In Silicon Valley, there's an "F word" that entrepreneurs say in polite company all the time: failure.
For every high-tech business success, there are countless failures in this California cradle of Internet startups. Here failure is accepted, or even welcomed, as a guide for future success.
In fact, failure is dissected in San Francisco at FailCon, an annual one-day conference where tech entrepreneurs and investors spill their guts and share lessons learned.
All Things Considered's Melissa Block spoke with some of Silicon Valley's tech entrepreneurs and investors about their experiences of failure in a place known for its multibillion-dollar successes.
Paul Graham founded Y Combinator, a company based in Mountain View, Calif., that provides seed money and close consultation to startups before they make their pitch to big investors.
On why failing in the startup world is normal
"In the startup world, 'not working' is normal ... You might wonder why ships have [bilge] pumps [to remove water from below the deck] ... Why don't they just make one that's waterproof, right? And the fact is, one way or another, all ships take on water ... and one way or another, practically all startups internally are disasters. And they just hide this from the outside world."
Janice Fraser has created several startups. Some flew, but one crashed during the financial meltdown. She is currently the CEO of LUXr, a San Francisco firm that supports startups.
On failing as the worst moment of an entrepreneur's life
"The worst moment is when you have to tell your staff. You have these people who, beyond reason, have put their trust in you. And you have to look them in the eye and say, 'I'm sorry, this isn't going to work.' It's always when the money's running out ... because you keep going until the money runs out. At the end, it's just you and one or two other people, filing papers with the state and packing up the boxes. And that is not fun."
On the importance of fearing failure
"In my mind, the ones who have no fear of failure are merely the dreamers, and the dreamers don't build great companies. The people that thread the line between vision and being able to execute and having this healthy fear of failing that drives them — not paralyzes them, but drives them — to be more persistent, to work harder than the next person, that's a magic formula."
ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel in Washington.
MELISSA BLOCK, HOST:
And I'm Melissa Block, hosting from NPR West in Culver City, California. We're focusing this week on innovation on the West Coast, and I figured to find innovators there's no better place to go than Silicon Valley, the land of start-up dreams. Now, we hear a lot about big success in the tech world - the billion-dollar sale of Instagram, things like that - but for every triumph there are countless failures, both small and epic.
So, now a riff on failure in Silicon Valley. Before any failure, though, there's always a spark of hope, the infectious optimism of people with an idea for a start-up that could be the next big thing.
UNIDENTIFIED MAN #1: So basically it's a social network for memes.
UNIDENTIFIED WOMAN #1: The product's called Predictive(ph) and it's IMDB for online content.
UNIDENTIFIED MAN #2: Our company is Profig(ph). We connect users to the best local businesses in their area.
UNIDENTIFIED WOMAN #2: We're working on a company called (unintelligible). We actually launched a couple of weeks ago.
UNIDENTIFIED MAN #3: So I'm with Yealthy(ph). It's a medical concierge service, health with a y. Yealthy.
BLOCK: These are founders, mostly in their 20s, in the very beginning stage of their start-ups with punchy names - Buffer Box, Tip Gain, Astonish - and they're in an elite bunch, 82 start-ups that have been chosen to get seed money from a company called Y Combinator in Mountain View.
PAUL GRAHAM: This is like failure central. We are like connoisseurs of failure, experts in both avoiding it and living with it, ongoing.
BLOCK: Paul Graham is the kinetic founder of Y Combinator. He's constantly on the hunt for new talent.
GRAHAM: I find myself inadvertently noticing as I'm walking down the street, I see a couple of guys walking down the street and I think, oh, they look like they'd make good founders or bad founders, right, as the case may be.
BLOCK: What's the look? What are you looking for?
GRAHAM: The right kind of nerdy. Like, these guys in this room are not suits, but they're not schlubs either. These are fierce nerds. You have to be somewhat intimidating looking, and that's what these guys are.
BLOCK: They've got a lean and hungry look.
GRAHAM: Yeah, yeah. They're like the kind of people Julius Caesar was afraid of.
BLOCK: Y Combinator chooses these start-ups after just a 10-minute interview, gives them $18,000 and brings them to Mountain View for three intensive months of close consultation before they make their pitch to big investors. In exchange, Y Combinator gets about a seven percent stake in the company.
GRAHAM: All right. So here's all the companies we've ever funded.
BLOCK: Paul Graham opens up a computer spreadsheet that tracks how the companies have done. Adrift, it says, next to many of them, or dead.
GRAHAM: Which means 69 have died out of...
BLOCK: He figures half of these companies will live, though he admits that's optimistic. But that failure rate doesn't faze him at all.
GRAHAM: You know, let me tell you something about the start-up world. In the start-up world, not working is normal. Just like you might wonder why ships have pumps, why they all have bilge pumps - like, why don't they just make one that's waterproof, right? And the fact is, like, one way or another, all ships take on water, you know. And one way or another, practically all start-ups internally are disasters and they just hide this from the outside world.
BLOCK: Now, Paul Graham's business story would make these young start-up founders' eyes burn bright with envy. In 1995, he started a company that developed software for e-commerce. It was called Via Webb and he sold it at the height of the dotcom boom to Yahoo! for $50 million. So what's the secret? Well, luck, for one. Paul Graham says that's a huge part of it, but also this...
