Entrepreneur

Why you should ignore startup failure stats

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Eran Laniado is the managing director of BMN!

Thousands of entrepreneurs worldwide share the dream of founding a startup. However, some publications “pour cold water” on the ambitions of future founders.

For example, a recent article publicized the low success rates of startups participating in the excellent Y Combinator program. Aspiring startup founders may be intimidated by such publications and forgo their dreams.

In some cases, that would be a real shame.

Surely, many college grads have excellent reasons to seek careers at Apple or Amazon instead of establishing their own ventures; similarly, many business school graduates are incentivized to join top consulting firms. However, the chances of getting admitted are low: in 2011, only 0.35% of Google applicants were hired.

Here are five reasons that, for some people, giving up on the dream of entrepreneurship too soon may be a mistake. The alternatives to startups may be pretty risky, too, but many people are not aware of that; furthermore, real startup risks could be much lower than the common perception.

  1. Risks associated with large corporations

The high risk of startup failure may imply that it is better to start a career with a large, established organization. But is it?
Recently, the corporate world has changed significantly. It now presents previously unknown risks. Various industries (e.g. newspapers) are in severe crisis. The investment banking industry, once the employer of thousands of fresh MBAs, has lost key players and expects massive layoffs.

In many industries, the comfort, stability, and perks of a lifelong career with the same employer are much less common.
Large organizations may have thousands of employees, but they have only a few management-level executives and a few dozen VPs. What are the real chances of starting a career at a large organization and climbing up the corporate ladder to get a VP or C-Suite position that promises great compensation, equity options, and a golden parachute? What are the real odds of not being stuck in the dreaded mid-management tier?

  1. Risks associated with college degrees

It has been common belief that – unless you are a Bill Gates, Steve Jobs, or Mark Zuckerberg — a college education is essential to a successful career.

However, college education has recently created a serious problem for young undergrads: student loan debt. Many view this issue as the next potential time bomb. The media tells horror stories about students whose college debt became a real and frightening burden.

It’s not that quality education is less important than before. However, we must acknowledge the risk of student loans. Therefore, for some youngsters just out of high school, it may make sense instead to establish a startup (as Richard Branson suggests) while taking free online classes.

  1. Sometimes, startup “failure” is anything but failure

Calling every startup that didn’t make an eight-digit exit or an IPO a “failure” is simply wrong.
First, many ventures build products that provide value to customers while creating jobs and growth opportunities for employees.

Second, the experience of running a small business is a lesson that no university or seminar could ever teach. For some, the costs of running a “failed” startup for a couple of years are actually a good investment – a kind of tuition that yields benefits later on.

Third, not attempting to pursue one’s dream may be very frustrating. Moreover, those who never try will never fail. Those who never fail find it difficult to cope with challenging situations outside of their comfort zone when these eventually arise. A failure today may teach a person to cope more successfully with similar situations in the future.

  1. From the ashes of unsuccessful ventures rise new, high-potential promises

Being part of a startup may lead to new opportunities. For example, consider the story of Modu. It was founded in 2007 by Dov Moran, a serial entrepreneur, and aimed to become a major player in the mobile phone industry. Unfortunately for Modu, Apple’s iPhone and the smartphone revolution brought an end to this dream.

However, many ex-Modu employees and executives are now involved in a new generation of promising startups.
Being part of a failed venture may not only be educational, but it can also increase the chances of success in future endeavors. Research shows that past success as an entrepreneur increases the chances of success in future ventures, which is no surprise. However, data also shows that entrepreneurs who have failed in the past have higher chances of success than first-time entrepreneurs.

  1. It is possible to enjoy the best of both worlds

Are you interested in new ventures but still risk averse? Maybe haven’t yet found a great idea for your own venture, or you want a taste of the “young startup” atmosphere before committing to it?

If so, it might make sense to join an early-stage startup run by other founders (e.g., a venture that has just raised seed financing). Jared Hecht is a good example of a startup founder who started this way. He joined Tumblr after graduating from Columbia and later on founded GroupMe (which was acquired by Skype in 2011).

Not everyone can enjoy the best of both worlds. But for many, it is a good way to gain invaluable experience.

Eran Laniado advises multinational firms and mentors entrepreneurs. He gained corporate experience as VP of Business Development & Strategy of a NYSE traded firm and as a member on boards of directors. He writes about strategy, business models, and innovation on bmnow.com/blog. You can follow him at @EranLan.


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