Failure Is an Option

So I was on a panel at the America’s Competitiveness Forum last week, and found myself sitting next to Diego Ibanez of Incubadora Octantis, a technology incubator in Santiago, Chile.

He did a great job explaining what Octantis is doing… an especially impressive job when you realize that English is not his native language! Even if I weren’t the Stereotypical Monolingual American, I’d be terrified giving a presentation in a foreign country. I was impressed.

But I really started scribbling notes when he said one of their goals was to help entrepreneurs “Fail early and fail cheap.”

It’s not a new thought (see here and here), but it’s the first time that I’ve seen an incubator explicitly endorse failure.

Especially now, you can start a company for relative peanuts. (See Michael Kogon’s thoughts here [PDF].) If you can “fail early and fail cheap,” you’ve probably avoided taking a lot of equity financing. You may have even avoided taking too much friends and family money, which should make Thanksgiving dinners and poker nights a lot more pleasant.

If you’re serious about being an entrepreneur, you’re probably going to be living off savings and/or a spouse’s earnings for a while. Set yourself a short-term target… maybe 90 days. If you don’t have some traction in 90 days — a demo, a potential beta site, something — maybe it’s not a good idea. Hit the big red Reset button and go on to the next idea. Ideas are abundant; your time is a finite commodity.

Obviously, this doesn’t apply to biotech or semiconductor startups, but it’s probably not bad advice for the IT and service startups that dominate the Atlanta scene.

And, given that I was scribbling these notes in response to a Chilean, I started musing on the nature of failure free enterprise. Chile has one of the most aggressively free-market economies in the world (Pinochet was an evil guy, no doubt, but he asked Milton Friedman for advice!). I haven’t been there yet, but Ibanez’s comments made me believe they’ve grown past the “failure means FAILURE” mindset of most countries around the world.

The ability to fail, dust yourself off, and start over is one of America’s greatest strengths. Heck, Georgia was settled as a debtor’s prison… as a state, we were created as a place for failures to start over! Other cultures have never accepted this. In Britain, the taint of a business failure can haunt one for an entire career. In Japan, it can lead to suicide.

In Silicon Valley, by contrast, some VCs won’t invest in you until you’ve been through an expensive, gut-wrenching, highly-publicized failure. They figure everyone has to fail sometime, and you might as well do it on someone else’s nickel.

In this aspect, I think the Southeast is culturally somewhere in between Europe and California (and, interestingly, a lot like Boston). Failures don’t bounce back as quickly here as they do in the Valley. You get dropped from the right invitation lists, but you can get added back with a phone call or an email. You get your funding meetings, but you have to spend the first ten minutes explaining “what went wrong last time.”

But what about the grinding, month-after-month, ever-receding-bonanza deals? You haven’t failed yet — either you’re breaking even, or your investors keep writing checks — but you aren’t succeeding, either. Remember your time being a finite commodity? When do you decide to press that big red Reset button?

If you are pushing forward because you have externally-validated reasons to believe you’re nearing success… keep going. (This is where an independent board of been-there, done-that directors is invaluable.)

If you’re simply avoiding failure… stop. Contrary to what Gene Kranz said, failure is an option. The sooner you acknowledge that, the sooner you can start focusing on the next idea… which might be your big success.