What's one of the most important stepping stones to start-up success?

Failure, says one prominent start-up CEO. In a presentation to b-school students, Kim Kovacs, Founder and CEO of software company OptionEase, shocked the students by telling them that she hopes they fail. In an 8-minute video excerpt from her talk at UC Santa Barbara, Kovacs describes why "failure is my favorite word at my company now." She even, she says, doesn't hesitate to hire people who have been fired from other companies.

The strategy seems to be working. With over 700 customers, OptionEase has become the leading enterprise-class software-as-a-service solution for stock option and equity compensation tracking and compliance. Kovacs led the company from its start through its merger with Solium Capital, and she remains the CEO of the combined organization.

Kovacs' advice to entrepreneurs could be summed up as the three Fs: focus, fail, and get fired.

Focus, Focus, Focus

The video begins with Kovacs describing her experience speaking at an Inc. 5000 conference, to a roomful of entrepreneurs. Her message? The importance of focus amid a maelstrom of ideas, especially during a start-up's early days.

"There are a lot of things that entrepreneurs need to do. Yes, you need to be dedicated. Yes, you need to have that entrepreneurial spirit and you've got to stay up late...but people lose sight of the fact that they [have to] stay hyper-focused. You have to stay on focus because, as an entrepreneur, you are going to get ideas coming at you every second. We encourage it... but it doesn't mean you have to act upon [each idea]. You never want to close your ears off, but you also want to be sure to remain on focus."

Failure is a Winning Strategy

Entrepreneurial failure is a myth. Entrepreneurs know that what others call "failure" is simply a bump in the road toward their ultimate success. As life-long learners, entrepreneurs view every experience as a valuable opportunity to hone their skills, establish new relationships and become more street-smart. For this reason, Kovacs encourages her employees to embrace failure.

"People are so concerned about being successful all the time that sometimes they take shortcuts to be successful. I had a salesperson who would basically do anything with the client to get the deal. It was killing our company...she always had to sell something that didn't exist. She couldn't sell what we had.

"[I told her] you've got to fail. You are going to lose deals. You're going to fail and you're going to learn how to overcome those failures with the next deal and sell what we have, not what we're going to have in six months... It's OK to fail.

"If you can recognize the failure before it becomes epic, that's a really good thing. You're going to learn way more every time you fail at something than when you are succeeding.

"If (Roger Bannister) had run a four-minute mile the first time out of the gate, would he have run for nine years? Probably not. He might not have recognized that it was the wind behind his back, that it was the training he was on, the shoes he was in, he may not have had an opportunity to test all those failure points."

Healthy start-up cultures do not penalize employees for making mistakes because they know that the only employees who never make mistakes are those who never do anything. Unlike what some people call Big Dumb Companies, successful start-ups must focus on achieving results and cannot afford to expend energy affixing blame. Instead, encourage employees to internalize and take ownership of their missteps, which helps to avoid repeating them. In an intellectually honest environment, more insights are gained by dissecting why a decision was wrong, than by ignoring mistakes, blaming others or taking shortcuts to achieve short-term success.

Get Fired

Kovacs told the student entrepreneurs that they should never fear being fired from their jobs. Your job is the push the limits and you can't do that, she says, if you're afraid of getting fired.

Kovacs goes on to note that employees with stock options should aggressively question their bosses because they are essentially investors in their start-ups. As Kovacs puts it, "I really went right up to the edge and had I been in bigger companies, I would have been canned, for sure. People would say, 'Why is she asking these questions?' and I would always come back and say, 'Because I am an investor in this company.'"

For employees who are fired, Kovacs counsels them to not despair. Rather, she encourages them to consider whether they might just not have been a fit. "Sometimes I have [hired] the best employees who were canned somewhere else and the reason they were canned is because they were way out-thinking the prior company. Push the envelope. At some point you've got to... be willing to take the risk."