New product ideas and entrepreneurial start-ups are famous for their massive failure rates. In the high-tech industry, startups are taking off and failing all the time. But rather than hide in embarrassment at their failure, some entrepreneurs are pivoting their business plans in alternative directions to give new life to their most innovative ideas.

The founders of Fabulis thought a review site and social network for gay men would be a hit. But the company never earned any profits. Undaunted, these same founders re-emerged with a new company, Fab.com, repositioned as a high-end e-commerce site. The fabulous site attracted 175,000 users and generated $60,000 in sales on its first day; it now enjoys 1.7 million members and $50 million in venture financing.

The emerging trend seems to be that financiers are investing in the team of entrepreneurs, rather than their specific idea. If the team decides that the original iteration of their idea is not good enough, it has the freedom to change direction, and financiers continue to provide support.

For some teams, this model provides all the trappings of success even before they succeed by any traditional measure. The photo-sharing application Color allows people to share photos with others nearby; it failed nearly immediately as a stand-alone app. As a Facebook service, it still has been slow to gain users or increase its popularity. And yet the team that came up with the idea already has received the remarkable sum of $41 million in first-round financing.

Discussion Questions:

1. What do entrepreneurs learn from their failures?

2. Why do financiers grant funds to unproven ideas?

Source: Jenna Wortham, “In Tech, Starting Up by Failing,” The New York Times, January 17, 2012.