Sunday, April 28, 2013

On Fast and Slow Failure and Success

I knew only the most basic business strategy of Tech Pro. This was a company that my parens started in 1983 that much later I owned with them and my cousin. The reason I knew so little was that I was only 9 years old. The reason I knew any at all was that I didn’t have to go far that year to learn about Tech Pro. The room, formally a playroom of sorts, had become the “Tech Pro Room”, as it was home to a new dedicated telephone line,  a computer with 64k of RAM and surprisingly a modem to order parts. Our garage was a workshop where my father took in the first of a series of old instruments from shuttered factories, with the purpose of restoring and computerizing them. The kitchen table was not only where I ate my breakfast, but where I worked on my first start-up job, doing Quality Control testing of Tech Pro instruments. The company was financed through seed money from my parents and a small loan from my grandfather. My parents have pointed out that while this seed money was not a lot of money, it was all of the money they had. This money went directly to buy these old instruments. Within the first year of business the company was modestly profitable. Within the first 5 years, the business was comfortably supporting my family, and had managed to computerize a small industry.  Tech Pro was never large, but Tech Pro was international. It employed a great group of talented engineers, many who did not have college degrees but did have creativity and dedication. Tech Pro took me and my family around the world, and introduced us to most of our friends for 25 years. We then sold the company in 2008.

All of this is likely of little interest to you, as Tech Pro is not Hewlett Packer, Apple or Google. It was just a family business that was able to see technological trends early, and create a thriving business based on them. What is interesting to me is to try to understand why this model is not a particularly common one anymore, and where it falls in the spectrum of “expert” advice from tech industry gurus. My friend and fellow board director of our new company (Nanotronics Imaging) Gerry Ohrstrom,  trying to describe our new business and me in particular said  something like “Matthew is a bottom up guy mostly, but also kind of a top down guy too”, which he of course knows. By bottom up he meant that the company was funded initially by us and through revenue like Tech Pro was.  My father is again my partner. We did follow a bit of the Tech Pro example, but this time I felt that we should bring in outside investors (Gerry included), hence being  top down too. It is too early to tell, but this seems to be a nice mix, though not as clear as the one my parents used with Tech Pro. The goals for the new venture are much larger, and therefore the perceived risk and the cost are greater. At least this story provides me with a good justification for being bottom up and top down. I have though been wondering if this is at all common anymore. It used to be. HP, GE, Intel and most early Silicon Valley companies worked in somewhat this fashion. I told the story of BF Goodrich here, where a man with an idea, some patents, a little money and some helpful investors started a 19th Century business that would become global and very large. The corporate histories of DuPont, Monsanto and countless others of that era are very similar. Despite the overwhelming odds, these companies are still in existence. So why is this model now not considered normal?

I was recently invited to a lunch to discuss an idea a friend has for a science business. I wasn’t the only one invited, but it was clear why I was, since I am the CEO of a science business, not too dissimilar from what the friend wanted to start. The problem with these kinds of meetings that involve any form of advice  is that I am in the middle of the process myself and therefore it is very difficult to have a prospective from the outside, even if it is about someone else’s idea. I have extreme myopia, which I break best from when I am talking about businesses that are completely unrelated to mine. That said, I tried to remember common wisdom about launching a business, which isn’t terribly difficult to do at this moment as I am in the midst of this myself.  I consider my bottom up  and top down approach somehow very old fashioned, and yet very uncommon at the same time. It is not documented as neatly as other models by most contemporary start-up strategists that I have read (though I don’t read all for sure.).  I first assume the things everyone assumes. That is the validity of the disruptive idea (yes, despite saying that I don’t get my advice from gurus, I did read and liked very much the Clayton Christiansen books), the inventions themselves, the basic competitive landscape and all else that seems common sense now.

There is though a view exemplified by the almost cliché concept that since it is not as expensive to start a business as it used to be, due mainly to cloud servers and rapid open source development platforms, everyone should do it. (As a bit of a side note, this is really only true for certain companies. It is still expensive to start companies that make complicated "stuff" rather than those that rely on internet resources only). As the risk is small, the thought is that there is very little downside to trying. Also, because of this a young person can try many ideas in one lifetime, as failure is less risky. Though he may not have been the first to say it, the blogger and prolific book author Seth Godin famously wrote “fail fast and fail cheap. Fail in a way that doesn’t kill you.” This advice was repeated in a recent conversation between Nassim Taleb and Daniel Kahneman, where Taleb stresses this as a fundamental strength of Silicon Valley start-up culture. He was, I believe, thinking of this as a risk mitigation plan. From the Taleb perspective this makes perfect sense. It is true that most businesses fail, and even if the odds were better it would be unlikely that the odds would be so good as to eliminate luck playing a critical role in the success or failure of a business. He is right in this very rational way, and if I wasn’t looking at this from a lifetime on the inside of start-ups, I would take the same rational view. The problem though is not one of expectations from the outside but the one from the inside. It is that position my parents were in in 1983 and that I am in now. It is also the position that more young people ever in technology are in, and from that perspective, every day that we wake up and think about failing fast, or even failing cheap we are failing in a much more profound way than Godin or even Taleb are suggesting. We are failing to risk what we should be risking. For every customer who buys a product that might become obsolete from our failures our failure as a business is a failure to them. This is true for every employee, no matter how much the employee knows she is taking a risk by working for a start-up. We are also failing the investors, even if those investors expect that they may lose the money.

When I think about the cheap part of Godin’s statement, I am reminded by the how little Tech Pro cost to start. Still, it never felt to me like failure was even a mildly uncomfortable option. It seemed dire. Even though my father had excellent career opportunities if Tech Pro did fail, it is hard for me to imagine him thinking about this much as he installed instruments that his customers were relying on. The stakes were too high. Though this is a very personal thing to recall, and may very well have lead me to large enough psychotherapy bills over the years to finance a start-up itself, I remember my mother’s panic the Christmas that Tech Pro was started. They gave me my dream present, an Atari 2600 video console, but not without instilling a feeling of dread which hung over the machine. Mom said “I hope you enjoy this, because Dad just quit his job to start Tech Pro. We may not be able to buy you such a nice gift again.” This comment was not a joke, as her tears were not tears of laughter, but rather it was a statement of commitment. She wasn’t saying this because she felt that Tech Pro would fail. If Tech Pro failed fast and failed cheaply my father would have gotten another job right away, and the following Christmas I would have had another nice gift. Instead the passion became an innovation, the innovation became a company, the company became a responsibility and ultimately that responsibility became success and created far more for far more people than just more Christmas presents for me.

So as I write this I wonder if there is any point of disagreement with contemporary common wisdom. What I come up with is that failure is of course a strong possibility, and that possibility should not stop someone from starting a business. That same failure though, no matter how cheap it appears can never be thought of in those terms. There is a ripple effect in all of the lives we touch when starting a business. That ripple can capsize boats, or guide them like an explorer’s ship to new lands. There is nothing more exciting, but if done right it is both slow and expensive. It is a lifetime that we are lucky enough to likely fail at.

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