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Summary:

A former mentor, and a very smart man, once told me that the greatest invention in this democracy and capitalist system we live in and know as the United States is, of all things, bankruptcy. Yep, bankruptcy… the opportunity to fail. I mention this because I […]

A former mentor, and a very smart man, once told me that the greatest invention in this democracy and capitalist system we live in and know as the United States is, of all things, bankruptcy. Yep, bankruptcy… the opportunity to fail.

I mention this because I believe Jeremy Liew, venture capitalist at Lightspeed and subsequently, James Hong of Hotornot.com, posted some “must-read” thoughts and observations on this topic. In fact, I would encourage every entrepreneur to read what Jeremy and James just blogged.

Simply put, we live in a country that encourages dreamers to take risks, and the laws protect those “entrepreneurs” from the potentially excessive consequences of failure. Bankruptcy laws enable risk-takers to protect themselves and start over. There is no other nation on this planet that by its very by-laws fosters such an economic environment. This spirit, the acceptance of failure, while counter-intuitive, is crucial to this country’s enormous success within the world economy.

Consequently, it’s not a coincidence that in the world of technology, having some failures under your belt is actually a badge of honor. It means you’ve been around the block — you’ve made mistakes, ones to learn from — experiences that will make you stronger the next time around. In fact, the incredible and rapid rate of technology innovation almost requires that any entrepreneur worth his or her salt fully embrace failures as a very normal and acceptable part of the journey.

And as Jeremy and James implicitly advise all those dis/interested observers, who are unwisely kicking those who recently failed when they’re down: be warned, if your goal is to succeed, chances are 99 percent that you’ll experience failure along the way. And when the inevitable happens, let’s hope your peers are not as naïve and self-unaware as you’ve been.

It seems weird, I know. The ability for a U.S. entrepreneur to go bankrupt is actually the most important element of this country’s economic success and wealth. It’s a great example of why I love counterintuitive thinking.

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  1. Very well put and very true.

    As someone who works in many countries, including the US, I can confirm, there’s no country on the world that comes close to the entrepreneurial infrastructure of the USA.

    Unfortunately, it does become more and more difficult for people from outside the USA to ‘come and play’.

    Which in my opinion is the other halve that is required for continued success, because without exporting all that goodness to the rest of the world, the economic model will breakdown.

  2. Damon Billian Friday, January 26, 2007

    Robert:

    Awesome thoughts from you. I found the posts by James and Jeremy to be very thought-provoking.

    Aside:
    America actually appears to embrace people that come back from failures, be they personal or professional failures. I am probably somewhat biased being American, but I haven’t experienced the same acceptance of failure in my travels outside of the USA. I believe that there’s a huge list of rock stars, politicians, & businessmen/businesswomen that have come back from obstacles most of us don’t have to face.

    Good stuff…

  3. Robert:

    I am an entrepreneur in the UK with 5 start-ups under my belt. Two succeeded, Two failed, the fifth? Well that’s what I having fun with now!

    The US vs. UK comparison game is one that I have had fun playing with friends and colleagues through start-ups, fund raising, boom times and bust times. All things considered, the US still looks like the best place to start a business, especially a tech business, but the gap is closing slowly.

    Culturally the UK has become more accepting of entrepreneurs in the last 10 years. The start up rate in the UK is higher than ever and many more people dream of owning their own business.

    From a legal perspective, it’s easier than ever to incorporate a new business (£100 and about 1 hour online, plus a week for tax and revenue registration) and the risk of failure is lower as bankruptcy laws have made it less onerous to fail.

    Socially, however, there is still a stigma attached to failure. Battle scars of business are not worn with the same pride as in the US.

    Strangely, the UK doesn’t like it’s entrepreneurs to be too successful either. We suffer from something called the “tall poppy syndrome”, which means that if someone makes it too big society takes a certain pleasure in waiting for a fall or setback. I don’t know whether that exists in the US as well, but my impression is that US society tends to applaud success much more.

