Why “The Culture of Failure” is Imperative to Startup Communities

Posted on Nov 4, 2012 | 22 comments


I recently wrote about the 12 tips to building successful startup communities. After a recent discussion I had with Steve Blank it made me remember that I had left off one of the most critical factors – a culture of failure.

I remember this lesson well. I lived in London from 1997-2005 and for 6 of those years ran my startup based out of London. At this time I can tell you that the Brits definitely didn’t have a culture of failure. If your startup went belly-up (the Brits have a much more crude slang term for it) there wasn’t likely somebody lined up to fund your next attempt at a startup.

It was a strange contrast for me having grown up in Northern California where failure seemed to be a badge of honor.  I had this discussion with Steve with the camera rolling and we talked about “The Secret History of Silicon Valley” as place that largely grew out of defense and government spending plus research labs around the Stanford campus.

You can watch the video of us discussing this and other topics here.

It seems plausible to me that a scientific community built on the principles of trial-and-error (emphasis on the latter), measurement, refinement, discovery and then scaling around the very few ideas that actually worked would breed a strong culture of tolerance for things that didn’t work but for which strong effort and rational thinking went into the failure. If you were a science man and you failed by proving a hypothesis was incorrect – that was ok! And if you had the right credentials to lead people to believe that your next idea was more likely to be right than other people’s ideas then you were certainly backable.

I think the fact that NorCal didn’t have strong industries in financial services, manufacturing, autos, marketing or other traditional industries also made experimentation more acceptable. I am often reminded of the story of the building of Chicago and the rise of modern skyscrapers of glass & steel with non-load-bearing walls as talked about in The Fountainhead but also chronicled in history books and in the many architectural tours I’ve taken in Chicago. Builders in NY were less willing to abandon traditional building methods and ornate edifices. But after The Great Chicago Fire of 1871 the city had to build from scratch. And every visionary architect and builder wanted a chance at building the future.

Failure is critical. I talk about it often including in my own personal narrative. Everything I learned about startups I learned by making mistakes at my first one. Which is why I often tell people to start being entrepreneurs when one is young.

Failure in startups seems to now be embedded in startup communities like NY and LA. I’m absolutely certain it is critical to any startup community. But I’m not exactly sure how to drive its acceptance or whether it must just come organically. Maybe the first step is talking openly about it. It’s why I love the idea of the FailCon conference and hope to speak there one day.

And if you want my presentation on the things I Effed Up at my first startup you can view or download the short PPT by clicking that link on Docstoc.

I’d love to hear your thoughts on failure in your community and whether it’s accepted or not. And ideas you have to drive acceptance. I will see you in the comments section afterward.

Anyhow.

There are very people that somebody with ADD like me could sit and listen to for hours. Steve Blank is one of those people and I consider him to be one of the clearest thinkers in Silicon Valley.  He is also out with a brilliant new book, “The Startup Owners Manual” and a new FREE courses on entrepreneurship at Udemy, which are here.

I had the chance to sit down with Steve for an hour and ask any question I wanted and it was an absolute pleasure. If you have the chance to watch this interview I think you’ll really enjoy it.  Steve isn’t afraid of taking on controversial topics and he did so in my interview.

But as usual there is a short summary to know the key topics where you can just skip to the critical point in the video you want to watch. This video is pure gold.

