The Midwest’s healthy fear of failure beats Silicon Valley’s fail-fast mantra
By: Drive Capital
Tags: Failure, Midwest, Startup, Startup Failure, Silicon Valley

Originally published by Robert Hatta on April 9, 2017

Image Credit: WHYFRAME/Shutterstock

A couple of years ago, I met Dan. He had just left one of Silicon Valley’s hottest tech companies (fully vested, of course), where he’d run their growth team. He planned to take some time off, get married, and work on his startup. When I asked what problem he wanted to solve, he said he didn’t know but wanted to explore a few ideas he’d been kicking around.

I visit Silicon Valley frequently and have conversations like this all the time. A super talented person achieves success at a hot tech company and breaks out to launch their own. Maybe they have an idea. Maybe they don’t. But they’ve got some cash in the bank and it’s as if they feel compelled to try their hand as a startup founder. What about failure? The only thing better than a successful exit is a great failure story.

The celebration of failure is one of the things that built the tech industry and, with it, Silicon Valley. Try some stuff. Break shit. And if you’re going to fail, fail fast. It’s better to have tried and failed than never to have tried at all. This is the elevator music of Silicon Valley, playing inoffensively in the background to the point you start humming along even if you can’t name the song. Failure is so celebrated that it has its own conference, FailCon, which was founded in 2009 “as a response to events repeatedly highlighting only success.” First in San Francisco, FailCon now hosts summits in eight cities worldwide. Failure, it seems, can become a lucrative business model.

Contrast that with the Midwest’s cultural views toward failure. Here, starting a company is an act of mild insanity. Investment capital is scarce. Your friends don’t understand what you’re doing, and your parents worry about the money they “wasted” on your college education. And what if you fail? The big company you left is not going to take you back. You lost how much money?

My partner, Mark Kvamme, describes failure in the Midwest: “It’s not a badge of honor. It’s a scarlet letter… we’ve got to change that. Failure is a good thing.” He and others often cite the Midwest’s fear of failure as a key reason for the region’s lack of startup activity.

The data supports Kvamme’s view. According to the Kauffman Foundation’s report on startup activity, California residents start companies at a rate 50 percent higher than those in the Midwest. And data from the Bureau of Labor Statistics show California has twice as many business starts per 1,000 residents as the Midwest’s most populated states, Ohio and Illinois, do.

If you’d asked me a two years ago, I would have agreed that our fear of failure is holding us back. But something strange happened. At about the same time I was talking to Dan, one of our portfolio companies was having real problems. The problems were typical of failing startups: the product didn’t work; the company committed to the wrong go-to-market strategy; they had grown too quickly and had to reduce headcount by 50 percent. This is usually the point where founders and key employees lose faith and move on to their next thing. However, for nearly two years, the remaining team stuck together, kept the business alive, and built a technology that ultimately positioned the company for a fresh round of capital (at an increased valuation, no less). The company isn’t merely surviving. It’s growing again.

When I asked the founder how they’d made it, he explained why he started his company to begin with: because he felt compelled to change an entire industry. He said plainly, “We couldn’t fail. This shit had to work.” In our portfolio, we’ve observed at least two other examples of companies rebounding from near-certain death, all crediting the same reason: this shit has to work.

That’s when I realized that the Midwest’s fear of failure isn’t holding us back. I see it now as a highly effective filter that ensures only those who are committed get through. The barriers to even starting a company are too high; no one is just dabbling around to see if something works. The macro numbers support what we’ve seen. According to the above Kauffman report, the five-year survival rate for startups is higher in Midwest states than in California (OH = 51.45%, IL = 50.14%, CA = 48.05%). Six of the top 10 states for startup survival rate are in the Midwest, with California coming in at number 19.

That brings me to another question: Is Silicon Valley’s culture toward failure a good thing? In the conversations I have about founding startups there, it’s often described like a project. Trying their hand at being a founder, much like the ideas they test, feels disposable. And that’s what ends up happening. With the startup Dan was launching, he hired an engineer and started talking to investors before deciding to “put it on the back burner.” He’s currently interviewing for roles at several established tech companies.

Failure happens. And the Midwest does not celebrate this fact nearly as much as Silicon Valley does. But building a great company is really, really hard. It takes a long time and there will be many near-death experiences along the way. When I think about the founders I’ve worked with in the Midwest, I see “this shit has to work.” I now believe this is a healthy fear, and one that creates more resilient, if fewer, startups.