
Why haven’t European investors fully accepted the failure is good mentality yet? - mckee1
http://thenextweb.com/entrepreneur/2014/03/02/havent-european-investors-fully-accepted-failure-good-mentality-yet/
======
raverbashing
"As European talent in the form of startups and entrepreneurs continue to
flock towards the USA, the question remains: why? Is it attitude or is it
money? Is it bureaucracy or is it poor infrastructure?"

This is a loaded assertion. And, sincerely very cliché.

Oh Europe is bureaucratic and expensive? And yet there's nothing like this:
[http://en.wikipedia.org/wiki/Giro](http://en.wikipedia.org/wiki/Giro) in the
US. Ridiculous

Funny how several of these big US companies open offices in Dublin (offices,
not merely a mailbox and a shell company) guess they didn't get the memo.

Cell phone plans are way cheaper in Europe (no paying to receive calls).

Overall quality of life in bigger European cities, mass transit is ubiquitous.

So, in overall, I think the US has a lot to learn from Europe. But I
understand, while in the US people think "Why not, let's do it!" in Europe
people think "What can go wrong"

~~~
ThomPete
That has absolutely nothing to do with why European investors are more risk-
averse (they are).

~~~
raverbashing
Yes, they are

This is not all bad, since it would be harder for them to invest in companies
like Color

They still invest in risky stuff, like a Sound startup in the most picky
country w.r.t. intellectual property online
[http://en.wikipedia.org/wiki/Soundcloud](http://en.wikipedia.org/wiki/Soundcloud)
(and what are the issues in Germany can be summed by this:
[http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalis...](http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalische_Auff%C3%BChrungs-
_und_mechanische_Vervielf%C3%A4ltigungsrechte) )

------
PakG1
To desire failure, this probably means you are trying to do something new.
Below I am speaking purely on conjecture, no real sound theory.

I get the distinct impression that Europe cares more about tradition and
therefore less about disruption. As such, there is not as big a desire to try
something new, and therefore no reason to consider whether failure is good. In
fact, if the emphasis is on tradition, failure is frowned on not because it is
bad, but rather, because it is evidence that someone tried to do something
new.

My thoughts on this come from a chapter of Alan Greenspan's memoirs on his
experience in Vienna and thoughts on cultural differences, especially when it
came to Vienna's timelessness and beauty.

~~~
Dewie
> My thoughts on this come from a chapter of Alan Greenspan's memoirs on his
> experience in Vienna and thoughts on cultural differences, especially when
> it came to Vienna's timelessness and beauty.

Then you're talking about Austria, not all of Europe.

~~~
PakG1
Just because the example that inspired the thought was drawn from Vienna, it
does not mean I cannot extrapolate it to across Europe when I look at the
beautiful and ageless cities and traditions that exist throughout Europe. And
I put the disclaimer first that I am making conjecture only and nothing more.

~~~
Dewie
You making a conjecture so to speak on flimsy grounds doesn't stop me from
pointing out that it's bullshit. I'm sick and tired of being lumped into one
big homogeneous pile because I'm from some part of Europe because of, what?
You've read a book or two and noticed that quite a few European cities have an
old and really nice-looking architecture? Try harder.

~~~
PakG1
I'm sorry if I made you upset, but I'm not looking to insult anybody here.
It's a civil conversation. If you disagree with what I said, you can say why
without getting antagonistic.

The fact that I used a weaker word like conjecture instead of something
stronger should say a lot about what I really think on the matter. I'm used to
constructing comments a bit more carefully for serious opinions if you look at
my comment history. :) No harm, no foul, I hope.

------
H4U
As a brit we do not fear failiure, its well known that Up to one fifth of the
400000 businesses that start up each year fail within the first 12 months of
operation in the UK.

investors dont write blank cheques is the main difference. we are blunt and
dont flower up potential so monetry failiure is more relative to business
size.

~~~
logicallee
>we are blunt and dont flower up potential

This nails it. You're not going to even investigate potential - your investors
don't have that kind of vision (or interest). Not a snowball's chance in Hell
a Brit VC would have acted as Peter Thiel did when he came on board with
Facebook. Because that would have been "flowering up potential".

Or as I like to call it, vision.

~~~
gnerd
I find it interesting in a thread about failure you are going to use an
example of highly improbable success to highlight what you call vision.

