How entrepreneurs can benefit from failure management $ Junesoo Lee, Paul Miesing BENEFITING FROM BUSINESS FAILURES Can entrepreneurs benefit from failure? If so, more proac- tively, how can they use failure systematically? This paper studies this simple question. In order to answer the question, we begin introducing the existing ideas on failure that abounds in at least four categories: (1) why we learn from failure; (2) how we learn from failure; (3) what we learn from failure retrospectively; and (4) how we use failure prospectively. We then present detailed research questions designed to fill gaps in existing ideas on failure management. Why We Learn from Failure No matter how well organizations are managed, some fail- ures are inevitable and even seemingly ubiquitous. Accord- ing to the U.S. Census Bureau data, every year 470,000 businesses fail while a smaller number of businesses (400,000) newly start. Such high odds of entrepreneur fail- ures are not so different across industries–—no industry has more than a sixty percent survival rate after the first four years. With business failures expected, the assertion that we can learn from failure is prevalent among numerous manage- ment scholars and practitioners. Simply put, failure teaches us what works and what does not. In other words, failures challenge underlying flaws in causality of organizational processes, and thereby lead to more accurate way of doing. Considering our bounded rationality, such learning from failure through experimental approach might be the only way to learn about causal relationships. As a result of such learning, organizational performances have often been improved by investigating and learning from failures. In detail, failures may help improve process relia- bility, reduce failure-related costs, and also improve the composition of the portfolio of projects through trial-and- error learning. So much prescriptive advice has been sug- gested to see failure as an important ingredient of the innovation process. In short, learning is more effective in failure than in success. While success can make decision makers remain where they are, failures can help renew their own strategic directions and practices. How We Learn from Failure Despite much evidence that we can learn from failure, the outcomes of learning from failure may vary according to different learning conditions. The learning conditions can be categorized in the following three ways: process of learning; facilitators of learning; and barriers of learning. First, process of learning is crucial to successful learning from failure. This can be approached in the course or procedure of knowledge generation. Focusing on the proce- dure of knowledge generation, there are three stages of learning from failure: identifying failure; analyzing failure; deliberate experimentation. Besides such organizational processes of learning, the psychological and cognitive nature of learning from failure should be also considered because emotion is strongly involved in the process of recognizing and acknowledging failure. Second, what are the facilitators of learning from failure? We can learn from failure by fostering an organizational system and culture that favors experimentation. Systemi- cally, strategic management using formal planning system can be useful to deal with environment upheavals. From a cultural aspect, learning through failure or adversities can be achieved by being sensitive to warning signs of decline, Organizational Dynamics (2017) 46, 157—164 $ This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Available online at www.sciencedirect.com ScienceDirect jo u rn al h om ep ag e: ww w.els evier.c o m/lo c ate/o rg d yn http://dx.doi.org/10.1016/j.orgdyn.2017.03.001 0090-2616/© 2017 Elsevier Inc. All rights reserved.