the decision making of
entrepreneurs who place high value on self-enhancement as a prominent attribute in their life
than they do for entrepreneurs who place less value on self-enhancement. Essentially,
entrepreneurs with high levels of self-enhancement values will be more motivated by the
potential for future financial returns to persist in their underperforming ventures than
entrepreneurs with low levels of self-enhancement values.
Second, Holland and Shepherd (2013) also found that the value of openness to change
impacts persistence decisions, but this time through its impact on the anticipation of non-
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financial benefits. Openness to change includes the values of stimulation, self-directing, and
hedonism such that individuals high in openness to change “appreciate through action and thrive
on the excitement and challenge of life” (Holland and Shepherd, 2013: 339); they seek out
experiences that are novel (Bardi, Calogero, and Mullen, 2008) and give them freedom and
autonomy (Amit, MacCrimmon, Zietsma, and Oesch, 2001; Carter, Gartner, Shaver, and
Gatewood, 2003). Therefore, they are likely to focus on these attributes of the business when
deciding to persist (despite poor performance). Evidence provided by Holland and Shepherd
(2013) support the relationship between valuing openness to change and the influence of non-
financial rewards on entrepreneurs’ decisions to persist. Specifically, entrepreneurs who place
higher value on openness to change as an important facet of their lives are more likely to place
greater weight on non-financial returns when determining their decisions to persist with an
underperforming venture. Therefore, even if the venture is under-performing from a financial
perspective, as long as it still provides them with acceptable levels of non-financial benefits,
entrepreneurs with higher values of openness to change will be more likely to persist rather than
dissolve the venture.
Consequences of Persisting with a Poorly Performing Firm
Financial Costs
Under the traditional economic model of persistence (Ansic and Pugh, 1999),
entrepreneurs should “persist only until the point of time when the current losses exceed the
present value of expected profits” (Shepherd et al., 2009: 136). The notion here is that if the
business is performing this poorly, then investing additional resources is like “throwing good
money after bad.” This increases the amount of the loss when failure eventually occurs. Because
entrepreneurs also often put their own personal funds at risk (Thorne, 1989)—including personal
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guarantees for debt—the greater the loss, the deeper the financial hole the entrepreneur must
climb out of to recover from the failure. The longer the entrepreneur persists with a poorly
performing firm, the longer it will take him or her to recover from the failure when it eventually
occurs (Shepherd et al., 2009).
Therefore, all the factors we discussed above that encourage procrastination and a lower
performance threshold for “acceptable” performance are largely categorized (in the literature) as
negative factors because they make financial recovery more difficult. However, there is more to
recovery than solely the financial. Throughout the book, we have highlighted how grief can be
generated by the death of a business and that this grief can obstruct learning from the experience
and can also decrease one’s motivation to try again by starting a subsequent business. Recovery
can be enhanced by emotion regulation that reduces grief. Interestingly, this process of reducing
grief over the loss of a business can occur before the business is terminated. To understand this
process, we return to the psychology literature on loss to explore the notion of anticipatory grief
and the role it may play in promoting recovery from business failure (Shepherd et al., 2009).
Emotional Costs
Anticipatory grief occurs before the loss event and will influence the level of grief one
experiences after a loss actually occurs (Lindemann, 1944; Parkes and Weiss, 1983; Rando,
1986). That is, the processes of mourning, coping, and psychosocial reorganization can be
stimulated by the realization that a loss will occur despite the fact that it has not yet occurred
(Rando, 1986). These processes allow the individual to emotionally prepare for a loss by
beginning to withdraw from the soon-to-be loss as a safeguard for the eventuality (Lindemann,
1944; Parkes and Weiss, 1983). The individual can start to make sense of the loss because it is
seen as a predictable outcome (Parkes and Weiss, 1983), which helps him or her further break
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emotional bonds to what is being lost and make emotional investments elsewhere (Shepherd et
al., 2009). For the entrepreneur, this may set up conflicting pulls. On one side, the entrepreneur
must begin to withdraw from the business, such as by disentangling his or her personal identity
from that of the business (Major and Schmader, 1998; Major, Spencer, Schmader, Wolfe, and
Crocker, 1998). However, the business situation is one that draws the entrepreneur in to “put out
the many fires” that arise in a failing business (Shepherd et al., 2009: 140).
Despite these conflicting pulls, evidence from the psychology literature suggests that
some delay in termination gives the individual a chance to prepare for the loss, but interestingly,
too much time appears to lead to poor psychological outcomes. For example, in a study of
parents whose children died of cancer, those whose children experienced a moderate time of
illness fared better than parents whose children had a short or long illness (Rando, 1986).
Presumably, the parents whose children only had a short illness did not have sufficient time to
prepare for the loss. While those whose children had a long illness had time to prepare, this
extended period was emotionally exhausting, and the resulting resource depletion made post-
death recovery difficult. Again, it is worth noting that we are in no way saying that the death of a
child is the same as a business failure; we are simply saying that our knowledge of the
psychological processes of one likely provide insight into the other.
Although entrepreneurs can be in denial that their business will fail right up until the
event (and therefore have no anticipating grieving), many appear to know that failure will
eventually occur. Indeed, there are bankruptcy-prediction models based on standard accounting
ratings. These ratings s thresholds that once breached, signal that business failure will occur (at
least with a very high probability) (Altman, 1968; Ohlson, 1980; Zmijewski, 1984). Realizing
that their business will eventually fail, entrepreneurs can grieve over things that have been lost
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now—for example, the dream of handing the business on to the next generation of the family—
and can gain some insight into what that future will look like. This period of anticipation gives
entrepreneurs the ability to prepare emotionally for the upcoming loss (Parkes and Weiss, 1983),
thereby allowing them to gradually extract their emotional energy from the failing venture. By
providing the entrepreneur the opportunity to prepare to cope with the impending failure, this
period of anticipatory grief can help mitigate the overall emotional costs eventually associated
with the decision to terminate a failed venture. Therefore, this time between the realization that
failure will occur and the time the business actually dies can be valuable in preparing for the loss.
Preparation involves some grief work—starting the processing of the loss experience
(Bonanno and Keltner, 1997; Prigerson et al., 1996; Wortman and Silver, 1989, 1992)—but can
also involve periods of a restoration orientation to gain the benefits of oscillation (Shepherd,
2003; Stroebe and Schut, 1999). Preparation helps reduce the level of grief once the loss occurs
and therefore likely helps with the emotional recovery from business failure. This emotional
recovery is important to remove obstacles to learning from the experience. To a large extent, this
learning will be lost if the individual is unwilling to pursue a subsequent entrepreneurial
business. To the extent that an individual experiences grief and/or can quickly eliminate that
grief, he or she will be more motivated to try again. Therefore, although under the traditional
economic model of termination, any persistence beyond a “rational” financial threshold is
detrimental to recovery and decisions to persist are so-called “biased,” overall recovery likely
involves both financial and emotional recovery, to which we now turn.
