Institutionalising the fear of failure

I was shocked when I saw this table in the Economist on Friday. In general I think that a little fear failure is healthy, without that entrepreneurs wouldn’t think through their chances of success properly, but that too many people use it as an excuse for not starting businesses, or as a cheap explanation for why our startup ecosystem lags the US (I wrote about this in more detail in 2007, and my views haven’t changed much).

Failure is a multi-headed beast, and bankruptcy is one of many things that would-be entrepreneurs have to worry about, but it sets the tone for how a nation thinks about business failure is easy for governments to change.

What leaps out from this chart is the difference between France and Germany on the one hand and the UK on the other. The sad truth is that bankruptcy laws give entrepreneurs in two of Europe’s largest economies good reason to fear failure. Nine years is much too long a time to be stuck with debts if you go bankrupt. There is, of course, a balance to be struck between encouraging people to start companies and protecting creditors, but I think we have that about right in the UK. I hear occasional stories about unscrupulous entrepreneurs here who get credit from other startups, don’t pay, and then use the bankruptcy laws as a shield as they go about their business seemingly unencumbered by the fact that they owe somebody else money, but they aren’t too frequent and I don’t believe that the prospect of bankruptcy inhibits many people in the UK from starting companies.

I doubt the same is true in Germany and France.

  • Francesco

    As you know, if someone wants to game the system, he/she’ll find a way (not a good enough reason to establish harsh and counter-productive laws)

    I find – and I am not sure whether this is a cause or an effect (of the bankruptcy laws), that there is a much more dangerous (but subtle) inhibitor that affects entrepreneurship in many european countries and that is the social stigma that comes with failure. 

    While in the US failure is seen as part of the learning process (that can build character and experience – hence a motivator rather than an inhibitor) in countries like Italy, Spain, France and Germany a business failure is seen as the ultimate individual shame and reflects negatively on the entrepreneur, personally, professionally and financially. This obviously does not encourage risk-taking.

    So when lawmakers design these laws, they should take in consideration the implications that these may have in the mindset of a country

  • And equally, changing bankruptcy laws in favour of the debtor would send a powerful signal through society that might reduce the stigma associated with failure.

  • So if I do the math “failing fast” focusing on one product in Europe would take you to pension? Or lack of it ?
    I think what works in Sillicon Valley does not work in Europe.
    Entrepreneurs in Europe are working against the system .. against the culture.. with a few succesfull exceptions to confirm the rule.
    It is about culture – the VC’s, Angels, Entreprenurs are also affected..
    Investing at later stages, looking for “Who you know”.
    The Big corporate wisdom, experts .. playing nice, playing by the rules .. Europe just doesn’t get it – with very few individual exceptions .
    The whole startup ecosystem is much more “corporate” in Europe – so I realy doubt we will see billion dollar exists from any Europeean startup for the foreseable future.
    Most Eruropeean VC’s have no clue about entrepreneurship (ex bankers and consultants have no clue about anything actually), most Angels have no clue either – except the ones who were previous entrepreneurs and so on.
    Any decision take ages in Europe.. everyone busy covering downside so they are not “punised” for their failure. By teh time you close one company in Europe you start one and do an IPO in the States.
    It is a global market – the best ecosystem wins.. And that is not Europe, And that is not NY. It is still Sillicon Valley.
    Entrepenerus from all over the word go there because the ecosystem works. That’s why the vast majority of new entrepreneurs are not even born in the States. You do not have such an ecosystem in Europe.
    London is not Sillicon Valley and will never be. NY is not Sillicon valley and we’ll never be.
    You can’t have consistent, repetable success stories in Europe. Just the exception – due to HUGE amount of luck. Everything else is BS. Defending the status quo. Starting my own blog so probably this is my last post :-P.

  • Hi Nic,

    Read that article over the weekend and was equally as shocked at the numbers for France and Germany. Not sure I agree with your last sentence though. Status seems to play a big part in preventing people starting businesses in the UK. Bankruptcy is a part of the status game. Perhaps you’re referring to a much younger demographic, ie people in their early twenties? And perhaps the sheer scale of national debt facing us will breed a generation for whom status isn’t as important.

  • I agree with the post but would like to add that “praising” failure as we see so much of from Silicon Valley is not good either. Far too many “rockstars” fail with their start up, loose money for their investors, then go on to working as a VC.

  • Hey Sharky – you should definitely start your own blog. Send me a link.
    I don’t think that ecosystems operate in a market the same way that other industries do. There is, of course, competition for entrepreneurs, and you are right that Silicon Valley is still way out in front, but there are important geographic factors which I believe will leave us with multiple viable ecosystems. They are principally local markets and a preference for entrepreneurs not to move unless they have to.

  • Hi James – this is a complicated topic! I agree that status is important to people, and the fact that entrepreneurs aren’t as feted here as they are in the US works to our disadvantage (although I think its improving). Fear of bankruptcy is a subset of the status question, and I don’t come across many examples of Brits not starting companies because they are afraid of being labelled a bankrupt.

  • Failure should never be celebrated. People who try and fail, but show learning may well be better employees that people who simply haven’t tried.

  • Someone’s local culture is part of the status quo. You need fresh ideas and people and hopes in order to create entrepreneurial momentum. Is London and Berlin heading in the right direction ?
    Maybe.. or maybe it is just the crysis. is my blog will try to tweet the Headlines.