10/04/2013 01:57 pm ET Updated Jan 23, 2014

The F-Word [Failure] Comes to the World Economic Forum

By Adam Byrnes, MBA/MS candidate at Erb Institute, University of Michigan

DALIAN, China - Let's face it, failure sucks. Failing is neither particularly fun nor particularly rewarding.

And yet entrepreneurs do it all the time. According to a recent study from Harvard, three-quarters of venture-backed start-ups fail. At the World Economic Forum's Annual Meeting of the New Champions last week, failure and the resilience required to bounce back from it were discussed as necessary requirements for future entrepreneurs.

"I am convinced that success is making smaller and smaller failures," said serial entrepreneur Eric Giler, CEO of the wireless electricity start-up WiTricity. "You don't do anything right and you sort of adjust what you did wrong and adjust what you did wrong and adjust what you did wrong. And eventually you get to something that gets defined by the rest of the world as success, but in reality it is successive sets of failure that get you there."

That ethos is not necessarily embraced everywhere. Earlier in the month, the WEF unveiled their 2013 Global Competitiveness Report, which assesses the competitiveness of 148 economies. One variable in the assessment is the "Capacity for Innovation." Inherent to that variable is an economy's tolerance for failure. Not surprisingly, many countries that score low on this attribute rank towards the bottom of the index.

Yet even for cultures where tolerance for failure is ranked high, such as in Silicon Valley where failure has been called a fetish, there is a distinction between what type of failure is acceptable and not.

"One of the things I hear a lot is that Silicon Valley embraces failure and I actually think that's dead wrong," said WEF attendee George Foster, professor of management and entrepreneurship at Stanford University. "I think what they do is that they tolerate smart failure."

The ability to tolerate and learn from failure was mentioned as a critical skill for entrepreneurs during the
The ability to tolerate and learn from failure was mentioned as a critical skill for entrepreneurs during the "Entrepreneur of Tomorrow" panel. Photo courtesy of the World Economic Forum.

Failure in the Social Entrepreneurship Context

Multiple social entrepreneurs interviewed at last week's Forum all stressed the importance of embracing "smart" failure.

Sameer Hajee, co-founder and CEO of South Africa-based Nuru Energy, described a failure that came about when his company did not listen to their customers' needs.

"When we first started we charged six dollars for our light bulb," said Hajee. "When our customers told us they couldn't afford it we didn't believe them because they always say that they can't afford stuff. We thought that was the price point where they would fly off the shelf, but then they didn't. So now we're taking them seriously and reworking our business model to lower the price."

Another kind of failure frequently mentioned was forgetting to focus on specific needs when defining a project. Alejandro Egea, a member of the WEF Global Shapers community of promising leaders under 30, described just such a failure as he planned social impact projects with his colleagues.

"We had to learn that in order to have an impact we had to focus on the person and we did not focus on the person,"  said Egea, Executive Director of Fundacion Quiros Tanzi, an education non-profit in Costa Rica. "So as a [WEF Global Shapers] hub during one year we were meeting basically once a month and we were having these no-end discussions and it was very frustrating because we didn't execute."

Ultimately, Egea says the failure helped them change their mindset.

"After that year had passed, we were able to move on because we had failed. And I think that we have learned to embrace failure."

Similarly, Simon Henschel, Chief Operating Officer of Laos-based Sunlabob Renewable Energy, described a lesson learned from the temptation to diversify too quickly. Henschel detailed how the company's early success led to a number of high-profile awards and partnerships. Those partnerships in turn distracted the company from focusing on any one area long enough to be successful.

"You have lanterns and you do water purification systems and you go into sanitation and so many things because you are like 'Wow! I am so good at this and I can help everyone' and that's, I think, normal in entrepreneurs," said Henschel. "And that is part of the failure I think, coming to 'okay, I have success and I am going out there and I can do it' and then have to realize that you have to be focused."

A Problem is a Problem is a Problem

These stories highlight the fact that social entrepreneurs face the same problems every entrepreneur faces: whether and how to listen to customer feedback, where to focus one's energy and resources, and how best to define a problem in order to make efficient use of time.

There is perhaps one difference, says Sunlabob's Henschel: The stakes for social entrepreneurs may be higher because they are trying to achieve profits while simultaneously curing societal problems.

"Social entrepreneurship serves underserved problems in society," said Henschel. "They are always difficult problems. They are not something that everybody can do, otherwise it wouldn't be such a big achievement. So, I think failure drives people."

Perhaps failure can be rewarding after all, but that does not make it any more fun.

Stories of Failure

Listen to entrepreneurs tell stories of their failures and how they learned from them (click on link to go to Soundcloud clip).

"We're still struggling with that to be honest." - Sameer Hajee, Chief Executive Officer of Nuru Energy, Africa.

"I think that we have learned to embrace failure." - Alejandro Egea, Executive Director of Fundacion Quiros Tanzi, Coast Rica.

"Sometimes you lose it and you're not very focused." - Simon Henschel, Chief Operating Officer of Sunlabob Renewable Energy LLC, Laos.

This story was originally published on on 28th of September, 2013. You can read the rest of our World Economic Forum Summer Davos coverage here, where we are focusing on global sustainability challenges and the different solutions discussed at the Summer Davos meeting.

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