Innovation Diary: The lessons in failure our entrepreneurs could learn from the US

Annabel Denham
Follow Annabel
TYPICALLY, nine out of ten entrepreneurship ventures fail. A cursory glance at some of the most inspirational business founders of the past decade – like Peter Thiel, who after founding Paypal saw his hedge fund Clarium Capital lose 90 per cent of its $7bn (£4.58bn) assets – suggests the reality of starting up your own business isn’t success.

It is hardly surprising. “Let’s face an uncomfortable fact: the typical startup process, largely driven by poorly conceived business plans based on untested assumptions, is flawed,” says John Mullins, associate professor of management practice in marketing and entrepreneurship at London Business School. But why do we spend inordinately more time telling the story of success, than on learning the lessons of failure?

Our friends in the US are loquacious about their failures. From a young age, American pupils are given incredible levels of self-belief, which often drives them to keep going. “They see failure as something that can be adapted, rather than shouldn’t be done in the first place,” says Andre Spicer, professor at Cass Business School. For them, failure is a rite of passage on the path to success. “The culture in the UK is more conservative, more risk-averse,” says Randal Pinkett, founder of the New Jersey company BCT Partners – his fifth venture.

But there is more to failure than tenacity. “In order to learn, you have to analyse what you should do differently the next time around,” says Pinkett. His firm holds a monthly review, where it takes a project that has failed and analyses why, what could have been done differently, and what organisational changes would prevent a repeat. And Spicer says it is important that if you fail, you fail fast. “In the US, funding laws allow people to fail quickly and without the financial black mark you get here in the UK.”

In 1975, Silicon Valley computer hobbyists created the Homebrew Computer Club. In Shoreditch today, broad structures are providing much needed support to those entrepreneurs looking to execute Plan B (or C). Google Campus holds multiple workshops and events where entrepreneurs can discuss their experiences, and Cass Business School has a once weekly pop-up university (Tech City Unrulyversity) that focuses on success as much as failure. Three Beards, a community of “techies and creatives”, holds regular events (Silicon Drinkabout, Digital Sizzle, and Don’t Pitch Me Bro), where entrepreneurs come to meet, share, and drown their worries. Such structures can make the difference between the entrepreneur who stays down, and the entrepreneur who bounces back up.

Assuming you’re willing to get back in the game, what do you need to consider when developing a new business model? “Every model needs to address five key elements,” says Mullins. “Revenue model; gross margin model; operating model; working capital model; and investment model.” Most new ventures crumble. But those who succeed will keep trying until they find a business model that works.

Annabel Palmer is business features writer at City A.M.