Failure is always an option when building a startup business. It’s the risk every entrepreneur faces. When investors bet on fledgling companies, most of them know the risk is high. Many think that they can beat the odds, but most can’t. The important issue is what can you learn and how can you recover from a startup failure.
Shikhar Ghosh, a Harvard Business School lecturer, released research that shows venture-backed startups fail at a much higher rate than previously thought. Three out of four new firms that take venture capital fail to deliver projected returns, Ghosh told the WSJ. That statistic dwarfs previous estimates by the National Venture Capital Association that predicted the startup failure rate at only 25 to 30 percent.
The notion that startup investments frequently fail to deliver returns has prompted some to say the venture-capital model is broken.
Failure is frustrating, but the potential for success is always tempting
Overall, the VC industry hasn’t produced its promised returns for more than ten years, according to a recent report by the Kauffman Foundation.
“Over the past decade, public stock markets have outperformed the average venture capital fund,” Kauffman said. “For 15 years, VC funds have failed to return to investors the significant amounts of cash invested, despite high-profile successes, including Google, Groupon and LinkedIn.”
This fact is frustrating to those whose companies fail, but it is those homeruns that keep VCs in the game. And while they are few and far between, successful startups on average sell for $196.8 million and give shareholders a 676 percent return.
What’s the right attitude?
Those who are discouraged by their new company’s failure should adopt the bold attitude of a Silicon Valley entrepreneur. By accepting the inevitability of failure while keeping their eye on the prize, these entrepreneurs view failure as a step to future success.
Their attitude was researched by Dr. Keith Devlin, Stanford mathematics professor. From the Huffington Post: “Companies fail here all the time. The Valley draws its strength and amazing resilience from the fact that failure is not only accepted, it is expected and encouraged.” Devlin continues. “One of the mantras in the Valley is this: ‘If four-out-of-five (the ratio varies depending who says it) of your attempts don’t fail, you’re not being bold enough.’ Failure is the fastest route to success there is.”
This phenomenon was viewed by some of their denizens as disrespectful, which Devlin quickly defends. “To anyone familiar with the Valley, my attention-grabbing headline was not an attack but a (mundane) observation of life in these parts,” he says.
Failure is not cause for despair
Devlin’s point is that one experiencing hardship shouldn’t let failure cause them to give up in despair. Rather, it’s better to know what we are up against, and thereby increase the chances of success. In the final analysis, success is what Silicon Valley strives for.
“After all, when two young Stanford grad students told their supervisor (a friend of mine) that they wanted to try to build a better search engine, he told them that the problem was hopeless, and that Alta Vista was probably as good as could be achieved. Fortunately, Sergey Brin and Larry Page went ahead anyway, and now the world has Google.”
