The process of “creative destruction,” whereby old ideas, technologies and business models become obsolete as new, stronger entrants grab market share, is essential to economic progress and job creation.
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Tolerance of failure is essential for growth. 74% of high net worth individuals agree that viewing failure positively is essential for an economy to grow. A slim majority also have a positive view of their own failures, with 51% agreeing that past failure in entrepreneurial endeavours increases the chance that a new business will succeed.
Emerging entrepreneurs catch up. The most dynamic, fast-growing economies of the world have the highest tolerance for failure. For example, an average of 51% of respondents from the Middle East and Asia believe that the recent financial crisis has provided them with opportunities, compared with an average of 43% of respondents from the U.S. and Europe. These fast-growing economies are also more likely to value persistence in the face of failure or setback than those in many developed markets. Entrepreneurs in these fast-growing economies are used to dealing with constraints, high levels of bureaucracy and a challenging business environment. This experience makes them highly adept at overcoming obstacles and solving seemingly insurmountable problems, which will be important advantages as they compete head-to-head with entrepreneurs in developed markets.
Entrepreneurs bounce back. Almost six out of ten wealthy individuals say that they have experienced some form of career failure, while a similar proportion have experienced setbacks with their investments. But their capacity to bounce back from these failures depends on their background. Respondents who classify themselves as entrepreneurs find recovery from setbacks easier than those who say they are non-entrepreneurs. Among the entrepreneurs, 34% say that failure encouraged them to try again, compared with 19% among non-entrepreneurs.
Persistence matters. Entrepreneurs are typically persistent individuals who use their tenacity to overcome obstacles to success. As well as helping them to bounce back from failures and try again, persistence also has broader psychological benefits. Our survey finds a strong association between persistence and the level of life satisfaction that wealthy individuals enjoy. Respondents who are satisfied in their lives are more likely to consider it important to persist with a failing business endeavour rather than to cut losses and move on.
Entrepreneurs are typically persistent individuals who use their tenacity to overcome obstacles to success. As well as helping them to bounce back from failures and try again...
Optimism spawns success? Respondents who describe themselves as optimistic are more satisfied with life and more likely to describe themselves as successful than those who are less optimistic. This link between optimism and success has financial as well as psychological value. Among our respondents, optimistic individuals bring in USD$56,000 more in income per year and have USD$620,000 more in net worth. But optimism has its limits. Too much optimism can lead to excess entry into markets when the opportunity does not warrant it, or the planning fallacy, whereby individuals find that projects take much longer and cost much more, than expected.
Entrepreneurs learn from failure. Most people say that they find failure a valuable learning opportunity. But the extent to which different types of people draw lessons from the experience varies. Respondents who classify themselves as entrepreneurs are more able to learn from failure than non-entrepreneurs. They are also more likely to say that failure helped to strengthen their character and that previous entrepreneurial failings increase the chance that a new venture would succeed.
How investors can learn from entrepreneurs. Persistence and optimism can be valuable traits in a financial investment context, as well as an entrepreneurial one. This is particularly true during a time of market volatility. Our survey finds that people who are persistent, optimistic or both, are less likely to have experienced failure in their personal investments than those who do not possess these traits. One reason for this is that they are less likely to react to temporary setbacks by selling low, locking in losses and turning setbacks into failures. This does not mean that entrepreneurs automatically make good financial investors, however. Their strong desire for control can lead them to make bad investment decisions, such as conducting excessive trading activity to compensate for short-term, often random fluctuations, or concentrating
risk in areas where they have expertise at the expense of diversification.