Thursday, June 28, 2012

How much wealth do entrepreneurs destroy ?

Entrepreneurs have always attracted a lot of positive attention. We admire these young people, who create a company from scratch – who are able to start from zero, and become heroes. They are the role models of the new generation, who want to follow in the footsteps of these stars, so they can convert their dreams to reality.

These success stories are highlighted by the press – and thanks to the internet, everyone has heard of these resourceful young people , who have become millionaires in a few years. These entrepreneurs are a typically American phenomenon , because American society has always put the individual on a pedestal. Americans like rooting for the underdog ! They admire individuality and creativity – and would always back David over Goliath !

These are very inspiring success stories – and these men ( and women) are the heroes of the new generation – after all, if they can create wealth, so can I  !

I am an angel investor, and have had first hand experience with supporting entrepreneurs. Entrepreneurs are typically energetic and driven, so it’s fun interacting with them, but that being an angel investor in a startup is not an unmixed blessing ! While it’s very exciting to talk about entrepreneurship and success, outsiders often underestimate the hard work and the grind which is involved in growing a company.  While an entrepreneur maybe passionate and committed, this is not enough to become successful.
For every one company which succeeds, ten fail.  What worries me is how little has been written about the failures. Most of these failures are undocumented and never come to public attention, simply because they fail at a very early stage. However, we need to track these failures as carefully as we laud the successes , so that we can learn from them. Otherwise, every new entrepreneur will end up making the same avoidable mistakes his predecessors did.

The general perception is that we need to support entrepreneurs and small enterprises, because these are our future. These are the companies which are young, nimble and daring, and which will actually create the future. We need to nurture and support them, because they create jobs and drive the economy.
What about the flip side ? How much wealth do they destroy ? How many dreams go down the tube when a startup fails ? What’s the cost of experimentation ?

It seems to have become cool to fail, but what’s the price which employees pay when the entrepreneur fails to grow the company and raise money ? Will investors continue to fund new ventures when they lose money left , right and center ? How much of the failure is because the entrepreneur was immature ? Or didn’t have access to enough resources ? Would the deep pockets and managerial support which a large company be able to provide have transmuted failure into success ? How do we go about answering these questions, so that the quality of our mistakes improves, and we do not repeat the same errors ?

How do we share the stories of the failures, so that we don’t end up presenting a skewed view of the impact of entreprenurship? Tom-tomming only the successes distorts reality, which hurts everyone in the long run.

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