But none of those steps will be effective, or indeed even possible, if a more elemental step isn't taken first. It's a step that's a precondition to all the others--one that's more psychological than procedural. And it's a step that's relevant for owners of even the healthiest of businesses.
You can't truly think in terms of opportunity cost, or know when to call it quits, or look for the next business idea unless you first--
- Understand that your business is not you. "Your world has ended when the product ended," says Rick DuhÉ, who tasted fleeting entrepreneurial success in the late 1980s with his faddish soft drink, Cajun Cola. "It was your friend, it was your wife, it was your lover. It was everything. It's like you divorced your family, your god."
DuhÉ's devotion might have been pushing the outer edge of extreme, but his experience underscores a key truth: if you are to fail successfully, the most important work to be done is not procedural but psychological.
"The key to dealing with failure is differentiating between global and restricted attributions of failure," offers psychologist Berglas. He explains: "It's called the locus of causal attribution. If you make a global attribution--'The business failed because I suck'--then the failure will be devastating. But if you make a restricted attribution--'It failed because the Japanese were dumping product and I lost my VP of information systems at a crucial juncture'--then it won't be so destructive. It has to do with storytelling, and it's how you differentiate self from situation." People who have passions outside the business realm (religion, community service, fly-fishing), Berglas adds, tend to have an easier time making restricted attributions and thus reconstituting themselves, because their self-esteem derives from multiple sources.
For Ron Wilen, owner of a now-defunct chain of clothing stores in Pittsburgh, extricating his identity from his business wasn't easy. "It took some psychological work to distance myself, to say, 'This is what I do--it's something I love, but it's not who I am." Wilen advises: "Go out and talk to people, other small-business people. You need to find a way to get outside yourself, to start the process of separating yourself from your business." Otherwise, he says, choosing to let your company die means choosing to annihilate your sense of self-worth. And that, needless to say, is no choice at all.
The fire next time
So does learning to "separate yourself from your business" mean that if you create another company, you'll love it any less than the first? Probably not. "I'm just as attached, if not more attached," says Mike Campbell of his new software company. "I'm completely immersed in it again. But it's a more sophisticated relationship."
Nor does it mean that you shouldn't gamble. Says Marshall Smith, who went on to start Learningsmith, Videosmith, and Cybersmith after his Paperback Booksmith flopped, "Every time I do something, I still put all of my liquid assets on the line."
But among those who have been through a failure, there's a subtle but palpable change. It's best summed up in a comment made by one entrepreneur, which we heard repeated in a thousand variations: "It's made me a lot more cautious. Not more risk averse--but more paranoid." Or as Jeff Schwartz puts it: "You still have to have this maniacal drive to do it. But at the same time, you need these little antennae sitting out there."
The message in all these testimonials is clear: Don't avoid risk, but mitigate it at every turn. Don't resign yourself to failure, but assume it. Live in fear, but don't be overcome by it. It's a delicate line to walk--and, in a way, walking it requires a more courageous soul than does the gung-ho, damn-the-torpedoes-and-full-speed-ahead school of business. It's the difference between those who blithely march off to war certain of their invincibility and those who return to war despite already having faced its unexpected horrors. But one thing is clear: if one has the stomach for the latter, the potential payoff is enormous.
"You're equipped with a much broader sense of all the ramifications of the little decisions you make early on," says one failed entrepreneur. "There's a much higher appreciation for the downside. You come to grips with the fact that you make mistakes and that they can be big mistakes--enough to lose your house....I don't think I'm nearly as arrogant as I was. I'm more scared, and that's really healthy." He adds: "Failure is just the most powerful stuff in the world."
For example, entrepreneur Soheil Saadat says planning at his old company was so bad that he hired someone the day before he laid people off. This time around, he started with an 800-square-foot office instead of a 17,000-square-foot one, avoided fancy furniture, and has kept more cash on hand to weather the ups and downs. He uses worst-case, not best-case, scenarios as the basis of his planning.
"Going into my first company, the concept of failure was removed. It was all the pie in the sky. There was no question that it was going to succeed," says Matt Davis. "Going into this company, it was very real that that possibility existed. That doesn't mean you don't take risks--even big risks. It just means you don't take risks before you have thoroughly considered all options."
If only there were some way to tap the instructive, disciplining power of failure without having to go through it. If only it were possible to absorb what physicians call a "homeopathic dosage" of it: enough to spur your immune system, but not so much that you contract the disease.
There may not be (aside, of course, from reading this article). But Mike Campbell, for one, is glad he had to go through it. "Best thing that ever happened to me," he says. Just 18 months after his company failed, Campbell secured financing to pursue another start-up--this one taking the elegant math behind his failed optimization software and using it to build a more user-friendly application for workforce management. As a standing reminder of the reality of failure, he still carries around the eight Visa cards he used to finance General Optimization--cards that carried the $50,000 in charges he was stuck with after the company failed. These days, though, he couldn't use them to make payroll even if he had to. His new company, Campbell Software, has hit 100 employees, growing fast enough to make the Inc. 500.
