This week gave us a spectacular tech failure, with the Shadow Inc. app that basically ruined the Iowa presidential caucuses. But tech failures aren’t always considered a bad thing in Silicon Valley. There’s a mantra here — fail fast — that suggests you should try things quickly as an entrepreneur and move on to the next thing with lots of great lessons in hand.
But even though most startups do fail and can be celebrated and not punished, most companies don’t plan for failure or think about what happens to their customers, data or intellectual property. In fact, many companies in the tech industry actively deny that they’ll ever cease to exist, which might be bad for business.
I spoke with Arielle Pardes, a senior writer at Wired magazine who’s written about this recently. The following is an edited transcript of our conversation.
Arielle Pardes: There is certainly a world in which startups have a, think of it like a prenup for your company, and you plan for that possible outcome. There are plenty of examples of companies — Picturelife is one that springs to mind — that have offered cloud storage for people’s photos. What happens when those companies run out of money and can’t pay for server space? Everyone’s photos disappear, and that’s a really unpleasant experience to have as a customer. So whether the way you plan for that is having a little bit of extra cash to make sure you have the runway to give your customers fair warning and notice, thinking about it is the most important part. Then what actually plays out is probably a little bit of a case-by-case basis.
Molly Wood: Once companies mature, is there any evidence that that becomes a part of their planning or they get better at thinking about their own ends?
Pardes: I think, in a sense, thinking about your own end is also thinking about your next pivot. Companies that are big are only big because they’ve managed to do something that serves a need right now. But even in the biggest companies, eventually that need is not useful. Think about Kodak, for example. Thinking about your own end might be less about planning your own funeral and more about predicting where you go next.
Wood: Could venture capitalists be saying to potential startup CEOs, “What’s your worst-case scenario here?”
Pardes: My sense is that, as a result of the chaos at companies like WeWork and with firms like SoftBank, investors are starting to think a little bit more about these end scenarios. How it will affect startup business models or the way investors choose to invest I think really remains to be seen. What’s definitely clear is that every startup will die, even the big ones, eventually, so planning for that is prudent not just for the companies, but for the investors as well.
Wood: We talked about photo sharing, but there are obviously much bigger companies even since then, like WeWork, that have imploded. Can you give us an example of how a company failing can can have a big ripple effect on society?
Pardes: I think on the consumer side, there’s a very emotional impact to services or products being discontinued. One of the examples I bring up in my piece is this wave of home robots that all went out of business last year. There are some great, really heart-wrenching stories of consumers who are stuck with these hunks of plastic in their homes that they have an emotional connection to, but no longer are supported by the companies. Then, I think in a broader sense, you can think about scooter startups. There are lots of scooters startups that have crashed and burned within the last year. Who’s left picking up all of those scooters that are littered across major cities? Well, that’s the public. What happens when a major company like WeWork implodes? It’s not just the company that’s affected, it’s everyone who partners with it — business developers, real estate developers, janitorial and custodial staff. It’s much broader than just a set of investors and founders who are flying away on their golden parachutes.
Related links: More insight from Molly Wood
On the topic of companies that may be headed for failure, we’ve been following news about Clearview AI, a facial recognition company that has put together a huge database of billions of photos that it scraped from Facebook, Twitter and Google. It also has been selling access to police departments around the country. The company’s founder went on CBS this week to argue that he thinks Clearview AI has a First Amendment right to grab public photos. He compared what it does to Google, but according to CBS, Google and subsidiary YouTube have both sent cease-and-desist letters to Clearview AI, as well as Twitter.
This raises concern over Clearview AI being forced out of business as a result of all this scrutiny, or being sold to another company, or having to pivot. The fact is, it’s sitting on a database of something like 3 billion photos. What happens to that? Worst-case scenario planning can get a little dark sometimes.