Optimizing Recovery from Firm Failure
The proposed anticipatory grief model for prolonging the decision to terminate a failed
venture centers on the need to balance the entrepreneur’s financial and emotional expenditures
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with the hope of speeding recovery from the failure experience. It is important to note that
striking this balance is likely a heterogeneous experience both between individual entrepreneurs
as well as within failures experienced by a single individual. From a financial wealth perspective,
while it is possible that some entrepreneurs might have their personal wealth reduced
substantially as a result of the failed venture, other entrepreneurs may have a large portion of
their individual net worth protected from the failure event. For example, they might find that
failure is a somewhat necessary “badge of honor” required in the eyes of venture capitalists in a
certain industry, they might not have secured debt financing with personal guarantees throughout
the course of developing their business, or they might simply operate a large diversified portfolio
of business investments. All these factors would reduce the costs associated with failure
assuming it happened without any attempts to prolong the termination decision. Nevertheless,
despite minimization of the financial costs of business failure, if there is no delay in the decision
to terminate, there is likely variance in the rate financial costs accumulate as a result of ever-
longer delays in termination. Simply put, the financial costs of prolonging the failure decision are
likely greater for some entrepreneurs than for others. For example, ventures with higher capital
burn rates will require more substantial financial resources to prolong business failure than those
with lower capital burn rates. Additionally, some industry-specific assets might depreciate more
rapidly, translating to a faster depletion of the entrepreneur’s residual claim on those business
assets.
While the financial costs associated with prolonging failure are an important component
to our anticipatory grief model, we have also argued that the grief entrepreneurs experience as a
result of failure also influences their decisions to delay failure. Just as it is likely that the
financial costs associated with failure are not uniform across all entrepreneurs, so too are the
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emotional costs related to failure; that is, entrepreneurs are heterogeneous in the emotional costs
they experience from failure (for examples, see Chapter 2). Research has indicated that
individuals experience higher levels of grief when they lose objects they perceive they have
made considerable emotional investments to attain. This association between higher levels of
grief and the loss of objects perceived to have higher emotional investments has most often been
studied with regard to the loss of loved ones (e.g., significant others, parents, children, etc.)
(Jacobs, Mazure, and Prigerson, 2000; Robinson, Baker, and Nackerud, 1999). These studies
have revealed that individuals with strong emotional connections to objects of loss are more
likely to experience more intense feelings of grief regarding the loss. Building off of this, it is
likely that entrepreneurs will experience greater levels of grief regarding the failure of ventures
they have owned and operated for a long period of time (consistent with the endowment effect
(Van Boven, Dunning, and Loewenstein, 2000). Additionally, it is possible that experiencing
numerous losses in rapid succession could result in an accumulation of grief for those involved
in those losses (Nord, 1996). Therefore, entrepreneurs of ventures that fail after several other
similar failures will likely experience greater grief. Finally, evidence has shown that the greater
the level of importance assigned to the failure, the higher the emotional response resulting from
that event (Archer, 1999). When entrepreneurs perceive that their businesses constitute an
important component to their own self-identity, the failure of that business will often produce
higher levels of grief. Consequently, it is possible that while some entrepreneurs will experience
considerable grief as a result of their failed businesses, for others, this grief could be
substantially less.
While our model proposes that a certain amount of delay in the decision to terminate a
firm might result in reducing the levels of grief entrepreneurs experience as a result of business
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failure, it is possible that variance exists in both the extent to which entrepreneurs leverage this
time period to actively engage in anticipatory grieving as well as the overall effectiveness of
their efforts at accomplishing this task. For some entrepreneurs, this period of delay might be
spent in denial about the overwhelming evidence suggesting that the business is destined to fail.
Therefore, these entrepreneurs engage in little or no anticipatory grieving, so the delay does not
provide the proposed benefits in terms of lessening subsequent grief. Additionally, some
entrepreneurs might utilize this period to engage in anticipatory grieving, but they might not
have the necessary skills required to accomplish this activity successfully.
Recent research has suggested that recovering from grief is optimized when individuals
oscillate between periods focusing on the loss and working through the events leading up to the
experience and periods of distraction, whereby individuals cease thinking about the loss and
instead take time to address other sources of stress (Archer, 1999; Shepherd, Patzelt, and Wolfe,
2011). Therefore, while it is likely that a certain amount of persistence can enhance an
entrepreneur’s eventual recovery from business failure, the duration of this time period must be
carefully considered to strike a balance between the emotional benefits and financial costs
associated with such a delay in making the failure decision.
A graphical depiction of the financial, emotional, and total costs associated with the delay
of business failure can be seen in Figure 5.
----------------------------------------
Insert Figure 5 About Here
----------------------------------------
Discussion
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Scholarly Implications
What causes entrepreneurs to postpone the decision to terminate a business venture,
knowing that such a delay will be financially costly? The most common rationale presented in
the existing literature suggests that such a delay is merely the result of biased decision making
and that engaging in such procrastination represents a simple error in entrepreneurial judgment.
We offered an alternative perspective, suggesting that some amount of procrastination can
actually be beneficial in assisting entrepreneurs in the recovery process. We recognized that
venture failure is undoubtedly costly from a financial perspective and that higher financial losses
equate to more challenging financial recoveries. However, we supplemented this purely financial
rationale by discussing the role negative emotions regarding venture failure play as well as the
significance of emotional recovery. It is to be expected that entrepreneurs might suffer grief over
venture failure, which can in turn impede recovery. In detailing the concept of anticipatory grief,
we theorized that a certain period of procrastination with regard to the termination of a failing
business could in fact reduce the amount of grief experienced as a result of the failure event.
Therefore, if overall recovery is conceptualized as a combination of both financial and emotional
costs that occur as a result of business failure, our model of anticipatory grief offers a plausible
explanation for the benefits of prolonging business failure—one based on considering the
financial and emotional costs of failure in an attempt to optimize subsequent recovery. It is our
belief that this anticipatory grief perspective regarding business failure provides several
important implications for researchers.
First, this model provides an important counterpoint to both the economic and escalation
research, which account for persistence in terms of biases and errors in judgment. We proposed
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that under certain conditions, some persistence prior to business failure can prove to be
beneficial to entrepreneurs. This perspective could possibly reveal new areas of research
regarding escalation of commitment. For instance, it alludes to the potential importance of
extending the span of such studies beyond the scope of an individual project. It is possible that
what is interpreted as a bias for one project could well prove beneficial to the individual over the
course of a number of projects. Extending past the outcomes of a single project emphasizes the
need to investigate dependent variables other than basic financial costs associated with
persistence. We chose to focus on the potential emotional costs associated with business failure
as well as the ramifications such costs might have on future emotional investments.
Second, although emotion is recognized as a potential cause of persistence throughout the
procrastination literature, this persistence is almost uniformly viewed in the long run as a
detriment to the individual. We proposed that given the roles emotion and emotional processing
(e.g., anticipatory grief and grief) play in eventual recovery from failure, persistence could
actually provide some long-term benefits. As a result, while certain entrepreneurs’ persistence
could be classified as procrastination, in other instances, this might be an improper
characterization that is more appropriately rationalized by our anticipatory grief model.
