In starting a business, failure is a process, not an outcome. According to related research, entrepreneurs in Silicon Valley, U.S., experience about 2.8 failures before achieving success. This indicates that one must fail three times before success follows. In South Korea, however, re-launching a business remains a challenging issue due to a societal atmosphere that does not tolerate failure. ChosunBiz highlights the value of 'failure' through stories of entrepreneurs who have risen after setbacks. What did these entrepreneurs learn through their failures, and how did they succeed in their comeback? [Editor's note]
“Statistics show that the third-time entrepreneurs have the highest probability of success in Silicon Valley. An environment that allows entrepreneurs who have experienced failure to challenge themselves again is necessary.”
On 31st of last month, Yoo Hee-sook, president of the Korea Restart Small Business Association, Jeon Hwa-seong, president of the Early-Stage Investment Accelerator Association (CEO of CNT Tech), and Yang Dong-woo, a professor at Hoseo University's Graduate School of Venture, spoke in unison.
They pointed out that South Korea's financial system, societal perceptions that do not tolerate failure, and institutional loopholes hinder re-launching businesses. They argued for the need to revitalize re-launch efforts led by the private sector.
Yoo Hee-sook, who has led the Korea Restart Small Business Association since 2015, has experienced revival and bankruptcy in her past as a film producer and has since successfully re-launched a business. She currently provides consultation and advice to those dreaming of re-launching. The Korea Restart Small Business Association conducts customized training based on the causes of failure and assists in attracting investment through re-launch investment relations (IR) events.
Jeon Hwa-seong, president of the Early-Stage Investment Accelerator Association, has a painful experience of founding SL2, the first venture on campus, while studying for a master's degree at KAIST, only to be dismissed due to military service issues. Currently, he has successfully re-launched CNT Tech and is also active as an investment-focused accelerator. Yang Dong-woo, a professor at Hoseo University's Graduate School of Venture, is a 'startup expert' who has served as president of the Korea Startup Association and dean of Hoseo University’s Global Startup Graduate School.
Why is re-launching a business difficult in South Korea?
Yang Dong-woo (hereafter Yang) “Corporate financing is centered around loans rather than investments. In the U.S. or the UK, funding is provided in a high-risk, high-return investment model. However, our financial system follows the loan-centric model of Germany and Japan. Once you fail, your credit suffers, making it difficult to attempt a re-launch.”
Yoo Hee-sook (hereafter Yoo) “There are numerous loopholes in the system. Since the loan-based support is led by institutions, it makes it difficult to recover as debt records remain. Although credit-blind systems have been created and are in operation to hide negative credit information like bankruptcy, recovery, and arrears records, they are not properly implemented since records are often kept for management purposes.”
Jeon Hwa-seong (hereafter Jeon) “The psychological factors imposed by societal perceptions are significant. After failing, entrepreneurs need to prepare for a re-launch immediately to increase their success rate, but in Korea, failed early-stage entrepreneurs choose to look for re-employment due to the scrutiny of those around them. The need to address living expenses is also one of the causes. After experiencing the trauma of failure, people tend to feel their will to re-launch diminishes as they work in stable-paying jobs.”
It seems the politically unstable atmosphere could also burden re-launching a business.
Jeon “Since the declaration of a state of emergency in early December 2024, investors have fled en masse, completely collapsing the supply and demand of our stock market. Even if venture capital firms list good companies, it is difficult to exit due to poor stock performance, making it hard to engage in aggressive investment. When investment contracts, it becomes difficult to attempt a re-launch or even starting a business rashly.”
What improvements are necessary to reinvigorate re-launching?
Yang “We need to reorganize re-launch support initiatives. Our government’s support systems for re-launching are relatively lacking compared to initial startup support. In the case of startup support initiatives, an average budget of about 2 trillion won is executed annually. Initiatives are diverse, such as the preliminary startup package and early startup package. In contrast, while re-launch support initiatives like the second-chance success package and re-launch support funds exist, their scale is small and awareness is low.
In the U.S., bankruptcy protection laws help shield the personal assets of entrepreneurs who fail in business, and the Small Business Administration (SBA) guarantees second chances for those who have declared bankruptcy. The European Union (EU) has been implementing the 'Honest Failure Protection Act' since 2014 to prevent stigma attached to re-entrepreneurs. In the UK, bankruptcy allows entrepreneurs to access loans for starting a business, facilitating funding for re-launching.
Yoo “The problem is that re-launch support is government-centric. If the private sector leads, excellent corporations can be unearthed and investment can be successfully attracted. However, since the second chance initiatives are managed by the government, often, data construction is not even done.
Jeon “In the U.S., it is common for venture capital firms and accelerators to invest in re-launches by establishing subsidiaries (company building). This can serve as a catalyst for bringing potentially promising entrepreneurs with failed experiences back into the entrepreneurial arena. Currently, in South Korea, accelerators are prohibited from company building, but as recent incidents of early-stage business closures have occurred, the government is expected to amend the enforcement decree of the Venture Investment Promotion Act to allow company building.
If you had advice for those contemplating a re-launch, what would it be?
Yoo “You need to accurately analyze the risks involved in the startup process and be prepared to address them. When I ask in lectures, ‘Do you know what risks you might encounter in starting a business?’ almost no one can answer. This has been the same for the last 10 years. Starting a business is about overcoming failures and taking a step forward into possibilities. You can only succeed if you reduce the risks. You should consider ways to lessen these risks based on the insights you gained from your first failure.”
Jeon “I hope that you establish your own management philosophy and direction through failure. In my case, I realized the importance of organizational management during the startup process and immediately reflected that, allowing me to operate my corporation stably. I hire many entry-level employees rather than experienced workers and invest heavily in leader-level training. This principle was established through past experiences. I turned what was once my weakest area into my strongest.
Yang “Remember that a failure in business is not a failure in life. Most successful entrepreneurs worldwide, like Elon Musk and Steve Jobs, have experienced two or more failures. The success probability is highest when attempting a third time. Even if you have failed, consider it as having completed 10 years of education in one go. Approach it with a light heart and make the most of the skills you've built up as you seek a re-launch.”