Calls went unreturned, e-mails disappeared into a void of silence, and entrepreneurs, normally so hungry for publicity, were suddenly and mysteriously "unavailable to comment." Is this so surprising? "I only want to talk about successes," was the response of one serial entrepreneur, who has a number of successful companies (and one or two not so successful). Few people care to linger on their business failures, even if the companies have gone down through no fault of their own. However, another way of looking at it is to say that a willingness to overcome the stigma of "failure" tells you a lot about a country or region's confidence, and about how people use setbacks as a means of learning their trade. Few of the new economy's top entrepreneurs have become famous as people who gave up in the face of adversity. Many have used setbacks as the springboard to turnaround a new operation.

Contrast this with the US, where businesses fail every day, where many new businesses are built on several "failures." Serial entrepreneurs are able to go from one company to another, like desperate gamblers chasing the one-armed bandits of a Las Vegas casino, until they hit the jackpot or finally give up in a state of penury. In fact, the only difference between the casino and the US startup market is that the odds are slightly better in the casino. In the US, business people are not only unembarrassed by business failures, they can positively revel in them (see side bar), and there certainly is the feeling over that side of the Atlantic that entrepreneurial skills are developed by having to cope with a few setbacks on the way.

"I think that this "badge of honor" stuff that Americans come out with is a bit of bunkum," says Bob Jones, a well-known British "serial entrepreneur," and a man certainly willing to comment on the issue. His current company, Equiinet, provides Internet equipment to small businesses. "It's true that some people have great ideas, pull together a strong management team and still fail owing to bad luck: these people might not have much problem getting funding for another idea. But there are plenty of cases where entrepreneurs have behaved irresponsibly and these people would have difficulty getting funding whether they're based in Europe or the US."

The US has a reputation as being much more open about failures and business difficulties. It's an area that most Europeans are very reluctant to talk about, though the degree of stigma varies from culture to culture.

A change in attitudes

There are some signs that the attitude of "failure phobia" appears to be changing, however. According to David Wilkinson, head of entrepreneurial services at Ernst & Young, there's been a real change of attitude in the UK over the past year as people have come to appreciate the business potential of the Internet. "They are now realizing that they can make real money out there; there's the belief that everyone can become a millionaire - what they're not so good at is realizing that for every millionaire there are many failures." The point seems to be this: if success is getting easier then maybe failure shouldn't be such a big deal either.

Nevertheless, Wilkinson still believes that a big part of the problem is the business culture in Europe. "It's the whole thing with insolvency laws. What bothers people is the way that the creditors lose out and the way that phoenix companies exist over here [in Europe], where a businessman can run a business into bankruptcy and just move down the road and set up again. There's a feeling over here that an entrepreneur who has had a failure has somehow acted fraudulently." Wilkinson believes that European countries should adopt something like the US model of Chapter 11, where companies who are in financial difficulties are able to buy a little time and breathing space. This would transform company difficulties - assumed in Europe to be a terminal condition - into something less frightening, encouraging the idea that failures can be turned around.

"I know that the UK government is looking to change the ways that insolvency is handled and I think it will have to. There is a real stigma attached to going bankrupt over here and that's something that has to change. I believe it's a similar situation in the rest of Europe We've got to give people a second chance." Equiinet's Bob Jones also wishes that the stigma of failure should be removed and gives a cautious welcome to the idea that the insolvency laws should be changed. "It's true that the [UK] government's looking at removing the stigma of insolvency but it should also be realized that there some people in the US who are saying that the insolvency laws over there are too lenient. What I wouldn't like to see happen is that the laws over here and made so lax that entrepreneurs who have been trading fraudulently are protected in some way."

And if failure bears a stigma in the UK - traditionally close to the US in outlook - then the stigma on mainland Europe is many times worse, as other countries attempt to develop the sort of entrepreneurial culture that is found in the US.

Israel, USA

Not all those outside Silicon Valley are phobic about failure, however. According to Mitchell Barak, marketing manager of Israeli venture capital company, the BRM Group, Israelis are certainly not afraid of taking risks. "Although geographically Israel is closer to Europe, in terms of culture, it's much more like the US. This is reflected in the fact that Israeli startups all wanted to be quoted on NASDAQ, never in Europe."

His colleague, Eli Barkat, goes further. "We actively look for entrepreneurs who have failed; they bring a sense of experience and reality to a business. People who have failed live on the edge. It's scary to work with people who have only known successes."

