11 ms·

Why haven’t European investors fully accepted the failure is good mentality yet?

39 points by mckee1 13y ago

jnbiche 13y ago
Wow, awesome article. As someone who has lived in both the U.S. and Europe, this hits the nail on the head re: the difference in attitudes between U.S. entrepreneurs and most European ones. I actually come away from this article inspired to try another start-up, after a pretty significant failure last year.
ThomPete 13y ago
Because failure is much more expensive to European investors and it's not as easy to build huge successes in Europe. So if they did they would quickly be out of money. This is why the Samwer Brothers from Rocket Internet is doing things the way they are and can have so many startups they do. Their copy-cat approach is very un-european but in reality the only way for European investors to be less risk-averse. The safty-net comes with a price. Even in Denmark which is rated as on of the easiest ways to start a business the reality is that it might be easy to start a business, but it's very hard to scale it.
- k-mcgrady 13y ago
  >> "it's not as easy to build huge successes in Europe." Why? Could you explain this further?
  - ThomPete 13y ago
    Here is just a short list. a) Different cultures b) Different languages c) Different tax systems d) Different company types e) Different legality All these in combination creates a lot of friction that makes it harder. There are obviously exceptions (ex. skype) but in general it's just very hard to navigate compared to the US.
    - k-mcgrady 13y ago
      Most kids are (and have been for a while) taught English in schools. If you create your site with English as the first language you can target most European countries + the US. Regarding company types you set up your business in the country you're based in - you don't need a separate company for every country you operate it. I believe the same applies to tax. You pay it in the country you are based in.
      - ThomPete 13y ago
        Yeah good luck building a startup in europe with that view. There is a reason why ex. Facbook localized their content.
        k-mcgrady 13y ago
        I's a strategy for getting the business going. Obviously you begin localising once you've got some traction.
        troels 13y ago
        No, you need localisation to get traction. People are surprisingly fond of their own language, even if they are almost fluent in English. At least if you're dealing with consumers.
        raverbashing 13y ago
        If you do localization, don't think only language will cut it. Address systems, payment systems, "simply taking credit cards" may not cut it. But in the end you have to launch targeting one or more countries, whatever comes beyond that is "free". And of course, you start from day 0 to make your system Unicode compliant.
        troels 13y ago
        Curiously, charsets actually is less of an issue within EU - Latin1 should cover. (Not that anyone should use that in a modern app today) But otherwise I agree with your sentiments - Language is just one of several problems. Most of which are external to the product.
  - logicallee 13y ago
    It's cultural, Europeans don't believe in making something large from nothing. The idea of a kid with a laptop building an international business, as Zuckerberg was doing, is laughable to them. (And delusional.) They'd probably tell him to go back to school so he can get a real job.
    - matthewmacleod 13y ago
      Do you have evidence for that at all? Because it sounds like bollocks to me. The more obvious factors are almost certainly the case - more complex regulatory environment, smaller market, a lower concentration of capital sloshing around than in SV… and myriad other reasons. Blaming this on an artificial 'European' culture is facile.
    - claudius 13y ago
      I would argue that it not only matters how large you build your ‘business’ and how many billions you make eventually selling it, but also how much you care for your employees, provide value to society and, most importantly, what sort of business you’re building. Instant success is also not necessary, instead, building your business over the course of 150 years is perfectly acceptable. Facebook is essentially a marketing company and time-wasting website, both of which are not exactly highly regarded as businesses go. On the other hand, there are many highly successful and innovative European companies building actual stuff, often founded decades ago as small family businesses and growing slowly and steadily until they firmly occupy some niche on a global scale. And, yes, if you don’t have a PhD, how exactly are you going to be different from your secretary?
    - k-mcgrady 13y ago
      You're just repeating old stereotypes.
      - vertasd 13y ago
        Actually he is 100% right. It's a different cultural behaviour in Europe. In the last 15 years I visited most of Europe and major cities of the world and the mentality is definitely different. Americans are more optimistic than Europeans and they see risk differently. Also, take into account the past, the living standards during the course of history. While americans were chilling in the 80s and 90s, many countries of Europe were facing communism. People had a harsh life, the parents-grandparents had it, so of course they're not gonna have a Peter Thiel mentality when they don't even know how to shut down a PC. Some countries have an avg. salary of 200$. What the hell are you gonna buy with that? And I'm talking 2013 not 1990. So it's not like they're gonna tell their kids "sure son, after I worked at a farm all my life for 200$/month I strongly believe you'll make an 80 bill.$ company out of a damn computer. Let me go grab my savings and good luck!". Too much to talk about but europeans know what I mean.
cromulent 13y ago
