September 29, 2011; Source: Reuters | Most nonprofits know that it is not in their best interests to fail publicly. It is not what donors, especially institutional donors, pay you to do. But does this cultural fact of life in the nonprofit sector actually tamp down its entrepreneurial potential? The findings of a recent Babson College study entitled Elements of the Entrepreneur Experience (PDF) suggests that if the investors in this sector do not welcome failure, they will get little in terms of entrepreneurial innovation.

The study looked in some depth at 250 startups in Boston, Austin, and San Francisco. The two elements of the findings that we thought were most interesting were:

  • Failure and iteration are a significant part of the entrepreneurial experience.
  • Place or “localness” is an important factor in entrepreneurialism in a number of ways.

Here is the report’s take on failure:

Entrepreneurs are literally surrounded by stories—it’s the universal language of entrepreneurship. Stories convey lessons learned and allow entrepreneurs to create and communicate the intangible, but many do not have the necessary storytelling or story decoding skills to avoid pitfalls and misdirection. All entrepreneurs hear stories about failure. Businesses will fail, and accepting this, and learning from others about that experience or steps to prevent it is a central component of being an entrepreneur. But the predominant use of the term “failure” is really framing another important aspect of entrepreneurship that’s little understood and discussed in entrepreneurship circles. The practice of entrepreneurship requires iteration and experimentation, but many are simply not wired for iteration.

And for more on the importance of place, check out this excerpt:

Despite the rise of social media and mobile technologies, entrepreneurship remains place-based. Many people start up and practice where they live, drawing from their local resources. Others choose location with intent, based on a place’s entrepreneurial reputation or its “feel.” All cite the need for face-to-face encounters. Places develop ecosystems over time—interactions of people, organizations, and infrastructure—which combine to heighten or diminish entrepreneurial activity. But ecosystems provide much more than resources. They define the entrepreneurial culture of a place. Places where this culture is local, visible, and accessible in the day-to-day interactions of entrepreneurs make it much easier for people to identify with the entrepreneurial path, but new ecosystems that merely copy risk the creation of an entrepreneurship monoculture.

We think these observations about the for-profit world resonate for nonprofits. And, in our humble opinion, they fly in the face of the attitudes and practices of many funders who supposedly support innovation and entrepreneurship in the sector. What do you think?—Ruth McCambridge