1:00 My guest today is Steve Blank. Steve, thanks so much for joining us today! What brings you to LA?
1:45 Are you also making your Udacity class available online?
3:30 What is the class all about?
4:30 How did you come up with the idea of customer development?
11:00 How do you think the ‘failure’ culture emerged in Silicon Valley?
14:00 How can we bring that culture to other places?
16:00 Question from the chat: Is it hard to replicate Silicon Valley? Should we even try to?
20:30 Your wrote a book called “The Four Steps to Epiphany” that’s a classic, and now your newest book is “The Startup Owners Manual.” What’s that one all about?
23:45 In your online course, you talk about what makes startup companies fundamentally different. So what is that?
27:00 Steve: The secret step in the middle of a company’s lifecycle is “build.”
31:45 Is there truth to the idea that you shouldn’t force change upon entrepreneurs?
32:30 Question from the chat: What did Steve learn the most from E.piphany?
33:15 Thank you to Detroit Venture Partners for supporting the show. Everyone give them a big thanks @dvptweets.
34:45 Do ADD and entrepreneurship go hand-in-hand?
37:45 Let’s talk about the dichotomy between customer development and Y Combinator?
41:00 Do you think that sometimes the businesses that come out of YC are not fully baked?
43:30 Is Silicon Valley just trying to build “hit businesses” without a lot of thought behind them?
46:00 Do you believe that most of the disruption over the last few years has some from Elon Musk and Sebastian Thrun?
49:30 Steve: When’s the last time venture capital actually led an innovation?
50:30 Will Udacity change the education system in this country?
55:45 It seems obvious that technology is the natural choice to solve the pain points in education.
1:00:00 Mark and Steve discuss the role of unions in education.
1:03:15 Thank you to Scott Walker at Walker Corporate Law for supporting the show. Everyone check his services out at walkercorporatelaw.com.
1:10:00 Niche services and when they have a place in the startup ecosystem.
1:13:30 Thank you to Walker Corporate Law and Detroit Venture Partners for supporting the show. And thank you to Steve Blank for joining me today.

  • http://www.facebook.com/andreas.shepard Andreas Shepard

    Small typo: the great Chicago fire happened in 1871, not 1971. Appropriately, 1871 is also the name of a recently opened startup co-working facility downtown (see 1871.com)

  • http://bothsidesofthetable.com msuster

    doh. thank you for spotting. of course

  • http://beta.rocketlistings.com/ Brian Sirkia

    Great post Mark. As an entrepreneur it’s awesome to have the freedom to experiment, fail, and do something new (at my startup thats just a few months old we’ve had a couple key failures) without having an investor or advisor get mad that things aren’t going faster.

    My only question is how to guard against being too ok with failure, i.e., losing a sense of urgency to succeed because failing is totally fine anyway.

  • http://www.onetact.co/ Rishi

    Mark, Great post, and thanks for the PPT.

    Many people will ask you to “take big risks”, but really don’t appreciate failures. Classic case in point is Wall St. vs. Silicon Valley (SV). If you risk it and fail in Wall St., you’re doomed! Whereas the tech. community in SV sees failure in a positive light. The point is, I think one needs to be able to take risks BUT also needs to be surrounded by a community that encourages failures. Your post got me thinking about this, and I think it’s the motivation behind the risks that’s different between Wall St. and SV; Wall St. is motivated by money whereas people in SV are often motivated by the thought that they might be making an impact by creating something new (money follows if you’re successful).

    Completely agree on the point that people need to start early, experiment, make mistakes, and learn…BUT I think it’s also critical that people learn from others’ mistakes. The landscape in SV or other tech. communities like NY, LA, Boston (and emerging communities such as India, Israel etc.) has changed so much in the last 5-7 years; there are more investors, accelerators, incubators etc. than ever before…one should no longer be making basic start-up mistakes, but instead should be learning from others’ mistakes. Also, it might sound that with such a support system the failure rate can be reduced, but I think it just means more people can now attempt to fail…fail at something new.

  • Ben Abbott

    In my opinion the best way to keep a culture of failure alive is to honor the failures in a community and keep the great successes in perspective. If every entrepreneur is just trying to imitate the latest greatest thing then there’s never a truly new idea.

  • http://x.co/gmglobal +++++ My Global Website +++++

    because 90% of startups funded by VCs fail or never make money

  • http://arnoldwaldstein.com/ awaldstein

    Thanks Mark…

    Dylan said it best:

    ‘No success like failure and failure is no success at all’

    Not just words but keeps the balance that winning is the goal and glamorizing the ok to fail beyond a point, looses the edge.

  • http://www.facebook.com/derek.pappas.1 Derek Pappas

    I am a former Intel microprocessor and design automation engineer. I had two start ups fail in 2008. Yes, I know never try to do two start ups at the same time. One was an EDA tool that required a methodology/architectural type of sale. Two semi companies taped out chips using the tool. Some of Intel’s top planners said that Intel could save $25-50 million/year in development costs if they used this tool. But the sale could not be made for political reasons. Changing chip design flows and methodology is like changing Washington, DC. Things change slowly. We could not get funding in 2008 because as one of my friend’s who is a semiconductor VC says, “EDA and semi are a disaster” and then Lehman Brothers “blew up”.

