Startup Failure — Good and the Bad

Anand Sanwal of CB Insight shared their Don’t do These 68 Things last year. Number 63 on the list is Don’t Fetishize Failure with the tagline Failure blows. Don’t make it ok and say it was a learning experience. As expected more than a few people had an issue when CBI discouraged the celebration of failure in their newsletter earlier this week stating, “Acknowledging and being ok with failure is one of the best things about the startup community. We now celebrate the act of writing a startup failure post-mortem as courageous.
 “But it seems like we’ve gone too far.
 “Yes — we celebrate failure way too much.”

Did he go too far?

I don’t think so and I say this highlighting an important part of Anand’s statement, “We now celebrate the act of writing a startup failure post-mortem as courageous.” He goes on to differentiate between rare deep self-reflection and admission of errors and the superficial self-indulgant tweet or post, both of which are certain to see a torrent of congratulatory tweets and comments. He finishes with what seems to be the startup community’s “everyone gets a trophy, “Yup — in Startupland, everyone is a winner.”

Recently, I was asked if I was going to fire an employee who made a mistake that cost the company $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to hire his experience?
 Thomas J. Watson

Which brings up back to the good and bad of failure. It’s a balancing act. Failure in and of itself should not characterize those attempting great things and falling short as “Losers”. At the same time, admitting failure in today’s climate of failure acceptance, should not label these folks as brave. In fact, we should focus on the reasons a startup community should embrace risky attempts and celebrate learnings from both successful and failed experirements. We want to move the needle forward, we want to do things better, do things smarter, and leave the world better than we found it. At a time of decelerating startups, communities must encourage smart attempts to build businesses.

What is the startup failure rate? There is a lot of data points and it seems the 8 or even 9 out of 10 we often here quoted misses more than a few successes. Here are a few sources you may want to check out.
 Fortune Magazine suggests the actual failure rate of startups is closer to 60% than the higher numbers often quoted.
 Failory has this cool infographic to help you see failure by industry and by cause.
Failure Rate Infographic
Failory Inforgraphic

To help this happen faster, we need to accept failure as a part of the process, encourage deep reflection on things that worked, those things that did not work, how decisions were made, and what should be next. Done correctly, when things do not go as planned you have the opportunity to prove a hypothesis wrong. When executed correctly, these lessons are invaluable as often there is no way other than experimentation to test this hypothesis. Testing early, often, and as cheaply as possible allows you to learn a lot. Hopefully, you will learn enough to avoid needing to post a failure article. If not, you can help others avoid the same mistakes, or perhaps lesson the cost of testing their hypotheses.

At the same time, success — measured by return on capital and community benefits — is the goal. Failure, the going out of business kind, hurts. At least it should. Fighting against the odds, even when the knowledge of how to increase your chances of success are readily available, is not brave, it’s kinda dumb. Celebrating those hapless souls who overspent or underinvestigated or followed the same well-worn path of failure do not need to be congratulated. At best, they need to be supported and shown where they can expect to receive help.

Originally published at Dwayne Nesmith.