Monday, December 3, 2007

Fail fast. Fail better.

At Venture Lab we had a mantra: Create. Innovate. Accelerate. I can’t claim to investing much time in its creation – we probably had a gotta-make-t-shirts itch – but our employment of the mantra was acute. If Venture Lab was an embryo today, I might tender a new rallying cry: Fail fast. Fail better. Here's why:

In the midst of refining our investment thesis for a network of early-stage investment funds, we’re hammering through the why, what and how of our funds. The why is obvious: To generate superior investment returns, to build local economies and wealth, and to have fun. The how (for now/on paper/pre-implementation) is pretty algorithmic too: Blocking and tackling your way through scenario (portfolio allocation and investment timing) and structural planning. Boring but necessary stuff that MBAs inhale in their sleep.

It’s the what (the lens we’ll employ to [hopefully] advantageously source, make and manage investments) that’s interesting. Not the obvious stuff – invest early, often and diligently in capital-efficient, high-potential, differentiated companies and great teams – but, to quote derelict Donald Rumsfeld, the unknown unknowns.

A company’s likelihood of success is directly related to its ability to adapt. Companies that fail fast, frequently, and smartly are more likely to succeed than those that fail slow (and have trouble changing directions) or do not, as they sedentarily gaze at their navels, fail at all.

All companies fail, though most failures are not fatal. As the potential for returns increases, so too does the likelihood of opening the wrong door, or steering down an erroneous path, or hitting a wall. Think mass x velocity = momentum, where momentum can be good or bad. (If it costs seven figures to open a door and you have to open lots of doors, get used to being lonely in the dark.)

All companies begin with a reason for being: a business model or hypothesis of value. All companies – by virtue of being a company – start down a path. This path is most always the wrong path; the original business plan does not pan out.

One of the cool things about small companies is that they’re inherently nimble and thus can adapt and transform quickly. Take venture-backed companies: As the stakes increase (mass x velocity), the momentum of their failure intensifies.

Venture dollars are best spent in the practice of failing: Finding the right path, the right model, the gotta have value proposition. From there, scaling the business (allocating resources to most expediently maximize returns) is simple math. Risk is mitigated, the path is illuminated, and execution is methodical.

Getting there – failing fast and frequently – is the fun part.

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Post-script (17 Jan. 08): Relevant satire in the Onion, spotted by the Great Andreessen, "confirming decades of Silicon Valley conventional wisdom":

In a stunning reversal of more than 200 years of conventional wisdom, failure—traditionally believed to be an unacceptable outcome for a wide range of tasks and goals—is now increasingly seen as a viable alternative to success, sources confirmed Tuesday.

"Americans have always been told that they should succeed at all costs," Emory University sociologist Dr. Lauren Hodge said. "But based on new evidence, this can no longer be called true—if, in fact, it ever was. As failure continues to dominate the American landscape, this mantra must be overruled."

"We have no choice but to revoke failure's non-optional status, effective immediately," Hodge continued. "Now all citizens will be able to step back, stare down the hardship and difficulty they will face in the pursuit of success, and say, 'Fuck that—this isn't worth it.'"

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Post-script (29 Feb 08): Interesting take from Dharmesh Shah in OnStartups about why startups fail. Quick tease:
One thing I've been pondering this weekend is figuring out why startups fail. But, in order to figure that out, I had to first decide what constitutes failure. The more I thought about it, the more I realized that a definitive failure is when the startup simply stops trying. And, the only reasons to stop trying are that you run out of cash, or you run out of commitment -- or both.
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Post-script (16 Mar 08): Unearthed a thoughtful post from the great Bob Sutton, Failure Sucks But Instructs. A taste:

There is no learning without failure. No creativity without failure. That is why Jeff Pfeffer and I argue that the best single diagnostic question you can ask about an organization is: What Happens When People Fail? ... Diego and I, in teaching our first d.school class on Creating Infectious Action, initially tried to put too pretty a face on failure. We talked to the class about treating everything as a prototype, which we believe in strongly. We preached bout failing forward, failing early and failing often, and used a a host of other pretty words to talk about the good things that happen when things go badly. Yet these is no denying that going down a failed path is still no fun, even if it is a short journey. So after out students --- under our guidance – were especially unsuccessful at promoting a hip-hop concert (despite trying very hard, look at this cool poster one team made), we realized that the most honest thing to do was to deal with our feelings of disappointment, to talk about how much it sucked to have such a lousy outcome, and then turn to the learning.

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Post-script (17 Mar 08): A few relevant slices from Paul Graham of YCombinator on How Not to Die ...

The metaphor people use to describe the way a startup feels is at least a roller coaster and not drowning. You don't just sink and sink; there are ups after the downs.

Another feeling that seems alarming but is in fact normal in a startup is the feeling that what you're doing isn't working. The reason you can expect to feel this is that what you do probably won't work. Startups almost never get it right the first time. Much more commonly you launch something, and no one cares. Don't assume when this happens that you've failed. That's normal for startups. But don't sit around doing nothing. Iterate.


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Post-script (03 Apr 08): Andreessen adds to the conversation r.e. the role of curiosity and failure (scroll to the bottom for the morsel):
… the lack of curiosity can be a huge danger to a startup in the following way: often, your initial strategy won't quite work, but you can learn as you go based on other things that happen in the market and eventually iterate into a strategy that does work. Obviously, insufficient curiosity can prevent you from seeing the new data and lead you to continue to pursue a losing strategy even when you wouldn't have to.

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