Why start-ups need to die

There’s a lot of excitement when a start-up is launched, but there’s considerable unhappiness and sorrow when it fails. There’s often a lot of soul searching and recrimination as to why it failed. What went wrong? Who was to blame? What could have been done to salvage it? 

This is especially true when the startup has burnt through a lot of money, and there’s always tons of finger pointing at the time of the post-mortem. Not only does the failure cause personal and emotional pain, it’s also considered to be very wasteful, because so much money has gone down the drain. 

Mature entrepreneurs will step up and take responsibility for the failure because the start-up died when they were the CEO; while others will try to pass the buck and find someone else to blame. Either the investors failed to support them; or the external environment was not favorable; or the competition indulged in predatory pricing; or they were too early, and the market conditions weren’t right.

I think we need to understand that start-up failure is not a bad thing. The truth is that start-ups are designed fail! Not all of them, of course, but obviously, the ones which are not able to compete efficiently deserve to fail. 

Remember that this is the way the capitalistic system has been designed. The rule is survival of the fittest, and start-ups need to compete in order to earn the right to win. Especially when an area is “hot”, you will get a rush of entrepreneurs who want to enter the field. They will usually have very similar ideas at the same time, as a result of which they will start start-ups which seem very similar to each other. This is why we see a spurt of “me-too” start-ups every few months in the industry which happens to be the flavour of the month (right now, it is AI). Since the market is not big enough for all of them, a few will grow; some will stagnate; while the majority will die. 

Let’s not forget that if a start-up needs to become a market leader, it needs to earn market share by crushing the competition. After all, if one company needs to become big, the others need to fold – this is what Schumpeter’s creative destruction is all about! 

The start-up space is fiercely competitive, and we need to accept this. This is true, not only for entrepreneurs, but for investors as well, which is why so many of us end up losing our money. 

However, there’s really no need to mourn the demise of the start-up. Yes, the financial loss hurts, but we need to understand that this is part of the natural history of start-ups

It’s a bit like the life and death of a human. We’re all excited when a baby is born; and we all mourn when someone dies, but the truth is that death is as much a part of life as birth is, and we need to learn to take both of these in our stride. 

Now I’m not trying to get all philosophical here – it’s just that the sooner we accept reality, the easier it will be for us to live with this fact of life. In the big picture, this is actually more efficient for the economy. Start-ups are small experiments, and the financial loss caused when they fold is much less than when a large company goes belly up. By contrast, socialism forces us to keep inefficient dinosaurs like Air India alive by putting them on expensive life support, when it would be much kinder to kill them, and allow more effective alternatives to take their place.

Yes, start-up failure does cause short term pain, but instead of mourning their demise, we need to imbibe the lessons the failure teaches us, and move on, so we can do a better job the next time. 

(The opinions expressed in the article are the author’s own and do not necessarily reflect the views of 1Crowd.)

Author: Dr. Aniruddha Malpani

About the author: Dr. Malpani is a consultant IVF specialist, who runs one of India’s leading IVF clinics at www.drmalpani.com, along with his wife, Dr Anjali Malpani. They have founded HELP, the Health Education Library for People (www.healthlibrary.com), which is India’s first Patient Education Resource Center. Dr. Malpani has authored many books, including: How to Get the Best Medical Care; Successful Medical Practise; Using Information Therapy to Put Patients First; and Patient Safety – Protect yourself from Medical Errors which are available free at www.thebestmedicalcare.com . His passion is patient empowerment; and he believes that using Information Technology to deliver Information Therapy to patients can heal a sick healthcare system.

Dr. Malpani is an active angel investor ( www.malpaniventures.com), commentator, writer and blogger. He is also a member of the investor community on 1Crowd.

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