The Downside of the Startup Failure Craze

by Lydia DePillis | December 4, 2012

In 2010, Schuyler Brown had his first experience with a feeling all too familiar for startup founders: failure. His branding strategy firm was struggling, and it was time to move on. 

“I felt like shit,” he says. “I felt like personally I was a failure, that personally it was something to be ashamed of. And I was just trying to understand what happened.”

The problem was, at that time, not many people were talking about what it’s like to give up. Media tends to celebrate the people who make it, after all, not the people who fade away—which gives would-be founders a skewed perspective on what starting a tech company is really like. 

“The stories that were on the front pages of Fast Company and Inc. were all about big sexy IPOs and how cool startups were,” Brown says. “I just wasn’t seeing that. I was seeing the daily grind of waking up and having the phone hung up on, having customers saying no...I wanted to start to share those stories so that people who are interested in startups, really interested, would understand what they were getting into.”

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So Brown embarked on a new project: Founders@Fail, a website for CEOs to share stories about their rocky moments (and usually, redemption). With the tagline “Failure is Fuel,” he now puts on events, hosts a weekly web video stream, and sells DVDs. And Brown wasn’t alone. Pleas for more stories of failure were answered with whole anthologies. New Yorkers held funerals for failed startups, and founders were flocking to FailCon, a confab of garment-rending entrepreneurs, which has become an annual event and even expanded internationally. 

There’s no longer a lack of information about what it’s like to flop—and the backlash has begun. Last week, venture capitalist Josh Felser tweeted that the “‘learning from failure’ thing is overrated” and “gets glamorized.” The observation set off a flurry of debate, including plenty of agreement with Felser (“let them fail in college or on their own dime,” one investor wrote). 

“Something struck me, I’m tired of hearing about it,” Felser explained later. “It became very PC to talk about how failing produces such incredible learning, and it’s okay to fail. The danger is it’s kind of de-risked being an entrepreneur.”

In other words, there’s a reason the business world has a fear of failure—and even mighty Silicon Valley can’t afford to lose that sense completely. 

 

THE FAILURE FETISH has deep roots. Willingness to start over after a flop has long been considered a requirement for healthy startup ecosystems, and part of the inventors’ myth (Thomas Edison didn’t come up with the lightbulb on his first try, after all). Unlike regular small businesses, “startups” are often trying new business models with new technology, making it harder to anticipate fatal flaws. While estimates of failure rates vary, they’re all high—so statistically, lots of fizzling must be an indication that someone’s making it somewhere. “Silicon Valley is the startup failure capital of the world as well as the startup success capital of the world,” Palo Alto venture capitalist Peter Currie says. 

Nascent startup hubs in more conservative parts of the country could use more tolerance for things not working out. (In Cedar Rapids, Iowa, for example, the collapse of a telecommunications company backed by many local investors has made the town incredibly leery of supporting new tech businesses.) But in the Valley, the appreciation for quitters is getting out of control: The reverence of failure is starting to rival that of success. One respected startup accelerator even calls itself a “fail factory.” It’s a cheery new spin on not succeeding: The more you fail, the more you learn, thereby increasing your chances of hitting the jackpot in the future. Like the kid who built sixteen lousy Facebook apps before creating Mafia Wars.

The increasing appetite for failure fits this historical moment, when startups are the new rock bands: More inexperienced people are building businesses, and not necessarily because they’ve all hit on bankable ideas. Startup communities aren’t good at weeding out dumb concepts before someone invests time and money in them, because success can be unpredictable—who’d have thought Instagram would sell for a billion dollars?—and there’s no downside to cheerleading from the sidelines. Failure can also be less painful, since it costs so much less to start a business now than it used to; newbies can afford to use them as a training ground, and investors sometimes use them as market research. With a failure boom on the horizon, de-stigmatizing the practice becomes a pre-emptive psychological defense mechanism.

It’s even gotten to the point where a failure on your resume is more of a badge of honor than a black mark. One attempt is usually considered better than no experience at all—and maybe even as valuable as a win, if you buy Bill Gates’ opinion that success has its downsides as well. That’s great for the founders, who can fail and get a second chance, or a third or a fourth. But it sucks for the all the people they hired, who may have to go without income while they find another job (engineers are usually picked up quickly, but non-technical staff can have more trouble). 

And though it’s hard to feel too sorry for people sitting on mountains of cash, the other victims of startup failure are venture capitalists like Felser—they’re the ones who’ve thrown money down the drain when a business goes under. Investors who talk about how it’s okay to fail, Felser figures, are being a little dishonest.

“I think we as investors shouldn’t perpetuate the mythology,” he says. “It’s not how we as investors look at the world with our funding. We don’t want to back entrepreneurs who fail fast. We want to back entrepreneurs who never give up.” The mythology, as Felser puts it, is also perpetuated by the fact that most failure tales are told by people who picked themselves back up and later triumphed--those who failed and never founded again aren’t crowing about how much they learned in the process.

There’s another problem with the failure-makes-you-stronger meme: It’s wrong. Google’s venture capital arm ran the numbers, and found that entrepreneurs whose first business did well had a 29 percent chance of success on their second, compared to a 16 percent success rate for people who’d failed their the first time around (essentially the same as first timers, who succeed 15 percent of the time). A Harvard study from 2008 produced almost identical results. That makes sense: There are a zillion ways to fail, and resolving to avoid the mistake that did you in the first time doesn’t shield you from making another one. 

Sure, it’s possible to extract value from failure. But most of it is just wasted energy, and a high failure rate indicates that bad ideas are getting started when they shouldn’t. Silicon Valley has an amazing ability to recast its shortcomings as virtues. With a little more old-fashioned business savvy on the front end, it might not have to. 

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