  4. Robert:

    I am British and have been living in Germany for 21 years. In 2003 I went bankrupt with my company. Here failure is completely stigmatized. So much so that many entrepreneurs affected by failure are suicidal. In an attempt to change this way of thinking, I wrote a book in German called “Insolvent and nevertheless successful” which was 7 months on the economic bestseller list. I hold speeches on my insolvency and my way of thinking. The learning factor plays a great role here. Amazingly, I was invited to speak at a conference for the EU-Commission in Brussels. The speech is in English and can be found unter Afternoon Part 2 here:
    http://europa.eu.int/comm/enterprise/entrepreneurship/supportmeasures/failurebankruptcy/conference.htm
    Also I was on stage twice in 2006 with the Federal Justice Minister. The mindset is not only essential for getting back on your feet after a fall, but also for the viewing of the legislation in this area.
    Have won two big entrepreneur prizes here for the destigmatization of failure. Delighted to see the discussion here.

  5. disagree.

    our greatest ‘invention’, as a country, would have to be the Constitution. as for the ‘democracy’ we have in the US, it is largely due to that piece of paper, and geography (Guns, Germs, & Steel), but meaningful democracy is something altogether different. Saddam held elections, too.

    as for the dreadfulness of capitalism, Enron is but one of the many spectacular ‘market failures’ we’ve seen recently. i prefer to take the long view.

    that’s not to say that the notion of bankruptcy is not important, in some respects, to the entrepreneurial spirit, but i would be very hesitant to put too much emphasis on it without some evidence beyond the merely anecdotal.

    :)

  6. Mat wrote in response:

    Strangely, the UK doesn’t like it’s
    entrepreneurs to be too successful either. We
    suffer from something called the “tall poppy
    syndrome”, which means that if someone makes it
    too big society takes a certain pleasure in
    waiting for a fall or setback. I don’t know
    whether that exists in the US as well, but my
    impression is that US society tends to applaud
    success much more.

    In America what usually happens is that the guys who really make it big time usually don’t know when to relax and when enough is enough so they tend to get a “god” complex and think they are above the U.S. laws … if they become too noticeable, then they get whacked by the government to make the masses feel justified that there are guys who spend jail time (examples of course are Milken in the 80s with junk bonds and the Enron 3 Stooges of Fastow / Lay / Skilling (of course Lay got off easy but 2 out of 3 in jail is better than none for the U.S. Feds). Oh Gordon Gecko where are you Mr. Gecko?

  7. Michael Marconi Friday, January 26, 2007

    I think this is still the primary reason that the US leads many of the developments in the IT world.

    Like Mat, I live in the UK and I spent a year studying entrepreneurship in technology at the London Business School. In one case-study after another, we saw that many of those who ultimately succeed have learned from past failures and have had the opportunity to try again.

    As an aside, I think the American culture is also more accepting of the fact that people who take large risks should reap the benefits of large rewards. This is still not as palatable to many people here in the UK.

  8. Oh yes, I forgot to add … I think its very interesting to see the U.K. making inroads in the cultural acceptance of entrepreneurship but at the same time, I think such cultural inroads will take a longer time before they gain traction in other parts of the world (e.g., look at all the trouble China Central Government is having just trying to keep order in their own house with corruption still at the heart of the mental model there, as well as problems in South Korea). It remains to be seen how quickly the EU can glue together and culturally promote entrepreneurship and actually “encourage” people to fail so they can learn rather than embarrass them for such failures. I suppose India is probably not far behind the U.K. since the U.K. has had influence in India but I don’t know enough about India and if it is internally complex like (or unlike) China.

  9. Is there data available on the contribution of different causes of bankruptcy? It would be instructive to know, how many are due to medical reasons, irresponsible behavior etc. and how many are due to entreprenureship.

  10. @Anne Koark,
    That’s a great story… thanks for sharing. What you’re doing is precisely the lesson that any country/society desiring economic prosperity via innovation must learn.

    And thanks for all the other comments… especially those that highlight the international (non-US) perspectives… they really help shed light on the cultural differences.

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