Specifically, prolonging business failure could provide a better balance between the financial and
emotional costs associated with that failure, thereby optimizing eventual recovery. In order to
distinguish between procrastination and anticipatory grief as the underlying cause of
entrepreneurial persistence, it is necessary to consider the emotional inputs and outputs
associated with the process. Our efforts along this front represent a small step in addressing the
relative paucity of research on how the desire to reduce negative emotions can influence
entrepreneurial activities.
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Third, while it is not astonishing that business scholars have traditionally fixated on the
financial costs of delaying business failure whereas scholars interested in grief have concentrated
on the emotional aspects of loss, neither of these divergent streams of research has made much of
an attempt to combine both aspects to provide a more comprehensive perspective of the
consequences of business failure. Our anticipatory grief model highlights the importance of
taking both into consideration in order to better understand how entrepreneurs recover after
business failure. While the concepts of anticipatory grief and grief have been applied to
situations of loss rather than just the loss of a loved one (Christopherson, 1976; Roach and
Kitson, 1989), the emphasis of such research has remained almost exclusively on the emotional
outcomes of such loss. With substantial care, we argued that perhaps there is an important
financial element to consider in some loss situations. For instance, what factors do individuals
consider when deciding to delay divorce? Does this decision have consequences on both their
financial and their emotional recovery from such an occurrence? Research has suggested that
some individuals do grieve in anticipation of divorce (Roach and Kitson, 1989), and it is possible
that some benefits can be gained by persisting for a certain period prior to divorce, essentially
allowing for emotional preparation for when the actual event occurs. Regardless, we recognized
there is a substantial amount of work to be done investigating the financial and emotional
consequences of undergoing an important loss.
Fourth, our anticipatory grief model provides an important complement to the existing
literature regarding grief experienced as a result of business failure. The seminal model proposed
by Shepherd (2003) starts with the failure event and details how this event can elicit negative
emotional responses. Our model introduces the idea that grief can occur in anticipation of
venture failure, and this anticipatory grief can in turn impact the amount of grief experienced as a
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result of the business failure event. Moreover, Shepherd (2003) emphasized the importance of
improving the grief-recovery process as a crucial component to maximizing the amount of
learning that could be accomplished as a result of the failure event. Our model concentrates on
how anticipatory grieving can serve to balance the financial and emotional costs of failure in
order to optimize entrepreneurs’ subsequent recovery.
Finally, recent research has called attention to the importance of the emotional bonds
entrepreneurs form with their businesses. Evidence suggests that entrepreneurs make substantial
emotional investments in their ventures (Cardon et al., 2005) and that entrepreneurs consider
their businesses to be an important component of their individual identities (Downing, 2005). For
example, Cardon and colleagues (2005) invoked a renewed interest in the study of
entrepreneurial passion and the role it plays in the entrepreneurial process. Although our research
investigates the converse of passion (i.e., grief), it is our desire that future research continues to
delve into the influence that both positive emotions (e.g., passion) and negative emotions (e.g.,
grief) can have on the entire entrepreneurial process.
Managerial Implications
There are a number of important managerial implications that can be drawn from the
preceding chapter and offer critical insight into the entrepreneurial process of deciding to
complete or delay the termination of an under-performing or failing business. First, it is
important to note that the decision-making process involved in coming to the termination
conclusion is non-uniform for both different entrepreneurs and for the same entrepreneur facing
different situational contexts. Whereas failure and the decision to cease a failing business have
most often been classified as simply a question of financial or economic losses, we provided a
more nuanced representation of the various facets involved with this particular decision. There
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are in fact numerous factors that influence the decision to delay the termination of an under-
performing venture, and while continued financial losses naturally factor into this equation, they
are by no means the only—or in many cases the most significant—inputs that entrepreneurs must
consider when making their ultimate failure decision.
Second, and building off of the previous notion that decisions to terminate businesses
involve heterogeneous contexts, variations in terms of environmental landscapes are important
factors to consider when facing the decision to delay business termination. Aspects of the
external environment, such as complexity, dynamism, and munificence, can all substantially
influence individuals’ understanding of why they might consider delaying terminating a failed
venture. Because the certainty of eventual outcomes is lower in complex environments, it is
possible that individuals might forego the immediate termination of a failing business operating
in such an environment in the hopes that their assessment of the eventual outcome was incorrect.
Additionally, complex environments might offer greater levels of potential opportunities, which
could in turn encourage entrepreneurs to delay business termination in the hopes of capitalizing
on one of these alternative opportunities.
Environmental dynamism might also factor into the decision-making process when one is
determining whether to end or delay terminating an entrepreneurial venture. Because dynamic
environments are ever changing, it is possible that if an entrepreneur was to delay terminating a
poorly performing venture, rapid future environmental shifts might result in a competitive
landscape that is much more amenable for the struggling business. Therefore, it is possible that
entrepreneurs operating firms in highly dynamic environments might be more apt to delay failure
decisions. Similarly, highly munificent environments could also cause entrepreneurs to delay
their decisions to terminate. Because munificent environments are rich in resources, it is possible
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that individuals operating ventures within such environments could be able to supplement their
venture’s poor performance with external resources, allowing them to delay the decision to
terminate the venture.
Third, although environmental factors are important to consider when deciding whether
or not to delay business termination, there are other intrinsic motivations that influence this
process that can vary between individuals. Specifically, the need to justify previous decisions,
the need to conform to norms for consistency, and perceptions of collective self-efficacy are all
factors that effect this decision-making process. Because entrepreneurs invest substantial
amounts of time, energy, and resources when establishing a new venture, it is likely that they
form strong emotional and psychological connections between their personal identities and the
new venture. As a result of these connections, it is possible that they view a failing business as a
manifestation of their own failure that resulted from prior decisions they made while beginning
and running the business. Therefore, in an attempt to justify their previous efforts and
investments, entrepreneurs may delay making failure decisions, and the duration of this delay is
likely enhanced with greater levels of personal investments (e.g., time, energy, money, etc.).
Likewise, the decision to delay terminating a failing business can also be affected by
individuals’ need to be perceived (by both themselves and by others) as being consistent. This
need for consistency might lead entrepreneurs to place greater weight on information that
reinforces the validity of continuing with their previous actions and activities while
simultaneously discounting information suggesting that consistency might not lead to desired
results. The results of this desire for consistency can produce bias, leading entrepreneurs to
believe that if consistency produced desired results in the past, then continued persistence will
eventually result in similar outcomes. This overly optimistic perspective can also be influenced
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by the perceived collective self-efficacy that the entrepreneur has regarding the organization as a
whole. If the entrepreneur senses that the organization’s overall collective self-efficacy is
relatively high, this might lead her or him to continue to operate the business in the face of
counterfactual evidence. In other words, the prevailing logic that the business will eventually
turn around simply because “the organizational team is good” can also result in an entrepreneur
delaying the decision to terminate the venture in the hopes that future performance results will be
different than historical evidence might suggest.