There are no cited sources that support the premise of the article, that Europeans fear failure too much. The cherry-picked 2011 was about the peak of the Eurozone crisis and austerity measures, obviously a special time. Compare the EBAN 2011 slide in the article with optimism of the 2012 slide: http://www.eban.org/e5-1-billion-market-shows-european-angels-on-the-rise/#.UxMoGNyJJ7E http://www.eban.org/e5-1-billion-market-shows-european-angel...
- ThomPete 13y ago
  It's pretty well established though. Check out this article. http://www.economist.com/node/21559618 http://www.economist.com/node/21559618
  - cromulent 13y ago
    I disagree. If you compare Europe and US, I think there are hotbeds in each one. However, the articles seem to compare Europe with Silicon Valley / San Francisco, which is silly. Obviously San Francisco is special, even within the US. Edit: Also, the Economist article doesn't address Europeans having a fear of failure.
    - ThomPete 13y ago
      There are hotbeds but Europe have far less success stories than the US and therefore you have as I explained further up the risk-averseness of the european investors. At least those that I know, and I do know quite a lot.
Create 13y ago
https://en.wikipedia.org/wiki/United_States_public_debt https://en.wikipedia.org/wiki/United_States_public_debt http://www.sonyclassics.com/insidejob/ http://www.sonyclassics.com/insidejob/
tokoz 13y ago
Because negative NPV.
michaelochurch 13y ago
Snarky but true answer: failure is not always good. Look, I'm all for removing the social penalties to good-faith failure. I've failed before (in good faith) and I'm a good guy. Some problems are harder than they look, and sometimes the solution is brilliant but no one wants it. However, I can't share that cavalier attitude toward failure that I often encounter in the HN-sphere. I would love to see society become more tolerant of good-faith failure or just bad luck, on the small scale (R&D efforts within companies) as well as the large (bankruptcy laws, a healthcare system that isn't psychotic and mean-spirited like US insurance). However, I've also seen what bad-faith failure looks like: businesses that might start with earnest intention but evolve into long cons. People who call themselves "entrepreneurs" are not all ethical. Some are, some aren't. Failure hurts people. Money disappears, jobs are lost, and sometimes peoples' careers get ruined. I've lost about $500,000 (mostly, opportunity cost and career retardation) to bad startups. Sometimes failure is no one's fault and a learning experience. Sometimes, there's some serious malfeasance behind it. If you've been around tech as long as I have (and I'm only 30) you know that there are some really wonderful people, but also some really terrible people, in it. There are some severe issues involved in the question of how to handle business failure: moral hazard, asymmetric risk. Most people attack these hard ethical questions by falling back on instinct and social proof: the way they separate bad-faith and good-faith failure is by asking around, checking references, reading news articles. That's how the Valley works: it tolerates failure if you can convince it that you failed in good faith, but the waters are so murky that social proof rules the day. That, predictably, makes the worst kinds of people (social influence peddlers) powerful, and they evolve into extortionists and manipulators. It turns into a feudalistic reputation economy. It's not a scalable solution. It's actually hypocritical, because a world in which reputation and social access matter that much is exactly the sort of world that becomes risk-averse and sclerotic. (That takes time, but you see it happening in the Valley.) The happy medium is somewhere in between the risk-averse conservatism of Europe and the Midwest, and the pro-failure attitude of California, which arrives either at recklessness or hypocrisy. Maybe Seattle? (I'm considering moving to the PNW in 2015, so I've given this a lot of thought.)
- ThomPete 13y ago
  Oh there is failure in Europe too it's just that a lot of it is based on loans so many of the people who fail have no way to "try again"
H4U 13y ago
As a brit we do not fear failiure, its well known that Up to one fifth of the 400000 businesses that start up each year fail within the first 12 months of operation in the UK. investors dont write blank cheques is the main difference. we are blunt and dont flower up potential so monetry failiure is more relative to business size.
- logicallee 13y ago
  >we are blunt and dont flower up potential This nails it. You're not going to even investigate potential - your investors don't have that kind of vision (or interest). Not a snowball's chance in Hell a Brit VC would have acted as Peter Thiel did when he came on board with Facebook. Because that would have been "flowering up potential". Or as I like to call it, vision.
  - StavrosK 13y ago
    Or, as I like to call it, a stopped clock.
  - gnerd 13y ago
    I find it interesting in a thread about failure you are going to use an example of highly improbable success to highlight what you call vision. That is a cool anecdote and all but it smells like confirmation bias. I'm sure the one guy who won the lottery yesterday had a vision too. Maybe I'll have a vision tomorrow when I play a slot machine or maybe I'll have whatever-its-called when you dump a bunch of money on a long shot and it doesn't come through (were there no visionaries to see the social graph for myspace and friendster?). There's a line somewhere where a can-do attitude becomes naive and the other side of it is where practical sensibilities become choking to fresh ideas, right now I feel we are in a place where having a go is a good thing but it won't always be that way (at least in our industry).
- michaelochurch 13y ago
