Silicon Valley Needs To Be More Willing To Talk Openly About Failures

from the needs-more-openness dept

There’s a story in Business Insider that’s been getting a lot of attention thanks to the click-baity headline of: The founder of a $50 million startup just sold his company ? and he didn’t make a dime by reporter Alyson Shontell. Almost everything about the headline is misleading. The company, Get Satisfaction, was once valued at $50 million, at its peak back in 2011. But from what I’ve heard, the final sale, to Sprinklr, that went down recently was for $8 million (and it’s possible that not all of it was cash, making the valuation even more questionable). So, the whole $50 million bit is meaningless, because that’s not what the company was worth. And, considering the company had raised at least $21 million (and possibly more), the fact that it eventually sold for less than half the money raised means that it shouldn’t even be remotely surprising that the company’s founder, who had been pushed out years earlier, got nothing out of the deal. This is how it works. The early shareholders/founders were diluted and pushed out, the company basically tanked and sold off in a firesale. It’s no surprise that the early players got basically nothing — it’s how things are done.

What struck me as more interesting about this, however, was the fact that the founder who kicked off the story, Lane Becker, was actually willing to come out and say the truth: that it was a firesale designed to make people look good, rather than actually make anyone any real money. This is Silicon Valley’s stupid secret that really should be discussed more openly. Lots of startups fail. It happens all the time. And Silicon Valley prides itself on supposedly being a lot more accepting of failure. You hear it all the time. But the reality is that we often try to hide failures behind fake success stories. High profile startups rarely just disappear — they find someone to buy them for next to nothing so they can pretend to have successfully exited. The truth is, many of those companies were out of money and the “acquisition” was nothing more than an attempt to “create good optics” and pretend to the outside world that there was a successful conclusion to the startup.

If Silicon Valley were truly accepting of failure, it would be much more willing to openly discuss its failures. It happens, but it’s rare. The one I remember most clearly is Chris “moot” Poole from about a year ago writing about the failure of his startup Canvas/DrawQuest:

I?m disappointed that I couldn?t produce a better outcome for those who supported me the most?my investors and employees. Few in business will know the pain of what it means to fail as a venture-backed CEO. Not only do you fail your employees, your customers, and yourself, but you also fail your investors?partners who helped you bring your idea to life.

In my case, I am extremely lucky and grateful to be partners with people who are simply the best. What separates the best investors is not how they help you when you?re a rocketship, but when your ship is on fire and you?re venting atmosphere. In this case, our investors have demonstrated what sets them apart from the rest?they?ve supported me throughout the ups and downs, and especially the downs.

There’s a lot more to that post and it’s well worth the read. It talks about the kind of things that lots of Silicon Valley entrepreneurs talk about privately, but almost never publicly. Yes, Silicon Valley is relatively accepting of failure. Compared to other industries and other areas, Silicon Valley is much more open to second (and third and fourth) chances for those who have failed — but we’re terrible about exploring why things fail and the impact of those failures. Being a part of a failing startup is no fun at all — but the end of the story tends to be pretty typical: if it’s not high profile, it just disappears. If it is high profile, it does what Get Satisfaction did here and finds a firesale option where people can pretend it was a success, thereby hiding the reality and keeping the important lessons from being learned more widely.

The interesting thing about Becker’s statement was not — as Business Insider assumed — that a founder didn’t get to cash out on a firesale of his former company. It was that Becker wasn’t willing to play the usual game and pretend a failure was a success. Rather he was direct about how the company had flopped and how. And that’s something that we need more of, rather than silly stories that try to make it look like something “unfair” or “wrong” happened. What happened is totally normal in Silicon Valley. It happens every week around here, and we should be more open to talking about companies that fail and why they fail — not to revel in the schadenfreude, but to learn the lessons from those who ran into trouble along the way.

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Companies: get satisfaction

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Comments on “Silicon Valley Needs To Be More Willing To Talk Openly About Failures”

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John Fenderson (profile) says:

This reminds me

The company, Get Satisfaction, was once valued at $50 million, at its peak back in 2011. But from what I’ve heard, the final sale, to Sprinklr, that went down recently was for $8 million (and it’s possible that not all of it was cash, making the valuation even more questionable).

This reminds me of all those people who get upset when the state of the economy causes their investment portfolio or real estate valuation to fall. The react to it as if they had lost money, when (unless they’re selling at that moment) nothing of the sort had happened.

If you have an asset that has been given a valuation, that means nothing unless you’re selling it right then because a valuation is not equal to money in your pocket. It’s a theoretical estimate. If I bought stock at $100 and the price falls to $50, I have not lost $50. I have lost nothing. Next month, the price might rise to $150 — when equally means that I have not gained anything.

The only time you have suffered a loss or enjoyed a gain is as the moment of sale. Period.

Anonymous Coward says:

Re: This reminds me

Indeed, I always get a chuckle out of people who claim they made a ton of money on some stock… but they didn’t sell it. And these are the same people who claim the next day that they lost money…on the same stock after it went back down to normal.

The key is knowing when to buy or sell, and stop looking at the valuation 😉

SixthStartup says:

The problem with admitting failure is that the whole start-up economy is built on the perception of success.

If people start actually seeing the real number of failures and the degree of the financial wreckage, angels and VCs would move their money to bond funds, not pumping billions into overvalued flash-in-pan companies like Meerkat.

Also, if you saw the number of twenty-something CEOs that have tanked their companies out of sheer inexperience and hubris, gray beards like me would be running more Bay Area start-ups instead of being put out to pasture at 40.

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