In an earlier post, I wrote about a Harvard study that looked at the success rates of “serial entrepreneurs” based on several factors, including an entrepreneur’s previous track record. The results included some interesting differences in success rates (repeated at the end of this post*).
A New York Times article on the study quoted one of the study’s authors, Paul A. Gompers, as saying the results indicated that, contrary to Silicon Valley’s belief in the potential educational value of failure, “for the average entrepreneur who failed, no learning happened.”
Maybe. My earlier post offered some other possible conclusions. But Randy Komisar, a partner at Kleiner Perkins Caufield & Byers, one of Silicon Valley’s leading venture capital firms, has some additional, interesting thoughts on the subject.
Komisar agrees with one of the study’s conclusions: that a perception of success can give entrepreneurs a big advantage for future ventures. And, he notes, one of the things venture capital firms can offer entrepreneurs is help with some of the other critical elements for success the study identified, including management skill and market timing, in addition to financing. But, he argues, the above results don’t necessarily mean that entrepreneurs don’t learn from their failures. His full response follows here:
“First, simple stats. If 22% of a blind pool succeed that includes people who are ‘geared’ to win and people who are ‘born to fail.’ The fact that 22% of the failures succeed on their second try, having stripped away the winners, is statistical proof that there is potential in learning from failure. Moreover, if an entrepreneur who failed previously partnered with a top tier venture capitalist their chance of success climbed to 26%, greatly narrowing the difference.
“Second, accepting failure as a culture creates the room for trial and error, experience, and the laboratory of innovation. The fact that certain people can not get beyond failure does not weaken that proposition. Silicon Valley thrives on not punishing failures without more.
“Third, the reasons for failure are important factors in the opportunities for future success. Were they lazy, criminal, stupid? If so, then their next shot is unlikely to be any better.
“Fourth, why did they succeed? Did they recover from set backs (failures) along the way? Did they find themselves in the right place at the right time? The latter may have no additional skills for the difficult path of new ventures. The former learn from failures along the way, they simply didn’t get cashed out too early.
“Fifth … the number of businesses who succeed with Plan B versus Plan A appears large, maybe overwhelming. That is an example of learning from failure without sudden death.
“Sixth … the skills for dealing with set backs and failures are incomparable. I like to back entrepreneurs who have succeeded, for the right reasons, but also have failed once or more along the way. That way I know they have the resiliency and flexibility to find success amongst the failures.”
All good points. But when I asked Randy how many entrepreneurs he sees who fit that profile—who demonstrate the inner courage and strength to face their failures and learn the right lessons from them—his answer was far shorter. “The minority,” he admitted. Although, he added, “those are the ones to back.”
On the other hand, Randy also points out that the differences pointed out in the Harvard study are small:
“Ironically, the statistics seem to indicate that the corollary, that only a minority of serial successful entrepreneurs seem to learn from their SUCCESS, is also true. [According to the study] it is only a small minority of successful entrepreneurs who succeed a second time anyway: 31%. Looked at in another way, successful entrepreneurs still failed nearly 70% on their next try while entrepreneurs who had previously failed but worked with top tier venture capitalists failed fewer than 75% on their next try—not a very significant difference. Entrepreneurs who had failed once before and were not working with a top tier venture capitalist failed 82% on their next try. From that perspective, the advantage of success over failure appears pretty small. The truth is, success is elusive regardless.”
Food for thought.
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* First, the study looked at the overall success rates of venture-capital-based entrepreneurs:
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- First-time entrepreneurs: 25.3%
- Serial entrepreneurs on their first venture: 36.9%
- Serial entrepreneurs in future ventures: 29.0%
Then the study analyzed serial entrepreneurs more closely, adjusting for other factors, including prior track record and experience of the VC firm, and found the following success rates:
- First-time entrepreneurs (at means of other variables): 20.9%
- If previously successful (at means of other variables): 30.6%
- If previously failed (at means of other variables): 22.1%
– - First-time entrepreneurs with experienced/successful VC: 20.9%
- First-time entrepreneurs with less-experienced VC: 14.2%
– - If previously successful and with experienced/successful VC: 32.4
- If previously successful but with less-experienced VC: 31.9%
– - After failure if paired with an experienced/successful VC: 25.9%
- After failure if paired with a less-experienced VC: 17.7%