    When the company was started in 2006 the market for front end RTL tools was hot and there were lots of start ups that had $5-25 million in funding. They all ended up being “fire sales”. Synopsys and Cadence decided to start a pricing war with “all you can eat” licenses, meaning company’s licensed all of the EDA tools from these vendors in a single deal. Then the VC’s stopped funding chip start ups for economic reasons (i.e. mask and verification costs sky rocketed). As a consequence small EDA companies could not get funded. However, no one was talking about this. You had to be in the inner circle to be “in the know”.

    The only way to be successful was to bootstrap. We were unable to bootstrap because the product required more development in order to generate enough revenue from licenses to sustain the company. We closed the development office. Two of us built a GUI that wrapped around the front infrastructure compiler and sold 2 licenses to semi companies thinking that would be sufficient to get a small investment to re-open a dev office. But it was not. People would not meet with us. The entire EDA market was in a meltdown. So we killed the company. The company was a failure. Did this failure help me in any way? Not really. It was a loss of time and money. Did it open any doors for me. No. It was a dead end. The shifting market resulted in structural changes that closed out any further opportunities in EDA and semi. So beware of shifting markets.

    The problem that the tool solved is still present and neither Cadence, Synopsys, nor any of the other EDA companies offer a solution in this area. Chip design engineers with 25+ years of experience at firms like Intel and NVidia say that Cadence or Synopsys should have offered this tool 15 years ago. We built these types of front end infrastructure generation tools in pieces at Intel, Sun, and NVidia. The tool consolidated all of the front end generation functions into one tool which has tremendous advantages.

    The lesson here is that you will fail if you try to build a product that requires a methodology/architecture type of sale and you do not have big bucks for a sales for and sales engineering team. This fatal flaw in the company was not obvious to even the most experienced semi and EDA executives that were advising the company. Not knowing this from the start is a recipe for disaster. The lesson also is that what you do not know is a company killer.

    The second company failed because of outsourcing execution problems. If you are going to outsource you must have a reliable team and a reliable management on the ground. Otherwise you are probably wasting a lot of time and money. This company was almost funded with $5 million. In hindsight it is a good thing it was not funded. It would have burned a big hole in the ground if it had been funded and used that team. Learning how to start and run an outsourced team is invaluable.

    These lessons have been learned and there is a new company which has reliable management on the ground and controls in place to ensure that the team executes.

  • http://mattr.co/ Jack Holt

    I think about this a lot, Mark, as I share time between SF and Austin.

    Whenever I tell Austinites that our main office is in SF, I always get the question, “is SF/ Bay Area really better for startups than Austin?”

    After doing this for almost 2 years, I think I know why: the Bay Area has the entrepreneurial foundation that Austin lacks. These are the people who cashed out decades ago and support entrepreneurs with angel $, contacts, and emotional (your badge of failure) support.

    Just look at our VCs – after the tech bubble burst, our largest, Austin Ventures, morphed into a Private Equity company and is just now funding some early stage companies. Our biggest star, Mike Maples, left Austin for the Bay Area.

    We’re (www.whitli.com) a year away from raising $ and yet I have only one VC on my list from Austin, with 15 in the Bay Area and NYC.

    Give Austin another go-around – we have Homeaway, Bazaarvoice, SpiceWorks, and some others that are becoming liquid.

    But it takes generations – no Silver Bullet in creating a Silicon Valley, sadly. Jack

  • http://www.facebook.com/people/Saurabh-Sharma/629363522 Saurabh Sharma

    Mark – great article. Would like to add a couple of thoughts, both arising from my career experience at a consumer finance firm. First, I’d suggest that having a “culture of failure” is imperative for any organization/ecosystem, not just an entrepreneurial one. I’m sure there are numerous examples of companies that were once great, but were unable to continue to innovate for fear of failing. Second, I don’t necessarily agree that you need to take the entire financial services vertical out of the areas where failure is considered ok. When I worked at Capital One, every single business approach was continuously tested against other challengers, and “failure” wasn’t really an outcome of this testing – the outcome was always an insight. You always knew whether something worked or didn’t work – the experiment never failed! In fact, that firm might be one of the biggest labs in corporate America, focusing on scientific experiments & hypothesis testing. I understand that traditionally consumer finance may not sound like a very entrepreneurial culture, but there are some shining beacons out there!

