Predicting Failure from Failure?

Shane Snow’s new book Smartcuts is is a master class in weaving anecdotes together to make a point in an interesting way. He’ll take A, add B, weave in C, to get you to D.

I’ll write more on the highly enjoyable book later, but the tricky part is if one component in the mental journey gets taken out of context.

He has a chapter on failure. His point is a good one: failure is not enough; failing fast is not enough; you need to fail fast, and fail small, and know how to evaluate failure. Agreed.

But there’s a section that emerges from a Harvard study: “failing in business doesn’t make us better or smarter. But succeeding makes us more likely to continue to succeed.”

I think this is a dangerous oversimplification of entrepreneurship.

If you succeed, yes, you have shown that you do have what it takes as an entrepreneur. Your second time will be easier — easier to recruit talent, raise funding, and attract customers. But it’s not that simple. One of the most common patterns in entrepreneurship is the “first-time successful” founder crashing and burning the second time around. This is because of two reasons: 1. they try to duplicate the playbook from their first startup, when they should not; 2. they become arrogant, attribute all of their success to themselves, and never learned how to deal with serious adversity when the lucky breaks don’t come.

I actually think one of the most dangerous entrepreneurs to back, as an investor, is someone whose first success came a bit too easily.

There are certainly plenty of people who start a company who are not quite suited for entrepreneurship, and that will contribute to the stats in the Harvard study. But failure is too simple a filter to predict future performance. They might be very well suited to entrepreneurship, but their timing was off or made the wrong call (even if the data supported it) at a crossroads. And if they start a second company, they might fail again — after all, most do — but you can’t predict that failure from the first failure unless you understand the details of the first failure.

The more years you spend around startups, the more you realize that while you must do everything you can to make your own luck, you still need those lucky breaks.

You see this in particular in Silicon Valley because of the density of entrepreneurship. The ex-founder on your left is a multi-millionare. The ex-founder to your right is not. They are both equally smart. They are both equally capable. They both worked insanely hard. They both started with ideas that seemed exciting and promising at the time. Startup success can be fickle, which doesn’t mean you trust to fate, but nor does it mean you should judge based on simplistic criteria from an academic study.

Which Shane isn’t. But others will.

So yes, we should not put failure on a pedestal. You want to fail smart and fail small. But I am firmly in the camp that people tend to learn more from failures than successes, though you of course want to learn from both.