Top 20 Reasons Startups Fail

 

Another Inc. article – “Why Silicon Valley Loves Failures” – looks more closely at why failures are such potent ingredients to success.

  • “In the mid-’90s, Kamran Elahian, a Silicon Valley entrepreneur, famously engraved his Ferrari F355′s license plate with Momenta, the name of a company he founded in 1989. Plenty of entrepreneurs ordered vanity plates for their company’s namesake, but Elahian was different: Momenta had gone bankrupt in 1992. ‘It’s to remind me not to be too proud,” Elahian told the San Francisco Chronicle back in 1998, when asked why he chose Momenta for his license plate. “Unlike other entrepreneurs who put the names of successful companies on license plates, I decided to put my biggest failure. That way, I have to be reminded of it every time I get in the car.’”
  • “Dave McClure, the angel investor and founder of 500 Startups, said the alternate name for his incubator was actually ‘fail factory.’ ‘We’re here trying to ‘manufacture fail’ on a regular basis, and we think that’s how you learn,’ he recently told Fast Company. ‘Getting used to that, bouncing back from that, being able to figure out what people hate and turn that into what people love…if you’re not willing to take the risk of failing and not experience failure, you’re never going to figure out what the right path is to success.’”

The article analyses are range of reasons why investors are so willing to embrace failure these days…

  1. Lower Cost – The cost of failure has dropped especially with cheaper, more accessible capital.
  2. Business Model/Structure Shift – Start-ups are a new model of outsourced R&D.
  3. ‘Culture Shift’ – New attitudes has made failure more acceptable.
  4. Economic Benefit – The countries with the highest failure rates have the more dynamic economies.

Video podcast by Randy Komisar expands further on this Silicon Valley ethos…

  • “That’s the deal in the Valley. We are going to hit less than .500. It is by definition the case. This is about experimentation. Innovation is about taking risks to do things that haven’t been done before.  If you could do them with a level of certainty that would increase the odds above 50%, we wouldn’t need Silicon Valley. Big companies would do it, and they would do it well. The reason why big companies don’t venture into what Silicon Valley does is because their business models do not tolerate the level of failure required for innovation. The only business model, solid business model, that has been created to deal with substantial amount of failure. So substantial that they are able to continually invest in failure, reaping the few successes they can, is the venture capital model. The portfolio model. Big returns on winners and a lot of losses.“

He says that what differentiates the Valley from other innovation centres around the world is a ‘culture of constructive failure.’ He defines it as “the ability to tolerate failure, proceed with your career, and do it again, and take your experience and cash in on it as an asset.” He also ventures into cultural differences citing China as a culture second only to the USA in terms of embracing failure.