  A 20% failure rate in the first year, to me, doesn't seem that bad. My experience with jobs (granted, I've worked in some of the most volatile sectors of the economy) is that the median case outcome is that it's not worth coming in to work after 12 months. I achieve a lot quickly, but most companies don't really think they need much high-level work. I desperately want to find the 5+ year fit, but I'm not one for self-deception. When I heard that only half of venture-funded companies live 5 years, to me that sounded like excellent odds. I would kill to find a job where there's a 50/50 chance that it's still worth coming to work after 5 years. My experience is that unless you can convince someone in upper management to take you on as a protege (and that's 95% luck, because they're usually not technical people) you are wasting time after one year. Internal mobility (i.e. the ability to self-allocate to something better suited to one's talents and shine) should fix this in theory, but in practice most large companies do a terrible job on that front: bad performers (whether they are actually bad, or just have a shitty manager) can't move because no one wants them, but good performers' managers won't let them. You have to be exactly 51st percentile to move internally at most companies.
H4U 13y ago
As a brit we do not fear failiure, its well known that Up to one fifth of the 400000 businesses that start up each year fail within the first 12 months of operation in the UK. investors dont write blank cheques is the main difference. we are blunt and dont flower up potential so monetry failiure is more relative to business size.
PakG1 13y ago
To desire failure, this probably means you are trying to do something new. Below I am speaking purely on conjecture, no real sound theory. I get the distinct impression that Europe cares more about tradition and therefore less about disruption. As such, there is not as big a desire to try something new, and therefore no reason to consider whether failure is good. In fact, if the emphasis is on tradition, failure is frowned on not because it is bad, but rather, because it is evidence that someone tried to do something new. My thoughts on this come from a chapter of Alan Greenspan's memoirs on his experience in Vienna and thoughts on cultural differences, especially when it came to Vienna's timelessness and beauty.
- Dewie 13y ago
  > My thoughts on this come from a chapter of Alan Greenspan's memoirs on his experience in Vienna and thoughts on cultural differences, especially when it came to Vienna's timelessness and beauty. Then you're talking about Austria, not all of Europe.
  - PakG1 13y ago
    Just because the example that inspired the thought was drawn from Vienna, it does not mean I cannot extrapolate it to across Europe when I look at the beautiful and ageless cities and traditions that exist throughout Europe. And I put the disclaimer first that I am making conjecture only and nothing more.
    - Dewie 13y ago
      You making a conjecture so to speak on flimsy grounds doesn't stop me from pointing out that it's bullshit. I'm sick and tired of being lumped into one big homogeneous pile because I'm from some part of Europe because of, what? You've read a book or two and noticed that quite a few European cities have an old and really nice-looking architecture? Try harder.
      - PakG1 13y ago
        I'm sorry if I made you upset, but I'm not looking to insult anybody here. It's a civil conversation. If you disagree with what I said, you can say why without getting antagonistic. The fact that I used a weaker word like conjecture instead of something stronger should say a lot about what I really think on the matter. I'm used to constructing comments a bit more carefully for serious opinions if you look at my comment history. :) No harm, no foul, I hope.
RivieraKid 13y ago
I would hypothesise that there are two reasons for this. 1. The size of the US market is a huge advantage. Startups targeting and operating in the US market can grow bigger. China has the same advantage. 2. Americans are less risk-averse because Americans are mostly descendants of immigrants. And immigrants are more likely to have a less risk-averse DNA.
- Athas 13y ago
  > 2. Americans are less risk-averse because Americans are mostly descendants of immigrants. And immigrants are more likely to have a less risk-averse DNA. Do you have any evidence that this is a genetic trait, and not a cultural factor? I have never heard this postulated before, but it would certainly be interesting if true.
  - RivieraKid 13y ago
    No, this is just an idea that occured to me a long time ago in school, it may be completely wrong.
    - Dewie 13y ago
      This is the great thing about the pop psychology part of evolutionary psychology. Now everyone can make up any theory that they want relating to genetics, and just support it with their own arguments and/or common sense - no empirical science or investigation needed on their part. And now just say 'genetics' and their argument sounds like it came from some hard-ish science, and was not just conjured up by their own mind.
      - RivieraKid 13y ago
        I clearly stated that it's a hypothesis. The biggest assumption, that immigrants are less risk-averse, sounds very plausible to me.
        Dewie 13y ago
raverbashing 13y ago
"As European talent in the form of startups and entrepreneurs continue to flock towards the USA, the question remains: why? Is it attitude or is it money? Is it bureaucracy or is it poor infrastructure?" This is a loaded assertion. And, sincerely very cliché. Oh Europe is bureaucratic and expensive? And yet there's nothing like this: http://en.wikipedia.org/wiki/Giro http://en.wikipedia.org/wiki/Giro in the US. Ridiculous Funny how several of these big US companies open offices in Dublin (offices, not merely a mailbox and a shell company) guess they didn't get the memo. Cell phone plans are way cheaper in Europe (no paying to receive calls). Overall quality of life in bigger European cities, mass transit is ubiquitous. So, in overall, I think the US has a lot to learn from Europe. But I understand, while in the US people think "Why not, let's do it!" in Europe people think "What can go wrong"
- ThomPete 13y ago
