January 18, 2009

Why you should fail early and fail often

You hear the "fail early and fail often" mantra quite a bit. The basic idea is to find out as early as possible whether the project you're working on is going to be a success, and if it isn't let it fail. This is a hard thing to do: You have to accept the project as a failure, and implicitly accept that for whatever reason you didn't have what it took to suceed. There may, of course, be external factors such as luck, market conditions, partners etc. that are out of your control but you will still have to live with a failure under your belt no matter who was to blame. The normal human reaction is to keep going, prolonging the inevitable, so that you don't have to face the failure. The idea of failing early and often is that the sooner you let go the sooner you can go to work on a new project that might have a better chance of suceeding.

This post will give you some numbers to show that failing early and often is a good idea.

Let's presume you have ten years to make a million dollars by starting a company and selling it. And let's presume that there are two scenarios: one where you start a company and keep going at it for ten years, and one where you start a company and if it doesn't work out after a year close it down and start another one.

The first scenario is simple.

Let's presume there's a 10% chance of suceeding in starting a company and selling it for a million dollars. Your chance of becoming a millionaire in ten years is obviously 10%

The second scenario is a bit more complicated.

With the same presumptions as in scenario you have a 10% chance of becoming a millionaire after year one. If this doesn't work out you have another 10% shot in year two, and so on. This adds up to a 65% chance of success after ten years. Quite an improvement! But maybe this doesn't tell the whole story: Surely you will have a higher chance of succeeding with a company you spend ten years on than a company you spend one year on. Let's say you only have half as big a chance of succeding if you only spend a year on your business. This will still give you a 40% chance of success after ten years. As a matter of fact for the two scenarios to give you an equal chance of success after ten years your chance of success with the one year company needs only be 1%.

Here is a graph that shows it more clearly.

This is, of course, a simplified explanation that doesn't take all factors into account. If you initial idea doesn't work out you could morph your company into something else, you may need more than one year before you can sell your company or maybe your goal is to only make $100.000. You may not even know whether you're doing great or are on the brink of bankruptcy.

The question to ask is: If I was offered this company for free would I take it? It's a hard question, and ideally you should put it to other people that don't have an affection for the idea, and haven't spent many hours pondering over it.

You may be surprised at the answer, and if you are maybe you should start something else.

If you made it all the way to the end you must have found it interesting.

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Anonymous Janus Merholz said...

Very interesting how math seems to deceive us.

Good observations ;-)

11:35 AM  
Anonymous Steve Schwartz said...

Interesting analysis. Where did you get the static 10% chance statistic for success in starting a company and running it for 10 years. Also, what leads you to believe that your chances of success don't increase to more than 10% the longer it's in business.

Also, even 1% seems a bit high for starting a company that will realize multi-million dollar profits in under 10 years.

And one major flaw with your analysis is that the initial goal of making millions of dollars by the end of 10 years. However, when you start a new company each year, that company must reach that goal in a progressively smaller time span, progressively diminishing your chances of success with that company. I.E. if your first 8 companies fail, then the 9th company only has 1 year to reach millions of dollars in profits, which I'm willing to bet is a MUCH smaller chance than 1%.

6:31 PM  
Blogger Boris Cinkler said...


assumption is that each of 10 companies has 1 year to succeed. If not, it is eliminated and another one is started. So each company has 10% chance to succeed in one year, not in (10 - n) years.

8:32 PM  
Anonymous Workpost said...

Hey, you're about as qualified to talk about startups as most people.

What I wonder about is the quality of the 10 startups you're starting with in your statistics.

Move forward with 10 bad ideas / unmarketable brands and you'll likely end up with 10 failures. Over time, bad ideas can be change and be overcome but 10% is still very generous..

9:34 PM  

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