A well-known truism you often hear when discussing entrepreneurship is that you need to fail to succeed. Indeed, most business people would agree that the lessons learned through mistakes and failure can be invaluable in preparing an organization for success. An interesting nuance often overlooked in this line of thinking is the way organizations decide to manage the mistakes they make. Too often, they fail to recognize the wrong path in time, and once that realization is made, the sunk cost involved with changing paths is often too overwhelming to embrace.
I recently had the opportunity to discuss the mistakes and failures typically made by small start-up businesses with PeerFX, a growing company based in Vancouver. PeerFX is an online peer-to-peer currency exchange that enables individuals and small businesses to meet their needs at reduced rates. In my conversation with the company, the notion of “learning from mistakes” was very salient. Initial choices in website design, financing, hiring decisions, and the use of social media had all provided excellent lessons in what a successful operation demands.
The best takeaways from this conversation were insights on how to effectively learn from and manage mistakes that were made. Foremost was developing awareness that poor decisions and mistakes are a reality in building a new business. An expectation that everything will go smoothly just sets up an even bigger fall. For PeerFX, this awareness was achieved early on as benchmark sales goals were initially hampered by misunderstandings on primary target markets.
Acceptance that failure is a big part of the growth strategy created a company culture that is willing to experiment and take calculated risks. Failing fast, learning from mistakes and steering the company in a new, clearer direction is a good principle to live by.
Second, there needs to be courage in admitting that a mistake has been made. Understanding the meaning of sunk costs and having the will to make the tough decisions that surround mistakes is paramount in learning. PeerFX realized this in dealing with human-resource decision making with respect to its website programming. The initial hired programmers provided quality output, but the time frame on delivery was always an open question. The willingness to make a change by replacing personnel, while costly at the outset, became an effective management decision over time. Companies often cling to early decisions because it’s an investment they have made, but in truth it is a sunk cost – cutting off the investment early is actually a short-term pain and a long-term gain.
Finally, small businesses need to continually question and second guess their decisions. By being mindful of the potential for failure, businesses can act quickly and realize potential opportunities presented by mistakes. For PeerFX the recent use of social media presents such an opportunity. Is the use of a certain new medium going to bring increased awareness and conversion? Maybe yes, maybe no, but by questioning the decision and testing for failure the small company is poised to learn, evolve and, if necessary, move quickly toward options that provide a better opportunity for success.
Special to The Globe and Mail
Dr. Darren Dahl is division chair of marketing and Fred H. Siller professor in applied marketing research at the Sauder School of Business of the University of British Columbia.
This is one of a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website .Report Typo/Error