  That has absolutely nothing to do with why European investors are more risk-averse (they are).
  - raverbashing 13y ago
    Yes, they are This is not all bad, since it would be harder for them to invest in companies like Color They still invest in risky stuff, like a Sound startup in the most picky country w.r.t. intellectual property online http://en.wikipedia.org/wiki/Soundcloud http://en.wikipedia.org/wiki/Soundcloud (and what are the issues in Germany can be summed by this: http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalische_Auff%C3%BChrungs-_und_mechanische_Vervielf%C3%A4ltigungsrechte http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalis... )
RivieraKid 13y ago
Does anyone know if the whole VC industry is profitable? A chart with yearly startup investments and profits would be really interesting.
saalweachter 13y ago
This article is missing more-than-anecdotal evidence that failure is good. What are the total number of start ups in Europe versus the US? How many succeed, for some various metrics of success? What is the total revenue of companies started in the last X years? What are the returns to investors, both absolute and relative to the size of their investments? Without knowing the outcomes of the different investment strategies, you can't pick a winner.
m0a0t0 13y ago
Seems to be a lot of patriotism in these comments. Today I've learnt that Americans are genetically superior to Europeans because they have genes that make them more likely to take a chance and Americans have "vision" where as Europeans don't (yes I've exaggerated these a bit). To be honest, even treating Europe as a collective is silly. When each country has different tax laws, traditions, outlook on life; how can you really, meaningfully compare them?
- ThomPete 13y ago
  Which is why europeans are more risk-averse.
Silhouette 13y ago
How about because "failure is good" is an absurd proposition? Failure in this case typically means people lost money and jobs. It also means customers probably got stung buying into something new and that could make them more hesitant to buy into something new next time, which is harmful to successful innovation. Learning from failures is good, and might help entrepreneurs to develop a more viable proposition if they try again. But that still doesn't make failures good. It just means there is a silver lining for some of the participants, if they have enough left to try again later. Hit-it-out-of-the-park success is good, and from an investing perspective funding a number of failures may be a reasonable cost of doing business if it means you get the occasional smash hit as well. But that still doesn't make failures good. It just makes them tolerable. Moreover, the hit-it-out-of-the-park outliers in SV are mostly part of one big pyramid scheme these days. It may be a while before the bubble bursts, because at the top of the chain you've got the outlying outliers like Google and Facebook that really have managed to bring in actual revenues and build up huge war chests, but even then the theoretical valuations for some of these giants are dubious. There literally aren't enough people in the world to continue growing their core offering at historical rates in some cases, and attempts at diversification have mostly been failures propped up by those core offerings. Even if these weren't the case, the biggest giants in technology rarely manage to remain dominant for more than a decade or two before newer ideas from more nimble competitors start to intrude. Meanwhile, smaller companies being bought for staggering sums of money when they have yet to demonstrate a viable business model for monetizing what they do is just silly in most cases. In the ones where it isn't, the acquisition is often for strategic reasons rather than a genuine investment in expected actual value. So the bottom line is that European investors have less time for boom and bust than US ones. SV couldn't happen here, and we don't want it to. Culturally, while there are start-up incubators and the like around, we tend to be more interested in investing to grow something after its foundations and basic viability are already established. That could be demonstrated either through having a working business model that only needs cash immediately to accelerate growth that could have happened anyway, or through at least having a plan with clear potential to generate real money, for example. While I don't have any hard data to back this up, I suspect we also tend to put more emphasis on bootstrapping your own business or going to the bank for a loan rather than taking angel investment, and use more informal support networks such as old university connections here in Cambridge for the non-monetary benefits that angels might provide in somewhere like SV.
kristiandupont 13y ago
There is something that annoys me about comparing the US to Europe here. I feel that the world is going through a process of learning how to create tech companies and that movement springs out of SF and SV. That is where the most innovation is taking place, in terms of technology and business development. The rest of the world, including the rest of the US, is following along and steadily catching up. Being a member of the HN community for a while now has made me feel much more connected to this than was possible 5 years ago (I'm in Europe). In the co-working space where I work, everybody talks about lean startups, nodejs, go, etc. and a random discussion is basically indistinguishable from my few experiences in SF offices. Now, when it comes to funding everybody knows that trying to do it locally is ridiculous if you don't have a good specific reason to do so, but this applies to major US cities as well, perhaps with NYC slowly catching up. I think this will change as well, as more and more entrepreneurs have succeeded by the SV model and go into investing themselves. It probably won't even out completely but I think it will become more uniform.

