What do Steve Jobs, Elon Musk and Mark Zuckerberg have in common — besides Silicon Valley? They’re bad examples. As successful entrepreneurs, we look up to them and look to be inspired by them, but perhaps we do this a bit too much.
In my experience, college students fawn over startups. Running a successful tech startup in today’s world practically amounts to instant fame. But parading these success stories and disregarding all of the failures actually sets us up for failure since it leads us to believe that success is much more common than it really is. Even Forbes will list off certain “key traits” of successful startups for you to follow — after cautioning you that 90% of startups fail, of course. This is survivorship bias at its finest — we can’t look at the travails of the successful in order to properly learn how to avoid failure.
Even the 90% failure rate statistic may be low. Y Combinator, the well-known seed fund “boot camp for startups,” reported that only 37 of its 511 funded companies were worth or had sold for over $40 million at the end of the five-year period from 2009 through 2013. That’s a 93% failure rate. (Of course, not all companies worth less than $40 million should be considered failures, but in the tech sphere, $40 million is not a large number.) Since Y Combinator only accepts about 3-5% of applicants into its program, this paints a grim picture indeed.
Analyzing the failed startups themselves is not of much help, either. One report offers the top 12 leadership mistakes of failed startup leaders, which include “being in the wrong place at the wrong time” and being too “optimistic/realistic/pessimistic.” Given that I don’t know what to be if it isn’t optimistic, realistic or pessimistic, it seems to me that chance plays a much more prominent role in determining the fate of a startup than most people give it credit for. Most of the other reasons for failure are due to our human tendency to ignore it when it begins to happen. We have pride; rather than selling out to a large company, we want to keep the dream alive.
Failure is very much a part of the Silicon Valley culture, and no one understands that better than serial entrepreneurs. They understand the inherent risk in their businesses and realize that even though you have a good idea, you still might fail. These entrepreneurs diversify their risk through repeated attempts at success. When only 10% of new products succeed, trying time and again will increase your chances of success. Try once, and you are most likely to fail; after 10 times, however, the odds are that one of those is a winner. The lesson? Go hard or go home.
While entrepreneurship remains an important part of our culture, we cannot delude ourselves into thinking all startups will be the next Facebook. We hear about success stories all the time, but we have yet to fully comprehend just how rare these are. Just like with any other business venture, there is a lot of risk involved, even if we are unable to precisely estimate that risk. That’s because entrepreneurship is about more than just having good ideas — it is about the stars aligning to bring together the right people at the right time to make something of those ideas. We cannot afford to forget how much we don’t know, and we cannot afford to lose sight of just how risky it is to play the game.
Margaret Hansen is a rising senior in the College. Disorderly Conduct appears every other Friday.
