Failure: The Cornerstone of a Successful Startup Community

This article appeared in Khaleejesque Magazine, ECONOMICS Issue, published March, 2015. A PDF copy of the article is available here. It is published on this blog with the consent of the author and magazine. All credits and copyrights are reserved to Khaleejesque, 2015. Click here to subscribe to Khaleejesque, or follow them on Instagram @Khaleejesque

Author: Hashim Bahbahani

Print Artwork: Khaleejesque Team

4 min read.

I paused momentarily as I stood outside the meeting room, took a deep breath, tightened my left hand grip on my laptop briefcase, exhaled, and slowly turned the door handle to enter what I knew would be the last-ever meeting for our startup. There was only one item on the agenda: shutting down.

Even as I took my seat at the meeting table and drew a sip out of what seemed to be the blandest cup of coffee I have ever tasted, I thought one more time about reversing my decision to end our startup venture. In truth, I had spent more than a month agonizing over this decision. I fully understood the cold facts: our e-commerce platform for small businesses was not gaining enough traction or engagement, we were out of money, and we had little to show for after three years of trial and error.

But I also understood that shutting down our startup meant that I had to publicly admit failure and live with all the ramifications such an admission entailed. That, above all, was my source of agony.

In the Gulf region, thousands of startups founded by ambitious entrepreneurs have to deal with facing failure. Failure, after all, is the more likely scenario for a startup, statistically speaking. This fact is fully embraced in developed startup ecosystems, where failure is celebrated and thought of as a rite of passage for entrepreneurs. In Silicon Valley, for example, “Fail Fast” is a divine mantra meant to encourage startups to rapidly try everything possible to make an idea successful, admit failure if it doesn’t work, learn from the experience, and take those lessons forward to the next venture.

This definition is a stark contrast to how failure is perceived in the Gulf region. Abdullah Asiri, founder and CEO of Saudi based startups ShopMate and Waqood Tech, remarks: “In global tech hubs, true failure is defined as stopping after the first unsuccessful try. If you don’t learn from the lessons of your first experience and apply them to the next startup (or the one after that), it renders the first attempt pointless. In mature startup economies, there is a lot of encouragement to openly discuss your failure in order to dissect it and learn as much as possible from it, and then try again.”

Asiri believes this encouragement is absent in the Gulf startup scene because there is a heavy punishment for failure.

“Here (in the GCC), it is very difficult for entrepreneurs to try again in a new startup because the backlash they confront from society after their first failure makes it unbearable to take another chance and risk facing such societal pressure again,” Asiri continues. “Moreover, investors here become much less inclined to invest with you if you have previous failures. In short, this pressure and punishment inhibit an unsuccessful attempt from becoming a learning experience. It makes failure permanent.”

Asiri’s comment on investor behavior in the Gulf region is critical. Venture Capital (capital invested in new or expanding businesses in which there is substantial risk) is the bloodline of any startup ecosystem. While society plays an important role in encouraging a tolerance of failure, venture capitalists (VC’s) and angel investors (an individual investor who invests in high risk, high growth businesses) have the biggest impact. If investors refuse to invest in a startup because of the past failures of its founders, then those investors are tangibly punishing failure.

In order to further understand how investors in the GCC, both corporate and individual, react to past failures from entrepreneurs, I spoke with Mona Al-Mukhaizeem, co-founder of Kuwaiti startup accelerator Sirdab Lab, and an angel investor herself.

“Investors in the Gulf are accustomed to low risk investments, such as real estate or debt bonds. They have limited tolerance for failure,” Al-Mukhaizeem remarked. “A strong Venture Capital firm or angel investor must possess a different mentality; one that is more realistic about the risk of failure for startups. Without such investor mentality, capital will never flow into the GCC startup economy.”

However, Al-Mukhaizeem, who has experience with VC’s in Silicon Valley, believes that there’s a gradual shift in the way investors in the region evaluate startups: “There is a new breed of angel investors and VC’s in the Gulf region who understand that nine times out of ten startups will fail. But the impact and reward from that one successful startup more than makes up for the shortcomings of those unsuccessful ventures. Thus, this new generation of investors is willing to give promising startup teams multiple chances to succeed. It’s a very important change towards building a successful startup community.”

Al-Mukhaizeem has also noticed through her heavy involvement in Sirdab Lab and the GCC startup scene that founders who fail are finding more support and encouragement.

“In the past, we saw founders clinging on to floundering startups because they did not want to be portrayed as failures by their friends, family, and peers. However, as a sense of community and togetherness fosters in the startup community, more people are sharing their experiences with failed businesses. An optimal learning curve is only achievable if entrepreneurs have the chance to learn from their own mistakes, as well as the mistakes of others,” concluded Al-Mukhaizeem.

Fundamentally, startups are experiments of innovation. As is the nature of innovation, there must be multiple attempts before success is realized. For multiple attempts to occur, society, investors, and entrepreneurs have to perceive failure as a step in the learning ladder. As the Gulf community gradually shifts towards a “fail well, fail fast, try again” mentality, a more impactful and inventive startup community will thrive. Lest we forget, Edison burnt a thousand light bulbs before one finally lit up the world.

This article appeared in Khaleejesque Magazine, ECONOMICS Issue, published March, 2015. A PDF copy of the article is available here. It is published on this blog with the consent of the author and magazine. All credits and copyrights are reserved to Khaleejesque, 2015. Click here to subscribe to Khaleejesque, or follow them on Instagram @Khaleejesque