Silicon Valley's Failure Fetish

In an industry where failure is endemic, it is not entirely without reason that it should have become a point of pride.

The reality is that the odds for tech startups are grim. According to a Harvard Business School study, approximately 75 percent of venture backed startups fail to return investors' capital. This is also consistent with research conducted by my colleagues and me in which it was revealed that the majority of tech IPOs fail to realize stock price increases after they have gone public.

There just happen to be a lot of new ideas. Not all of them are good, and even the ones that might be must contend with inexperienced managers, inadequate funding and a rapidly changing marketplace. In this environment, failure is a rite of passage as well as evidence of experience gained and lessons learned.

The challenge, as the following article explains, is in extracting meaning from the experience rather than merely celebrating it so that those who endured the travail dont squander either the knowledge or the capital. JL

Kevin Roose reports in New York Magazine:

In an industry known for sunny optimism, Silicon Valley has managed to turn failure into a bragging right.

Jonathan Abrams doesn’t seem like a haunted man. Ten years ago, the Toronto-born computer programmer was trying to save Friendster, the first-generation social network he had started, from being overtaken by a pair of nascent upstarts called MySpace and (more important) TheFacebook. It didn’t work, of course—in April 2004, Abrams was pushed out as CEO after a boardroom squabble, and Friendster went on to become perhaps the most famous runner-up in tech history. But today, he says that, as painful as it was, what happened at Friendster was more blessing than curse. “I’m sure there are some people who think, Oh, Friendster should have been Facebook, Jonathan’s an idiot,” he says, nursing a Diet Coke on a worn leather sofa in Founders Den, the San Francisco co-working space he started and uses as an office. “But for every person like that, there are probably ten people who are more likely to take my call because of it.”
The tech industry used to bury its dead quietly. For years, cash-starved companies sold themselves for peanuts in order to save face; friends bailed each other out with 11th-hour “acqui-hires,” and founders came up with euphemisms like “pivot” to soften the sting of defeat. But these days, start-up flameouts are increasingly serving as badges of honor, and stories like Abrams’s are being told at higher and higher volume. In an industry known for sunny optimism, Silicon Valley has managed to turn failure into a bragging right.

The odd trend seemed to come into focus earlier this year, when a start-up called Outbox announced that it was closing shop and, on the same day, another Silicon Valley venture, DrawQuest, sounded its own death knell in a self-flagellating blog post: “Today My Start­-up Failed.” Dozens more confessionals like these popped up around the same time: “First Start-up. First Flop”; “Anatomy of a Failed Start-up”; “Postmortem of a Venture-­Backed Start-up.” There are books about start-up setbacks, like venture capitalist Ben Horowitz’s recent bad-times manual The Hard Thing About Hard Things, and a handful of live events, like Startup Funeral and FailCon, that are meant to recast tech-world failure as something to be celebrated rather than shunned and shushed. In December, Paul Smith, a U.K.-based start-up adviser, griped about the rise of self-pitying mea culpas. “Failure has somehow become a fashionably acceptable outcome,” he wrote in a Medium essay. “Start-ups can go bust because of dreadful execution or woeful market knowledge, and founders are immediately surrounded by a circlejerk of backslapping.”

Why talk about failure at all? In part, the trend may be a concession to Silicon Valley’s messy reality. Even during a historic tech boom, the fact remains that the vast majority of start-ups die in their infancy. (Shikhar Ghosh, a senior lecturer at Harvard Business School, studied more than 2,000 venture-­­backed start-ups and found that roughly 75 percent of them failed to return investors’ capital.) But these missteps, numerous as they are, are rarely KOs. At many failed start-ups, defeated founders and engineers quickly move on to other ventures, investors write off their losses, and the tech world absorbs the hit without cascading into an industry­wide crisis. Given the gentle funeral that awaits many start-up deaths, the postmortem trend can also be seen as a psychological prophylactic, a clever way to shrink the stigma around failure and ensure that entrepreneurs keep gambling on crazy ideas, despite the likelihood that they’ll lose. It’s also a hopeful reminder that what starts as failure can morph into success. After all, Steve Jobs ran NeXT before he built Apple into a colossus, and Twitter was spun out of a DOA podcasting start-up called Odeo. If they kept going, the pep talk goes, so should you.

At its best, the start-up postmortem offers a founder the chance to self-reflect and apologize for mistakes made along the way. At worst, it’s a job application in disguise. Some tech retrospectives are so filled with humble-brags and hubris (if only we hadn’t been so far ahead of the curve!) that they don’t read like failure stories at all. “We built a world-class team of engineers, designers, marketers, and operations specialists,” wrote the Outbox founders, while eulogizing their mail-scanning start-up earlier this year. “Together, we made a product that was as beautiful as it was complex, and overcame nearly every obstacle in our path.”

Cass Phillipps, who came up with the idea for FailCon in 2009 after her social-media start-up bit the dust, originally wanted to create a safe space where entrepreneurs could lay down their pride and ask for help. “We felt that at every event we went to, we had to pretend everything was great,” she says. The first FailCon, held in San Francisco and filled with onstage talks about start-up adversity, attracted more than 400 attendees and speakers like PayPal’s Max Levchin and Zynga’s Mark Pincus; it’s since grown to more than a dozen cities around the world. But now, with the recent popularity of failure narratives, Phillipps has had to vet speakers to make sure they’re interested in honest introspection rather than buck passing or garnering publicity. “I don’t imagine many people are only writing these as self-help,” she says of the recent spate of failure blogging. “Seeing how viral these posts become, they know it definitely gets more attention to their names.”

Failure isn’t fun, of course, and for every Odeo that resurrects as Twitter, there are a thousand start-ups that end as smoldering heaps of rubble. And even in Silicon Valley—where most companies are privately held, and the public ones don’t expect taxpayer bailouts—there are still losers in a failure, like the pensions and endowments that invest in venture-capital firms and provide much of the money used to fund start-ups before they go under.

No one knows the road to recovery quite like Abrams, who spent the years after leaving Friendster building an Evite competitor called Socializr, opening a nightclub, and starting Founders Den. Now, he’s working on a new start-up called Nuzzel, a social news aggregator that launched to the public last week. He’s raised $1.7 million in venture capital for the start-up from a panel of all-star investors, including some of the same ones who funded Friendster a decade ago.

Abrams still feels a tinge of regret when he thinks about the employees who lost out when Friendster fizzled (“I wish those people would have made the shitload of money they should have,” he says), but he doesn’t categorize the company as a flop. After all, it signed up millions of users, popularized social networking, and still operates today (as a Malaysian gaming site, but still). And while Friendster didn’t exactly make Abrams Mark Zuckerberg, he’s not hurting for money—he unloaded some of his Friendster stock during its better days and made more when the company sold for $40 million in 2009.

Abrams has hired two former Friendster employees in his new company, including Kent Lindstrom, who is serving as Nuzzel’s COO. But as I prod the two of them about what happened at Friendster, Abrams wisely makes it clear that he’s done enough soul-searching for now. Like any good futurist, he’d rather talk about what’s next.

“You don’t want to fetishize failure,” he says. “You don’t want to be afraid of it, but you don’t want to glory in it either.”