  • http://bothsidesofthetable.com msuster

    I think you need to have a strong personal sense that you’re not going to fail, but if you do the community needs to embrace that you failed having tried hard and having failed honorably. When people give up early or don’t try hard enough to make things work it turns me off when considering their next venture.

  • http://bothsidesofthetable.com msuster

    always important to study others’ failures. For sure. I often ask this in pitches – “what have you learned from others who have tried what you are doing before and did not succeed.” If they don’t know, it’s a bad sign. Thanks for the comment.

  • http://bothsidesofthetable.com msuster

    Dylan, Nice! Yes, I believe in winning. And I don’t believe in quitting. And I believe in a never give up mentality. But I also know that many communities shun people who tried earnestly and failed. I hear it a lot in back-room discussions. I think the biggest thing to look at is … how they failed.

  • http://bothsidesofthetable.com msuster

    Thanks for the story. It’s true that you must understand the nature of the buyers, the politics of decision-making, the length of the sales cycle, the willingness of VCs to fund that period, etc. It is very hard to change people’s working behaviors. For sure.

  • http://bothsidesofthetable.com msuster

    It does take a long time to build communities, for sure. and people under-estimate the power of the broader SV community as though a few angels, local startups and local press can replicate it. But Austin must be a helluva lot better than many other communities. I love the entrepreneurial spirit I sense when I’m there – if not at a smaller scale.

  • http://twitter.com/nataliablagburn Natalia

    I think we in Britain have moved on quite a bit
    in regards to attitude to failure. I normally ask entrepreneurs that have
    previous failed start-up experience about how they handled it and what would their
    original investors say. Their answer would tell me a lot about whether they actually
    learnt from the experience and if they are worth backing again.

  • http://twitter.com/sebasnevado Sebastian

    Encouraging post Mark, specially for those of us in the other side of the Atlantic. In continental Europe we are far far behind in this topic. Why? Look at the roots of a nations, and you’ll understand its culture. Solution? Having more successful entrepreneurs with failure stories behind them…

  • Jos Burger

    People with ADD are a blessing in my life. If they don’t listen to me I am pretty sure I am bullshitting. They help keeping me on the right track.

  • http://www.facebook.com/people/Fredi-Fernandez/1195505620 Fredi Fernandez

    Dear Mark,
    Going through the things you Effed up at your first StartUp:

    I feel that some of the things you consider mistakes might have played a positive impact in your StartUp.

    -Too many cofounders – does not validate your business in front of potential investors? (Of course assuming all founders are good professionals with good reputations)

    - Internationalized too early – with fierce competition over the world, how do you know there’s not another StartUp launching before you? Or hitting first is not an advantage? you better be better the fast follower to learn from the leader’s mistakes?

    -launching too many products – Yes, we better be laser focused BUT how do we know if we are not missing a good opportunity to get feedback from clients for different product lines and drop the ones are not worth following anymore?

    -Raising too much money – How do you know the amount you’d need? Normally there’s no proven business model (in early stages) and your capex and other expense projections are never going to be close to reality. Better be long than short in cash, right?

    - Prostitute for revenue – is it not one of the aspects of bootstrapping?

    - Charge too much – pricing is one of the hardest things. How do you approach that for a new products? focus groups are worth it?

    I am just trying to think over this as those decisions might not be mistakes for all scenarios or StartUps. All worth to take in account though ! Thanks for sharing them !

  • http://www.facebook.com/emiliano.reynares Emiliano Reynares

    Both the article and the presentation…really useful resources

  • http://about.me/carl_rahn_griffith/ Carl Rahn Griffith

    UK culture hasn’t changed much, sadly.

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