Fourth, the levels of specific types of extrinsic motivation can also effect the decision to
delay the termination of a failing business. Perhaps the most obvious form of extrinsic
motivation associated with entrepreneurial ventures is satisfaction with monetary compensation.
The level of motivation provided by monetary compensation varies across individuals. However,
individuals who are more highly motivated by monetary compensation are more likely to place
greater weight on this factor above other environmental and intrinsic motivations when
determining whether to persist with a failing venture. Specifically, individuals with higher levels
of motivation for monetary compensation are less likely to persist with ventures that do not
provide them with sufficient returns in this area regardless of the other environmental (e.g.,
complexity, dynamism, and munificence) or intrinsic (e.g., need to justify previous decisions,
norms for consistency, and collective self-efficacy) motivations present within the decision-
making context.
Extrinsic motivation is also related to individuals’ values regarding what they perceive as
what is “right or wrong” as well as their preference for a particular outcome. Because the value
of self-enhancement focuses on the accumulation and development of personal rewards, it is
likely that entrepreneurs with higher levels of this value will persist with endeavors that they
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perceive have greater potential to provide them with future financial rewards. In other words, if
an entrepreneur highly values self-enhancement and perceives that his or her business could
provide substantial future financial rewards, he or she will likely delay the decision to terminate
the business even if it is currently failing to meet the desired performance threshold. In a similar
manner, individuals who value openness to change are motivated by non-financial rewards and
are likely to persist with ventures they perceive as granting them higher levels of these non-
financial benefits regardless of the ventures’ current or future financial performance.
Fifth, although research has recognized that there are potential emotional consequences
associated with persistence, the prevailing logic is that such persistence is ultimately detrimental
to individuals in the long run. We took a slightly different perspective and proposed that
persistence could in fact afford individuals some long-term benefits as a result of the role it plays
in emotional coping and the processing of grief (both anticipatory and experiential). As a result,
while some entrepreneurs’ persistence might fall into the category of procrastination, thereby
ultimately proving to be detrimental, others might utilize this delay in a more beneficial manner
through anticipatory grief. This utilization of persistence could result in a better balance between
the emotional and financial costs associated with failure, allowing for better recovery from
failure. In order to differentiate between procrastination and anticipatory grief, it is important to
understand both the emotional inputs and outcomes associated with the entrepreneurial process.
Sixth, while business scholars have primarily focused on the financial consequences of
failure and bereavement scholars tend to emphasize the emotional consequences that failure can
produce, in this chapter, we hoped to stress the importance of considering and balancing both in
order to maximize recovery from business failure. How much financial loss can be realized as a
result of persisting with a failing venture? What are the emotional benefits reaped as a result of
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delaying termination, thereby allowing individuals to engage in anticipatory grieving, which
reduces the overall emotional consequences associated with such failures? These are important
questions to consider, and the attempt entrepreneurs make to strike a balance between these two
factors is important to consider as it influences the decision-making process.
Finally, although the majority of the research regarding entrepreneurial failure centers on
coping with the emotional consequences experienced after a failure event, this chapter offers a
complementary perspective, instead looking at how emotions can be influenced by processes
entrepreneurs engaged in prior to the actual failure event. By persisting in a failing venture, it is
possible that entrepreneurs gain time to engage in anticipatory grieving. This process of
anticipatory grief can be a vital component in mitigating the overall emotional consequences
associated with failure and can therefore be crucial in optimizing entrepreneurs’ ability to
eventually cope with and recover from failure experiences.
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Figure 3: Conceptual Model of Entrepreneurial Persistence and Its Consequence
Entrepreneur’s
Threshold for
“Acceptable”
Performance
Financial
Costs
Delayed
Decision to
Terminate Emotional
Costs
Procrastination
Entrepreneur’s Values:
(1) Self-Enhancement
and (2) Openness to
Change
Desire to be Consistent
with Previous
Entrepreneurial
Decisions: (1) Previous
Organizational Success and
(2) Collective Efficacy
Motivation to Justify
Previous Entrepreneurial
Decisions: (1) Personal
Investment and (2)
Alternative Career
Opportunities
Expectations of Firm
Performance Turnaround:
Environmental (1)
Complexity, (2)
Dynamism, and (3)
Munificence
Speed to
Recovery
Entrepreneur’s Extrinsic
Motivation
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Figure 4: Subjective Threshold Evaluation
Venture
Performance
Entrepreneur
A’s
Performance
Threshold
Firm B
Firm A
Entrepreneur
B’s
Performance
Threshold
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Figure 5: Costs Associated with Termination Delay
Emotional
Financial
Total
Time Delay to
Termination Decision
Cost of Delaying
Termination
Decision
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CHAPTER 5: DELAYING PROJECT FAILURE AS CREEPING DEATH
In the previous chapter, we explained persistence (and its flipside, delay) with a failing
business. We now turn our attention to the decision to terminate entrepreneurial projects within
an organization. Central to the notion of entrepreneurship is the pursuit of potential
opportunities, and these potential opportunities exist (or are created) in environments of high
uncertainty (McMullen and Shepherd, 2006). Entrepreneurship organizations manage this
uncertainty (Brown and Eisenhardt, 1997; McGrath, 1999) by using experiments to probe the
environment in order to reveal information about the “potential” of an entrepreneurial project.
This information can be used to terminate poorly performing projects quickly and redeploy
resources to those projects that show promise.
Although failure refers to “the termination of an initiative to create value that has fallen
short of its goals” (Hoang and Rothaermel, 2005; McGrath, 1999; Shepherd, Patzelt, and Wolfe,
2011), these failed projects are a valuable source of information from which organizational
members (and the organization as a whole) can learn (McGrath, 1999; Shepherd and Cardon,
2009; Sitkin, 1992). These project failures signal that there was something wrong with the initial
conjecture and that there is therefore a need to adjust one’s belief system (Chuang and Baum,
2003; Sitkin, 1992). Failures also tend to motivate individuals to find their underlying cause as a
basis for a solution (Ginsberg, 1988; McGrath, 2001; Morrison, 2002; Petroski, 1985). It is for
these reasons that it is often argued that individuals learn more from their failures than their
successes (Petroski, 1985; Popper, 1959).
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However, despite the importance of learning from failure and the potential to do so, most
organizational members (and organizations) find it difficult (Cannon and Edmondson, 2005).
Indeed, in this book, we have highlighted many of the cognitive and emotional obstacles to
learning from failure. We have also provided some recommendations on how these obstacles can
be reduced or eliminated. In the previous chapter, we explored how the timing of business
termination can influence an entrepreneur’s emotional recovery—namely, some delay provides
emotional preparation that enhances recovery, but too much delay likely contributes to emotional
exhaustion that hinders recovery. In this chapter, we build on an inductive study of projects in a
large multinational organization (Shepherd, Patzelt, Williams, and Warnecke, 2014) to explore
the role of termination timing.