39 points by mckee1 13y ago

Wow, awesome article. As someone who has lived in both the U.S. and Europe, this hits the nail on the head re: the difference in attitudes between U.S. entrepreneurs and most European ones. I actually come away from this article inspired to try another start-up, after a pretty significant failure last year.

ThomPete 13y ago

Because failure is much more expensive to European investors and it's not as easy to build huge successes in Europe. So if they did they would quickly be out of money. This is why the Samwer Brothers from Rocket Internet is doing things the way they are and can have so many startups they do. Their copy-cat approach is very un-european but in reality the only way for European investors to be less risk-averse. The safty-net comes with a price. Even in Denmark which is rated as on of the easiest ways to start a business the reality is that it might be easy to start a business, but it's very hard to scale it.

k-mcgrady 13y ago
>> "it's not as easy to build huge successes in Europe." Why? Could you explain this further?
- ThomPete 13y ago
  Here is just a short list. a) Different cultures b) Different languages c) Different tax systems d) Different company types e) Different legality All these in combination creates a lot of friction that makes it harder. There are obviously exceptions (ex. skype) but in general it's just very hard to navigate compared to the US.
  - k-mcgrady 13y ago
    Most kids are (and have been for a while) taught English in schools. If you create your site with English as the first language you can target most European countries + the US. Regarding company types you set up your business in the country you're based in - you don't need a separate company for every country you operate it. I believe the same applies to tax. You pay it in the country you are based in.
    - ThomPete 13y ago
      Yeah good luck building a startup in europe with that view. There is a reason why ex. Facbook localized their content.
      - k-mcgrady 13y ago
        I's a strategy for getting the business going. Obviously you begin localising once you've got some traction.
        troels 13y ago
        No, you need localisation to get traction. People are surprisingly fond of their own language, even if they are almost fluent in English. At least if you're dealing with consumers.
        raverbashing 13y ago
        If you do localization, don't think only language will cut it. Address systems, payment systems, "simply taking credit cards" may not cut it. But in the end you have to launch targeting one or more countries, whatever comes beyond that is "free". And of course, you start from day 0 to make your system Unicode compliant.
        troels 13y ago
        Curiously, charsets actually is less of an issue within EU - Latin1 should cover. (Not that anyone should use that in a modern app today) But otherwise I agree with your sentiments - Language is just one of several problems. Most of which are external to the product.
- logicallee 13y ago
  It's cultural, Europeans don't believe in making something large from nothing. The idea of a kid with a laptop building an international business, as Zuckerberg was doing, is laughable to them. (And delusional.) They'd probably tell him to go back to school so he can get a real job.
  - matthewmacleod 13y ago
    Do you have evidence for that at all? Because it sounds like bollocks to me. The more obvious factors are almost certainly the case - more complex regulatory environment, smaller market, a lower concentration of capital sloshing around than in SV… and myriad other reasons. Blaming this on an artificial 'European' culture is facile.
  - claudius 13y ago
    I would argue that it not only matters how large you build your ‘business’ and how many billions you make eventually selling it, but also how much you care for your employees, provide value to society and, most importantly, what sort of business you’re building. Instant success is also not necessary, instead, building your business over the course of 150 years is perfectly acceptable. Facebook is essentially a marketing company and time-wasting website, both of which are not exactly highly regarded as businesses go. On the other hand, there are many highly successful and innovative European companies building actual stuff, often founded decades ago as small family businesses and growing slowly and steadily until they firmly occupy some niche on a global scale. And, yes, if you don’t have a PhD, how exactly are you going to be different from your secretary?
  - k-mcgrady 13y ago
    You're just repeating old stereotypes.
    - vertasd 13y ago
      Actually he is 100% right. It's a different cultural behaviour in Europe. In the last 15 years I visited most of Europe and major cities of the world and the mentality is definitely different. Americans are more optimistic than Europeans and they see risk differently. Also, take into account the past, the living standards during the course of history. While americans were chilling in the 80s and 90s, many countries of Europe were facing communism. People had a harsh life, the parents-grandparents had it, so of course they're not gonna have a Peter Thiel mentality when they don't even know how to shut down a PC. Some countries have an avg. salary of 200$. What the hell are you gonna buy with that? And I'm talking 2013 not 1990. So it's not like they're gonna tell their kids "sure son, after I worked at a farm all my life for 200$/month I strongly believe you'll make an 80 bill.$ company out of a damn computer. Let me go grab my savings and good luck!". Too much to talk about but europeans know what I mean.

cromulent 13y ago

There are no cited sources that support the premise of the article, that Europeans fear failure too much. The cherry-picked 2011 was about the peak of the Eurozone crisis and austerity measures, obviously a special time. Compare the EBAN 2011 slide in the article with optimism of the 2012 slide: http://www.eban.org/e5-1-billion-market-shows-european-angels-on-the-rise/#.UxMoGNyJJ7E http://www.eban.org/e5-1-billion-market-shows-european-angel...

