Editor's note: This post has been updated to clarify Matt Reisman's role at Rachio.

Silicon Valley likes to boast it welcomes experimentation even when it leads to failure. In reality, however, most founders of failing startups rarely point the blame on their own decisions. This lack of transparency hurts future startups, making it difficult for them to draw from the collective wisdom of past mistakes. If we don't know why most startups fail, how can future startups learn to avoid their fate?

Insights like this recently led to a startup competition with a peculiar premise: What if startups vied with each other to boast about their mistakes? Last year, nearly 100 startups registered to compete in such a contest, one sponsored not by a Valley incubator or VC firm, but the state of Colorado. The initial results suggest a promising new approach for fostering a better startup culture, based on not on bluster and arrogance, but hard-earned wisdom.

Launched by Governor John Hickenlooper last year, the Glorious Failure contest challenged Colorado companies to openly discuss their biggest setbacks. The top finalists' entries read like case studies for an MBA class:

Lightning Hybrids, creator of a cost-effective, hybrid hydraulic system for fleet vehicles, spelled out the challenges of launching an automotive startup not led by someone named Elon: "In many ways, Lightning Hybrids is going against the tide," Lightning Hybrids' VP Bonnie Trowbridge acknowledged in the company's Glorious Failure submission. "We're hydraulic when the focus of most in the automotive field is electric. And we're a small company in Colorado when most of our competitors are in Detroit with the Big Three."

Rachio, creator of a wireless, smart irrigation system, described the setbacks the small company experienced when it came to building the actual product: "We quickly built a working prototype but soon learned about the costs and complexity of hardware manufacturing," Rachio co-founder Matt Reisman confessed in his contest entry. "We hit a wall. We would need market and technology validation before we could attract outside capital, but would need outside capital to reach validation." (Reisman has since left the company.)

Double Helix, a startup spun out of the University of Colorado at Boulder, develops and sells 3D imaging technology, and found itself courted by a global firm within the first few months of launching. "Partnering with this company would put Double Helix on the international map before its first birthday!" wrote Leslie Kimerling, Double Helix Co-Founder and CEO, in her company's entry. However, during negotiations, she went on, "we found that the company's primary interest lay in gaining access to the technology rather than a longer term ramp/joint product development relationship." In a move that illustrates how success can seem like failure and vice versa, the company declined the partnership offer: "We believe that the company and its future investors will benefit from a more organic approach to growth."

The Glorious Failure prize ultimately went to Rachio and its founder, Matt Reisman, who had to engage in some painful soul searching to submit his company's entry: "It's often hard to understand failure, and even harder to look at it honestly," as Reisman put it, "Failure can be incredibly hard to admit, to ourselves, let alone the entire world. I've found this to be particularly true as a founder of a company that is a personal vision and an extension of ourselves."

For their honesty, Rachio and his company collected $50,000 in cash and $25,000 in-kind services. "The money allowed us to finish build a working prototype to demo and gave us the ability to promote our pre-order campaign," he tells me. "That got the snowball rolling down the hill for us. We now had validation that customers wanted it, and they were paying for it."

But Rachio says the COIN contest itself helped the company above and beyond those monetary prizes: "It opened things up to the community to not only learn from our own personal lessons, but also from each others'. It forced us to really think through what we could have done differently and to become more comfortable with being transparent about the lessons I've learned the hard way. Looking at our failures at that time played a huge role at motivating us to keep going."

As for the company's product, Matt adds, "We have our sprinkler controller on the shelves at Home Depot's across the country and they've been getting great reviews."

Imagine what would happen if Silicon Valley's startup culture took a clue from Colorado. Maybe if California startups also competed to be more transparent about their own failures, we might see them deliver more long term successes.

Published on: Sep 22, 2014