Having the motivation to persevere in pursuit of an idea is critical for entrepreneurs – but how can you be sure that you are not throwing good money after bad?
‘If at first you don't succeed, try, try and try again.’ Persistence is hailed as an essential trait for business success and countless media stories tell of entrepreneurs who overcame repeated rejections or failures because they refused to give up.
Starbucks founder Howard Schultz, for example, was famously turned down by 217 investors before he obtained funding, while James Dyson is said to have made over 5,000 prototypes to develop his bagless vacuum cleaner.
Yet while persistence pays off for some, there are many others who spend their life savings pursuing an unworkable idea because they fail to heed feedback suggesting their efforts are in vain. In these cases, such blind persistence can be a dangerous psychological trap, warn Dr Anna Jenkins and Dr Anna Stephens, who carry out research into entrepreneurship at The University of Queensland (UQ) Business School.
“Because entrepreneurs have to overcome frequent setbacks, having the motivation to carry on is critical for success,” Anna Jenkins explains. “However, there is a fine line between putting in more time and effort to overcome setbacks, and in persisting with an idea when it should be abandoned, when you are simply throwing good money after bad.”
Persisting in these instances is known to psychologists as ‘escalation of commitment’. Having invested money, effort and time, the individual becomes locked into continued investment in order to justify previous decisions and appear consistent in their decision-making. Research has shown this is more likely to happen where repeated, rather than one-off, decisions need to be made, and where there is uncertainty about the likelihood of success – exactly the same circumstances that entrepreneurs face in creating a startup.
Anna Jenkins says: “It may be that you have made some progress but not enough, and it is unclear whether more effort is required or a new strategy altogether. In these circumstances, it is difficult to know at what point you should abandon the idea, especially when it is something you are passionate about and want to work. Each day you have to make a conscious effort to continue.
“To make matters worse, the social stigma surrounding failure can trap individuals into persisting in an attempt to save face and justify their original decision to start the venture. All too often people keep going when it might be better to pull the plug or try a different idea.”
So how can entrepreneurs avoid escalation of commitment? How do you know whether you need to spend more on marketing or whether it’s time to cut your losses?
Anna Stephens says learning from setbacks is critical. Entrepreneurs need to ensure they take the time to work out what is happening and why the setback occurred, and then develop and test alternative strategies.
“Experience alone is not sufficient for learning to take place,” she says. “It requires reflection or stepping back from an experience to really understand why it occurred. This can be challenging as it involves reflecting on your own role in it, the decisions made and acknowledging your own mistakes.
“For this reason, some entrepreneurs never learn from failure at all – instead they blame others or circumstances and as a result don’t adjust their own decision making.”
However, through the process of self-reflection, entrepreneurs can transform setbacks into new knowledge that they would not otherwise have had. Research shows that where a failing project is terminated due to strategic analysis, entrepreneurs learn more than when it is allowed to drift. The ability to adapt and learn in this way also helps to build resilience.
Anna Stephens adds: “While candid self-examination can at times be difficult for entrepreneurs, it is essential if they are to escape the trap of blind persistence.”