ThomPete 13y ago
It's pretty well established though. Check out this article. http://www.economist.com/node/21559618 http://www.economist.com/node/21559618
- cromulent 13y ago
  I disagree. If you compare Europe and US, I think there are hotbeds in each one. However, the articles seem to compare Europe with Silicon Valley / San Francisco, which is silly. Obviously San Francisco is special, even within the US. Edit: Also, the Economist article doesn't address Europeans having a fear of failure.
  - ThomPete 13y ago
    There are hotbeds but Europe have far less success stories than the US and therefore you have as I explained further up the risk-averseness of the european investors. At least those that I know, and I do know quite a lot.

Create 13y ago

https://en.wikipedia.org/wiki/United_States_public_debt https://en.wikipedia.org/wiki/United_States_public_debt http://www.sonyclassics.com/insidejob/ http://www.sonyclassics.com/insidejob/

tokoz 13y ago

Because negative NPV.

michaelochurch 13y ago

Snarky but true answer: failure is not always good. Look, I'm all for removing the social penalties to good-faith failure. I've failed before (in good faith) and I'm a good guy. Some problems are harder than they look, and sometimes the solution is brilliant but no one wants it. However, I can't share that cavalier attitude toward failure that I often encounter in the HN-sphere. I would love to see society become more tolerant of good-faith failure or just bad luck, on the small scale (R&D efforts within companies) as well as the large (bankruptcy laws, a healthcare system that isn't psychotic and mean-spirited like US insurance). However, I've also seen what bad-faith failure looks like: businesses that might start with earnest intention but evolve into long cons. People who call themselves "entrepreneurs" are not all ethical. Some are, some aren't. Failure hurts people. Money disappears, jobs are lost, and sometimes peoples' careers get ruined. I've lost about $500,000 (mostly, opportunity cost and career retardation) to bad startups. Sometimes failure is no one's fault and a learning experience. Sometimes, there's some serious malfeasance behind it. If you've been around tech as long as I have (and I'm only 30) you know that there are some really wonderful people, but also some really terrible people, in it. There are some severe issues involved in the question of how to handle business failure: moral hazard, asymmetric risk. Most people attack these hard ethical questions by falling back on instinct and social proof: the way they separate bad-faith and good-faith failure is by asking around, checking references, reading news articles. That's how the Valley works: it tolerates failure if you can convince it that you failed in good faith, but the waters are so murky that social proof rules the day. That, predictably, makes the worst kinds of people (social influence peddlers) powerful, and they evolve into extortionists and manipulators. It turns into a feudalistic reputation economy. It's not a scalable solution. It's actually hypocritical, because a world in which reputation and social access matter that much is exactly the sort of world that becomes risk-averse and sclerotic. (That takes time, but you see it happening in the Valley.) The happy medium is somewhere in between the risk-averse conservatism of Europe and the Midwest, and the pro-failure attitude of California, which arrives either at recklessness or hypocrisy. Maybe Seattle? (I'm considering moving to the PNW in 2015, so I've given this a lot of thought.)

ThomPete 13y ago
Oh there is failure in Europe too it's just that a lot of it is based on loans so many of the people who fail have no way to "try again"

H4U 13y ago

As a brit we do not fear failiure, its well known that Up to one fifth of the 400000 businesses that start up each year fail within the first 12 months of operation in the UK. investors dont write blank cheques is the main difference. we are blunt and dont flower up potential so monetry failiure is more relative to business size.

