Thursday, May 8, 2014

Fear of Failure is Hurting America's Entreprenuerial Standing

As Americans we are hard wired from generations dating back to Ellis Island to be a part of the opportunities that America created.  We were risk takers, crossing the Atlantic against all odds in the search of a better future.

But our sudden and startling transition to a market based on fear was driven home by a headline in the USA Today in December 2013 - “Is too little market fear something to fear?” Do you mean to tell me that we don't have enough to fear that we now have to worry about not having enough fear?

A recent study by the Brookings Institute shows that in 2008 for the first time in at least decades (but possibly in the nation’s history due to poor historical data) job destruction now outpaces job creation - see chart below.  It isn’t that companies are failing more on a percentage basis, but rather there is a drought of new business creation - and our own personal fears of failure or risking the safety of what we have today is a big reason for this trend.

Each year the Global Entrepreneurship Monitor (GEM) publishes an annual report on the environment for entrepreneurship around the world.  The GEM is a research program initiated
in 1997 as a joint venture between academics at London Business School in the UK and Babson College in the United States. From its first survey in 1999, GEM has grown into a consortium of more than 400 researchers from 99 economies over its 14 year history.  In the 2012 report it had this to say about the environment for new business creation around the world:

Risk-taking can pose considerable challenges for potential entrepreneurs. Universities and business schools around the world can generally teach the basics of entrepreneurship, boosting peoples’ abilities to perceive opportunities and their skills for starting businesses. A key stumbling block, however, is one’s inherent fear of failure. This can counteract the drive to start a business, even when the expected returns from entrepreneurship have better prospects than the next best alternative. People may have differing levels of fear of failure and conditions in the institutional environment, such as bankruptcy legislation, which could deter would-be entrepreneurs.

While obviously reflective of the economic environment in those countries the startling evidence in the report shows that those countries with the most to lose in terms of real economic value (meaning opportunity cost of leaving a high paying job, blowing through a savings or retirement account, etc) were the countries showing the most fear.