Startup Failure: Seattle’s Stigma, Boston’s Chip on Its Shoulder, and Silicon Valley’s Badge of Honor
“People say if you fail in Seattle, you’re screwed,” said Marcelo Calbucci. “If you fail in the Bay Area, you just have a badge of honor.”
We were at the TechStars reunion event in Seattle last week, listening to early-stage investors Brad Feld, Andy Sack, Steve Hall, Greg Gottesman, Shawn Broderick, and Chris Sheehan speak about entrepreneurship and the tech startup scene in their respective cities. Calbucci, the founder of Seattle 2.0 and Sampa (which folded in August), was asking the panelists about how the tolerance of failure, whether real or perceived, affects a region’s culture of innovation.
It’s a deep question, and it continues the discussion of startup cultures in different cities that I highlighted last week. It’s also part of a debate on failure that has been going on since long before I wrote about it in Xconomy last January. There seem to be two camps. Most entrepreneurs I’ve talked to feel there is a stigma associated with having a failed startup in Seattle. Most venture capitalists, not so much. But it’s a much broader issue than just Seattle. My colleague Bruce talked with a Web 2.0 startup founder in San Diego last week who said his first failure, earlier this year, “was truly a painful experience, and I’m still not over it.” And meanwhile, Brad Feld, the co-founder of TechStars and Foundry Group in Boulder, CO, had some provocative things to say about the failure aspect of Boston’s culture.
But first, Andy Sack of Seattle’s Founder’s Co-op gave his perspective on having failed at his last startup, Judy’s Book, after having had three successes prior to that. “As much as you teach entrepreneurship, as much as there’s supply of capital out there, really when push comes to shove, entrepreneurship comes from within,” he said. “I couldn’t take a job at any of the big companies. We’ve been through the tech boom of the ‘90s. We’re just coming off of a major hiccup. I’d say right now, early-stage investors in Seattle have retreated some; venture capital has retreated some, they’re focused primarily on their portfolio. That said, you [Calbucci] failed and went out and started your own thing. I failed and went out and started my own thing. Because we didn’t know any better. The entrepreneurs that don’t know any better, they just go do it again.”
Greg Gottesman of Seattle-based Madrona Venture Group is one of those VCs who says he doesn’t see failure as a black mark. “My sense in this community is, to people who matter most, I don’t think failure is a huge negative,” he said. “There are certain types of failures, like failure of integrity—that’s hard to recover from. But failure of a startup, just speaking with all my partners, that’s not a negative. We talk about that as a learning experience. It’s just another piece of the puzzle.”
So how does Seattle’s tolerance of failure differ from, say, Boston’s or Silicon Valley’s? Feld, who has been investing nationally for 15 years, said, “I actually believe that the shtick of ‘failure as a badge of honor’ is really great shtick. I’ve failed a lot. It’s hard to fail. Failure impacts a person in one of two ways. It either causes them to lose confidence and be hesitant, which investors smell, react to, whatever, it becomes part of the calculus; or it creates a positive feedback loop. It could be it emboldens them, it could be it puts a chip on their shoulder, it could be it gives the person something that they need to prove.”
“Let’s take the positive of those two,” Feld said. “Say I’ve had a success, I made some money, and now I failed. I lost the investor money, I lost my money, I spent three, four, five years of my time. If you get a chip on your shoulder from that, and you’re like, ‘Goddamn it, the next time I’m gonna win’—I want to talk to you. And I think most investors want to talk to entrepreneurs like that. If you fail and fail and fail, and continue to repeat the patterns each time, that’s a bad signal. But I don’t think the general shtick of failure is good, it’s just a character-building phenomenon.”
Feld then made a provocative claim, especially to my native Bostonian ears. “One of the reasons I think Boston has resurged as such an entrepreneurial community, in a good way, in the last couple of years, is it had a massive chip on its shoulder,” he said. “Because it had failed. Boston was a great entrepreneurial community for software and Internet in the ‘80s and early ‘90s. It was ahead of the Valley. In ‘95-98, there were probably more Internet startups happening at the beginning of that phase in Cambridge than there were in the Valley. Something happened—probably all the MIT and Harvard business school students flooded the system with a bunch of crap, and the VCs retreated, those guys stopped—whatever. And then the Valley built critical mass that far outstripped Boston.”
“Boston had a chip on its shoulder, and even in 2004-2006, it was, ‘Woe is me, there are no startups here, there’s no capital here,’” Feld said. “And then it changed very quickly based on the entrepreneurs. It wasn’t guys like me, it was the entrepreneurs saying, ‘There’s good stuff here, let’s go do things.’ So it’s very interesting how that dynamic tends to drive behavior one of two ways, and I always encourage it to fire you up rather than tear you down.” (I’m very interested to hear what Boston’s entrepreneurs and VCs have to say about Feld’s assessment.)
Lastly, Feld translated all of this into an investing tip. “The best companies I’ve ever invested in were, when I think about the entrepreneurs, somebody who had a success and made enough money where they knew what success tasted like and they bought a fancy car, bought a bigger house, and increased their standard of living—and then they, very visibly, blew it. Those are the best. Because that third thing, or fourth thing, man they are going for it. And it’s not OK to make another 5 million bucks, because they already did that.”