That is a cool anecdote and all but it smells like confirmation bias. I'm sure
the one guy who won the lottery yesterday had a vision too. Maybe I'll have a
vision tomorrow when I play a slot machine or maybe I'll have whatever-its-
called when you dump a bunch of money on a long shot and it doesn't come
through (were there no visionaries to see the social graph for myspace and
friendster?). There's a line somewhere where a can-do attitude becomes naive
and the other side of it is where practical sensibilities become choking to
fresh ideas, right now I feel we are in a place where having a go is a good
thing but it won't always be that way (at least in our industry).

------
RivieraKid
I would hypothesise that there are two reasons for this.

1\. The size of the US market is a huge advantage. Startups targeting and
operating in the US market can grow bigger. China has the same advantage.

2\. Americans are less risk-averse because Americans are mostly descendants of
immigrants. And immigrants are more likely to have a less risk-averse DNA.

~~~
Hermel
3\. The opportunity costs of failing are higher in Europe. Thanks to welfare
and lots of vacation, the founders of a startup have to sacrifice much more
leisure time vs. the alternative (working at an existing corporation). For the
same reason, it is also harder to find risk-seeking employees. They prefer
doing financially ok with lots of leisure time over having the chance of
getting rich without leisure. In the US, they don't have much holiday in
either scenario.

~~~
hga
What about the frequently (and generally??) much higher difficultly in letting
people go, which I'm told results in it being much more difficult to get hired
in the first place?

To the extent that's true, that would make it much more difficult to find
good, "risk-seeking" or at least risk tolerant employees.

------
Create
[https://en.wikipedia.org/wiki/United_States_public_debt](https://en.wikipedia.org/wiki/United_States_public_debt)

[http://www.sonyclassics.com/insidejob/](http://www.sonyclassics.com/insidejob/)

------
ThomPete
Because failure is much more expensive to European investors and it's not as
easy to build huge successes in Europe.

So if they did they would quickly be out of money.

This is why the Samwer Brothers from Rocket Internet is doing things the way
they are and can have so many startups they do.

Their copy-cat approach is very un-european but in reality the only way for
European investors to be less risk-averse.

The safty-net comes with a price. Even in Denmark which is rated as on of the
easiest ways to start a business the reality is that it might be easy to start
a business, but it's very hard to scale it.

~~~
k-mcgrady
>> "it's not as easy to build huge successes in Europe."

Why? Could you explain this further?

~~~
ThomPete
Here is just a short list.

a) Different cultures

b) Different languages

c) Different tax systems

d) Different company types

e) Different legality

All these in combination creates a lot of friction that makes it harder. There
are obviously exceptions (ex. skype) but in general it's just very hard to
navigate compared to the US.

~~~
k-mcgrady
Most kids are (and have been for a while) taught English in schools. If you
create your site with English as the first language you can target most
European countries + the US. Regarding company types you set up your business
in the country you're based in - you don't need a separate company for every
country you operate it. I believe the same applies to tax. You pay it in the
country you are based in.

~~~
ThomPete
Yeah good luck building a startup in europe with that view. There is a reason
why ex. Facbook localized their content.

~~~
k-mcgrady
I's a strategy for getting the business going. Obviously you begin localising
once you've got some traction.

~~~
troels
No, you need localisation to get traction. People are surprisingly fond of
their own language, even if they are almost fluent in English. At least if
you're dealing with consumers.

~~~
raverbashing
If you do localization, don't think only language will cut it.

Address systems, payment systems, "simply taking credit cards" may not cut it.

But in the end you have to launch targeting one or more countries, whatever
comes beyond that is "free".

And of course, you start from day 0 to make your system Unicode compliant.

~~~
troels
Curiously, charsets actually is less of an issue within EU - Latin1 should
cover. (Not that anyone should use that in a modern app today)

But otherwise I agree with your sentiments - Language is just one of several
problems. Most of which are external to the product.

------
m0a0t0
Seems to be a lot of patriotism in these comments. Today I've learnt that
Americans are genetically superior to Europeans because they have genes that
make them more likely to take a chance and Americans have "vision" where as
Europeans don't (yes I've exaggerated these a bit).

To be honest, even treating Europe as a collective is silly. When each country
has different tax laws, traditions, outlook on life; how can you really,
meaningfully compare them?

~~~
ThomPete
Which is why europeans are more risk-averse.

------
cromulent
There are no cited sources that support the premise of the article, that
Europeans fear failure too much.

The cherry-picked 2011 was about the peak of the Eurozone crisis and austerity
measures, obviously a special time.

Compare the EBAN 2011 slide in the article with optimism of the 2012 slide:

[http://www.eban.org/e5-1-billion-market-shows-european-
angel...](http://www.eban.org/e5-1-billion-market-shows-european-angels-on-
the-rise/#.UxMoGNyJJ7E)

~~~
ThomPete
It's pretty well established though.

