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Credit: Shutterstock

Failing is good: Why a high failure rate is a sign of a healthy startup ecosystem

In the U.S., about 90% of startups fail, and only 1.5% of tech companies have a successful exit. In a mature startup ecosystem, failure is the expected and necessary outcome. And yet, it’s benefits are seldom ever discussed. Lifelong entrepreneur and consultant Michael Burtov elaborates on the taboo topic of failure and lessons for immigrant founders.

Quite literally every accomplished founder that I know has failed at some point. Yet, the notion of failure sends a chill down most entrepreneur’s spine. It’s a taboo topic that’s rarely broached in the startup world. But could it be possible that we’re looking at this all wrong? Could a high failure rate actually be indicative of a robust and thriving startup ecosystem? 

Why should we celebrate failure? 

The first and perhaps most obvious benefit of failure is the experience that it provides to entrepreneurs. Each failed venture is a learning opportunity, a chance to understand what works, what doesn’t, and why. The lessons learned from these failed experiments are often the foundation upon which future successful businesses are built. Almost all successful entrepreneurs, including Elon Musk of Tesla and Jeff Bezos of Amazon, have founded companies that failed before achieving their notable success.

Failure also facilitates entrepreneurial resilience and fosters a problem-solving mindset. Each setback presents a challenge that prompts entrepreneurs to devise new strategies, innovate, and pivot when necessary. This grit and resilience, developed through overcoming failure, are integral to the entrepreneurial DNA and crucial for the long-term success of any startup.

From a broader ecosystem perspective, failure can be seen as a mechanism for resource allocation. When startups fail, the talent, capital, intellectual property, and other resources they once hoarded are released back into the ecosystem. These resources — experienced professionals, freed-up investment capital, and even physical assets — then become available for new startups, often catalyzing innovation and growth in other sectors.

Moreover, a healthy rate of failure implies a competitive market with high-risk, high-reward ventures. It signals a dynamic environment where innovation is favored over status quo, and disruptive ideas have the chance to prove their worth. It shows that the ecosystem supports and encourages risk-taking, which is a critical component for disruptive innovation.

In America, we love big ideas or “moonshots”. That’s what makes the U.S. the world’s leading innovation ecosystem, but as many innovators can tell you, the vast majority of new ideas don’t work and you have to risk failure if you truly want to do something new.

The challenge is that the system isn’t built to harness the benefits of failure, because of the stigma that it has garnered. 

We, as innovators and founders, need to cultivate a culture that sees failure as a stepping stone rather than an end-point. This shift in mindset would encourage entrepreneurs to take risks, innovate, and, if they fail, to get back up, apply their lessons learned, and start anew. 

Furthermore, we should encourage support structures such as accelerators, incubators, and mentoring programs to not only celebrate successes but also to normalize failure and provide guidance for those encountering it. Recognizing failure as a part of the entrepreneurial journey will help budding entrepreneurs navigate their path with a realistic perspective, resilience, and a continual learning mindset.

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On the policy front, we should advocate for government and regulatory bodies to contribute by implementing supportive policies that allow for ‘soft landing’ in case of failure — measures like bankruptcy laws that do not unduly penalize failed entrepreneurs. As well as by creating a regulatory sandbox which would allow for testing of new business models and technologies in a controlled environment, giving entrepreneurs a chance to experiment without the risk of heavy regulatory penalties.

What is the lesson for immigrant founders?

Failure, although daunting, is not a dead-end but rather a signpost guiding you towards a better direction. Almost all successful entrepreneurs, from both immigrant and native backgrounds, have grappled with failure before tasting success. Whether it’s a product that didn’t resonate with the market, a marketing strategy that fell flat, or a logistical issue that seemed insurmountable, every challenge faced and overcome will help shape you into a stronger, wiser entrepreneur.

Remember, each setback is a learning opportunity. It equips you with real-world wisdom, enhances your problem-solving abilities, and makes you resilient. In a constantly changing world, the ability to adapt, learn from failures, and persevere despite odds can prove more valuable than any immediate success.

So, as you chart your entrepreneurial journey in a new land, embrace failure not as a deterrent but as a stepping stone towards success. Do not fear to take risks or make mistakes. Instead, foster a mindset of continual learning and growth. 

Always remember that your diverse experiences as an immigrant entrepreneur are your unique strengths. Leverage these, and you’ll not only contribute to a thriving startup ecosystem but also build a legacy of resilience and success.

We shouldn’t think of failure as a bad thing. In fact, it’s actually necessary and it’s the one thing that nearly all founders have in common.

About the author

Michael Burtov is a serial venture-backed entrepreneur who has grown multiple startups from initial ideas to millions in revenue and venture funding. He has appeared on Shark Tank and his work has been covered in hundreds of major media outlets. He is also the subject of mini-documentaries by Discovery Channel and CNN’s “Great Big Story.” Additionally, Michael has worked with hundreds of high-growth startups to scale and fundraise, directly and through his involvement with leading innovation organizations including Harvard Business School, Harvard Innovation Labs, and the MIT Enterprise Forum. He is also the author of “The Evergreen Startup,” a popular book on early-stage startup fundraising. He holds multiple patents and has received several awards for his work, including the Edison Universe Edison Award, the TIME Magazine Best Inventions Award, The Business Journals Top Inventor Award, Brandeis University Alumni Entrepreneur Award, and the TechCrunch Disrupt Wildcard Award.

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