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Why a Failed Startup Might Be Good for Your Career After All

by Ozva Admin

In August, mega venture capital firm Andreessen Horowitz announced a $350 million investment in residential real estate company Flow, the largest investment the VC titan has ever made.

But a bigger surprise than the investment amount was the person who received it: Adam Neumann, the charismatic but controversial co-founder of WeWork, who resign as CEO in 2019 after a failed initial public offering amid questions about its business practices.

“The market values ​​the experience they have and rewards them in terms of high seniority, high-prestige positions, even if they have failed.”

Why would the venture capital firm risk supporting an entrepreneur with a questionable track record? A recent article might contain the answer. Entrepreneurs emerging from early VC-backed failure often see their careers accelerate in their follow-up work, as highlighted in Failing Right: Assessing the Careers of Venture Capital-Backed Entrepreneurs Through a Non-Salary Measure.

After leaving their startups, these entrepreneurs land jobs about three years longer than their peers, according to research. The findings suggest that companies value the expertise of entrepreneurs, who often have their hands in most aspects of the business: operations, marketing, finance, communications, and product development. Clearly, general management skills win the day, says one of the paper’s co-authors, Paul A. Gompers, who is the Eugene Holman Professor of Business Administration at Harvard Business School.

“The market values ​​the experience they have and rewards them in terms of high seniority, high-prestige positions, even if they have failed,” says Gompers.

The investigation comes at a time when Americans are taking more risks, with a record number of people quitting their jobs and many starting their own businesses. While some of those startups are typically doomed to fail, perhaps the findings provide a welcome boost: Entrepreneurs aren’t just getting back on their feet after a failure, they’re actually moving higher up the career ladder.

The research challenges previous studies that found that entrepreneurs who failed early in their careers often took jobs with lower pay than their previous roles.

“That literature portrays failure as a stigma,” says Gompers. “It can make you think that if you start something and fail, people won’t want to hire you.”

In addition to Gompers, the study’s co-authors are Natee Amornsiripanitch, an economist at the Federal Reserve Bank of Philadelphia; George Hu, a graduate student at Harvard University; Will Levinson, research associate at HBS; and Vladimir Mukharlyamov, an assistant professor at Georgetown University’s McDonough School of Business.

Measuring success from 5 million resumes

The researchers focused on entrepreneurs backed by venture capitalists, but faced a challenge from the start. How do you measure the success of workers in different roles in industries as diverse as technology, finance, and academia? Who is more successful: a tenured university professor or a partner in an insurance company? Traditional measures of career success, like compensation, may not tell the whole story.

So the researchers devised their own methods to measure success, drawing on a collection of 5 million resumes in the Emsi Burning Glass Profile Database, which collects work history and education data from various public and private sources. Combined with data from Dow Jones VentureSource, the list was broken down into 14,000 venture capital-backed company founders who listed a post-startup job. Failed startups were defined as those acquired for less than the full investment or those that were active but had not received funding in at least three years.

The researchers developed a concept of seniority to define success across industries based on specific job titles and the number of years it took to achieve them. For example, the title “software engineer” received a seniority rating of 2, meaning the average person earns this title two years after graduating from college. That person’s boss, a “senior software engineer,” has a seniority level of 7. A CEO has a seniority level of 16.

A second part of the paper used salary and seniority measures to compare the career paths of venture-backed entrepreneurs before and after launching their startup, relative to the career paths of cohorts of non-entrepreneurs who graduated from the same level. college at about the same time and got first jobs that have similar seniority levels and were in the same industry.

The conclusions discussed below hold true even when the career paths of venture capital-backed entrepreneurs are compared with “pre-founding cohorts” of non-entrepreneurs. That is, a group of non-entrepreneurs who graduated from the same level of college at about the same time holding jobs with the same seniority level who were also in the same industry as the entrepreneurs before they started their venture capital-backed companies .

Jumping up the corporate ladder

The results offer a detailed look at rungs on typical career ladders, offering a new blueprint for how to move up faster:

  • Successful founders go further than most. Successful founders had higher tenure gains, advancing about three years in their next job, than founders of failed companies, advancing two years.
  • When the jury is out on a company, founders still do well. Founders running companies still active (not yet determined as a hit or miss by the project sample end date of 2021) received a two-year seniority gain when they continued.
  • Founders’ careers progress more in the long run. Founders on average reached career level 20 over time, while non-founders reached a maximum of 10. Only 20 percent of workers reached level 20 or higher.
  • Founders’ careers progress faster before founding. Even before founding a new company, founders tend to reach higher positions in the workforce than similar non-founders. The median founder reaches a seniority level of 13 immediately before founding, while a similar non-founder reaches a seniority level of 9 during the same period.
  • Founders make more money. In addition to attaining more important and prestigious positions, founders also tend to earn more than non-founders throughout their careers. Before founding their startups, founders land jobs with wages up to 40 percent higher than similar non-founders. This pay gap between founders and non-founders only widens after founders re-enter the workforce after leaving their respective startups.

“It’s probably not surprising that founders are exceptional people, who were very successful before they started their company, so they can probably convince people to give them money,” says Gompers. “Adam Neumann’s story fits perfectly into this. You can lose billions of dollars and still do well.”

Taking time for reflection could help. in ainterview Last year, WeWork co-founder Neumann said of his experience: “I’ve had a lot of time to think, and there have been multiple lessons and multiple regrets.”

Some risks are worth taking

Research can be important to business professionals. First, Gompers believes it could encourage more business leaders to consider taking risks when starting a business, allaying the concerns of those who feel failure could hurt their career aspirations or have devastating financial consequences for the family.

“If we look at places where failure is stigmatized, the quintessential example is Japan. Japan has a very, very small entrepreneurial ecosystem.”

Second, the message that a startup failure can provide valuable experience for entrepreneurs is a valuable lesson for companies that might otherwise punish the leader of a company that went off the rails.

“You have to value that experience, and you have to reward that experience so that people want to do new businesses,” says Gompers. “If we look at places where failure is stigmatized, the quintessential example is Japan. Japan has a very, very small entrepreneurial ecosystem.”

New iterations of the document using some 150 million LinkedIn resumes are in the works to expand the study. “Our article clearly shows that taking risks when starting a new business pays off in the long run, even if the startup itself is ultimately unsuccessful,” says Gompers. And in a separate study on career advancement, Gompers is comparing the careers of intercollegiate college athletes with those of non-athletes. (Spoiler alert: Athletes are more successful in their career.)

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Image: iStockphoto/mevans

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