In exploring new insights into the emotions of failure and the implications for learning
from the failure experience, we highlight differences in reactions and learning responses to
failure. Specifically, we explore differences in reactions to failure for those working on a
terminated project (i.e., those who “are the option”) as opposed to those who make the decision
to terminate a project (i.e., those who “own the option”) (McGrath, Ferrier, and Mendelow,
2004: 96). By doing so, we gain a deeper understanding of the mechanisms connecting the speed
of a project’s termination to team members’ learning from the failure experience. Prior studies
have paid primary attention to those who own the option; however, in this chapter, we build on
recent research that has begun to address the research question regarding those who are the
option.
Research on learning from failure and project-termination timing have advanced on
relatively independent tracks (the exception being from the cognitive perspective of the decision
maker or owner of the option [see Corbett et al. 2007]). This is interesting as both research
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streams are viewed as critical in explaining how entrepreneurial organizations function
successfully under uncertainty (McGrath, 1999; Meyer and Zucker, 1989; van Witteloostuijn,
1998). In this section of the chapter, we briefly review each of these literature streams.
Learning from Failure
Failure is an important signal that can generate action in that it suggests a disconnect
between one’s beliefs and reality (Chuang and Baum, 2003; Sitkin, 1992) and can drive
exploration for solutions to address this disconnect (Ginsberg, 1988; McGrath, 2001; Morrison,
2002; Petroski, 1985). Given the salience of a failure event, it is believed that failure can
uniquely motivate individuals to acquire new knowledge and that individuals gain greater
insights from failure than successes (Petroski, 1985; Popper, 1959). In a project setting, learning
from failure likely occurs when projects “(1) result from thoughtfully planned actions, (2) have
uncertain outcomes, (3) are of modest scale, (4) are executed and responded to with alacrity, and
(5) take place in domains that are familiar enough to permit effective learning” (Sitkin, 1992:
243).
While learning from failure is nearly universally accepted as critical for growth and
development, most organizations and individuals within organizations find learning from failure
to be difficult (Cannon and Edmondson, 2005). Information revealed in a failure event can be
difficult to process effectively, thereby reducing learning (Weick, 1990; Weick and Sutcliffe,
2007). While research has provided a deeper understanding of the organizational challenges
associated with learning from failure (e.g., reward systems that punish [Sitkin, 1992] or even
stigmatize [Cannon and Edmondson, 2005] failure), additional research has highlighted
individual obstacles to learning from failure events. Within this stream of research, attribution
theory is frequently used to explain cognitive reactions to failure (Sitkin, 1992). Attribution
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theory suggests that when an individual succeeds, he or she attributes that success to internal or
personal actions, whereas when a failure event occurs, the individual attributes that failure to
other sources, such as the environment or uncontrollable external factors (Wagner and Gooding,
1997). These types of attributions (i.e., success to the self and failure to others) enable
individuals to protect and maintain high self-esteem; however, this attribution bias obstructs
learning as individuals distance themselves from failure events, considering the causes of those
events to be beyond their influence (Reich, 1949). Despite this bias, some research has found that
over time (i.e., sometime subsequent to the failure event), individuals are more likely to come to
attribute failures to internal causes (Frank and Gilovich, 1989), taking more responsibility for the
failure (Pronin and Ross, 2006) and thus potentially removing key obstacles to learning.
While cognitive factors like the external attribution of failure provide one set of obstacles
to learning, research has also focused on emotions associated with failure and how they impose
obstacles to learning. Research and development (R&D) projects can be incredibly important to
team members, and if it is important to an individual, the project’s failure can generate negative
emotional reactions—namely, grief (Shepherd and Cardon, 2009; Shepherd, Covin, and Kuratko,
2009; Shepherd et al., 2011: see also Chapters 1, 2, and 3 in this book). While not all negative
emotions produce undesirable outcomes (e.g., negative emotions can drive individuals to seek an
explanation for why the failure occurred, which is a critical step for learning) (Cyert and March,
1963; Kiesler and Sproull, 1982), they can disrupt or interfere with the information processing or
attention allocation needed for learning to occur from the failure experience (consistent with
Bower, 1992; Fredrickson, 2001).
Specifically, prior research has identified three adverse learning outcomes associated
with negative emotions. First, negative emotions “narrow individuals’ momentary thought-action
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repertoire by calling forth specific action tendencies (e.g., attack, flee) . . . [whereas] many
positive emotions broaden individuals’ momentary thought-action repertoires, prompting them to
pursue a wider range of thoughts and actions than is typical” (Fredrickson and Branigan, 2005:
314). In creative-minded groups, such as R&D departments, the “narrowing” effect of negative
emotions could be extremely counterproductive in developing novel innovations (Fredrickson
and Branigan, 2005).
Second, negative emotions can adversely impact individuals’ affective commitment to
their organization, which in turn reduces their willingness to invest personal resources toward the
realization of organization-specific goals (Allen and Meyer, 1990; O'Reilly and Chatman, 1986;
Shepherd et al., 2011). Affective commitment is important as it can increase organizational
performance (Gong, Law, Chang, and Xin, 2009), but it must be balanced with other factors,
such as learning from failure, as learning can also increase organizational performance
(McGrath, 1999).
Finally, negative emotions “narrow people’s attention, making them miss the forest for
the trees” (Fredrickson, 2001: 222), thereby disrupting both their creative and integrative
thinking (Estrada, Isen, and Young, 1997; Fredrickson and Branigan, 2005; Isen, Daubman, and
Nowicki, 1987) as well as learning (Fredrickson and Branigan, 2005; Masters, Barden, and Ford,
1979). Focusing their attention on the loss, including the excruciating details of the loss,
individuals have little attentional capacity left to focus on learning and improving.
In sum, the key conclusion from the literature on learning from failure is that negative
emotions impose substantial obstacles to learning from project failure.
Speed of Project Termination
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Just as it is important for individuals to find a balance when terminating a failing
business, which we discussed in Chapter 3, so too is it important for organizations to manage the
timing of terminating failing projects. For corporations investing in innovative projects, it is
critical to balance when to advance such projects through a substantial commitment of resources
and when to “cut one’s losses” by terminating projects that do not live up to expectations (Brown
and Eisenhardt, 1997; Green and Welsh, 2003; McGrath, 1999; Pinto and Prescott, 1990). As
organizations consider whether, when, and how to terminate a failing project, they face the
challenge of “bounding” the failure. Extant literature, specifically from economics, has suggested
that failure (and its costs) is bounded by rapidly terminating projects that fail to achieve desired
objectives (i.e., rapid cessation of project activities) and quickly reassigning resources (e.g.,
personal, financial, etc.) to more promising endeavors (Ansic and Pugh, 1999; Ohlson, 1980).
The rapid termination of projects, however, is not always easy to achieve, especially
when there is ambiguity surrounding current performance and future potential as well as
surrounding the severity of the consequences of termination (Staw and Ross, 1987). In addition,
rapid termination can increase personal responsibility for the project initiator (Staw, Barsade, and
Koput, 1997) or can be held up by non-performance-related forces, such as political or
institutional factors that “force” the continuation of a project (Guler, 2007).
