Entrepreneurs don't like to think about it. They almost never want to talk about it. And they never seem to plan for it.
Failure.
It is a word that is even hard for this entrepreneurship blogger to type.
I bumped up against ithe topic of failure in a recent post I wrote about worst-case planning.
When I see worst cases presented in most business plans, they are almost always not the worst case scenario. They are most often a less optimistic variation of what the entrepreneur thinks will actually happen. The real worst case should be this: if things don't go as planned and the deal fails, what is the outcome for investors and lenders?Entrepreneurs seem to operate under the assumption that if they don't plan for failure, it can't happen. If they don't ever address the real worst case, investors and lenders won't think about it.
Failure is a fact of life for entrepreneurs. Only about half of all start-ups last five years. When it happens, it hurts. Some describe it has humbling, while others would characterize it more as humiliating.
Ben Cunningham passed along a blog posting that got me thinking about entrepreneurial failure. It is an interview with a social networking entrepreneur whose venture failed. Colorado Startups blog ran an interview with Derek Scruggs, founder and CEO of The Enthusiast Group. Here is what he learned from his deal's failure:
If you have a business idea, show it to as many people as possible. Most ideas aren't very good, so it's good to get outside feedback very early in the process so you don't waste your time on something that doesn't work. And recognize that they may be wrong too. We got lots of positive response to our business plan, but that didn't translate into success.In the course of showing your idea around, you will meet a lot of sharp people and build relationships that will pay off years later. I moved to Boulder in early '99 after 12 years in Chicago. For the first year or so I was kind of lazy about meeting people, but since then I've been a networking maniac.... That paid off bigtime when we started looking for investors, and now that I'm forced to look for a job it's an even bigger help.
Entrepreneurs need to think of failure in its proper perspective. This requires reflecting honestly about some hard questions.
Why did the business fail? Were there things that were in my control that in hindsight I see I could have done better or differently? Was this a business model that failed, or was it a failure of me as the entrepreneur? What can I take from this failure to help me in my next venture to improve my chances of success?
Did I have integrity throughout the downward slide of my business? Did I compromise my values and ethics for the sake of the business? Did this failure help strengthen my character or take me down a path that I am not proud of?
Why did we consider our venture to be a failure? After all, every business has a life cycle. Nothing is forever. So while the business was operating, how was it successful? Was the end of this business really true failure, or simply a deal that ran its course?
I find it a big challenge to talk about failure with today's young entrepreneurs. The Millennial Generation has been insulated from failure by their helicopter parents. They are in denial of failure to a degree that at times can be alarming. I have had to find ways to expose them to failure. It has become one of our goals for our experiential learning.
We have our students work through a cash flow exercise that presents the students with a situation that is, in a word, hopeless. They want me to change the rules. They search for solutions to avoid the inevitable. But soon they realize that the critical lesson is how they act in the face of failure -- did they act with character as they made decisions for this dying business?
Again, from the interview with Derek Scruggs:
Companies come and go, but relationships usually last through several companies, jobs and sometimes even spouses. Cultivate those relationships and you'll find happiness whether your company fails or ends up being the next Google. The journey is the reward.
That is a healthy view of failure. And more importantly it reminds of what is true success. That a lesson that all of us can learn from.
