How we value failure
When startups fail, we give them more money; when entrepreneurs fail, their lives are over
(This is the second article in a series about what I learned from my year in startups, after transitioning from a 15+ year career in the public sector.)
We don’t talk about failure much in America, in general. Only the very wealthy are allowed to speak about how they once hit a stumbling block on their way to their fourth billion.
One of the things I had a hard time with working in startups (as opposed to community and economic development) was reconciling the vastly different ways we value, respect, and manage failure.
Founders are almost expected to fail. It’s an oft-cited stat that 90% of startups will fail before they ever reach hockey stick growth.
Yet when they do, their VCs pick them back up, dust them off, and throw them back in the ring with a few million for their next idea — because VCs are investing in founders, not businesses; they’re investing in people, not ideas. (This sounds nice until you realize it’s only certain people; it has nothing to do with their actual idea; and it’s a classic sunk cost bias rather than a value based on reality.)
Entrepreneurs — building real businesses that have to earn a profit, account for losses, and manage their operations — have a completely opposite experience. Over 75% of small businesses stay alive past the first year, something that startups will likely never be able to claim. Yet their access to capital is so limited that most of them (a little over half) won’t survive past their fifth year.
Entrepreneurs fall harder and faster than startups, too. It’s hard for small businesses to compete in almost any area of society today, at scale, with venture-backed companies focused on profit at all costs.
Entrepreneurs have to borrow real money from real banks with real interest. They are considered high-risk, so they pay higher rates and they often have to match it with personal collateral, like their homes, their inventory, or their personal property.
They face more barriers than VC funded startups — especially if they’re non-white, non-male, or over the age of 30. Their access to capital is laughably small. They’re often working around structural barriers, too (like being unfortunate enough to live in the 70% of America that doesn’t have things like decent…