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What Is With Startup Failure Fetish?

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Fear of failure is often cited as a reason for not starting a business, and it appears to be well-founded. A quarter of all new businesses in the U.S. fail in their first year, and 44 percent have called it a day by the end of the third, according to research published earlier this year by Statistics Brain.

But in tech start-up communities across the world, embracing – even celebrating – failure has rapidly become the norm. Now some industry-watchers think this “failure fetish” might have gone too far.

When Mike Townsend and Kyle Hill founded Flowtab in the U.S. in 2011, they thought they had come up with a great idea: an app that allowed customers to buy drinks in bars on their smartphones.

After two years, five employees, three apps and an acquisition offer, Townsend and Hill called it a day. But they didn’t give up quietly.

“We went through just about everything you could possibly go through in growing a start-up. So when we got to the end, it became obvious to us that what we’d learned would be hugely beneficial to other people,” Townsend told CNBC.

He decided to publish a detailed timeline of Flowtab’s life – from its conception to the day it, effectively, died.

This level of openness was novel at the time, with many entrepreneurs afraid of admitting that their business had not succeeded. In fact, it was this fear of failure that led Cass Phillipps to found FailCon, an annual conference for start-ups focused on failure.

“At start-up conferences, I noticed that entrepreneurs were exaggerating their success. They felt they could only talk about what was going well,” she told CNBC. “But actually, people wanted to hear about things that went badly – and how they overcame it.”

Phillipps certainly tapped into a growing trend, with discussions about failure now the norm in start-up communities.

‘The wrong extreme’

Tony Zappala, partner at U.S. venture capital firm Highland Capital’s Europe fund, said being transparent about failure was, on balance, a positive thing. But he warned there is a risk that the acceptance of failure could lead some to give up too soon.

“I love the transparency – it can permeate right through the team and gives out the message that it’s OK to try things. But it doesn’t mean that people shouldn’t try to succeed,” he told CNBC.

“Sometimes you wonder to what extent someone has really tried. It’s good to acknowledge failure, but it shouldn’t be an excuse for not giving it 100 percent.”

He said that in the U.S. in particular, there was a trend of “pivoting” – switching product ideas or strategies – when things didn’t go to plan, sometimes up to five times. “That’s the wrong extreme,” he added.

There’s also the risk that the celebration of failure gives it a certain kudos for start-ups, with the founders of many failed companies finding subsequent success.

One example of this is Fab.com. Now a successful online home décor and fashion store, the company’s cofounders Bradford Shellhammer and Jason Goldberg’s earlier start-up – a gay social network called Fabulis.com – didn’t work out.

“Their first idea, you could argue, failed. But it inspired them to do something else that worked really well,” Zappala said.

Too eager to fail?

Previous failure doesn’t always foreshadow future success, however. In a paper published earlier this year, researchers at Germany’s ZEW Center for Economic Research concluded: “Previously failed entrepreneurs are less likely to survive, and in common with entrepreneurs with mixed prior experiences, are more likely to experience bankruptcy.”

So are start-ups becoming too eager to fail? FailCon’s Phillipps doesn’t think so. For her, the problem is usually the opposite.

“Giving up early is just not an option for most entrepreneurs – it’s not who they are,” she said. “In fact, most people still take far too long to quit on a bad idea.”

But Phillipps said she did have one issue with start-ups’ penchant for not taking their failures too seriously.

“People can go too far in the way they talk failure,” she said. “Closing down a company can have huge ramifications: you might have lost someone else’s money, or sack employees. That’s not something to be flippant about.”

Townsend acknowledged that there was something cathartic about publishing Flowtab’s post-mortem, describing it as “a weight off our shoulders.” But he insisted the response to the timeline was overwhelmingly positive, from other entrepreneurs and investors alike.

“Start-ups are basically experiments, and if the experience doesn’t work it doesn’t mean the science is bad. Smart investors realize that,” he said. “You could say that publishing your failures is like a modern résumé.”

Reprinted by permission.

Image credit: CC by Chris Potter

About the author: Katrina Bishop

Katrina Bishop is a deputy news editor at CNBC.com. Previously, she worked as a business producer at Sky News and a copy editor at Dow Jones Newswires.

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