I was having dinner recently with a good friend who gave up a mid seven-figure job with great security to pursue his dream of being a novelist. The impetus for his decision wasn't a mid-life crisis as some expect [he's 32 years old like me, not quite ripe enough to be categorized as mid-lifers] but rather seeing two other college friends give up cushy jobs of their own at a big law firm to start up their dream technology venture.
Our conversation turned to a broader discussion of the fear of failure and its role in professional success. Is it possible to create a truly great business without embracing the possibility of failure? And what about the inverse? If you have an unyielding fear of failure, can you achieve optimum success?
For an entrepreneur, it's difficult to argue against the crippling nature of a fear of failure. To build something from the ground up, one has to make bold decisions and take risks. It's seemingly impossible to imagine creating a truly exceptional business without tasting some failure or adversity along the way.
- Would a serial entrepreneur with a successful IPO under his wing be less inclined to fear failure than a first-time founder with every penny of his life savings poured into his business?
But what of a venture capitalist? On one hand, VCs have to live with the reality of failure. History dictates that for even the best venture capitalists, a significant portion of their portfolio companies are going to generate a negative return. As Paul Kedrosky is fond of saying, VC is a hits driven business. If you make 10 investments, ultimately you make you and your LPs money on one or two big winners. On the other hand, venture capitalists have generally achieved some measure of financial success prior to becoming a VC; so while each failure may sting, it's not crippling.
- Would a first-year principal looking for his first successful exit make the same decisions as an established venture partner?
How does the fear of failure translate into public-equity investing? Risk aversion is a term of art that's often embraced within our industry. Is risk aversion synonymous with fearing failure? Mathematically, one has to accept increasing risk for increasing rates of return. While great investors tend to find a way to generate marginally better returns for each incremental unit of risk; it's a truism that with no risk come no reward.
Ultimately, there are lots of factors at play here. The very definition of failure varies from person to person. While some of us may view my friend's decision to leave his job as "risking it all", knowing him as well as I do led me to a different conclusion. Having never taken a chance on his dream of being a writer would ultimately have been his life's greatest failure.
Nothing ventured, nothing gained? You decide.