Roland Dürre
Friday August 15th, 2014

Start-up (1) – Failure

As during many summers before, I am currently camping at Porto Ageranos. The campground is situated on the Peloponnesus, on the middle finger, about 10 kilometres south of Gythio, shortly before the mild climate of Mani. From our tent, you have only 10 metres to go before you reach the ocean. The first night was truly great. And since we know the region quite well, we have been feeling really at home from the outset!

I take advantage of the time I spand at this place for relaxing, contemplation and, not least, for making plans. And, of course, I also do a lot of swimming and bike-riding, I eat well and simply spend quality time with my beloved family and friends. And, naturally, I also write some articles (for the IF Blog).
This time around, my main topic is start ups.

I know many people. With some of them, I am good friends. Among them are also quite a few young colleagues. It seems to me that I am actually doing quite well when it comes to getting along with the young generation.

A few years ago, I started getting interested in the foundation of new enterprises. For instance, I am constantly asked to sit in the jury for a business plan contest. As a mentor, I counsel persons and enterprises, sometimes intensely, sometimes sporadically. Consequently, I know a little about what is going on.
Most of the teams I know and acompany are truly great teams. They are industrious and creative and they try to lead their lives independently and to build up an enterprise, investing the utmost personal enthusiasm on many levels based on an exciting idea.

And then they fail.

Some of them fail at the very outset, others as soon as promotion programs, such as EXIST are over, or else after the first financing. More often than not, the period of suffering will continue for some time. Once in a while, they find an “emergency exit”. And only very few of them will be a success – and those mostly in a totally different way than they had originally planned.

Most of those who fail leave behind a huge amount of strength and also money. The only consolation for them is that they learned a lot, in other words: they “failed successfully”. Yet this is not much of a consolation, is it? After all, if they had taken up an alternative life line, for instance through a good job with a medium-sized company, they could probably have learned a lot more for their personal future.

As I see it, this is a gigantic waste of capital, creativity and industriousness (“waste” in the sense of Kaizen). Also, the frustration and disappointment many of the young persons concerned suffer is painful. And I often think that this frequent failure might have been avoidable in many cases.

Because the mass-failures are easily explained. Mostly, the founders work just like the expertise of a past epoch tells them to. And this pattern never really worked very well. Today, it generally does not pan out at all. How are the success patterns of yesterday supposed to work in the world of tomorrow, anyway?
And the very few exceptions – incidentally, they are all due to the accumulation of particularly lucky circumstances – only prove this rule.

Why is failure normal?

The answer is simple: for instance, big concerns, too, constantly try to throw new products onto the market. These concerns have everything you need for a new product idea: capital in masses, a well-known brand, excellent marketing, strong marketing organizations, world-wide access to the markets, great engineers and providers, and much more. And above all: they know their market, because more often than not they have been “learning” and “working towards it” for decades.

And still their new product inventions often fail. If they are lucky, as few as 10 % of such new inventions will become more or less a success on the market. Make your criteria for the definition of “success” a little stricter, and you get an even lower number.

Except how is a young team that has none of these things supposed to compete? Just with their young light-heartedness and creativity? This is nonsense!

One conclusion might be that young founders will only have a real chance on totally new markets. That would mean young founders should shirk (almost) all business ideas around existing technologies and solutions. The current development seems to justify this argument. Well, perhaps I can give a first tentative piece of advice to start-ups:

Be careful if you wish to enter into markets where others already have their standing.

To be sure, great concerns with their organization and processes are their own stumbling block when it comes to creative topics. Their success has the negative side that they will always think in old patterns. They know this and consequently look for innovation outside their own walls. The foundation of “acceleration“ departments and their looking for cooperation with start-ups is their way out of it. After all, this is also the latest idea of “UnternehmerTUM” of Munich Technical University. The same is true for the new first mayor of our state capital Munich, Mr. Reiter.

The magic word “cooperation between concerns and start-ups”, however, will not work, either. Firstly, the old enterprises intensely live the rejection from outside as in: “not invented here“. I witnessed this quite frequently and also made the experience myself in strategic cooperation with big firms – more than once. And I could also name quite a few examples where the results of XXX acceleration or XXX invest failed.

But the “old methods”, too, are only successful in few exceptional cases. Let me exemplify this with almost all “tax-saving models”. For many years now, we have witnessed this not only in sectors such as “film”, “realty”, “shipping”, or “alternative energy”. The huge losses suffered by investors in projects around railway and canal building are also good examples.

Mostly, their failure was not because they fell victim to fraud or untrustworthy businessmen. To be sure, those also happened. But mostly the reason was that the underlying business models and plans were just wrong. Regardless of the fact that they had been made by experts in a “professional” way. Experts who really knew their markets. And regardless of having been controlled critically by other experts, for instance in banking. Mind you, those banking experts were really serious, because, after all, they had a share. Here, too, I could write about very personal experiences: in one case, the Sparkasse München, which I hold in high esteem, lost a few million Euros – in my own case, we are, luckily, only talking something in the middle five-digit range.

But if even projects written by experts and validated by many other experts do not work, how can you then expect a young team of founders without any experience and knowledge of the market to steer their enterprise successfully into a non-predictable future?

Seen under this light, founding a new company is basically a hopeless or at least very courageous adventure. An adventure no sane person should by any rights let himself be drawn into.

However, I think that it is possible to improve the chance of success for a start-up from what feels like 1 : 100 to something that perhaps even comes close to 1 : 1 (success versus failure ratio)..

I know that this is a rather courageous announcement of mine. Consequently, I plan to use my two weeks on a campground at the southernmost end of the Peloponnesus on Mani for writing a few articles about “start-ups” here in my IF Blog. This is both for the start-ups I myself counsel and all others.

RMD (Translated by EG)

P.S.

I will start with my own experiences as a young entrepreneur in the next instalment. As I see it, you can already learn quite a bit from it.

Klaus Wäschle
Friday May 15th, 2009

How Could That Have Happened?

john-dalyLast week, the final results of two international golf tournaments caused an uproar and plenty of consternation. In Florida, at The Players Championship, Alex Cejka – whose home of choice is Munich and who at the time was leading by five hits – lost his lead and ended up on position number 9.

At the BMW Italian Opens, John Daly from the USA ended up second, even though he has no qualification at all for participating in international professional tournaments and has to depend on invitations. After this, both golf insiders and the interested public – sometimes failing to understand – keep asking: how could that have happened?

mehr »