logicallee 13y ago
>we are blunt and dont flower up potential This nails it. You're not going to even investigate potential - your investors don't have that kind of vision (or interest). Not a snowball's chance in Hell a Brit VC would have acted as Peter Thiel did when he came on board with Facebook. Because that would have been "flowering up potential". Or as I like to call it, vision.
- StavrosK 13y ago
  Or, as I like to call it, a stopped clock.
- gnerd 13y ago
  I find it interesting in a thread about failure you are going to use an example of highly improbable success to highlight what you call vision. That is a cool anecdote and all but it smells like confirmation bias. I'm sure the one guy who won the lottery yesterday had a vision too. Maybe I'll have a vision tomorrow when I play a slot machine or maybe I'll have whatever-its-called when you dump a bunch of money on a long shot and it doesn't come through (were there no visionaries to see the social graph for myspace and friendster?). There's a line somewhere where a can-do attitude becomes naive and the other side of it is where practical sensibilities become choking to fresh ideas, right now I feel we are in a place where having a go is a good thing but it won't always be that way (at least in our industry).
michaelochurch 13y ago
A 20% failure rate in the first year, to me, doesn't seem that bad. My experience with jobs (granted, I've worked in some of the most volatile sectors of the economy) is that the median case outcome is that it's not worth coming in to work after 12 months. I achieve a lot quickly, but most companies don't really think they need much high-level work. I desperately want to find the 5+ year fit, but I'm not one for self-deception. When I heard that only half of venture-funded companies live 5 years, to me that sounded like excellent odds. I would kill to find a job where there's a 50/50 chance that it's still worth coming to work after 5 years. My experience is that unless you can convince someone in upper management to take you on as a protege (and that's 95% luck, because they're usually not technical people) you are wasting time after one year. Internal mobility (i.e. the ability to self-allocate to something better suited to one's talents and shine) should fix this in theory, but in practice most large companies do a terrible job on that front: bad performers (whether they are actually bad, or just have a shitty manager) can't move because no one wants them, but good performers' managers won't let them. You have to be exactly 51st percentile to move internally at most companies.

H4U 13y ago

PakG1 13y ago

To desire failure, this probably means you are trying to do something new. Below I am speaking purely on conjecture, no real sound theory. I get the distinct impression that Europe cares more about tradition and therefore less about disruption. As such, there is not as big a desire to try something new, and therefore no reason to consider whether failure is good. In fact, if the emphasis is on tradition, failure is frowned on not because it is bad, but rather, because it is evidence that someone tried to do something new. My thoughts on this come from a chapter of Alan Greenspan's memoirs on his experience in Vienna and thoughts on cultural differences, especially when it came to Vienna's timelessness and beauty.

Dewie 13y ago
> My thoughts on this come from a chapter of Alan Greenspan's memoirs on his experience in Vienna and thoughts on cultural differences, especially when it came to Vienna's timelessness and beauty. Then you're talking about Austria, not all of Europe.
- PakG1 13y ago
  Just because the example that inspired the thought was drawn from Vienna, it does not mean I cannot extrapolate it to across Europe when I look at the beautiful and ageless cities and traditions that exist throughout Europe. And I put the disclaimer first that I am making conjecture only and nothing more.
  - Dewie 13y ago
    You making a conjecture so to speak on flimsy grounds doesn't stop me from pointing out that it's bullshit. I'm sick and tired of being lumped into one big homogeneous pile because I'm from some part of Europe because of, what? You've read a book or two and noticed that quite a few European cities have an old and really nice-looking architecture? Try harder.
    - PakG1 13y ago
      I'm sorry if I made you upset, but I'm not looking to insult anybody here. It's a civil conversation. If you disagree with what I said, you can say why without getting antagonistic. The fact that I used a weaker word like conjecture instead of something stronger should say a lot about what I really think on the matter. I'm used to constructing comments a bit more carefully for serious opinions if you look at my comment history. :) No harm, no foul, I hope.

RivieraKid 13y ago

I would hypothesise that there are two reasons for this. 1. The size of the US market is a huge advantage. Startups targeting and operating in the US market can grow bigger. China has the same advantage. 2. Americans are less risk-averse because Americans are mostly descendants of immigrants. And immigrants are more likely to have a less risk-averse DNA.

Athas 13y ago
> 2. Americans are less risk-averse because Americans are mostly descendants of immigrants. And immigrants are more likely to have a less risk-averse DNA. Do you have any evidence that this is a genetic trait, and not a cultural factor? I have never heard this postulated before, but it would certainly be interesting if true.
- RivieraKid 13y ago
  No, this is just an idea that occured to me a long time ago in school, it may be completely wrong.
  - Dewie 13y ago
    This is the great thing about the pop psychology part of evolutionary psychology. Now everyone can make up any theory that they want relating to genetics, and just support it with their own arguments and/or common sense - no empirical science or investigation needed on their part. And now just say 'genetics' and their argument sounds like it came from some hard-ish science, and was not just conjured up by their own mind.
    - RivieraKid 13y ago
      I clearly stated that it's a hypothesis. The biggest assumption, that immigrants are less risk-averse, sounds very plausible to me.
      - Dewie 13y ago

raverbashing 13y ago

"As European talent in the form of startups and entrepreneurs continue to flock towards the USA, the question remains: why? Is it attitude or is it money? Is it bureaucracy or is it poor infrastructure?" This is a loaded assertion. And, sincerely very cliché. Oh Europe is bureaucratic and expensive? And yet there's nothing like this: http://en.wikipedia.org/wiki/Giro http://en.wikipedia.org/wiki/Giro in the US. Ridiculous Funny how several of these big US companies open offices in Dublin (offices, not merely a mailbox and a shell company) guess they didn't get the memo. Cell phone plans are way cheaper in Europe (no paying to receive calls). Overall quality of life in bigger European cities, mass transit is ubiquitous. So, in overall, I think the US has a lot to learn from Europe. But I understand, while in the US people think "Why not, let's do it!" in Europe people think "What can go wrong"

