Failed business? Blame the ‘perfect storm’

Published: 27 February 2017 at 10:00

A yellow and black sign that says "Closing down".

New study finds blaming external factors helps entrepreneurs save face

Entrepreneurs who fail in their business venture can limit damage to their reputations by blaming external factors, according to new research published in the Journal of Business Venturing.

A study carried out by Professor Teemu Kautonen, of Anglia Ruskin University, alongside academics from Finland and Germany, looked at the public perception of entrepreneurs whose ventures were unsuccessful.

The researchers conducted an online survey where 601 participants were given different profiles of failed ventures and statements about where things went wrong, and were asked to evaluate how appropriate the statements were.

Researchers found that when a business failure is claimed to be uncontrollable, it is looked on more sympathetically by most respondents. 

Instances where the entrepreneur admitted to mistakes which had contributed to the failure was mainly viewed as being more acceptable by respondents with high levels of self-efficacy, who are good at motivating themselves and persevering in the face of adversity.

Kautonen, Professor of Enterprise and Innovation at Anglia Ruskin University, said: 

“The principal finding of our study is that the most effective way that entrepreneurs can seek legitimacy from the public following the failure of a business is to distance themselves from that failure.

“They might do this by attributing the cause of failure to external circumstances beyond their control, or factors that would be unlikely to occur again – a perfect storm.

“While some respondents were cynical about this, it appears to be the most effective way a failed entrepreneur can walk away with their reputation relatively unscathed.”