Similarly, delayed termination is often attributed to continued hope for future payout
despite ongoing project under-achievement (including sunk cost arguments) (Arkes and Blumer,
1985; Dixit and Pindyck, 2008), escalation of commitment (Brockner, 1992; Garland, Sandefur,
and Rogers, 1990), and decision-making procrastination (Anderson, 2003; Van Eerde, 2000: also
see Chapter 4). Key projects, especially important innovation projects that are considered “the
future” for an organization, are thus often continued long after they are considered lost causes,
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holding up critical resources that could have otherwise been redeployed (Arkes and Blumer,
1985). For example, the Long Island Lighting Company delayed the termination of a key project
(Shoreham Nuclear Power Plant) for more than 23 years, with costs rising from an initial
estimate of $75 million to more than $5 billion, at which point the project was finally abandoned
(Ross and Staw, 1993). While this example is shocking, the reasons are similar to those of
smaller-scale projects that managers struggle to terminate, including managers’ history of
success, information-processing errors, institutionalization and politicization of the project
within the organization, and external justification requirements (Ross and Staw, 1993).
Given the risks associated with prolonging failing projects, organizations have introduced
a variety of measures to assist with “pulling the plug” and facilitating rapid termination. For
example, some organizations implement performance-monitoring systems that might include
hitting key milestones as a means to assess commercial or technical progress (Pinto and Prescott,
1988). These “stage-gate” processes are designed to assist managers in shutting down projects
that fall below predetermined performance thresholds (Cooper, 2008). Despite the tools used to
assist organizations in making decisions regarding projects, such decisions are still made by
individual managers who are subject to political, psychological, social, and other contextual
factors that might result in prolonging projects beyond what is reasonable or rational (Green,
Welsh, and Dehler, 2003; Schmidt and Calantone, 1998).
To summarize, despite “rational” explanations for when and how projects should be
terminated, there is considerable variance in how the termination process actually occurs (i.e.,
how quickly projects are terminated and resources are redeployed). A particularly poignant gap
in the extant literature is a lack of understanding regarding the link between termination speed
and its influence (if any) on individual team members, specifically their ability to learn from the
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failure event. In this chapter, we build on some of our recent research to address this gap and
provide new insights regarding how the timing of termination influences both emotional and
learning outcomes for individual team members.
Termination Timing and Learning from Failure
This chapter is largely based on our recent study of eight failed projects across four
subsidiaries of a large R&D-intensive multinational organization (Shepherd et al., 2014). The
organization has more than 50,000 employees, has sales of more than $20 billion, and spends
approximately $1 billion annually on R&D investments. Given its scope of R&D projects, many
projects are terminated each year, which provides an ideal setting for gaining a deeper
understanding of the nature of the relationship between learning from failure and termination
speed.
In this study, we found that delaying the termination of an entrepreneurial project was
like a double-edged sword. On one edge of the sword, organizational members perceived
delaying project termination as “creeping death,” which triggered a negative emotional reaction.
On the other edge of the sword, delaying project termination provided organizational members
the time to reflect, articulate, and codify their learning from the project experience. In contrast,
those organizational members’ whose projects were rapidly terminated had few negative
emotional reactions to the failure but also learned little from the experience because they quickly
moved on emotionally and cognitively to the new engineering challenges represented by the new
projects to which they were deployed. We now explore these issues in detail.
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Learning from Project Experiences
While research has shown that groups (i.e., organizations and teams) are capable of
learning (Fiol and Lyles, 1985), we focused on the learning outcomes of individual team
members. We found that variance occurred both between and within subsidiaries of this large
multinational organization. We grouped cases initially based on the degree of learning achieved
on each project. For example, the manager of one project learned important skills for organizing
a team effectively:
[In the future,] I would lead this project by keeping the team on a much “shorter
leash.” . . . In such a project, I would bring people together as close as possible—in one place. . .
. Also, I [learned] that we need to exchange people between sites more often. It simply doesn’t
work if you know people only by having phone contact—you must have a personal relationship.
Further, we heard from a conversation between a project manager and one of his team
members that as a result of terminated projects, the subsidiary manager had established a
lessons-learned database, and they discussed specific lessons that had been entered in the
database. Similarly, a team member from a different project explained, “We have learned a
lesson. It cost the company a lot of money, but we have learned some very important lessons.
[Specifically what to] not do again.” Consistent with this quote, our field notes and internal
emails similarly demonstrated that team members from another project expressed hope that
important lessons learned from their failure could be applied for the “greater good” in the future.
Finally, one team member summarized his team’s view of the failure this way: “I learned to
avoid letting things really get to you. . . . I’m trying to assess the facts [what went wrong,
etc.]. . . . These are simply experiences that are part of a professional life.” This perspective was
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highly oriented toward learning from failure experiences, with the individual recognizing them
as a pathway to longer-term professional success.
In contrast to the high level of learning found in team members of four specific projects,
team members within four other projects experienced much lower levels of learning. For
example, one team leader said the following: “Concerning how I relate to our company as an
employee and how we do the projects, I would say no [whether he changed the way he worked
on projects]. . . . So the recipe itself for how I perform projects will not change a lot.” Similarly,
all members of two other projects stated that specific learning regarding how to improve R&D
projects did not emerge from the failure experience, again standing in stark contrast to those
projects for which future-oriented learning was prevalent.
Another common theme for those who had lower levels of learning was a lack of
recognition of the importance of the failure experience as a chance to learn. That is, team
members from these projects expressed that any learning from the failure experience could have
been obtained from any other circumstance. One team member even went so far as to say, “This
project was terminated due to a decision of the top management, not due to our mistakes. We
didn’t make any mistakes [to learn from]; we are not bad engineers. We should be thanked.”
Similarly, one team leader explained, “I will do it [projects in the future] in exactly the same
way,” again suggesting that—according to these team members—no real mistakes were made
and thus making the opportunity to learn irrelevant.
Given the data led us to categorize projects based on learning outcomes, we continued
comparing the cases in accordance with this initial separation to help us understand why variance
in learning levels occurred across these groups. We found that there was a clear difference in the
speed with which projects were terminated. Specifically, we found that for project teams that
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experienced rapid and abrupt termination (i.e., rapid termination), individual team members
appeared to have lower levels of learning than when a project’s termination was delayed over an
extended period of time (i.e., delayed termination).
Team members were quite explicit as to how a project was terminated (and subsequently
how that influenced their actions/reactions to the project). For example, team members who
learned little from project failure all described the process as rapid, calling the termination
process “immediate” and a “hard stop” as opposed to a “soft stop” (i.e., rapid termination versus
delayed transition) as well as “quickly decided . . . and business oriented.”
In contrast, for the projects team members learned from their failure experience, there
was an emphasis on delay in the termination process. For example, one team leader described the
termination as a “slow descent,” which was substantiated by a team member from a different
project who described it as “a process . . . not an event.” Similarly, another team leader called the
termination of his project a “slow starvation,” or, as one team member called it, “creeping
death.” We next explore how project-termination speed impacted team members emotionally as
well as how it shaped their engagement in learning activities.
