Despite the considerable development and marketing costs that accompany new product launches, Business failure rates remain at particularly high levels. But social norms can make failure shameful. Indeed, in our culture, the slightest setback is a mark of infamy. But is failure necessarily bad? Accepting mistakes is surely the best way to learn, of course, that business failure is analyzed and understood by the players.

Business failure: A learning object

Business failures are inevitable in innovation, not only for statistical reasons but more profoundly because the learning achieved is a prerequisite for success. Most failed product launches thus constitute important stages in the development of an innovative firm. Business failures should therefore not be experienced as an abomination, but rather as part of the learning process.

Real learning only begins when a product is introduced into the market. Thus, whether a product succeeds or fails commercially, the fact of having developed it increases knowledge both on the technology and on the market. However, the resulting learning rents can only exist if the company is able to reinvest.

In fact, the value of these rents depends on the succession of developments and on the ability of designers to capitalize on the knowledge and memorize past developments. The development of a new product must therefore be considered as an iterative process where each step is based on the experiences – both positive and negative – resulting from the previous steps.

Therefore, unsuccessful products play the role of consumer surveys and capture vital information in determining how to be successful in the future.

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Originally, collecting information was the task of market research. However, for completely new products, failure may be the only truly effective way to gain insight into market behaviour. From this perspective, the launch of a product constitutes an ultimate market study. Indeed, no one knows if a truly innovative product is worth anything until it has been released to the market and its potential has not been measured. Moreover, companies which do not experience minor failures from time to time suffer from a lack of experimentation.

First, for failure to be beneficial, the result of the action must be uncertain. Indeed, if the results are predictable, then the commercial disappointment does not provide any new information and is not likely to lead to a change in future behaviour. Furthermore, a “smart failure” is a failure of modest magnitude. Indeed, if the disappointment is too great, it risks provoking rigidities and defensive behaviour.

In situations of ambiguity which are those of innovative companies, in particular, negative feedback has less value than positive feedback. Indeed, the latter allows businesses to learn that if they reproduce what they did the last time, there is a good chance that it will succeed. On the other hand, the latter do not learn what they must do to be successful if the feedback is negative; they only learn what they should not do.

Therefore, individuals can perfectly change the actions they take to avoid facing disappointing results again, but there is nothing to say that these new actions will lead to success. For the latter, by revealing what does not work, a failure resulting from a carefully designed and executed project provides a vision of what will work.

Importance of in-depth analysis of Business Failures

It is not failure that triggers learning, but its interpretation by members of the organization. In fact, organizations collect and process information to translate events in order to make sense of them and arrive at a common and shared explanation of facts. Once companies have classified the results as failures or successes, they seek to develop ideas on the causes of these events.

Rather than blaming a single individual by trying to identify the faults that failure conceals, it is more a matter of discovering the root causes in order to prevent the situation in future. The responsibility for a problem is more easily attributed to a person than to a process because it is easier to see the concrete (people) than the abstract (process).

In decisions about new products, technology is particularly fuzzy, that is, the links between the inputs, actions and outputs of the organization are poorly known or poorly understood. In such a case, underline that the causal relationships between the events are difficult to establish. It is easier for individuals to identify criteria of ineffectiveness (i.e. faults and weaknesses) than to identify criteria of effectiveness ( i.e. skills). It is thus easier to know why we failed rather than to explain why we succeeded.

In fact, the interpretation of events takes place in a pre-existing and partly unconscious structure of thought that skews the understanding of experience. It is the history of past successes that gives these shared convictions such strength. Some “fundamental assumptions” can become so stable that they are difficult to unlearn, even when failure seems to indicate that they no longer work.

They, therefore, play the role of a filter that prevents correct perception and interpretation of the information received

Finally, the knowledge acquired is not always true. The behaviours of satisfaction often lead to such situations, because the first plausible explanation is then held to be true. In fact, since individuals’ capacities for memorizing and processing information are very limited, they try to lighten their tasks. They rely for this on a limited number of heuristic methods which are generally very useful, but which can sometimes lead to serious and systematic errors.

Conclusion

In summary, one of the biggest obstacles to learning from business failure is that actors develop deep beliefs that they find it difficult to question. The company is then trapped in a sort of cognitive prison, which prevents it from correctly interpreting the situation and from drawing all the lessons from this failure.