Avoiding business failure is a top priority among entrepreneurs and business owners, irrespective of experience levels or how long their company has been established. However, business failure statistics in the US have barely changed over the past few decades. According to a recent Business Employment Dynamics report compiled by the Bureau of Labor Statistics, approximately 80 percent of new businesses make it during their first year. However, failure rates increase sharply and reach 50 percent at the end of the first five-year period, and after 10 years, only 30 percent of businesses are still operational.

These figures have remained remarkably unchanged over the years, which suggests that the root causes of failure are not being addressed consistently and systematically. Here are five important lessons that can be learnt from business failure.

1. The Importance of Research

Half of all businesses that fail discontinue operations because of lack of profits or financial funding. Other reasons behind failure include relying on an inadequate team, poor planning, limited or insufficient product offer, pricing issues, bad location, and poor product timing and marketing strategies. This suggests that research is essential and that it needs to be ongoing and cover more than just product development, funding, or marketing. Valuable data and information are now easily available online, so there really is no reason to overlook this factor.

2. Never Lose Focus

A Business Employment Dynamics report noted that 13 percent of businesses failed because their founders lost focus, and a further 9 percent did so due to a lack of passion. Many expert advisors and motivational speakers claim that focus is the most important factor in business success, and they recommend to regularly ask questions that will help clarify business direction and help bring projects and strategies into focus. Questions should address issues like the specific behavior you want to drive, the reasons you are doing what you are doing, the steps taking to drive your business further, and whether those steps are coherent with your mission and values.

3. It’s Not About Perfection

While it is natural to try and do your best, be wary of perfectionism, particularly if you have a Type A personality. In fact, perfectionism is something to be overcome instead of achieved. Business owners are encouraged to make an honest evaluation of whether their perfectionist tendencies interfere with risk-taking assessments and overall productivity. You know it’s time to re-examine perfectionism if it hinders flexibility and adaptability and gets on the way of maintaining positive relationships with staff, clients, or stakeholders.

4. Finding the Happy Medium

It’s in the nature of entrepreneurs to be highly confident, but in some cases this can backfire, especially when confidence becomes overconfidence. Try to stay grounded when making decisions, ensuring you balance out gut feelings and data-driven options. It is also recommended not to discount hunches, but rather to use them as the starting point from where you can explore possibilities, test hypotheses, go deeper into alternatives, and use a more sophisticated and analytical approach.

5. Not All Failures Are the Same or Mean the Same

Failure can be interpreted in many ways based on its nature and the reasons behind it. The types of failure range from preventable to unavoidable and need to be assessed by looking at the context in which they occur (i.e. complex environments vs routine operations). Depending on these factors, failure attributed to reasons going from failed hypotheses or exploratory testing to inattention, lack of ability, or inadequacy of processes and systems.

But perhaps the biggest lesson to be learnt is that failure should not be seen as a final and irrefutable assessment of your ability to lead a successful business. Failure is a mistake you can recover from, even if not necessarily using the same business idea. The lesson is that failure itself is a lesson, and that you should not let failure discourage you from trying again.

(1) https://www.fundera.com/blog/what-percentage-of-small-businesses-fail

(2) https://www.forbes.com/sites/shawnoconnor/2013/04/23/step-3-for-a-successful-startup-the-importance-of-market-research/#69bb92e83d55

(3) https://www.entrepreneur.com/article/248563

(4) https://www.entrepreneur.com/article/239854

(5) http://www.thedrum.com/news/2017/04/25/human-intelligence-gut-feeling-the-age-data-marketing

(6) https://hbr.org/2011/04/strategies-for-learning-from-failure