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

http://thenextweb.com/entrepreneur/2014/03/02/havent-european-investors-fully-accepted-failure-good-mentality-yet/

by mckee1 • 12 years ago

39 74 12 years ago

jnbiche• 12 years 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.

ThomPete9• 12 years 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-mcgrady5• 12 years ago

> "it's not as easy to build huge successes in Europe."

Why? Could you explain this further?

ThomPete9• 12 years 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.

logicallee2• 12 years 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.

cromulent2• 12 years 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-angel...

ThomPete9• 12 years ago

It's pretty well established though.

Check out this article.

http://www.economist.com/node/21559618

cromulent2• 12 years 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.

Create• 12 years ago

https://en.wikipedia.org/wiki/United_States_public_debt

http://www.sonyclassics.com/insidejob/

michaelochurch3• 12 years 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.)

ThomPete9• 12 years 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"

michaelochurch3• 12 years ago

Yeah, that's horrible. It really drains the culture when personal loans/savings are the only way to finance a business. The US Midwest actually has a lot of talent (and geat schools) but so much of that talent ends up on the coasts.

H4U• 12 years 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.

logicallee2• 12 years 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• 12 years ago

Or, as I like to call it, a stopped clock.

gnerd• 12 years 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).

michaelochurch3• 12 years 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.

michaelfeathers3• 12 years ago

But there are regulatory things too. I've heard (don't know how true it is) that if your business fails in the UK you are not allowed to start another for a period of time.

I've heard of similar laws throughout Europe.

Silhouette3• 12 years ago

I've heard (don't know how true it is) that if your business fails in the UK you are not allowed to start another for a period of time.

I think you have probably heard a partial truth, perhaps related to some kind of bankruptcy procedure, and inferred too much.

It's true that there is typically more regulation of businesses in Europe than in the US, but often it relates to fields like employment rights, consumer protection, data protection, etc. The actual cost and effort required to operate a business (edit: in the sense of setting up a legal entity to use for trading purposes, filing the mandatory paperwork, and paying the associated fees/taxes) varies widely among EU nations, but with a very low lower bound.

PakG13• 12 years 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.

Dewie4• 12 years 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.

PakG13• 12 years 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.

shin_lao• 12 years ago

How many countries in Europe have you visited, and for how long? How many European languages to you speak?

RivieraKid4• 12 years 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• 12 years 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.

RivieraKid4• 12 years ago

No, this is just an idea that occured to me a long time ago in school, it may be completely wrong.

Hermel• 12 years ago

3. The opportunity costs of failing are higher in Europe. Thanks to welfare and lots of vacation, the founders of a startup have to sacrifice much more leisure time vs. the alternative (working at an existing corporation). For the same reason, it is also harder to find risk-seeking employees. They prefer doing financially ok with lots of leisure time over having the chance of getting rich without leisure. In the US, they don't have much holiday in either scenario.

hga• 12 years ago

What about the frequently (and generally??) much higher difficultly in letting people go, which I'm told results in it being much more difficult to get hired in the first place?

To the extent that's true, that would make it much more difficult to find good, "risk-seeking" or at least risk tolerant employees.

higherpurpose• 12 years ago

I think there are two main issues that stops Europe from becoming a start-up hub, too:

1) a cohesive market, which is also your first point. EU is huge, bigger than US, but the market isn't very cohesive at all. The first time I heard about the EU Commission wanting to push for turning EU into a "federation of states", much like US, I was pretty pissed off, because I know that just means increased corruption at the top, with fewer people having more power over a huge region.

And I still think that's going to happen, unfortunately. But now I also think we can't turn down the advantage of having a cohesive market like US. Maybe if we can delay it into 2020's, by then the Internet will make things a lot more democratic, and it wouldn't be so easy to be corrupt at the top of EU.

2) I'm not so sure it's genetics. I think it's the culture, but not even the "entrepreneurial American culture", but the Silicon Valley culture.

First off, there's no "start-up center" in Europe, certainly not one as concentrated with entrepreneurs and especially investors, as Silicon Valley.

And second, people aren't used to "pitch their ideas" to investors, which are few and hard to find to begin with. There may be a lot of rich people, but they aren't actively seeking entrepreneurs to invest in their ideas.

So it very rarely happens. That's why you don't see start-ups that "change the world" from Europe, because while a start-up getting millions of dollars just based off an idea is kind of a daily occurrence in Silicon Valley, it almost never happens in Europe.

raverbashing3• 12 years 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 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"

ThomPete9• 12 years ago

That has absolutely nothing to do with why European investors are more risk-averse (they are).

raverbashing3• 12 years 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 (and what are the issues in Germany can be summed by this: http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalis... )

RivieraKid4• 12 years ago

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

saalweachter• 12 years 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.

m0a0t02• 12 years 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?

ThomPete9• 12 years ago

Which is why europeans are more risk-averse.

Silhouette3• 12 years 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.

michaelfeathers3• 12 years ago

Maybe the way to put it is - "failure is not something to be that scared of."

I didn't like the article. It felt shallow. The real issue is that in the US we have a tendency to not second-guess people's decisions about how to invest their money. Yes, this means that some people will be ripped off, but it also means that they, and the society as a whole can be in rapid learning cycles about what makes a good investment.

It's clear that the US has a very different take on acceptable risk and as a result they more big wins and big losses. Can't have one without the other.

Silhouette3• 12 years ago

It's clear that the US has a very different take on acceptable risk and as a result they more big wins and big losses. Can't have one without the other.

Is that really true? If you ever make a big loss, in the sense that backing something like Google or Facebook would have been a big win, you're probably doing investment wrong. The dominant US tech investment strategy today appears to be accepting many relatively small losses on the basis that one smash hit will outweigh them all.

I've noticed that in US-centric discussions, the distinction often seems to be stated in terms of "risk-aversion", with a focus on how much downside is acceptable and how US investors tend to accept more risk. In discussions on this side of the pond, we might rather distinguish based on "expected returns", with a focus on how much upside is likely across all outcomes and an emphasis on the mean rather than modal return.

kristiandupont2• 12 years 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.

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

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