Being an entrepreneur is one of the hardest jobs in the world. The odds of success are low and most people would never leave the safety and security of a steady job to venture out to build something that has never existed before.
We need to build a more ethical, inclusive, and resilient entrepreneur community that can take on the challenges of the 21st century and the first step is that we need to acknowledge and even celebrate the failures within our community.
Failure can be a dirty word in the entrepreneur community since the predominant press tends to celebrate the scrappy entrepreneur who builds a unicorn against the odds and is “crushing it”, both in business and in life.
We all know that it’s never that sunny in startup land since 90% of all venture-backed startups fail according to a report by the Startup Genome Project.
Celebrating our failures, as well as our successes, in a constructive and humble way will improve our community. It’s only by learning from our failures that we can become better.
CBInsights does this brilliantly with a periodic update of their analysis of The Top 20 Reasons Startups Fail. In their analysis, the top three reasons for failure are: No Market Need (42%), Ran out of Cash (29%), and Not the Right Team (23%).
Compare those numbers to what the Startup Genome Project (same link as above) found. Their findings showed that 70% of startups failed because they scaled too early on one of these five dimensions: customers, product, team, business model, or funding. Those root causes are important for all entrepreneurs to know.
This is refreshing for a community that traditionally shies away from saying anything is wrong or in trouble. When we only focus on successes, we get lured into only looking at success. This survival bias of successful startups gives us some insights but it a lopsided one. It’s precisely for this survivor bias that we must look at both success and failure equally while paying particular attention to what lessons can be learned from failure.
In a recent opinion piece for Sifted, Louise Nicolson penned an excellent argument on why failure should not be celebrated in the startup world but I don’t think it grasps the higher-level reason why we must focus on failure.
While I agree with the premise that entrepreneurs need more help and that we should learn from our mistakes, I disagree that failure should not be celebrated. It’s precisely the reason we have the insights we have. Failure must be raised to the level of success so that the stigma of failure does not hide the root causes that Nicolson wants to tease out.
Entrepreneurship is fundamentally rooted in the scientific method. An entrepreneur will propose a hypothesis and then goes to test it out. This method of postulate, test, and adjust is by its nature, prone to failure since it’s rare to know all the variables upfront. Even if you did know all the variables, it’s impossible to understand how the biggest variable in the system will behave -- customers.
Evidently, there are models for and guesses for how customers will behave but it’s nothing like a deterministic system that abides by the laws of physics or at least established processes and procedures that have been measured and refined. Entrepreneurs get no such luxury and thus have to innovate within a constantly changing landscape of features, schedules, and budgets to have a shot at building something that customers might want to buy.
Entrepreneurs do need a supportive community that makes them more resilient when they take on the risky business of creation. Industries such as the creative arts and sports have similar “failure” rates in terms of who’s on the bestseller list or who wins the Super Bowl.
In these industries, failure is always an option but never the final result since people can always try again by writing another book or playing in another season. This is exactly why celebrating failures is essential to a thriving entrepreneurial community. Entrepreneurs need to know that in the game of entrepreneurship, that if they fail, they can also play again.