Never Fear: Entrepreneurship Is About Failure

One fundamental problem in reinvigorating Japan’s entrepreneurial economy is a misapprehension of the nature of entrepreneurship, and the factors that lead an individual to become an “entrepreneur.” While in the last blog, I mentioned how entrepreneurship is a mindset that everyone should embrace, today I will concentrate on the venture-building aspect of entrepreneurship, which Webster’s defines as “one who organizes, manages and assumes the risks of a business or enterprise.” The key phrase in this definition is “assumes the risk.” Entrepreneurship is all about the willingness of individuals to assume risk — and their ability to calculate and mitigate against it. Not the blind willingness to just “take risks” as many tend to associate (incorrectly) with the definition of an entrepreneur.

In evaluating a business plan, although we might be able to discern something of its promoters’ awareness of risk and their readiness to contend with it, no amount of “process” will eliminate it. We must embrace failure as a factor required for success.

As only 18% of entrepreneurs in the U.S. succeed with their first venture (Gompers et al., 2008), many, if not most, only achieve success after repeated failure. Thus, entrepreneurship is as much about failure as success. Its essence is a capacity to accept the fear, the reality and, above all, the lessons of failure. This capacity is required of the entrepreneur and – critically – everyone surrounding him or her: spouses, in-laws, bank managers and peers. Without this capacity to accept failure, a grant from government to become an entrepreneur represents a poisoned chalice.

As an entrepreneur who has started ventures – successful and otherwise – in both Japan and the U.S., in this regard I can testify to a profound divergence in attitudes between the two nations. While Americans tend to have high regard for individuals who succeed by taking risks, there is a corresponding tolerance for those who try bravely but fail. In Japan, by contrast, as Robert Kneller wrote in a July 2000 article in J@pan Inc. magazine:

“Failure is regarded not as a valuable learning experience but as a sign of ineptitude or moral turpitude. Family members are likely to be ostracized. Credit ratings are ruined. Obtaining a housing mortgage or renting an apartment becomes impossible.”

In fact, failure is only such if it is not taken as a learning experience and one builds upon what was ascertained to correct and try again. Since we are born, we have failed continuously at many things (walking, riding bikes) but have eventually learned to overcome them. However, just because we have become adults doesn’t mean the process stops.

From this observation, one might attempt to hypothesize an inherent flaw in Japanese civilization, to say that Japanese somehow lack entrepreneurial DNA. If so, how could one account for two outbreaks of unbridled entrepreneurial vigor in the nation’s modern history?

Both in the Meiji Era (1868-1912) and following Japan’s defeat in 1945, Japan’s development was propelled by surges in entrepreneurial activity that created what are now the nation’s largest companies. Post-1945, due to wartime devastation, even established firms were effectively “restart-ups.”

Even without offering a comprehensive analysis of Meiji versus post-war entrepreneurship, in both instances it is evident that Japan’s established order was disrupted and that the barriers to assuming risks were lowered.

In both periods, disorder created an atmosphere of opportunity. In Meiji, a new-found sense of freedom encouraged entrepreneurs to assume risks. Post-war, it was hunger and desperation that lowered the barriers to assuming risk. Prospective entrepreneurs had nothing to lose. They started with nothing – but nothing stood in their way.

In this hungry environment, people like Masaru Ibuka and Akio Morita, the founders of Sony, were not deterred by the absence of government grants.

Beyond dispute, the Japanese have enormous latent entrepreneurial effort. But set against it is a corresponding societal instinct to smother anything that moves in bureaucratic process; to eliminate anything that smacks of disorder, randomness or risk. The result is unparalleled excellence in manufacturing but stunted entrepreneurial energy.

This gives rise to a disturbing notion that Japan grows like a forest in which new saplings can only emerge once fire releases the seeds from pine cones and allows sunlight to reach the forest floor. Although perhaps an effective mechanism, it requires undue suffering among ordinary people.

So how might Japan learn to grow without burning its entire structure to the ground? In my next post, I’ll look at some practices that need to stop in order to start up a reinvigorated entrepreneurial economy.

William Saito
Special Advisor at Cabinet Office (Govt. of Japan)
Named by Nikkei as one of the “100 Most Influential People for Japan,” Saito began software programming at an early age and started his own company in high school. By the time he was named Entrepreneur of the Year in 1998 (by Ernst & Young, NASDAQ and USA Today), he was recognized as one of the world’s leading authorities on encryption, biometric authentication and cyber security.

After selling his business to Microsoft, he moved to Tokyo in 2005 and founded InTecur, a venture capital firm and consultancy that identifies innovative technologies, develops global talent and helps entrepreneurs become successful. In 2013, Saito was appointed a Special Advisor to the Cabinet Office for the Government of Japan.

Similarly, in 2012 he served as a council member on national strategy for the Cabinet-level National Policy Unit, and prior to that, was named as the Chief Technology Officer for the Fukushima Nuclear Accident Independent Investigation Commission (NAIIC). He is a Foundation Board Member at the World Economic Forum (WEF), and has been named by the WEF as both a Young Global Leader and Global Agenda Council member.

Saito also advises several national governments around the globe. In Japan, he has also served as an advisor to METI, MIC, MEXT, MLIT, AIST, IPA and the Japan Society for the Promotion of Science (JSPS), among others.

He teaches at multiple universities, serves on several corporate boards, appears as a commentator on national TV and is the author of numerous publications in addition to writing a weekly column for a prominent Japanese business newspaper. His best-selling management book, The Team: Solving the Biggest Problem in Japan, was published by Nikkei BP in 2012, his follow-on book, Is Your Thinking up to Global Standards?, was published by Daiwa Shobo in late 2013 and his autobiography, An Unprogrammed Life: Adventures of an Incurable Entrepreneur, was published in 2011 by John Wiley & Sons.

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