Opinion

September 2, 2019

Why failure should not be celebrated in the startup world

More than 90% of entrepreneurial businesses in Europe will fail. That’s an appalling statistic.


Louise Nicolson

4 min read

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Being an entrepreneur is more uncertain, more complex, more stressful, more pressured and less lucrative than regular corporate work.  We know — despite the blood, sweat and tears invested — around 90% of entrepreneurial businesses will fail. This figure comes from a 2017 report by the UK Treasury, later confirmed by The Start-up Genome Project’s analysis of over 3,200 high-growth start-ups.  Stateside statistics match.  According to Harvard Business School cohort analysis, more than 90% of tech-centric, venture capital-backed start-ups fail.

But we drown out these statistics with bravado.  The Entrepreneurial Myth whispers: go on, have a shot, move fast, fail fast.  “I’ve been failing for as long as I can remember,” says Virgin Group founder Richard Branson.  “If you aren’t failing, you are not innovating enough,” says Tesla-founder Elon Musk.

But not all failures are equal. Those promoting business risk and celebrating failure, often do so from a position of success and wealth.  If Branson wasn’t a success, you wouldn’t hear his tale of failure. Success gives star entrepreneurs the platform but hollows out their message.  Those who are arguably as talented but didn’t receive the break or the call — the real failures, if you like — remain invisible.

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The impact of failure is also skewed.  We expect entrepreneurs to privately shoulder the financial and psychological cost of business failure.  But if entrepreneurial businesses succeed, society reaps the benefit.  Economies rest on the jobs, wealth, tax and glory generated, traded for the health and wellbeing of the person who generates it.  This inevitably has an impact.

Research by the University of California’s Michael Freeman linked higher rates of mental health issues with entrepreneurship.  The 2019 Entrepreneur Pressure and Wellbeing Study claimed 77% founders felt their business affected their mental health.  Discussion about these emerging patterns tends to focus on personal coping strategies such as coaching, training and safe spaces.  While these essential interventions are long overdue, there is also an unexamined structural flaw at the heart of enterprise.

Not only do we accept appalling business success rates, but we also misrepresent entrepreneurship as easy, failure as personal and the churn of business creation and insolvency as inevitable.  Name another economic sector that tolerates the almost certain probability of losing the millions invested.  We should be outraged about business failure rates and appalled about the impact on founders.  We can do better than this.  Perhaps it is time to think about failure like an aviator.

Aviation manufacturers and operators collaborate – despite ferocious competition – to learn from failure, rather than measure each other against it.  They methodically share, examine and address causes of failure.  A flight – like a business – is a complex system of mechanical equipment, maintenance schedules, fallible leaders, team dynamics and uncontrollable external influences. Analysis of aviation incidents considers the whole system – the plane and the pilot and everything in between.

Such ‘human factors’ analysis often relies on a quirkily titled ‘swiss cheese model’ to envision how ‘holes’ in an organization’s defensive layers align to create the perfect conditions for failure.  An entrepreneurial hole might be a duff decision impacting cash flow or the prolonged absence of your co-founder; it might be a change in your customer’s strategy or wider economic recession.  A start-up might flex to handle one or two holes but, if they all align, the business fails.  There are patterns buried in entrepreneurship’s 90% failure rate.  If aviation, energy, banking and healthcare industries can learn from the swiss cheese model, so can entrepreneurship.

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Let’s pool the data of the 90%, draw the patterns and learn the lessons.  Sharing data, as well as stories, requires an open national business culture where entrepreneurs report failure factors without shame, blame and recourse.  We must then systematically analyse this data to find the holes and identify situational, geographical, sectoral, temporal and behavioural clusters in the failed 90%.  These clusters and patterns present us with an opportunity to recalibrate business success, to save and scale good businesses, to equip and empower more entrepreneurs to succeed.  Data, not celebratory bravado, creates an opportunity to collaborate to tackle the root causes of failure – just as they do in other industries.

The prize is huge.  If business success rates improved by just 10%, back of the envelope calculations indicate it could be worth £19.6bn to the UK economy, $850bn to the US economy.  Most importantly, any economic benefit is coupled with the unquantifiable human benefit of preserving entrepreneurial wellbeing.  Now that really is something to celebrate.