Learning from Failure: What Research Shows About Entrepreneurs' Restarts

Does one learn from failure by itself?

Whoever has had to give up a business often hears a well-meant sentence: you will learn from this for next time. The sentence contains an assumption that is rarely tested. It assumes that experience turns into knowledge by itself. Many entrepreneurs experience it differently. After a closure or insolvency, shame, anger, and exhaustion dominate, and the question of what exactly went wrong recedes into the background.

This analysis therefore pursues the question: What does research show about whether and how entrepreneurs learn from failure, and what favors a successful restart?

To answer it, I first clarify what is meant by failure and learning, then introduce the model of grief after the loss of a business, summarize findings on restarts, and weigh two readings. At the end there is a learning review that can be used after a failure or a failed project.

Failure and learning: the terms

As in the article why young companies fail, failure here means: a business has to give up because it cannot cover its costs permanently or becomes insolvent. This is to be distinguished from the broader concept of market exit, which also includes voluntary closures, sales, and moving into employment. The psychologist Dean Shepherd (2003) defines failure similarly narrowly: revenues fall or costs rise so much that the business becomes insolvent, cannot attract new capital, and cannot continue under its current owners.

Learning from failure means, according to Shepherd, that an entrepreneur uses the available information about why the business failed to revise their knowledge of how to run a business. This means not general insights such as perseverance pays off, but changed assumptions about decisions, actions, and omissions.

The essay talking about failure adds a distinction that is central to learning: bad luck, mistakes, and misconduct are three different things and deserve different assessments. Whoever interprets bad luck as a mistake learns the wrong thing. Whoever interprets a mistake as bad luck learns nothing.

The thinking model: grief after the loss of a business

Shepherd (2003) transferred psychological research on grief to entrepreneurial failure. His starting point: for owners, the business is more than a source of income. It expresses loyalty to customers and product, personal growth, and sometimes family pride. Its loss can therefore trigger grief, a negative emotional reaction with signs such as numbness, disbelief, anger, guilt, and withdrawal. Shepherd stresses that the loss of a business is not to be equated with the loss of a loved one, but that the reactions can be related.

Grief makes learning harder because strong emotions bind attention. The entrepreneur thinks of the day of closure, the conversation with employees, and the handing over of the keys, instead of the decisions that worsened the situation months before. According to Shepherd's first proposition, people with strong grief learn less from information about the loss, and all the more so the more information there is to process.

For a way out, Shepherd draws on a model from grief research, the dual process. It distinguishes two attitudes. In loss orientation, the person confronts the loss, remembers, interprets, and orders. In restoration orientation, they turn away, attend to new tasks, and create distance. According to Shepherd, those who learn most alternate between the two: confrontation provides the insights, distance prevents the emotions from overwhelming them.

An everyday analogy: whoever never looks at the car again after an accident does not learn why they left the road. Whoever only stares at the wreck never drives again. Learning means looking and getting back in, alternately.

What studies show about restarts after failure

Bae, Lee, Simmons, and colleagues (2025) studied 173 companies in South Korea that were founded anew after a failure. Their question: when does the experience of failure benefit the new business? The answer hinged on a particular behavior, reflection, that is, deliberately thinking about what happened the first time. Those who reflected turned experience into knowledge, and the new business performed better. Two circumstances weakened this relationship: a change of industry and a changed direction of the company. That is plausible, because lessons from one market do not simply fit another.

How feelings shape learning is shown by a three-wave survey of 264 entrepreneurs with experience of failure (Zhang, Hang, and Choi 2026). A harmonious passion, in which work is important but does not dominate one's whole life, was positively associated with learning. An obsessive passion showed no association. Fear of failing again weakened the positive association of harmonious passion.

Finally, interviews with 25 serial entrepreneurs in Nigeria (Amankwah-Amoah, Khan, Ifere, and colleagues 2022) show the course over time. Immediately after failure, the experience was rather a burden: economic hardship and social stigma. Many founded again precisely for that reason. In the course of the new venture, the earlier experience then became an asset. The value of failure therefore does not arise at the moment of loss, but later, once it has been processed.

