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AZ Tech Beat | March 30, 2017

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When do you stop investing in failure?

When do you stop investing in failure?
Tishin Donkersley

Waste money

Guest Blog by Fred von Graf, PMP, Senior Venture Manager, ASU Entrepreneurship and Innovation Group

Failure is part of the startup ecosystem, as it should be. We learn from failure, preferably the failure of others but unfortunately the most powerful lessons are from our own failures. What’s the average failure rate? I think it’s close to 95 percent of all startups fail (depending on how you measure it) within the first year, and with the help of a good accelerator that rate should drop significantly.

As one who is part of an accelerator program, I see the (simplified view of) good accelerators performing two core functions, first as a filter for (smart) investors and second as an agent of positive change for startups. This second part is where the beauty of learning from failures is critical. Really it’s a matter of being data driven and looking at the data to help determine what’s working and what’s not. There are always outliers but in general this continuous improvement, data driven approach provides for refined processes that allow the accelerator to produce winning (and investable) startups.

So where do you draw the line on failure, knowing that it’s a key part of the process of learning? Really you learn more about a person or a team when they are dealing with failure, rather than when everything is going great. So when does it change from learning to automasochism? How much failure is tolerable? The easy answer is that “it depends,” depends on the team, the market, the investor and so many other factors. The more tactical answer is that you need to define success metrics early in the process, at each stage and use these metrics adjusted based on new data.

The inspiration for this article is based on many experiences with startups, including my own, but one person in particular sparked the idea. This one particular founder has had multiple startups, each failing in different ways. As a mentor it’s hard to watch this, especially when the emotions kick in and you want them to succeed. This startup has been able to win startup contests and get investor money in to these ventures in excess of $250,000 thanks to the reputations and relationships they’ve used along the way. However, each previous business has not produced a return for their investors. Now that they are out pitching their latest startup, I’m seeing that people want them to succeed and are putting in time and resources to help them. Will it be their time or is this another downward spiral? This is where the founders and ventures need to sharpen their pencils and go back to the numbers.

The big take away is that founders need to define your metrics early, use data to make your decisions and keep the end in mind whatever your venture. I’ve learned it’s best to fail fast, fail often and know when to stop investing in failure and move to the next opportunity!

If you have a good failure story to share, let us know in the comments.

Fred_von_Graf[7]Fred von Graf is the Senior Venture Manager at ASU Entrepreneurship & Innovation and AREA 48. The program houses close to 300 people strong supporting our accelerators with great startup partners like Google, Amazon, Microsoft, RackSpace, PivotalTracker and Global Accelerator Network.

ASU’s Applied Regional Economic Action 48 (AREA48) will pilot a new model for educating and supporting early-stage entrepreneurs by utilizing a hands-on, “pracademic approach” to create new markets, products, start-ups and jobs. Learn more about it here.

If you are interested in applying to the entrepreneurship program, the deadline for the next ASU Startup Accelerator cohort is coming up. The simple application is located at: bit.ly/ASUStartup

@EntrepreneurASU on Twitter | entrepreneurship.asu.edu