Check out this article.

[http://www.economist.com/node/21559618](http://www.economist.com/node/21559618)

~~~
cromulent
I disagree.

If you compare Europe and US, I think there are hotbeds in each one.

However, the articles seem to compare Europe with Silicon Valley / San
Francisco, which is silly.

Obviously San Francisco is special, even within the US.

Edit: Also, the Economist article doesn't address Europeans having a fear of
failure.

~~~
ThomPete
There are hotbeds but Europe have far less success stories than the US and
therefore you have as I explained further up the risk-averseness of the
european investors.

At least those that I know, and I do know quite a lot.

------
kristiandupont
There is something that annoys me about comparing the US to Europe here. I
feel that the world is going through a process of learning how to create tech
companies and that movement springs out of SF and SV. That is where the most
innovation is taking place, in terms of technology and business development.
The rest of the world, including the rest of the US, is following along and
steadily catching up.

Being a member of the HN community for a while now has made me feel much more
connected to this than was possible 5 years ago (I'm in Europe). In the co-
working space where I work, everybody talks about lean startups, nodejs, go,
etc. and a random discussion is basically indistinguishable from my few
experiences in SF offices.

Now, when it comes to funding everybody knows that trying to do it locally is
ridiculous if you don't have a good specific reason to do so, but this applies
to major US cities as well, perhaps with NYC slowly catching up. I think this
will change as well, as more and more entrepreneurs have succeeded by the SV
model and go into investing themselves. It probably won't even out completely
but I think it will become more uniform.

------
jnbiche
Wow, awesome article. As someone who has lived in both the U.S. and Europe,
this hits the nail on the head re: the difference in attitudes between U.S.
entrepreneurs and most European ones.

I actually come away from this article inspired to try another start-up, after
a pretty significant failure last year.

------
Silhouette
How about because "failure is good" is an absurd proposition? Failure in this
case typically means people lost money and jobs. It also means customers
probably got stung buying into something new and that could make them more
hesitant to buy into something new next time, which is harmful to successful
innovation.

Learning from failures is good, and might help entrepreneurs to develop a more
viable proposition if they try again. But that still doesn't make failures
good. It just means there is a silver lining for some of the participants, if
they have enough left to try again later.

Hit-it-out-of-the-park success is good, and from an investing perspective
funding a number of failures may be a reasonable cost of doing business if it
means you get the occasional smash hit as well. But that still doesn't make
failures good. It just makes them tolerable.

Moreover, the hit-it-out-of-the-park outliers in SV are mostly part of one big
pyramid scheme these days. It may be a while before the bubble bursts, because
at the top of the chain you've got the outlying outliers like Google and
Facebook that really have managed to bring in actual revenues and build up
huge war chests, but even then the theoretical valuations for some of these
giants are dubious. There literally aren't enough people in the world to
continue growing their core offering at historical rates in some cases, and
attempts at diversification have mostly been failures propped up by those core
offerings. Even if these weren't the case, the biggest giants in technology
rarely manage to remain dominant for more than a decade or two before newer
ideas from more nimble competitors start to intrude.

Meanwhile, smaller companies being bought for staggering sums of money when
they have yet to demonstrate a viable business model for monetizing what they
do is just silly in most cases. In the ones where it isn't, the acquisition is
often for strategic reasons rather than a genuine investment in expected
actual value.

So the bottom line is that European investors have less time for boom and bust
than US ones. SV couldn't happen here, _and we don 't want it to_. Culturally,
while there are start-up incubators and the like around, we tend to be more
interested in investing to grow something after its foundations and basic
viability are already established. That could be demonstrated either through
having a working business model that only needs cash immediately to accelerate
growth that could have happened anyway, or through at least having a plan with
clear potential to generate real money, for example. While I don't have any
hard data to back this up, I suspect we also tend to put more emphasis on
bootstrapping your own business or going to the bank for a loan rather than
taking angel investment, and use more informal support networks such as old
university connections here in Cambridge for the non-monetary benefits that
angels might provide in somewhere like SV.

~~~
michaelfeathers
Maybe the way to put it is - "failure is not something to be _that_ scared
of."

I didn't like the article. It felt shallow. The real issue is that in the US
we have a tendency to not second-guess people's decisions about how to invest
their money. Yes, this means that some people will be ripped off, but it also
means that they, and the society as a whole can be in rapid learning cycles
about what makes a good investment.

It's clear that the US has a very different take on acceptable risk and as a
result they more big wins and big losses. Can't have one without the other.

