Failure Without Fear: The American Model and the European Dilemma
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American history is filled with the stories of famous inventors and entrepreneurs whose breakthrough innovations are the product of persistence and tireless effort—and a long string of failures. Creating something new takes discovery and experimentation, and entrepreneurs are characterized in part by their determination to continue developing a product or business until failure and the lessons it teaches gives way to success.
The United States affords its citizens many freedoms, among them, the freedom to fail. Critically, entrepreneurs in America who give their best effort but nevertheless fail in their endeavor are not condemned or chastised. There is broad public forgiveness for entrepreneurial failure, growing out of a culture that is unafraid of and learns from failure, argues Gerard Tellis, the Neely Chair of American Enterprise at the USC Marshall School of Business.
“The U.S. has one of the most liberal environments for failing entrepreneurs: he or she can declare bankruptcy and start again,” Tellis writes in Forbes. “In many countries, failure is a shame. In the U.S., failure is forgiven. In the Valley, failure is badge of honor. The U.S. and especially Silicon Valley thrive on failure.”
Silicon Valley is a renowned hub of innovation and entrepreneurship, and a common creed there is to fail fast, early and cheaply. This does not mean entrepreneurs start a business with the intention of failing; rather, it indicates an acceptance that failure is a part of the entrepreneurial process. Research from the Harvard Business School suggests that about 75% of startups fail.
Dave McClure, an angel investor and the founder of 500 Startups, says that he works with the entrepreneurs in his small business incubator to “manufacture fail” on a regular basis. “We think that's how you learn," he says in an Inc. article. "Getting used to that, bouncing back from that, being able to figure out what people hate and turn that into what people love...if you're not willing to take the risk of failing and not experience failure, you're never going to figure out what the right path is to success."
According to a Kaufman Foundation report, entrepreneurs who have failed before are statistically more likely to succeed in future ventures. Rob Kramer launched PopRule in 2008 as a politically focused social network. Kramer had already grown several successful ventures, but he shut down PopRule year after launching it. In 2011, Kramer tried again, launching HipSwap, an online marketplace. The company has seen $250,000 in sales thus far. As Kramer says: "If this is what you do for a living, you take the knocks and say, 'On to the next one.'"
Steve Jobs was famously fired from his own company (Apple), but rather than slink into obscurity, he launched a software company (NeXT) and an animated film studio (Pixar). Both businesses experienced success, as did Jobs when he later returned to Apple. And Apple’s rival, Microsoft, was also started by an entrepreneur who had previously failed. Before Bill Gates grew Microsoft into a multi-billion dollar company, he launched Traf-O-Data, which tried (and failed) to sell computerized road traffic data to state and local governments. Before Walt Disney's animation studio and its flag-bearer Mickey Mouse gained widespread fame in the 1930s, Disney ran a Kansas City-based animation studio - the Laugh-O-Gram Company - that went bankrupt after amassing hefty debts.
A culture that forgives failure is essential to America’s entrepreneurial system. It gives entrepreneurs the confidence to pursue new ideas and businesses without fear that a failure could permanently tarnish their entrepreneurial aspirations. Trying, failing, and trying again are accepted stages in an entrepreneur’s work. Not all countries, however, share this perspective.
Unsurprisingly, entrepreneurship and innovation have suffered in regions where entrepreneurial failure is not as readily accepted as it is in the United States. Some European countries and cultures, for example, have historically been reticent to forgive an entrepreneur for a failed enterprise.
The European Commission Entrepreneurship 2020 Action Plan reports that bankruptcy procedures in some European countries sometimes treat entrepreneurs as frauds, even when the reason for a company’s failure is outside of the business owner’s control. Further, the European bankruptcy process can be so time-consuming that it discourages further attempts at entrepreneurship. In some cases, failed entrepreneurs are even legally prohibited from ever launching another company.
Europe is realizing just how critical entrepreneurship is to economic recovery and growth. The global economic downturn and Eurozone crisis has left the future of the union and some of its member states uncertain. Economic growth is not borne of austerity and taxes; it is nurtured by entrepreneurs in their relentless pursuit of a success. It comes as no surprise then that the European community is beginning to shift towards a more positive view of entrepreneurship, which could someday result in the kind of forgiveness offered to entrepreneurs in America.
EU 2020 Action Plan notes that failure in entrepreneurship needs to be understood as an opportunity to learn and improve, adding: “Any move to encourage a new generation of entrepreneurs must include reassurance that, if their first idea does not fly, they will not be forever barred from trying to 'take off' again.”
While European and American entrepreneurs may share similar motivations and characteristics, they operate in vastly different legal, financial, and political systems. Entrepreneurs and innovators anticipate failure along their road to success, but the way society, governments and other businesses perceive that failure can have a big impact on entrepreneurial activity and the economic benefits it yields.