Culture of Failure

It used to be one of the most contrarian aspects of the culture of Silicon Valley -- rewarding failure. Entreprenuers who took risks and developed companies that ultimately failed were seen in the positive. People with real learning experiences that ultimately make them better entreprenuers. In risk management, without failures to model you have models doomed to fail.

Post-bubble, like many over-reactions, the valley shunned failure. This was made possible because the market for leadership was tight, so VCs and others could be so selective they could work with people that had a track record of success. Given the environmental forces we are all beholden too, such candidates also got by with a little luck of their own. The valley played it safe, but in reality was building teams of people that were predominantly risk averse.

The primary indicator of recovery I have been looking for is a return to a culture that rewards failure. Now comes the first article I have seen on the topic in years. Here is a healthy perspective:

"Having failed once or twice is a very normal and healthy thing to go through," says Roger Lee, a private investor in Friendster. "It would be virtually impossible for an entrepreneur to go through their career unscathed.

And one that misses the point:

Perhaps Evangelos Simoudis, a partner with venture capital firm Apax Partners Inc. in Menlo Park, sums up the dot-com stigma best: "We are not looking at individuals who got high-level executive positions at Internet companies and who really became successful because of the tide that had risen at the time. We've come back to the times when it's important for an executive to know how to behave when times are fast and frothy, as well as when there's a need for more precaution and slower burn."

If you weren't doing something risky and interesting during the bubble you missed more than an opportunity for wealth creation. Most people learned more in those fast years than they did in their entire career. The perspective gained of going through boom and bust at the least teaches you where you are in the cycle and what decisions matter. I can't imagine how any manager who went through it would not recognize past mistakes and false incentives (eyeballs instead of revenue, etc.). Part of an effective culture of failure is when people are recognized for conviction. Entreprenuers who continue to march on today have lived through some hard knocks and work within the constraints of market reality. Those who don't left a long time ago -- and good riddance.

If a culture can't accept and build upon failure, it will never be a success.

Comments

[Tim Oren]

Ross - I think there's a legitimate issue that's midpoint between the two articles you cite. Let's call it dot-com grade inflation. We see a fair number of ventures with team members whose qualifications nominally include things like IPOs or big M&A exits in the late '90s. In those cases, we take a look at the eventual fate of the venture, to see if it created lasting value, or if it exited due to the overheated market. The former is not fatal, but it needs to be scored as a 'part-failure', not a win, and the person involved should be up front about that and able to explain what happened, and what they learned.

[Stewart Butterfield]

Tim - do you mean the 'latter' above? Creating lasting value is good.(Right?)

[Tim Oren]

Duh, right! Monday, insufficient caffeine, bluh, bluh, bluh....

[Ross Mayfield]

Tim, makes sense to me (or now it does). We may learn more from failure than success, but success is success. Although at a discount, at least you are taking into account failure.

[Stewart Butterfield]

No problem Tim -- speaking as someone with apparent adult-onset dyslexia, that ain't nothing.

And, it is funny - speaking as someone with an exit on the record where the exit was mostly due to an overheated market, it is never simple to explain.

We had *just* reached profitability when we got acquired (good), but on the other hand the acquiring company went bust for other reasons a year later (bad). Our old business was then reacquired again during the bankruptcy proceedings and is being slowly run into the ground and is embarassing to point to now (worse).

We did a good job and are proud of our work, but three years later it is a little bit too long of a story to fully explain in our executive summary. So, we just count it as a 'small win' and quickly move on.

[robert paterson]

Please forgive the comments of an older person and let me be a tad sentimental about success and failure..

As I get older I find it harder to tell the difference. There are paradoxes attached to both. Neither are as good or as bad as they seem on the day. The problem with success is that we tend to get overconfident and even arrogant - the US Army in Iraq? The value of failure is that only failure causes one to reflect and take the deep action required. Japan after the second world war?

My other issue with the success and failure debate is that it assumes that we will end up in one or the other.

I am finding that at the end of our life the distinction falls away and all that is left are our experiences for good or bad and links to those that we shared them with.I am reminded of how the veterans of Gettysburg would act. Remember these were men who had been enemies and determined to kill each other. Both needed to have success at the wall that day.

So what did they do years later? Long lines of old men in grey walked up the hill again to the wall on Cemetary Ridge where long lines of old men in blue awaited them. On reaching the wall the men in blue with tears in the eyes helped the old men in grey across and embraced.

In the end it does not seem to matter much who won that day to those that were left.

I have had my share of both failure and success. What I recall the best is the struggle either way and the wonderful people I was so lucky to work with