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Woman Warrior - The F word

Know which F word draws the most emotion among the startups and entrepreneurial community? Failure, of course.

It’s a topic that I try not to spend much time focusing on personally, but in a blog about success and entrepreneurial success in particular, I would be remiss not to mention the topic.

Venture capitalists, have a very unique perspective on failure because it is simply a fact of life in their business. When they invest in early stage companies, the possibility of failure is priced into the cost of capital. Ever wonder why they require such high returns? You might think greed, but more often than not it’s because they need to compensate for, you guessed it, the likelihood failure.

John Backus, the founder of New Atlantic Ventures, generously shared his time—a big deal, since VCs are notoriously busy—and insight on success with me in an interview for this blog. I learned a tremendous amount from our discussion and look forward to sharing additional themes from our interview in future posts. To kick things off, here are some of his thoughts on failure:

Q: What is your most proud failure?

We once backed a company called ReturnBuy, which essentially took returns from major electronics retailers and then sold them on eBay. The business was very capital intensive on the front end, but eventually became one of the largest power sellers on eBay.

However, there was a moment of truth after we were well into it when we realized there wouldn’t be enough buyers in the eBay market, despite its size, to sell all of the inventory. It was a great idea that simply couldn’t cross the finish line.

Q: So, is failure a bad thing?

It’s a bad thing only if it happens over and over again to the same person. In that case you wonder, is it circumstantial or is it the person? But look, failure happens, and most true entrepreneurs are going to be back to try again because it’s in their blood.

One of the things that is great about our country is that we let people fail. We give them the freedom to fail and that’s okay. In other countries, that is not the case. Take Italy, for example. If you fail in Italy, you can’t start another business for several years, almost like you are branded with a scarlet letter. While other countries punish failure, we don’t.

In the tech sector, at least, the question is not did you fail, but what did you learn?

Q. Do you prepare entrepreneurs for failure from the get-go?

No. We assume it’s going to succeed, they assume it’s going to succeed.

There comes a point in the life of some of our companies where we have the discussion, but that generally occurs in the context of a broader decision not to invest further in the company.
BY ALEXIS RODICH | DECEMBER 18, 2009; 3:00 PM ET
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