Churn and failure define a successful startup ecosystem: Mitchell Patterson

Churn and failure define a successful startup ecosystem: Mitchell Patterson
Columnist Mitchell Patterson says simply counting startups does not show growth or health in the business ecosystem. Instead, he says measuring churn and failure represent a better metric. ( via Shutterstock)

For decades, Upstate New York attempted to move on from its past and create a version of Silicon Valley. Typically, these attempts were associated with initiatives intended to brand the region the new Silicon Valley, but they used old-time metrics.

Instead, if we want to create a new economy, we should embrace new metrics. Failure is one. So is churn. Measuring churn and failure represent better thinking.

Churn usually is the rate of attrition of subscribers to a service.

Think of using churn to represent those that try and fail. I believe that the best way to learn is trial and error. Part of the reason that Silicon Valley is so successful is that they have gone through thousands if not millions of cycles of startups and failed startups. In each instance, the founders gained knowledge. In time, a critical mass of experienced entrepreneurs came about that attracted venture funding and the region that birthed Apple, Google, and Facebook earned the name Silicon Valley.

Companies died quickly if they could not succeed. No one tried to prop them up just because they were a “startup.”

More startups is not a measure of success. More startups simple mean more people are attempting to create companies that could succeed.

One example of success is Density, a company I have known since its start in Syracuse. The founders worked hard. They went through multiple iterations of their project until it became a company that in turn, was able to raise millions from private investors from around the country. Density, has built a device with an API to access how many people have visited a specific location. From hospitals to homeless shelters; coffee shops to corporate campuses, Density helps people make better use of their space.

I’ve seen another path. I joined forces with a few experienced entrepreneurs that wanted to take lessons from previous startups – successes and failures – and apply them to create a company. In just over 12 months, Odd Networks has more than $1 million in revenue. Odd Networks, another Upstate company, has built a platform that allows anyone to launch their own video streaming app on devices apple tv, roku, and xbox. It’s like WordPress for TV.

These cycles take time. Patience is needed from both the entrepreneurs as well as the community. The old saying goes “Rome wasn’t built in a day.” Neither was Silicon Valley or emerging tech hubs in New York City and Los Angeles. Those regions saw numerous failures along the way. Yet, instead of giving up, the failures propelled them to improve what they were doing and try again. They could do that because a startup itself wasn’t the goal.

We too often view failure as the end; instead failure is the opportunity to learn and take steps to success.

In Central New York, we hear about metrics to represent success and justify more private or public investment. The equation is:

More Startups = moving in the right direction.

This is not so. More startups simply means that more people are attempting to create companies that could someday become a successful business. This can pollute the community with a lot of noise.

A New York City investor once told me that they received 1,000 business plans a year. Less than 1 percent were worthwhile. They believed that by widening the funnel, they would be able to gain access to more fundable companies, and in turn increase their success. The result was the opposite. They started getting thousands of plans a year, but the quality deteriorated. They spent most of their time looking at and talking to companies they would never fund.

Programs, incubators, and accelerators are a result of demand.

More accelerators and more members of the eco-system as described in the example above doesn’t mean more quality. It can mean less quality and more quantity. I ran programs locally and tried both models and in both instances I still found the total number of investable companies went unchanged, while the number of plans and time spent on program creation multiplied.

I have observed this ecosystem in action for years and wondered how people could claim success simply by completing a cycle. That would be like saying I wanted to win a marathon, but celebrating when I finished in last place. Success should be measured by tangible results, not by going through the motions.

Finding ways to learn from our mistakes and ending programs when they have outlived their worth can be a way to help our entrepreneurs learn and make the funding we do have to support them be spent more efficiently. Both of my earlier examples showed churn and failure.

More startups and more programs are not a negative, nor are they a positive. They should instead be viewed and reviewed as lessons to improve the local economy, rather than measurements of success simply because they exist. Effort is not success; failure transformed is.

In Central New York, we too often view failure as the end. Instead, we need to see churn and failure as opportunities to learn and necessary steps to success.


September 30, 2016 / by / in , , , , ,

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