In entrepreneurship, failure is not the outcome but the process. According to related research, American Silicon Valley entrepreneurs experience about 2.8 failures before achieving success. The idea is that you need to fail three times before success follows. In South Korea, re-entrepreneurship remains a challenging task due to a societal atmosphere that does not tolerate failure. ChosunBiz sheds light on the value of 'failure' through the stories of entrepreneurs who have risen after setbacks. What have entrepreneurs learned from their failures, and how did they succeed in making a comeback? [Editor's note]
Toss, the first domestic fintech startup to be valued at $10 billion (approximately 14.6 trillion won) and enter the 'decacorn' realm, faced eight failures before CEO Lee Seung-gun launched South Korea's first simplified remittance app in 2015, a fact not widely known.
“Your time is limited. The most important thing is to have the courage to follow your heart and intuition. Your heart will already know what you truly want.”
Lee, who graduated from Seoul National University School of Dentistry and was preparing to open his practice, decided to start a business after listening to the late Steve Jobs' commencement speech at Stanford University. Realizing the changes that the iPhone had brought about, he thought, ‘Let’s create just one app.’
The first item he boldly dove into was the social media ('SNS') 'Ullablah', which records offline meetings and shares them with friends. It required that the two users' mobile phones be nearby to authenticate their meeting, prompting him to develop the proximity wireless communication technology himself. It seemed perfect, with technology patents in place and a user-friendly design. However, the download numbers did not budge.
Eight people spent over 200 million won for more than a year, only to confirm the painful fact that 'Ullablah is unwanted by anyone.'
The second item 'Dabote' was similar. There was less demand for a mobile voting app where anyone could post opinions on any issue and vote than anticipated.
The obsession with 'customer-centricity', which is the first principle of Toss's service creation, stemmed from this. He learned through failure that you must create what customers want in order to succeed.
At that time, many people were frustrated with online payments. It was common to encounter errors while going through the various processes involving ActiveX, installing various security programs, mobile phone authentication, and issuing a certificate, which often required starting over.
Amid the Hallyu craze, there were increasing calls to lift regulations on 'cancer clusters' to sell the extremely popular 'Cheon Song-yi coat' in China. This was the reason that people were excited about the Toss app, which offered a new remittance experience without the need for a certificate.
Toss was able to focus on the services customers wanted thanks to its prior failure experiences. However, in the domestic startup ecosystem, failure is still often regarded not as a 'comma' but as a 'period.'
◇After failing 10 times, sold the 11th company for 2 trillion won... dreamed of making a comeback from a motel town
According to the 2023 Small and Medium Business Administration's 'Survival Rate Status of Startup Companies', the five-year survival rate of domestic startups is 33.8%. This means that six out of ten startups go out of business after five years. This is more than 10 percentage points lower than the average of 45.4% among major countries in the Organization for Economic Co-operation and Development (OECD). Analysts suggest that this is due to the lack of a culture that embraces re-entrepreneurship after failure. This is why startup experts argue that we need to change our perspective on failure.
Among successful entrepreneurs, many have achieved success after repeated failures, much like CEO Lee. An Sang-il, former CEO of Hyperconnect, who wrote a success story with the video chat app 'Azar', is one example.
Before successfully exiting (recovering investment), former CEO An tried to start a business 10 times. From selling gimbap in subways to tutoring brokerage businesses and outsourcing business plans, every venture failed. In 2007, he founded the search engine development company 'LeviSearch' with a capital of 500 million won, getting closer to success. He rented an office in the heart of Seoul and hired employees. Soon, he was described as 'a student entrepreneur challenging Google.'
A crisis unexpectedly struck. The global financial crisis in 2008 resulted in a failure to secure investment. The approximately 600 million won in capital collected by seven co-founders vanished in an instant. After liquidating the company, former CEO An was left with only 800 million won in debt, having withdrawn money from the car, savings for a deposit, and monthly rent. He said, “I cut off contact and went into hiding because I felt I had no face to show my family and friends,” adding, “I was mentally distressed to the point of considering personal bankruptcy.”
Former CEO An did not give up. He re-attempted from a cheap officetel located in the middle of a motel town, eating and sleeping there.
He analyzed that the downfall of LeviSearch was due to a poor business model. He judged that merely following trends in item creation had been detrimental, so he started his 11th company with a different approach from the outset. He firmly designed the revenue structure and reserved funds for 24 months, establishing safeguards. Eventually, he was able to sell the company for 2 trillion won, the second-largest amount ever among domestic startups.
◇“Fear of failure”... South Korea's re-entrepreneurship rate is rather 'declining'
The fact that startups can succeed through failure is also confirmed by indicators. According to the 'Status Survey of Re-entrepreneurship Support Companies' conducted by the Ministry of SMEs and Startups in 2022, the one-year survival rate of re-entrepreneurial companies that participated in government support projects is 97.8%, which is 1.5 times the rate of new startups (64.8%). The difference becomes even clearer when the survival period is extended. The five-year survival rate of re-entrepreneurial companies is 60.9%, nearly double that of new startups (33.8%).
However, domestic entrepreneurs are shying away from retrying due to fear of failure. According to the report 'Comparison of Domestic and International Re-entrepreneurship Support Policies and Implications' by the Korea SMEs & Startups Institute (KOSI) in 2021, Korean entrepreneurs experience an average of 1.3 failures. This is less than half compared to American Silicon Valley entrepreneurs who experience an average of 2.8 failures. A survey conducted by the Ministry of SMEs and Startups on startup companies last year found that 46% of respondents cited 'fear of failure' as the main obstacle to starting a business.
The actual re-entrepreneurship rate in South Korea has been steadily declining. According to the 'Startup Company Status Survey' released by the Startup Promotion Agency last January, while the total number of startup companies steadily increased from 2020 to 2022, the ratio of re-entrepreneurial companies fell from 36.2% in 2020 to 35.4% in 2021, and again to 29.6% in 2022.
Experts agree that failure is a natural step in the entrepreneurial process.
Lee Byung-hun, a professor at Kwangwoon University, emphasized, “All successful startups share the commonality of having experienced at least one failure,” adding, “Only companies that learn practical market approaches about consumer preferences, how to secure product competitiveness, and other such lessons at the failure stage can succeed.”
Jeon Joo-hoon, a chain entrepreneur of the mattress brand 'One-Third', said, “Failure is not the mother of success,” but added, “Failure teaches us the reasons for failure.”