“When you are part of a failed venture, as long as you didn’t lie, cheat, or steal,” says Sahlman, “then you’re considered experienced. And in fact, to the extent people learn from the mistakes that they made, then they can go on and do something special.”

I just completed a big study of the venture capital industry for the past 15 or so years, and what was interesting about that study is it revealed that the failure rate, the mortality rate or professional venture firms has been 60%.  And that’s higher than it was back in the ‘80’s, when it was probably 35% or so.  So the dominant characteristic of high potential ventures is that they fail.  More fail than succeed.  And in fact, only a relatively small proportion go on to be Facebook or Google.  

Failure is an essential part of entrepreneurial action.  And a distinguishing characteristic of the US economy and of the US culture, if you will, is failure is not permanent.  You’re not kicked out the game.  In fact, when you are part of a failed venture, as long as you didn’t lie, cheat, or steal, then you’re considered experienced.  And in fact, to the extent people learn from the mistakes that they made, then they can go on and do something special.

I have one student who is a great example of this, he actually worked at Webvan.  Webvan raised $600 million and spent $600 million and didn’t produce a profit for its owners and in fact was sort of shipping $20 bills with each bag of groceries.  So Mick was in charge, or one of the people, trying to develop Logistic System, and he and others developed a system where a picker would go to various turning racks of groceries and would grab an item and go back and put it in a box.  And they could do 200 items per hour.  But Mick, having been part of a failed venture, had a fundamental insight, which is, well, what if, instead of having the picker go to the merchandise, have the merchandise go to the picker, he created a robotic system where little robots would go out on the floor and lift up a rack of merchandise and would bring it over to the picker, who was stationary.  And the insight that he had enabled him to do 600 items per hour and his company, Keba Systems, will actually revolutionize logistics.  And companies like Gilt or Zappos or Diapers.com will actually only exist because they have this incredibly powerful and adaptive and flexible robotics based system that came from a learning that one person got from having been at a failed venture.  And he was able to get the money that he needed, he wasn’t penalized permanently.