Life after Business: An Economic and Psychological Perspective to Failure

About the Lecture

Bankruptcy of organizations is often perceived negatively – management (/entrepreneurs) should have taken better care of the organization and would then have been able to avert the crisis a company is in. The life cycle of organizations frames failure similarly: in the mature stage, organizations lean back and start to forget what they are in the business for. This leads to decline (crisis) which can end in bankruptcy (failure) or a renewal stage.

Schumpeterian economics, however, points to the ‘creative destruction’ nature of entrepreneurs and opens lines of reasoning that see failure more positively: by creating new products, entrepreneurs destroy the market for older products that fail to meet the needs of consumers. While there may be distributional concerns (old firms disappear), the result is a net benefit for society. By creating new products, entrepreneurs indirectly stimulate incumbents to renew their offering. While there may be distributional concerns (entrepreneurial ventures do not make it), the result is a net benefit to society. Although entrepreneurial activity is associated with the failure of both existing firms and the entrepreneurial ventures themselves, they set in motion change that is in line with what consumers want. Although the usual caveats apply (What if new products are not in the best interest of consumers, but they fail to see this?; What if older firms manage to exploit their vested interests to resist entrepreneurial disruption?), this lecture proposes that, at the system level of the economy, failure is good.

Failing firms, however, also have effects on employees who go through turbulent times and perhaps lose their jobs. What happens to employees when a company fails? Being let go is a harsh reality for an individual. Jobs have a much bigger impact on people’s lives than just making sure that there is enough food on the table. Jobs provide us with an identity, status, daily structure, valuable social contacts, being a useful part of society and a way to stay active and connected. Losing these aspects of your life could even lead to a grieving process with feelings of depression, anxiety, shame, guilt, and stress.

On the other hand, a failing company can also have a positive effect on people, for example, entrepreneurs who find the strength in themselves to keep going and to come up with new ideas after failure. This lecture does not only offer an economic and psychological perspective on failure, but will also focus on how students can use the knowledge about grief after job loss and resilience in their own lives.