Starting a new venture after experiencing failure can be a daunting task for any entrepreneur. However, many successful founders have done just that and gone on to build thriving businesses. There are numerous examples; notable ones include Brian Chesky of AirBnb, who closed down his earlier venture “The Official.” Another is Julia Hartz, the founder of EventBrite, who liquidated her prior venture, “The Next Big Sound”. One of the main reasons for founding again is the valuable lessons learned from their previous failures. However, research on this topic has generated contrasting conclusions.
For example, a 2009 study conducted by Paul Gompers and David Scharfstein, “Performance Persistence in Entrepreneurship”, found that failed founders have the same chances of success¹ as novice founders, but prior success does increase the odds of future success. The study attributes likelihood of success to acquired skill but also suggests that the perception of skill may lead to increased access to resources that improve outcomes. A couple of years later, as reported by the Harvard Business Review in 2011 , a survey of ~500 entrepreneurs in the UK found that serial founders frequently refrain from learning from their failures to minimize the psychological impact. The contrast between the studies brought to question the degree to which founders internalize their lessons after failure and incorporate them into their next venture.
Digging deeper into the topic, I was inspired to learn of the stories founders shared through blogs and interviews as they closed down their companies and refocused on starting their next ventures. The circumstances of closing one’s company are unique, but common emotions prevail in the experience of starting over, otherwise known as the “rebound.” One particularly awe-inspiring and gut-wrenching reflection is from Mike Gozzo, who penned “My Start-Up has 30 Days To Live.” The blog was authored anonymously, and Mike revealed his authorship years later in Professor Tom Eisenmann’s Entrepreneurial Failure class at Harvard Business School.
Inspired by Mike’s reflection, and to better understand an entrepreneur’s perspective, I set out to have conversations of my own with founders who have completed the rebound. I reached out to a dozen founders using the criteria of: 1. raising $1M in venture funding for a startup that was liquidated 2. without being able to return the amount of money invested and 3. launching a subsequent venture within 5 years of closing down the prior. I spoke with five founders who had raised a median of $4.9M and a total of $70M for ventures that met the criteria outlined above. All of them were in the process of re-founding or were already operating their next startup. In the interviews, I asked for stories about the final days of their last company to determine what they learned and unearth what motivated them to start over. Finally, I asked what specific words of wisdom guided them as they wound down their ventures and contemplated building anew. The responses to the last question were what moved me the most, in particular, because they seemed so deeply personal and universally applicable all at once. The four most common responses can be found below, and I hope they provide some perspective for those of us, entrepreneurs or not, who will inevitably try, fail (at times spectacularly), and try again.
- “Do not conflate your identity with the failure of your business.”
- Your identity can become deeply intertwined with your company as you pour your heart into making it a reality. However, it is your values, your experiences, your relationships, and so much more from which you should derive your self-worth.
- “You fell in love with a problem to solve, but I think you may just be in love with solving problems”
- When you first started out, you may have derived your motivation from passion for a specific problem. However, as you consider building your next venture, think beyond the problem but also reflect on the process: what parts of building your last venture did you fall in love with and what parts are you looking to avoid.
- “It’s okay to be motivated by a bit of anger when you start over – it shouldn’t consume you but it can fuel you”
- Being angry about having to close down your startup is natural, sobering and undeniable. Denying this emotion while starting over can lead to a lack of focus or repeated mistakes. Instead, try to reframe the anger into a motivating force and accept it as a contributing factor towards your efforts.
- “Take a moment to consider failure at the start”
- Infinite optimism is often a requirement in entrepreneurship, especially when convincing employees and investors of your vision. However, it is important to consider the potential of failure in the early stages of building. This is not intended to dissuade you, but rather, help build perspective on the level of uncertainty being undertaken and emotionally prepare you for the peaks and valleys ahead.
When considering the perspective of the entrepreneur, the 2009 study – Anatomy of an Entrepreneur,(a survey of ~500 US-based founders), found that prior successes and failures ranked in the top three reasons for their current venture’s success. On the other side of the term sheet, as expressed by Gordon Moore, Silicon Valley pioneer, and co-founder of Intel, “you’re more valuable because of the experiences you’ve been through under failures.” Entrepreneurs who have established and attempted to rescue a company are likely to have gained valuable insight into effective and ineffective strategies. This knowledge is often considered by investors as necessary training to handle one’s psychology and navigate challenging circumstances that may emerge in their next endeavor.
To anyone interested in diving deeper into this topic, I would recommend you spend some time reading through the collection of posts and resources collated by Harvard Business School (HBS) Professor Tom Eisenmann. My favorite piece from the set is an interview with Lindsay Hyde about the failure of her pet concierge service, Baroo. Today, Professor Hyde teaches an extremely popular course in the HBS MBA which equips aspiring entrepreneurs with a toolkit to not only anticipate and avoid failure, but also rebound from it, allowing them to maintain their reputations, relationships, and found again.
¹It is worth noting, that success and failure are interpreted differently in the studies referenced. For example, in the Lerner’s and Scharfstein’s study the “success” benchmark was completing an IPO.
Ash was NextView’s 2022-2023 MBA Associate. He is currently finishing a joint degree MBA and MS in Engineering Sciences at Harvard. Prior to his graduate studies, Ash held operations and leadership roles across startups such as Blue Apron, Peloton, and most recently served as Director of Operations at Burrow. You can connect with him on LinkedIn.