Tuesday, March 24, 2009

Failure Myth

"'Does failure breed new knowledge or experience that can be leveraged into performance the second time around?' he [Paul Gompers] asks. In some cases, yes, but overall, he says, 'We found there is no benefit in terms of performance'"

Leslie Berlin," Try, Try Again, Or Maybe Not," New York Times, March 22, 2009.

Is learning from failure a myth? Gompers and company argue from a study of several thousand venture-back companies that this myth may be due to "'attribution bias,' people generalizing from anecdotal success-after-failure stories."

First-time entrepreneurs had a 22 percent chance of success (defined as going public or getting ready to go public);already-successful entrepreneurs had a 34 percent chance of success; and non successful entrepreneurs (bankruptcy or liquidation) had a 23 percent chance of success -- quite similar to first timers and hence no learning.

Without this Harvard Business School working paper in hand it's difficult to probe their argument too deeply. What is striking is that venture-backed entrepreneurs are largely failures no matter their experience of past failure or success. If "the only experience that counts is success," where does success come from?

It's intriguing to ask how generalizable this study and its findings are. After all, "learning from failure" talk occurs in many fields. How about the military, medicine, or engineering? Do they learn only from success? That's a scary thought. What about business failures in general as opposed to venture-backed entrepreneurship?

I guess I'll have to omit or do a makeover on one of my favorite object lessons -- that venture capitalists value "failure" on the resumes of entrepreneurs. Of course, everybody likes a good anecdote.

1 comment:

Colin Austin said...

It would be interesting to have that kind of data for start-up nonprofits - whether they survive a funding cycle or an extended recession. Rather than trying to deconstruct the winners, the question may be more about how to improve success rates for those that fail. In the long run, how do we learn from mistakes?