Creeping Death: Negative Emotions from a Stalled Decision, Not Loss of a Project
As indicated above, team members from the different projects experienced different
termination processes for their respective projects. We found that termination processes
influenced team members’ emotional reactions.
Individuals on teams that experienced delayed project termination appeared to have
experienced higher levels of negative emotions, specifically compared to those with rapid project
termination. As mentioned above, one team member described his experience with the delay as
“creeping death”: “I guess it was good that at some point, there was a definitive decision. To this
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day, it still causes people to shake their heads [in disbelief] because it was such a creeping
death.” While not universally used across projects as a term to convey the emotional and
temporal sentiment of delayed termination, all team members in delayed projects expressed an
emotional reaction similar to the notion of creeping death.
Combining these descriptions, we define creeping death as “a project that is on the path
to being terminated, and while this likely outcome is known, the steps along the path to
termination are small and slow, and the process is emotionally painful” (Shepherd et al., 2014:
527). In the paragraphs that follow, we demonstrate our conceptualization of creeping death from
the team members’ perspectives.
First, in creeping death, failure of the project and its resulting termination were
anticipated well in advance and for an extended period of time. One team member anticipated the
termination of his project for some time, explaining that it “was to be expected . . . , [and] this
discussion was in meetings for some time. . . . I had already resigned myself [to the project’s
termination].” He noted that it was “perhaps two or three months from when I saw signs the
project would fall until the decision actually came.” Similarly, a team member of a different
project explained the following, “By the time the announcement was made, we knew what was
happening; there was no surprise there, which is probably why I do not remember it [the actual
announcement]. I do not remember the particular meeting [where the final decision was given]
simply because it was an inevitability.”
Another team leader stated that the “shutdown was a kind of slow descent.” Indeed, one
team member, frustrated by six months of endless delays and missed deadlines, explained that
“The configuration itself would have likely taken weeks. Errors were still present, and it would
have been a miracle to convince any customer that it really could work!” It appears that knowing
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a project was failing but not being able to jump to a separate project or escape from the failing
project resulted in frustration and distress.
Second, and as suggested in the first point, the delay in terminating a failing project
generated negative emotions for project team members. Rather than rallying team members in
hopes of pulling off a successful project despite the obstacles, delaying termination appeared to
result in negative emotions. The team leader of one project expressed frustration with the
uncertainty that resulted from stalled decision making:
I personally fell in a real motivation gap. . . . [The six-month delay in the
termination decision] hurt our development department very badly because we
actually had finished development in the spring, and we wanted to know the new
direction. We knew that we had the people here, and they could not be redeployed
back to their home country [office], which would have been a waste of time and
money anyway. This was a very, very bad situation.
A team member from the same project expressed frustration with the wasted use of
human and material resources during the delay, “My frustration, if you will, is that the project
members are really good. A lot of people do really a very, very good job, and they are very
committed. The fact that we don’t use them sufficiently and effectively and that we waste time
with projects that drag on and ultimately we don’t pursue [is very frustrating].”
Similarly, a team member from a different project explained that the delay generated
“frustration” and that he experienced incredible “relief” when a decision was ultimately made to
end the project: “We had an incredibly long time with no definitive decisions, and at least this
was a decision.” A team member from another project concurred, explaining, “Ultimately, if the
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decision is that a project is not flying, then I can accept that. But I need a clear explanation,
which was lacking, and the late timing [of the termination] was frustrating.”
Interestingly, these negative emotions appear to be connected primarily to the delay, not
to sentiments regarding the project itself.
Indeed, the delay, or creeping death, generated worry, not regarding whether or not the
project would succeed but, rather, worry about team members being held back from pursuing
other activities or projects. The primary frustration was that key human resources (themselves
and others) were unnecessarily “tied up.” One team member explained, “As you can imagine, if
you keep 20 of the best engineers you have and an extended team of 70 people occupied with
such a project, they are not available for other problems and opportunities elsewhere in the
organization.”
In a broader organization constantly focused on novel and innovative ideas, the last place
these individuals wanted to be was stuck on a failing project that was slowly limping toward
termination. Field notes captured by our team corroborated this finding. Specifically, while
engaging interviewees in side conversations, we discovered that a frequent topic was the extreme
nature of the negative emotions participants experienced while enduring delayed termination.
Furthermore, emails we obtained between team members confirmed that the primary source of
negative emotion was indeed the delay (as opposed to the loss of the project).
Therefore, although we (somewhat surprisingly) found that the actual and final
termination of a project (i.e., team members’ redeployment to other tasks) was not the source of
negative emotional responses, a delayed termination, or creeping death, did elicit negative
emotions. Specifically, we found that team members valued the ability to pursue engineering
challenges more so than the specific outcome of a particular project. For the team members,
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these engineering challenges referred to “the specific technical aspect of a project or job that the
team member performs and that often relates to a team member’s fascination with the science
behind potential products” (Shepherd et al., 2014: 530). Throughout all the interviews, team
members repeatedly referenced their appreciation for engineering challenges. One project leader
commented, “It was also satisfying when you design a machine and everything fits. So if the top
was put on the machine, our machines are very large, several meters long and several meters in
diameter, and you have gaps that are tolerated in tenths of millimeters . . . and everything fits.
This is a great feeling. Therefore, this project was really satisfying for me.”
Despite the overall failure of the project, this comment highlights the positive aspects as
viewed by the team: individual achievements on engineering challenges were valued more than
the overall well-being of the project. As another example, one team member explained,
“Ultimately, I believe that we have had a very good project here from a technical perspective: we
have set a benchmark in the timeline we needed, we have gone through the product-development
process appropriately, we have involved all necessary parties.”
For this team member, the positive elements were related to the product timeline and
development, specifically from a technical perspective (as opposed to successful
commercialization of the technology).
Finally, while one team member expressed indifference to the success of any particular
project, he was thrilled to move to a new project due to the engineering challenge. He explained,
“[In my new project,] I get to focus on mathematics and developing algorithms. . . . This is a
huge positive as I will be in my element.” As Green and colleagues (2003: 423) noted,
“innovators like to innovate; being on the leading edge of a technology can be both scientifically
satisfying and ego gratifying.”
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Consistent with our discovery of just how important it was for workers to engage in an
active engineering challenge rather than generate a specific outcome, we found that only when
this challenge was removed did team members experience high levels of negative emotions. In
the R&D environment for this study, team members were (typically) rapidly redeployed when
official project termination occurred. In fact, most of the team members described their transition
to a new project as immediate when official word of termination was received. This notion was
supported by executives at both the corporate and subsidiary levels, where they put an emphasis
on moving on as quickly as possible from failed projects. Team members appeared to appreciate
moving on, especially as it allowed them to move to new engineering challenges. Therefore, it
appears that the engineers in our sample who did not experience negative emotional reactions
associated with project failure were able to avoid such emotions because they were able to
continue doing that which they loved and valued—exploring technical solutions to complex and
challenging problems—as opposed to staying in dead-end, failing projects.
