Friday 2011-02-18

It seems like the tech startup community has been trying to rehabilitate "failure" into an acceptable mode of operation. See Sivers' video, or Markham, or even Paul Tudor Jones.

When Sarah Lacy dropped by SG, I asked her about her research on emerging market entrepreneurs; she had been talking about their successes, and I wanted to hear about their failures. She replied that she didn't like to use the word "failure", and didn't have anything to share.

I didn't ask that because I think Failures Define The Person; rather, when you see a lot of failures clustered around something, there's probably something interesting there. From a bunch of dead cavemen bodies clustered around some berry-bearing bush, to failed startups in growing economies, understanding how people failed can bring insights like poison-tipping your arrows or launching a company that works.

Ideally, we'd see all the failures of the world, avoid them, and test our new ideas in a controlled fashion, so that the odds of running into a new failure would be quite small. However, the startup community does not seem to recommend this path, rather they try to emphasize the benefits of failure, as opposed to the costs.

Taking an economic perspective, does Failure seem like a normal good or an inferior; i.e. as we get richer, do we engage in more failure or in less? Financial crisis jokes aside, the more wealth people have, the less failure impacts them and also the fewer risks they need to run.

From a historical perspective, many successful entrepreneurs worked in their industries for years before starting their own firms. Over those years, they accumulated wealth: financial and knowledge capital, industry contacts, and a reputation. First, they mitigated the risks of failure, then they struck.

So why re-image Failure now? The ultimate cause is that the costs to startup an internet firm have fallen drastically over the last ten years. However, I think it appeals to several interest groups:

Public -- consumers love competition, the successful startups will help bring costs down
Media -- the riskier it is, the more apt it is to be covered, as it makes for better copy
VCs -- youthful entrepreneurs with little capital need them, older wealthier ones just need the VC sales channel, if that

As countries develop, the capital buildup and the expansion in leisure time work together with reduced costs of production to increase the supply of works. Whether they be new companies, art, books, or blog posts, this torrent of output has overwhelmed the old ways of managing that flow (bankers/VCs, galleries, publishers/bookstores).

As Ryan relates, adapting to this deluge isn't easy. What do we need to know to be a contributing member to society? I'm moving towards the StephensonsAnathem view of letting time filter out the junk, although I cheat and send emissaries out into the world to bring back specific monitoring data.

Though, I'll still sit and listen to a story about an interesting failure.

There's interesting labeling with the word "failure" Especially when projected towards other people. I think I like to rephrase it now (of course only when dealing with someone else) as either something like: "greatest challenge" or "most difficult realization" I think the former speaks to a hurdle that you face, whether you overcome it or not is then secondary. The latter is then about that moment of truth where you realize something isn't going to go the way you want. I think the interesting part isn't where things went wrong, but how people adapted to such situations or realizations. Book recommendation on that note, then: Firing Back. HBS press I think, but it's filled with stories of how people bounced back from [career] disasters. I only read the first chapter, but it's high on my list of non-fiction to read. -- Ryan