The Myth of Failure - "Only 20% of ventures actually 'fail'" - a short interview with SEA's Stuart Read

"90% of all start-up companies fail." That's written in stone, right? Well, at least that's the conventional wisdom of failure pervades the entrepreneurial (and general) press.

And that statistic inhibits many people from going out there and "doing the doable" and starting businesses. A 10% chance of success just doesn't appeal to most folks.

But it's not true. 90% of ventures actually don't "fail" - it's more like between 15-20%. But that requires us to "define" failure and who's doing the talking.

Stuart Read of IMD (SEA co-founder) says there are two big myths about failure. The first is statistical (the one we're going to deal with here). You have to take a look at who is defining "failure" before you interpret that number. 

If you address the question from the angle of a venture capitalist, yes, most of your investments won't IPO. In your view, that's a failure. It is so because you're not getting the returns you require to satisfy your fund's investors. It's actually worse that even they say it - in fact, 99% of all businesses don't IPO. So - if you're looking at entrepreneurship from the lens of making a huge liquidation event in the public markets, the success rate is actually 1%, not 10%. Even worse! Yay! 

But if you're NOT a venture capitalist ... if you're starting or running a business that doesn't have aspirations to go public, the chance of failure is much less - only 15-20% of companies are shut down at a loss (and into bankruptcy). This is straight from Read's research. Yours truly has started a business in that 80% of non-failures that don't IPO - our software firm provided jobs for 5.5 years and we closed it because it wasn't any fun any more (long story). But it wasn't a "failure" except to people who thought we should have sold the business for $100M.

Further ... failure isn't really failure if you have the right lens. Failure can be done intelligently (fail cheap, fail young, and fail with other people - the subject of another blog post) and used to create more bonafide successes. That's what Effectuators know and the exciting promise of starting smart using the effectual principles. 

So - don't be seduced into thinking that the odds are stacked too high against yourself or other entrepreneurs ... get the real facts - straight from Stuart:

http://www.mydigitalfc.com/video/stuart-read-imd-557

Much more on this at Effectuation.org.