ThomPete 13y ago
That has absolutely nothing to do with why European investors are more risk-averse (they are).
- raverbashing 13y ago
  Yes, they are This is not all bad, since it would be harder for them to invest in companies like Color They still invest in risky stuff, like a Sound startup in the most picky country w.r.t. intellectual property online http://en.wikipedia.org/wiki/Soundcloud http://en.wikipedia.org/wiki/Soundcloud (and what are the issues in Germany can be summed by this: http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalische_Auff%C3%BChrungs-_und_mechanische_Vervielf%C3%A4ltigungsrechte http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalis... )

RivieraKid 13y ago

Does anyone know if the whole VC industry is profitable? A chart with yearly startup investments and profits would be really interesting.

saalweachter 13y ago

This article is missing more-than-anecdotal evidence that failure is good. What are the total number of start ups in Europe versus the US? How many succeed, for some various metrics of success? What is the total revenue of companies started in the last X years? What are the returns to investors, both absolute and relative to the size of their investments? Without knowing the outcomes of the different investment strategies, you can't pick a winner.

m0a0t0 13y ago

Seems to be a lot of patriotism in these comments. Today I've learnt that Americans are genetically superior to Europeans because they have genes that make them more likely to take a chance and Americans have "vision" where as Europeans don't (yes I've exaggerated these a bit). To be honest, even treating Europe as a collective is silly. When each country has different tax laws, traditions, outlook on life; how can you really, meaningfully compare them?

ThomPete 13y ago
Which is why europeans are more risk-averse.

Silhouette 13y ago

How about because "failure is good" is an absurd proposition? Failure in this case typically means people lost money and jobs. It also means customers probably got stung buying into something new and that could make them more hesitant to buy into something new next time, which is harmful to successful innovation. Learning from failures is good, and might help entrepreneurs to develop a more viable proposition if they try again. But that still doesn't make failures good. It just means there is a silver lining for some of the participants, if they have enough left to try again later. Hit-it-out-of-the-park success is good, and from an investing perspective funding a number of failures may be a reasonable cost of doing business if it means you get the occasional smash hit as well. But that still doesn't make failures good. It just makes them tolerable. Moreover, the hit-it-out-of-the-park outliers in SV are mostly part of one big pyramid scheme these days. It may be a while before the bubble bursts, because at the top of the chain you've got the outlying outliers like Google and Facebook that really have managed to bring in actual revenues and build up huge war chests, but even then the theoretical valuations for some of these giants are dubious. There literally aren't enough people in the world to continue growing their core offering at historical rates in some cases, and attempts at diversification have mostly been failures propped up by those core offerings. Even if these weren't the case, the biggest giants in technology rarely manage to remain dominant for more than a decade or two before newer ideas from more nimble competitors start to intrude. Meanwhile, smaller companies being bought for staggering sums of money when they have yet to demonstrate a viable business model for monetizing what they do is just silly in most cases. In the ones where it isn't, the acquisition is often for strategic reasons rather than a genuine investment in expected actual value. So the bottom line is that European investors have less time for boom and bust than US ones. SV couldn't happen here, and we don't want it to. Culturally, while there are start-up incubators and the like around, we tend to be more interested in investing to grow something after its foundations and basic viability are already established. That could be demonstrated either through having a working business model that only needs cash immediately to accelerate growth that could have happened anyway, or through at least having a plan with clear potential to generate real money, for example. While I don't have any hard data to back this up, I suspect we also tend to put more emphasis on bootstrapping your own business or going to the bank for a loan rather than taking angel investment, and use more informal support networks such as old university connections here in Cambridge for the non-monetary benefits that angels might provide in somewhere like SV.

kristiandupont 13y ago

There is something that annoys me about comparing the US to Europe here. I feel that the world is going through a process of learning how to create tech companies and that movement springs out of SF and SV. That is where the most innovation is taking place, in terms of technology and business development. The rest of the world, including the rest of the US, is following along and steadily catching up. Being a member of the HN community for a while now has made me feel much more connected to this than was possible 5 years ago (I'm in Europe). In the co-working space where I work, everybody talks about lean startups, nodejs, go, etc. and a random discussion is basically indistinguishable from my few experiences in SF offices. Now, when it comes to funding everybody knows that trying to do it locally is ridiculous if you don't have a good specific reason to do so, but this applies to major US cities as well, perhaps with NYC slowly catching up. I think this will change as well, as more and more entrepreneurs have succeeded by the SV model and go into investing themselves. It probably won't even out completely but I think it will become more uniform.