GRAHAM: What drove me from day to day was the fear of being humiliated by failure, like having the company blow up. And having told all my friends, here I was going off and doing this start-up, you know, I'm going to take over the world, and you know, and having it tank, that would be bad. So that drove me, actually, that failure would be so humiliating. It's tolerated around here, but no one wants to do it. You know what I mean?
BLOCK: Do you think people talk openly about failure?
GRAHAM: I mean, yeah, of course. If people talk openly at all, they're talking about failure, because that's mostly what's going on, right? Seriously, it's like a - life around here is a lot like a comedy in the sense that there's always mishaps that you may laugh about later.
BLOCK: It's a comedy, you're saying, but it's also hugely humiliating if you fail. That seems to be a contradiction.
GRAHAM: You're rueful. That's the best way to describe it. Just like you can laugh at yourself and you also hate it. It's not that much of a contradiction. Rueful is the space where it's not a contradiction.
BLOCK: Talk to just about anyone in Silicon Valley and a tale of failure will bubble up.
UNIDENTIFIED MAN #4: It was a classic dotcom story. We had 12 co-founders drop out of Stanford. The start-up went on to raise $20 million and we made every rookie mistake that you could possibly make.
UNIDENTIFIED MAN #5: We had a terrific idea. We were making a microprocessor, but the wafers started looking like they were potato chips.
UNIDENTIFIED MAN #6: It was like a plane that landed safely after, you know, almost crashing into cliff faces and running out of gas several times and clipping the treetops.
JANICE FRASER: We had all come in every day, put on our game face, and yet, we all knew, for probably a couple of months, that this was coming.
BLOCK: That last voice is Janice Fraser. She's the founder of several start-ups. Some of them flew, one of them crashed during the financial meltdown, $800,000 from her investors, gone.
FRASER: The worst moment is when you have to tell your staff. You have these people who, beyond reason, have put their trust in you. And you have to look them in the eye and say, I'm sorry, this isn't going to work. It's always when the money's running out, right, because you keep going until the money runs out. At the end, it's just you and one or two other people, filing papers with the state and packing up the boxes.
And that is not fun. I can tell you that is the worst moment of an entrepreneur's life.
BLOCK: Do you think in some way that failure is glorified in Silicon Valley?
FRASER: I do think failure is glorified in Silicon Valley. I believe that there's more talk about failure than there is tolerance for it. It's disappointing when you realize that it's much more painful than the happy talk makes it sound like.
BLOCK: Still, Fraser says her investors were there for her when she started up again. So we end our failure journey with a money guy at the venture capital fund Google Ventures, which plans to invest $1 billion in start-ups over the next five years. It's a place that revels in its nerdiness. Can we talk about the names here?
JOE KRAUS: Oh, yes.
BLOCK: This room is called...
KRAUS: Moria. Then we've got Rivendell. You'll notice every conference room here is "Lord of the Rings" themed.
BLOCK: Joe Kraus is showing me around the Google Ventures offices in Mountain View, where he is an investing partner. And he says the downstairs conference room can make entrepreneurs a little antsy. It's named Mordor.
KRAUS: Well, the dark lord, Sauron, which was the embodiment of all evil, resided and had his seat of power in Mordor, and so usually it implies destruction, darkness, the end of the world.
BLOCK: May not be where you want to be if you had a start-up, yeah.
KRAUS: You know, entrepreneurs are optimists, that's very, very true, but even they get a little nervous in Mordor.
BLOCK: But if they're nervous in Mordor, Joe Kraus says, it shouldn't be because they have failed.
KRAUS: I'm first and foremost far more interested in their current idea than what happened in the past, so I actually don't spend in the meeting with the entrepreneur a ton of time on what have they learned from their past experience. I'm much more interested in how are they thinking about their current business.
In my mind, the ones who have no fear of failure are merely the dreamers, and the dreamers don't build great companies. The people that thread the line between vision and being able to execute and having this healthy fear of failing that drives them, not paralyzes them, but drives them to be more persistent and work harder than the next person, that's a magic formula.
I think failure in the culture means you just haven't gotten your success yet.
UNIDENTIFIED MAN #6: I would say failure is mandatory. It adds credibility to your story. You almost don't even trust an entrepreneur who hasn't failed before.
UNIDENTIFIED MAN #7: Failure is as pervasive as weather. That's what it is.
UNIDENTIFIED MAN #8: I think failure is required for success.
UNIDENTIFIED MAN #9: I think failing is more than okay. I think it should be expected. It should be encouraged.
UNIDENTIFIED WOMAN: Failure is inevitable. Failure is productive and it becomes productive when you view your work as an experiment. So, failures are best when they're small and when there are lots of them in sequence, in service to a higher goal.
(SOUNDBITE OF MUSIC)
BLOCK: Perspectives on failure from Silicon Valley. Among the voices we've heard in this story - entrepreneurs Mark Goldenson and Sunil Rajaraman, executive Simon Rothman and venture investor Bill Davidow. Transcript provided by NPR, Copyright NPR.