In contrast to the delayed-termination projects discussed above, four projects were
terminated quickly—the decision to end the projects was unequivocal and final, and there was
little time from expecting termination to actual termination. This type of termination was
described by team members as “suddenly a reality,” for which “the information [decision to
terminate] was delivered abruptly to the team members—practically immediately. It was clear
there was a decision to stop the project, so it meant that we should immediately stop spending
money.” When asked if he had anticipated a project shutdown, one team member responded,
“Quite honestly, not directly. . . . I don’t remember any signs or timeline [red flags] indicating a
possible termination. . . . I did not expect the decision to be so abrupt. Suddenly there was
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nothing, and it was said, ‘The project is stopped,’ and that was it. . . . As a team, we were all
surprised by the decision.”
Similarly, when asked about anticipating project termination, a team member replied,
“No, not until I had this meeting. . . . And then I thought ‘Ok, then we have to terminate because
we have no chance to get the material.’ So we could not continue.”
As another point of contrast, team members of rapidly terminated projects did not
experience negative emotions or worry even when we directly asked about it. As an example,
one team leader explained that the rapid termination of his project cost him “One night’s sleep, I
think. That is because I think there were no implications to my working situation.” Specifically,
there were no implications because he was able to continue working on engineering challenges
but on a separate project. Other project leaders noted, “I am not that hurt by it. I now have
another really big project,” and “It was not necessarily fun to terminate the project, but we had to
do it, and it was ‘business as usual’ (laughs). . . . Really it was no problem.” Indeed, one project
leader explained, “I was also relieved,” a sentiment shared by his fellow team members as the
stress of the project (e.g., meeting deadlines, etc.) was substantial.
Learning before Rather than after the Termination Event
In contrast to the extant literature on negative emotions, our findings suggest that
negative emotions stimulated rather than constrained learning from the failure experience
(Shepherd et al., 2014). Given that lost access to an engineering challenge was the primary
source of negative emotions (given expectations of its ultimate demise), these negative emotions
motivated individuals to search for a new type of challenge while awaiting ultimate project
termination, namely learning why the current project had failed to meet expectations. Team
members were therefore motivated to understand and ultimately learn from the failing project (at
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least to some degree) because learning represented a challenge that was stimulating enough to
compensate for the inability to move on to the next project. Team members, motivated to find a
challenge, dedicated time and effort (including systems, spreadsheets, programs, etc.) to ensuring
they learned from the failure for future reference despite the creeping death and its associated
negative emotions.
For example, a team member explained that during the creeping death associated with the
delay, he decided to take a “neutral position, a position of an observer” to reflect on what had
happened. A fellow team member went on to say, “I’ve been thinking a lot about the project. . . .
I asked myself again and again how could it happen. . . . So I did learn [from this delayed
termination].” This reflection on the loss, or search for a meaningful outcome despite the delay,
was similarly expressed by team members of other creeping-death projects. Specifically, he
searched for real engineering and hence business value from the experience in order to carry that
new knowledge on to future projects. He explained, “I think you feel very isolated [due to the
failure] . . . [but] we have to learn from this, capitalize on it, get value from it. . . . As long as
people sweep it [project failure] under the carpet . . . we lose the opportunity to convert that bad
experience into financial value, real business value. . . . [Normally,] we are not good at closing
projects out.”
A team member of another creeping death project similarly emphasized that this learning
had to take place during the delay (or at least the life of the project) because “once the job stops,
the reviews stop.” As a final example, one team member described creeping death as “endless
misery” and would have preferred a “miserable end” so he could “be staffed immediately,
anywhere!” to resume an engineering challenge. However, despite feeling “trapped,” this team
member spent time making sense of the project, its failings, and specifically how he could apply
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those learnings in the future. He explained that he “absorbed the termination” by “documenting
all our results . . . in an ordered manner so it all wasn’t just thrown away.” As a result, he learned
that the decision to terminate was “dead right.” He explained that “if we really went, with the
limited knowledge at that time, directly into a commercial project, then this would have cost our
company, I think, a tremendous amount of money in the end.” In this sense, he was able to
identify meaning and value from the experience that, while painful to incur, provided similar
benefits as did engaging in an engineering challenge.
Therefore, we found that the negative emotions generated by delay were also capable of
producing a positive outcome—it drove individuals to allocate time and effort typically used on
engaging in an engineering challenge toward learning from the experience of the failed project.
Thus, the motivation (i.e., desire to work on something meaningful) became useful when
combined with the time to work on the meaningful outcome (i.e., learning from failure).
We found that in general, team members lacked the time to reflect on failed projects after
they were terminated. This occurred for three primary reasons. First, in nearly every situation,
project team members were rapidly redeployed after the official termination, which led them to
redirect attention and resources toward starting new assignments, understanding new problems,
and connecting with new team members. These activities were given substantial priority over
taking time to reflect on what went wrong with the previous project. For example, multiple
individuals were redeployed to new assignments within hours of receiving news of their project’s
termination, while all others were redeployed within one to 10 days (with the exception of one
team leader who waited about one month). Given this rapid timeline, there was simply no time
after the project had ended for these individuals to reflect on or implement change relating to the
prior project.
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Second, project members were motivated to reduce role uncertainty by moving onto a
new role specifically relating to identifying a new problem or engineering challenge to address.
For example, one team member explained that the most important thing for him following a
project failure was “to get a new task.” When asked how soon, he said without hesitation,
“Immediately!” Similarly, subsidiary leaders all expressed the importance of getting the team to
“move on” so they would not dwell on the negative outcome.
Finally, the pressure to move on and the pull of interesting work elsewhere within the
organization appeared to limit individual team members’ ability to carve out time and attention
for mentally processing the failed project. While some individuals mentioned filling out
technical sheets or other generic forms, they put forth little mental capacity to making sense of
the failed project once it was formally terminated. Given the rapid redeployment after project
termination for all team members of every project, the period provided by delayed termination
took on increasing importance in terms of processing learning opportunities from the failing
project.
Mechanisms for Learning from Failure
We found evidence connecting termination timing and learning from failure through the
activation of three key learning mechanisms: reflect, articulate, and codify (Prencipe and Tell,
2001; Zollo and Winter, 2002).
First, delayed project termination provided team members with time to reflect on their
experience, which enabled learning. For example, a project leader stated, “I personally learned a
lot on the project . . . during the [six to eight months of the failing project]. . . . I was almost in
the position of an observer, watching what we were doing and [reflecting] on what exactly did
we do here.” Notably, this project leader highlighted the fact that he was in a position to
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“observe” the failing project, allowing real-time assessments of what was going wrong given the
delayed termination. In a similar statement, one of his team members explained that he engaged
in “introspective reflection,” helping him identify lessons to apply in future projects. He stated,
“[During this period of delayed termination,] everyone eva