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Berkonomics

Failure is the greatest of teachers.

Not all companies are successful. The end game can be a failure of the business.  In fact, many angel investors or venture capitalists look for and respect the lessons learned by entrepreneurs that have survived a failed business.  The key question is how did the entrepreneur fail? And then: What lessons were learned from the failure?

One VC calls this entrepreneur one who “has seen the movie before” and spends time questioning the entrepreneur on lessons learned, often praising the person for having figured out the issues leading to the failure.  Yes, it works both ways.  A successful entrepreneur who has seen the movie before is even more valued.  But in these days of fast failures, and with the knowledge that 50% of all startups do fail within a few years of formation, there is a lot of learning to be had out there.

Advanced Berkonomics soft front cover-smallQuestions to be asked include:  “What were the major factors contributing to the failure?” “How quickly did you and your team change the plan when faced with the first signs?” “Did you seek outside guidance?”

[Email readers, continue here…]  Most failed entrepreneurs blame undercapitalization for the cause of the failed business. Investors do not like to hear this excuse, even if absolutely true. Any business can use more money.  It is up to management to scale the development, marketing and production based upon resources available.

But sometimes, that includes the promise of investment or loans upon reaching milestones, and occasionally the investor does not fulfill those promises.  There are lessons to be learned about reliance upon outside investors, early use of limited resources, and communication with investors, all to be gleaned from such experiences.

So consider a failure as an opportunity. Some will flee to safety and seek a stable job in the wake of a failure. Others, often serial entrepreneurs, will carefully think out the experience and vow not to repeat it, creating an intellectual advantage over others making their run in the establishment of a new venture.

  • Howard Elliott

    I sure have seen the movie before, and do not plan to see it again.

  • Brian Duzet

    I read these religiously…this one was right on! Thank you.

  • Garrett L. Kellogg

    The blog topic in regard to failure is very germane to those participating in the business world. Failure in business or failures in one’s own life are not always well received by others. The reason failure is not well received by and large is because of fear.

    There is a fear of failure, so to speak, in this country and its’ society. This fear, as mentioned earlier in another blog, is indeed taught well in our schools from the earliest of grades. Punishment is met out in very damaging ways psychologically and emotionally. This punishment comes in the form of exclusion from activities and being labeled as inferior to other children. To borrow the phrase, “Think Different”( Apple Computer ), is found in very few American learning institutions. For to think differently would bring us to a different place not found in text books nor in the social norms of education. The main point is not to write an essay here on the failings of the education system but to reaffirm one origin of our society’s fear of failure.

    Failure can be harsh as it can bring you to your knees and keep you there if you let it. Without failure we would not know success through evolution. Business is fluid, dynamic, and evolves in terms of many factors that include finances, markets, customers, and knowledge. The journey to success is most often not discussed in depth due to hype and unusual fawning by the media. We hear little about how the ground fell out under a business and it came close to failure or failed and had to re-organize under a chapter of bankruptcy protection. The media often writes about the successes of a particular leader in business and creates an illusion that there never was any failure experienced on any level. The media tends to portray some in business as being smarter or better than the rest of us because they have failed. Some people I have known in business have thought of themselves as lesser in terms of being a manager, company founder, or as venture capitalist.
    Sad to say, but the perception of failure as being negative is an affliction encompassing more than just those of us in business.

    What I would like to impart in this blog is that I have experienced failure in business and in other areas of my life. Some of the failures I brought on myself because I was arrogant and failed to recognize confirmation bias. There was a time where I trusted a business partner based upon his verbal promises and stupidly surrendered a lucrative revenue stream and high value IP. Now, after failing in different areas, I exercise something called failure analysis whereby I examine vulnerabilities in the various operations and aspects of my business. I have worked to take myself out as a variable in the equation for failure by conducting this failure analysis. There are some variables that cannot be quantified and there are some variables that an individual in business has no control over. Such a variable is the absence of good faith in business, government and the world. One has no control over the actions of others. The actions of others can bring us to failure.

    One last thing, while I briefly highlighted upon my failures and my remedy of conducting a failure analysis, it is necessary to highlight that this includes looking strongly at the possibility of confirmation bias in making a decision, bringing a product to market, evaluating a market and more…
    I try, through decision trees and statistics to understand the whole picture of a decision. Failure analysis is a process and it can have the downside of otherwise causing an opportunity to be missed. Nothing is fool proof and failure can occur even with the best of judgement-it is just that one failure can make a business or person evolve into greatness. The best teacher is still getting out there and doing. Maybe we should just teach our children and hold close to ourselves that we progress on a journey and there really is not a destination called success. How we handle setbacks and failures speaks more about our character and an organizations character than anything.

  • I share Harry’s concerns about both the “safety” of learning to learn from failures while in school (where the impacts are minimal – although it may not feel too minimal to the individual at the time)and in our societies shift to protect our children from failure – and competition. We certainly need to learn how to team better as well as recognize each person’s strength of contribution. However, it is through tough head-to-head competition that the greater growth is experienced and how we learn that a failure does not destroy you can best occur (you may even discover that the “failure” may be your point of greatest learning). Rarely are these fun experiences but, if handled right, becomes the “education” that makes a difference in life.

  • If you’re lucky or very good or both, you’ll experience limited failure and recover. Anyone who cannot learn from failure does not deserve to be in business.

    I’d like to take a different tack here and talk of education. Our teachers, for the most part, do not like failure or even students doing something in a creative but different way. Our children are being set up for failure in life by not being allowed to fail in school or being punished for failing instead of using failure as a springboard for learning.

    We should be setting our young people up for success in life. Part of success involves failing again and again but always getting up, promising not to make THAT mistake again, and moving forward. It’s much easier to learn that style in school than in life.

    High-stakes testing, to take one prominent example, encourages everything but learning through failure.

    Last year, my business almost failed. We worked hard to seek the causes and find remedies. We had to become more aggressive in seeking new customers and distribution channels. This year will probably be a record year in sales. Staring into the abyss can be a great motivator if you do not give way to despair.

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