By Jeff Skinner
Who actually benefits from entrepreneurship? If youre an aspiring entrepreneur, its worth asking yourself that question now, before you get sucked into it.
Governments around the world encourage entrepreneurship, hoping for the next Facebook or unicorn that can replace the next declining corporate.
Universities also like start-ups because they provide a stream of home-grown sexy stories that can be used to entice the best students and raise money from alumni.
But the young entrepreneur can easily become the fodder glorified and taxed if successful, discarded and forgotten if not. The bald fact is that most first ventures will fail not for lack of trying but because they are such fragile entities. And they are really hard on the founder, who has to endure years of loneliness and ambiguity before having any hope of becoming rich and famous.
London Business School (LBS) has encouraged entrepreneurship for 30 years and its now the second-top reason why students apply to the School. We have dozens of programmes that take students all the way from idea creation to scaling a venture. Nowadays, around 10% of students start businesses immediately after and sometimes even during their degree. Many more become entrepreneurs after spending a few years paying down their debt.
Weve got a pretty good track record too 70% of those eighty or so business that have passed through our tiny incubator in the last five years are still in business or have been sold. But this still leaves 30% that have and I use the word cautiously failed.
For some time, Ive been worried about those 30% and all the other students over the years who have put time and energy into ventures that disappeared without a trace. Maybe its irresponsible to encourage students to start their own business when many collapse after a year, throwing the ‘failed’ founders onto the streets with nothing to show for their efforts and having to compete with newly minted, untarnished MBA graduates.
What entrepreneurs gain from a failed business
Unlike the US, the UK has traditionally stigmatised failure even when that failure was heroic. However, ventures fail for all sorts of reasons. Sometimes, its down to timing or because consumers simply were slow to change behaviour before the venture ran out of cash. Sometimes, its because a bigger behemoth comes along and eats their lunch.
But two things have (mostly) put my fears to rest. First is Abishek Garodias story. He was a MBA student who started Playenable, a platform for connecting gyms to those who wanted exercise classes offered by gyms. The pain was that they were often half-empty, but Garodia couldnt find a way to address and monetise this issue. He fought on valiantly for three years before throwing in the towel. A hard but wise decision.
What happened next was really interesting. Abishek got a great job at Airbnb, beating lots of recently graduated MBAs at interview. I spoke to him afterwards and he was convinced that his start-up experience had helped him land the job. Airbnb wanted him for that experience.
Never mind that hed failed: he knew how to set up and build a business in this case, a business within a business, which is exactly what the company wanted. Garodia had developed the confidence to argue his case, build external relationships and think strategically and gained the resilience not to give up easily. Airbnb saw through the failure the qualities and experience that, as a company, it valued.
The second thing thats helped allay my fears about the entrepreneurial world is a book I read by my colleague Julian Birkinshaw, Professor of Strategy and Entrepreneurship at LBS. He is intrigued by corporate innovation.
The central thesis is that with digital disruption destroying traditional sources of competitive advantage, firms can no longer rely on incremental innovation or clever, waterfall, strategic planning to create the future. New technology and consumer behaviour is too disruptive, fast-moving and ambiguous for that. Instead they need to adopt adhocracy purposeful learning by doing.
Fail fast, fail cheap
If that sounds familiar, its because it is. Essentially, Julian Birkinshaw is suggesting that the best-established companies adopt a lean, experimental, fail-fast-fail-cheap hypothesis-testing approach to innovation. Its the same methodology weve been teaching entrepreneurs ever since the demise of the business plan a decade ago.
This is a deeply uncomfortable message to middle managers in established businesses. Companies generally dont promote to middle management the people who theyll someday need to lead the organisation.
What they need is people who can take ideas and run with them. Recycled entrepreneurs, especially ones who also have a good understanding of organisations and markets as all our students do can be ideal.
Ive tracked down and interviewed a number of the failed 30% over the last few months and in every case those founders have gone on to get a great job elsewhere ahead of many MBA graduates with no entrepreneurial experience. The best firms seem to value the experience that the founders gained in building a venture from scratch. Such companies also want to harness those skills and grit to drive innovations within their own organisation
Moreover, the entrepreneurs come alive at interview with great stories to tell and real examples to give placing them head and shoulders above pure play MBAs who can only talk theoretically. Failed entrepreneurs have walked the walk.
So I dont worry about championing entrepreneurship any more. Even if that first venture doesnt work out, the experience and skills you pick up on the way are valued by firms that increasingly need to import that talent.
And even those who cant bear the thought of being employed ever again are after a period of mourning and re-charging brilliantly equipped to start another venture. As someone once said, ventures are like pancakes you usually end up binning the first one.
This article has been previously published in the London Business School Review.
Jeff Skinner is Executive Director of the Institute of Innovation and Entrepreneurship.