For Germany, the environment described in the essay on talking about failure comes on top: according to Simmons, Wiklund, and Levie (2014), entrepreneurs in countries with strong stigma found again less often after failure. Since a 2020 reform, honest debtors in Germany can be discharged from their remaining debts after three years, which at least legally makes a restart easier.

Two readings: failure as a school or as a scar?

The first reading sees failure as a school. Whoever has failed knows the warning signs, knows how quickly liquidity disappears, and has experienced what a single major customer can do. In favor of this reading are the findings from Korea and Nigeria: under certain conditions, the experience becomes an asset.

The second reading sees failure as a scar. Grief, shame, and fear weaken confidence in one's own abilities and block analysis. Hossain and Valliere (2024), presented in the essay on failure, found among 423 North American entrepreneurs that failure weakened the belief in being able to master entrepreneurial tasks. Whoever carries on only with the feeling of defeat repeats mistakes or avoids risks that would be worth taking.

I consider both readings correct, but not at the same time. The studies show a sequence over time: immediately after the loss, the scar predominates; with processing, the school can emerge. The transition is determined less by character than by approach: whether someone reflects deliberately, whether they alternate between confrontation and distance, and whether they separate bad luck from mistakes. Learning from failure is thus not a trait, but work.

Failure teaches nothing. One has to work the lessons out of it oneself.

The learning review: four steps after a failure

From the findings, an approach can be derived that I call the learning review. It is suitable after the end of a business, but also after a failed project in an ongoing business, such as a new location or a service that did not pay off. Timing is important: not in the first week, but not only after years either.

1. Create a timeline

   Write the most important decisions and events of the last two to three years before the end into a timeline. This directs attention away from the day of closure to the months before.

2. Sort the causes

   Assign each event to one of three groups: bad luck, meaning circumstances outside your influence; mistakes, meaning decisions that could have been made differently with the knowledge available at the time; and environment, meaning market conditions that could have been recognized.

3. Formulate lessons

   For each mistake, formulate a rule for the future, for example: no customer accounts for more than a quarter of revenue. For each rule, check whether it would also apply in another industry.

4. Check with a counterpart

   Discuss the review with someone who was not involved and is allowed to contradict you, such as a mentor or an experienced entrepreneur. A counterpart recognizes repression and self-reproach more easily.

The worked example shows what such a review can look like. Notably, not all lessons are transferable. Whoever moves into a new industry mainly takes along the general lessons about money, customers, and leadership. This fits the finding from Korea that a change of industry weakens the benefit of reflection.

What follows beyond the individual case

The findings suggest that dealing with failure is not only a matter for the individual. Whoever only pities or only condemns those who failed makes reflection harder. Counterparts who ask soberly are helpful: what was bad luck, what was a mistake? Entrepreneurs' networks, chambers, and mentors can take on this role. The article mentoring for business owners describes that a mentor's psychological function counts precisely in such phases.

For owners who have not failed, a second lesson follows. Other people's stories are also a source of learning if one reads them correctly. Whoever learns only from success stories sees a distorted picture, according to the essay why role models can mislead. Reports of failures nearby are often more instructive. Whoever has failed and talks about it thus gives others something that is in no success story.

The limits belong here as well. Shepherd's work is a theoretical model, not a measurement. The studies come from South Korea, Nigeria, and an international survey, not from Germany, and they show associations, not established causes. Whoever suffers from dejection, sleeplessness, or hopelessness for weeks after a failure needs medical help, not a learning review. Shepherd himself points out that persistent grief may require professional support.

Conclusion: how do entrepreneurs learn from failure?

The opening question was
and how entrepreneurs learn from failure and what favors a successful restart. The answer is more cautious than the usual consolation. Learning does not happen by itself. The loss of a business can trigger grief that binds attention. According to Shepherd, those who learn most alternate between confronting the loss and looking ahead. The studies on restarts show that deliberate reflection makes the difference and that lessons carry best when transferred to a similar market.

For owners, this yields a sequence: give the loss time, then look back, separate bad luck from mistakes, formulate lessons as rules, and check them with a counterpart. For this week, it is enough to create the timeline for one failed project of recent years.

Experience is not what happens to you. Experience is what you make of what has happened to you.