Introduction

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Entrepreneurs, business people and investors who have achieved great success are rarely strangers to some level of failure in their past. In fact, learning the right lessons from these experiences has been a key ingredient of their future success.

Understanding failure 3 of 7 Executive Summary 1 of 7

Residents of the United States, please read this important information before proceeding

In 1879, the prolific inventor Thomas Edison fitted a carbon filament into an incandescent light bulb and perfected a technology that numerous inventors had struggled with for around 75 years. According to accounts from the time, Edison experimented with 1,000 different filaments before finding success with carbon. When a journalist subsequently asked Edison how it felt to fail 1,000 times, the great inventor is reported to have replied: “I did not fail 1,000 times. The light bulb was an invention with 1,000 steps.”

Some historians have doubted the truth of this story, but it does contain important lessons about our relationship with failure and success. There is no reward that comes without persistence and a willingness to take risks, but there will almost inevitably be some temporary setbacks along the way.

The list of business people who have experienced failure is long and illustrious. Henry Ford’s first company, the Detroit Automobile Company, went out of business in 1901 without selling a single car because of disagreements between Ford and his investors. Legend has it that when Walt Disney was seeking funding for his Disney theme park, he was turned down by no fewer than 302 banks before finding an investor. Even Microsoft founder Bill Gates experienced the pain of a money-losing operation. Before founding Microsoft, Gates launched a company called Traf-o-data, which built a prototype to collect traffic information and pass it to local authorities. Although the prototype worked, the company failed to find any customers and folded after achieving a net loss
of USD$3,500.

Staying the course over thousands of prototypes or bouncing back from failed ventures or investments takes persistence, optimism, a tolerance for risk and a degree of good luck. It also requires a willingness to learn from mistakes and to see failure, not as an outcome, but as one step in a long process. This is as true for financial investors as it is for entrepreneurial ones. At some point, every portfolio will experience periods when it performs poorly. The key for investors is to respond in the right way, learn from the experience and move on.

In this report, we explore the concept of failure and show how a better understanding of behaviour and psychology can help entrepreneurial and financial investors make the right decisions at a time of considerable uncertainty. We explore cultural attitudes to failure, and look at how courage, persistence and optimism helps individuals draw valuable lessons from their mistakes and turn those setbacks into successes.