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Saturday, September 29, 2012

Why big companies fail to innovate...

This goes straight to an old argument my father and I always get into. He comes from a VERY BIG company backgroud (Emerson Electric, Norden, Rafael), and I'm an entrpreneur who has worked mostly with small, nimble, innovative companies. The argument - in case you're wondering - is about why large companies almost never come up with the really big innovations.

A nice new blog series from HBR, Why Big Companies Can't Innovate, provides some good rationale in my support.

How frequent is bank failure?

Marketwatch reported on September 28th 2012 that First United Bank is the 43rd bank to fail in the US this year!!!

First United Bank is 43rd 2012 U.S. bank failure

However, if that sounds like a lot, turns out that on average 70 banks fail in the US annually... Problem Bank List does us all a favor and track all bank failure news.

One can pull practically any and all bank failure data from the FDIC database, as an example see this table displaying all US bank failures from 1990 to date.

The FDIC maintains and regularly updates a failed bank list

The St. Louis Fed issued an interesting report on bank failures, analyzing bank failures between 2007 and 2010 but providing extensive graphical analysis of bank failures more or less from the beginning of the 20th century to date. The report is titled The Geographic Distribution and Characteristics of US Bank Failure (download).

BigThink ran a nice piece on Why Banks Fail—And Why They Fail on Friday back in 2010.

The Failure of Government Programs

If there is one entity that fails to learn consistently, it's government.

The crux of national policy for most if not all western governments over the past century has been to improve equality among their citizens (aka "voter base...").

Yet almost without fail... (pun intended...) - the result has been the exact opposite.

Paul Ormerod, in his terrific analysis of failure across all segments of government and industry, Why Most Things Fail: Evolution, Extinction and Economics , provides some telling statistics on the progress - or lack thereof - of government policies worldwide:
  • The role of the government and direct involvement in the economy has grown considerably in every western country from 1950 to 2000
  • In 2000, Subsidies for the poor, welfare, tax breaks etc accounted for almost 20% of EU countries' national income
  • Even in the uber-capitalistic US of A approximately 10% were spent on such items
  • Overall, in the EU gov't spending accounted for as much as 48% of national income - 36% in the US

    Yet equality in western nations is on the decline!

    In other words, billions and trillions of dollars are being spent on programs that are failing.

    Does it look like western governments are drawing the necessary conclusions from such failures? Are they LEARNING? Not that anyone can tell, as widely accepted economic equality indices such as the Gini coefficient continue to increase.
  • Friday, September 28, 2012

    Why Start-ups Fail

    Back in mid-2000, as the first bubble was imploding, Philip J. Kaplan wrote a wonderful little book called F'd Companies: Spectacular Dot-com Flameouts (highly recommended, and not just for the educational content, it's an amusing read!!)

    In his introduction Kaplan delineates, sarcastically - as he does so well...a paragraph full of reasons why companies fail:
    "Why'd They Fail?"
  • too early...
  • too late...
  • too expensive...
  • too cheap...
  • too big...
  • too much competition...
  • to much supply...
  • not enough demand...
  • management...

    I love Kaplan's description of management...pick up the book to find out more.

    In the next few posts we'll be going more in depth into each of the reasons above. Would love to hear more from you.

    Although is history (why??), you can still follow Philip J. Kaplan masquerading as @pud on twitter.
  • Thursday, September 27, 2012

    WSJ Reports on the top 50 startups - let's start tracking!!

    WSJ has published its annual list of the top 50 start-ups, I believe for the third year running. Titled Looking for the 'Next Big Thing'? Ranking the Top 50 Start-Ups, the annual list is gaining quite a following, and is proving to be a good predictor of future success. Ten of last year's "top 50" have already managed impressive exits, six through IPO and four through acquisitions.

    "Steiner on Failure" will be following the 2012 list to see how well this year's team fares, how many of these companies fail over time - and what we will be able to learn from their failures.

    Sunday, September 23, 2012

    Israel - Extremely Low Startup Failure Rate Reported

    As many of you know, the start-up scene in Israel is especially vibrant - for example, although it is one of the smaller countries worldwide, Israel is #3 on the NASDAQ after the US and China...

    It should therefore come as no surprise that the failure rate for start-ups in Israel is extremely low. The Israeli Central Bureau of Statistics released data on 2,047 companies operating in the realm of research and development between 2003 and 2008. The data set included companies in the following market spaces: semi-conductors, biotech, medical devices, communications, clean tech and electronic components.

    Of the 2,047 companies analyzed, 1,746 (85%) were categorized as start-ups; of these fully 1,222 started up during the term examined. Five years later, 488 of 547 companies that had ceased to exist were startups. Of the 1,222 companies started up from 2003 to 2008, only 35% had failed!

    As a comparison:
  • In Britain 33% of new businesses fail during the first three years.
  • In the US fully 55% of new businesses are out of business by the end of their fifth year of life

    For more on the success of the Israeli start-up community I highly recommed Start-up Nation: The Story of Israel's Economic Miracle
  • The secrets of my failure: Why ‘winning’ is not our natural state

    Adam Fletcher penned a nice piece on failure for Venture Village, syndicated by VentureBeat - it's titled The Secrets of my Failure.

    btw on the subject of failure in scientific research - less than 5% published - that means more than 95% fails, right? Wrong - because much of the 5% published is manipulated.

    A couple of good books on the subject of error (aka failure) in scientific research and elsewhere are Wrong: Why experts* keep failing us--and how to know when not to trust them *Scientists, finance wizards, doctors, relationship gurus, celebrity CEOs, ... consultants, health officials and more by David H. Freedman or Being Wrong: Adventures in the Margin of Error by Kathryn Schulz.

    Saturday, September 22, 2012

    Seen a good movie lately...?

    I'm sure that just like me - you've all sat through movies and could not believe some producer(s) read that script and actually put real money to have that movie made...

    Here are some thoughts from Paul Ormerod, brilliant British economist, on why movies flop:

    Why do films flop?

    Thursday, September 20, 2012

    Stat to Ponder - Percent of US Businesses Failing Every Year

    Unbelievable - fully 10% of US businesses fail annually. Wow.

    WSJ Publishes Old News on VC-backed Startup Failures

    WSJ published some old news today...according to Deborah Gage, the VC (Venture Capital) secret is that 3 out of 4 startups fail...

    News flash: 1 out of 10 succeeds...

    Rough VC stats are as follows - for each 1,000 business plans a typical VC sees:
    => VC communicates with 100 teams
    ...meets with 10 teams for presentations
    ...invests in ONE single venture

    Success stats are approximately:
    + 5-6 fail ... negative returns
    + 2-3 breakeven - living dead etc. ... zero returns
    + 1-2 minor success ... minor returns, in today's climate barely return VC investments
    + 1 raging success ... major returns, finances the whole deal

    DO THE MATH - for a single raging success a VC team has to review approximately 10,000 business plans, sit through 100 presentations, invest in ten companies and work with them for periods that can stretch out to ten years and beyond.

    It ain't an easy business - even if top firms like Kleiner Perkins and Accel sometimes make it seem like cake.

    Hello World!

    Hello World - launching a new blog on failure. It's about time.

    Here's a first take at the raison d'être:
    It has long been a given that failure is a precursor to success - if you don't try, you won't find success, but if you do try, you will inevitably fail; and you will fail far more than you will succeed. "Steiner on Failure" will allow you to understand the concept of failure, and how one can leverage failure to find more success - in life as a whole, in business, in the arts and in whatever field one may seek to develop in.