According to Barak, failure in one business doesn't mean that a company or individual will have problems getting funding for another venture. "If the idea is good and there's a good team of people, then past failures don't matter," he claims. Of course, some Europeans will admit to mistakes and are prepared to learn from them. Last year's Entrepreneur of the Year in the UK was Mark Dixon of Regus, a company that admittedly is not a high-tech outfit. Wilkinson (whose company Ernst & Young organizes the awards) says that just six days before he was presented with the award, he had to pull the flotation. "But the point was that he admitted that he'd made a mistake and that his timing was wrong. He re-grouped, made some dramatic changes and turned it into a virtue. He clearly learned from his mistake."

But it's not just about out-and-out failures, there's also the issue of learning from mistakes that have been made. Ernst & Young's Wilkinson says that what entrepreneurs have to learn to do is adapt. "There's probably never been a startup where everything's gone according to the business plan - and there's certainly never been a business plan where the financials have been accurate. The real skill is learning to adapt as you go along."

Even after all the startups I've done, I'm still learning all the time.

This can be difficult if the company is suffering from a bit of tunnel vision. He says that one of the most common mistakes that entrepreneurs make is by forming the company with their friends. "Running a company requires a variety of skills and entrepreneurs must be prepared to bring people from outside who have the requisite skills. Of course, VCs are looking for good ideas but above all they're looking for management, management and management."

This means that all the kids who have those great ideas for Internet businesses will have to be prepared to take managers who might not share their culture into their team. "The people will have to accept that they are going to have to fill the management holes with people who are not like them." This is a view that is endorsed by Bob Jones. "I've seen companies set up where all the key management have worked together before; it's never a good idea. The ideal is to have a mixture of a solid team who work well together and a couple of outsiders who can look at things with a fresh pair of eyes."
 

Adapt or die

It's the ability to adapt that is most crucial. Wilkinson says that one of the reasons that entrepreneurs don't like talking about setbacks is that, as far as they're concerned, there have been no setbacks. "If they've been adapting as the business changes and as market conditions change, then they don't feel that they've been encountering difficulties." And as he points out the real difficulties come when companies don't change.

Jones admits that he's made mistakes in the past but he says the thing to do is to learn from them. "I learn from all kinds of things: I learn from the market, I learn from customers, I learn from projects that have gone wrong. Don't think that because you got it right years or months ago, you'll always get it right; market conditions change all the time. Even after all the startups I've done, I'm still learning all the time."

As an example, he points out that in a previous company he'd misread the market. "We weren't able to meet all figures domestically and we didn't have the capital to expand globally. Fortunately we were bought before that became a problem. That taught me to think globally as well as domestically." So perhaps it is true after all, entrepreneurs in Europe really don't make mistakes; they just adapt in one way or another. It would certainly explain why so few "fail" over here. But, of course, US companies adapt pretty well too. As the philosopher Santayana might have put it, those startups that don't learn from their mistakes are condemned never to get a second chance.
 

Meeting disaster

Jones puts his finger on another, less savory aspect of European culture. "I think that over here we like to see people fail. Disaster stories are always more interesting than good news stories and the press are always delighted when a project goes wrong; it always makes for better copy." This helps create stigma and, in a perverse way, suggests that it is sometimes business success that is the taboo rather than phobia of failure.

But with Internet startups the reverse seems to be true. Companies that have yet to make a penny, that have yet to be floated, are being hailed as fantastic success stories of the 21st century. And when some of these outfits go bust (as they will) do you think that the executives will be lining up to tell TORNADO-INSIDER.COM where it all went wrong? Maybe so, but we won't be holding our breath.

There have been at least two books published about US startups that have gone down in flames: Burn Rate by Michael Wolff and Start Up by Jerry Kaplan. The former tells of an attempt by a journalist to set up an Internet guide company, the latter tells the story of Go, an attempt to launch pen-based computers (some years before the launch of the PalmPilot).

Both are well worth reading as both stories are extremely interesting but what is really astonishing, as far as Europeans are concerned, is the degree to which both authors are prepared to own up to their mistakes and to set out all the grisly details as the companies go wrong. It is almost inconceivable that such books could be written in Europe.

A more recent addition to this pantheon is Po Bronson's Nudist on the Late Shift - this tells the life of entrepreneurs in California, some successful, some not. Again, it is hard to imagine such a book being written in Europe (tellingly, though, some of the entrepreneurs are European). Perhaps, it will be a sign that Europe is becoming truly entrepreneurial when such confessional books by European business people are written but such a time is some way off.
 

Source: Maxwell Cooter, Tornado Insider, Issue 11, March 2000