~~~
Silhouette
_It 's clear that the US has a very different take on acceptable risk and as a
result they more big wins and big losses. Can't have one without the other._

Is that really true? If you ever make a big loss, in the sense that backing
something like Google or Facebook would have been a big win, you're probably
doing investment wrong. The dominant US tech investment strategy today appears
to be accepting many relatively small losses on the basis that one smash hit
will outweigh them all.

I've noticed that in US-centric discussions, the distinction often seems to be
stated in terms of "risk-aversion", with a focus on how much downside is
acceptable and how US investors tend to accept more risk. In discussions on
this side of the pond, we might rather distinguish based on "expected
returns", with a focus on how much upside is likely across all outcomes and an
emphasis on the mean rather than modal return.

~~~
michaelfeathers
What if we shift the discussion from investor risk and reward to founder risk
and reward? In the US it's possible for founders to win big and I suspect that
is the reason why startups gravitate to the US. On the risk side, yes you can
lose your shirt and so can your investors, but the system considers it normal
to get up and try again.

I don't like the fact that we don't have much of a social safety net in the US
but that can be considered one of the larger risks founders face as well.

------
saalweachter
This article is missing more-than-anecdotal evidence that failure is good.

What are the total number of start ups in Europe versus the US? How many
succeed, for some various metrics of success? What is the total revenue of
companies started in the last X years? What are the returns to investors, both
absolute and relative to the size of their investments?

Without knowing the outcomes of the different investment strategies, you can't
pick a winner.

------
RivieraKid
Does anyone know if the whole VC industry is profitable? A chart with yearly
startup investments and profits would be really interesting.

------
michaelochurch
Snarky but true answer: _failure is not always good._

Look, I'm all for removing the social penalties to good-faith failure. I've
failed before (in good faith) and I'm a good guy. Some problems are harder
than they look, and sometimes the solution is brilliant but no one wants it.
However, I can't share that cavalier attitude toward _failure_ that I often
encounter in the HN-sphere. I would love to see society become more tolerant
of good-faith failure or just bad luck, on the small scale (R&D efforts within
companies) as well as the large (bankruptcy laws, a healthcare system that
isn't psychotic and mean-spirited like US insurance). However, I've also seen
what bad-faith failure looks like: businesses that might start with earnest
intention but evolve into long cons. People who call themselves
"entrepreneurs" are not all ethical. Some are, some aren't.

Failure hurts people. Money disappears, jobs are lost, and sometimes peoples'
careers get ruined. I've lost about $500,000 (mostly, opportunity cost and
career retardation) to bad startups.

Sometimes failure is no one's fault and a learning experience. Sometimes,
there's some serious malfeasance behind it. If you've been around tech as long
as I have (and I'm only 30) you know that there are some really wonderful
people, but also some really terrible people, in it.

There are some severe issues involved in the question of how to handle
business failure: moral hazard, asymmetric risk. Most people attack these hard
ethical questions by falling back on instinct and social proof: the way they
separate bad-faith and good-faith failure is by asking around, checking
references, reading news articles. That's how the Valley works: it tolerates
failure if you can convince it that you failed in good faith, but the waters
are so murky that social proof rules the day. That, predictably, makes the
worst kinds of people (social influence peddlers) powerful, and they evolve
into extortionists and manipulators. It turns into a feudalistic reputation
economy. It's not a scalable solution. It's actually hypocritical, because a
world in which reputation and social access matter that much is _exactly_ the
sort of world that becomes risk-averse and sclerotic. (That takes time, but
you see it happening in the Valley.)

The happy medium is somewhere in between the risk-averse conservatism of
Europe and the Midwest, and the pro-failure attitude of California, which
arrives either at recklessness or hypocrisy. Maybe Seattle? (I'm considering
moving to the PNW in 2015, so I've given this a lot of thought.)

~~~
ThomPete
Oh there is failure in Europe too it's just that a lot of it is based on loans
so many of the people who fail have no way to "try again"

~~~
michaelochurch
Yeah, that's horrible. It really drains the culture when personal
loans/savings are the only way to finance a business. The US Midwest actually
has a lot of talent (and geat schools) but so much of that talent ends up on
the coasts.

