Sooner or later, every TED Talker and self-appointed thought leader will expound on the subject of failure: how failure is essential, how to embrace it, even how to celebrate it. Many of them will trot out the old bromide "When one door closes, another one opens" to encourage you to see failure as opportunity. Hey--they're motivational speakers. What are they supposed to say? Go sulk in your room for a year?
What I might say is, "If you're not failing, then you're not working hard enough." My first company didn't exactly fail as much as it flailed. The business never grew enough for me to take a day off, so that seemed like failing. Statistics tell us that almost everyone starting out in business will encounter failure--a done deal. And yet entrepreneurs launch millions of companies--Americans filed paperwork to start 4.3 million businesses last year, according to the Census Bureau, a 24 percent increase over 2019--a testament to the fact that we're an incredibly optimistic bunch.
Being an optimist is great. I speak from decades of firsthand experience. But other qualities are equally important if a founder is going to be successful, and chief among them is the willingness to take full responsibility for whatever vicissitudes befall the business, because only then can you learn from them.
Too Much of a Good Thing
Not long ago, the research firm CB Insights delineated the top 12 reasons that startups fail, according to their founders. Guess what came in at No. 1: "Ran out of cash." Ha! Who are they kidding? Lack of money is not the problem; it's a sign they need to dig deeper to find what's really wrong.
If anything, too much money is the problem. For some time now, we've been in a sellers' market for anyone pitching ideas. Even the flimsiest structures can generate bidding wars, as in the recent real-estate market. So if you can't raise cash under these conditions, with money gushing out of VC checkbooks like water from a fire hose, then your problem isn't a lack of cash, my friend.
Could there be some other reason? The report said that "No market need" came in at No. 2. Again, who are they kidding? Yes, that constitutes a legitimate cause for a product's failure, but clearly this product should never have been attempted in the first place. The problem isn't "No market need," but a lack of honest market research prior to launch by you-know-who.
Market research is not to be confused with asking your friends and family whether they think your product is a good idea, because they're likely to tell you what you want to hear. Yet that is as far as many young entrepreneurs want to go. If you want to make sure your idea has traction, then you need to talk at length, and then talk some more, to people who know the market but don't give a fig about you personally: Make cold calls, make warm calls. Get into the field and talk to potential customers.
Then get some decent prototypes for your product and seek objective opinions from the people in your target audience--and listen to them, especially when they find fault. One of the best examples of this exercise that I've heard of was in the engineering program at Northwestern University, which requires all freshmen to take a class in potentially unsolvable problems. Students work in teams to design and fabricate devices that help people with specific disabilities do simple tasks, such as a user-friendly locker for adults. The clients don't hesitate to tell them when they've failed. But by failing in this way, the students not only learn teamwork, they also gain humility and resiliency in the face of rejection, and responsibility.
What amazes me is that of all the people who come to us hoping for money and leave empty-handed, only about 10 percent ever follow up asking why they were rejected and how they can improve. But when they do, we're more than happy to help them increase their chances with the next interview.
Which brings us to the No. 3 reason founders cite to explain their failure: "Got outcompeted." By whom? Amazon? What do you expect when you sell on its site? That it'll serve you tea and crumpets? But maybe you weren't outcompeted by Amazon. Maybe the culprit was the overseas contract manufacturer that stole your intellectual property and ran with it. Or maybe it was the fact that you leaped without looking into an overcrowded field, where lots of other companies are all vying for the same customers. In each of these circumstances, the outcome could have been avoided if you'd done your research first and not simply gone along with the crowd.
The study presented other reasons founders offered for their failure, including things that maybe couldn't have been foreseen: for example, disharmony among team members, which happens all the time, no matter how sure you are that it would never happen with you. And regulatory or legal challenges, which can crop up, no matter how scrupulously you try to prevent them.
But my favorite founders were the 8 percent who blamed their startup's demise on "Poor product." Whose product is it, anyway? It didn't wander into their business off the street and ask for a job.
Besides presumably being optimists, almost all the founders surveyed seemed to have one thing in common: They all deluded themselves about why they went bust. Whether they claimed it was bad timing or a flawed business model--how about no business model?--the real reason nearly all of them failed was simple: They didn't do their homework.
Maybe they didn't know any better, or maybe they ignored advice they were given out of overconfidence--I certainly have been guilty of that. It doesn't really matter at this point. All that matters is that they learn from the experience and move on.
Learn from Others' Mistakes, and then Make Your Own
So what have I learned over a lifetime of working and making mistakes? That first company I mentioned earlier is still in business more than 20 years after I offloaded it. Plenty of people would see that as success. I don't, but the mistake I made then was to keep slogging away, year after year, trying to grow the business. From that I learned that whenever possible, fail as fast as you can. Don't spend years of your life chasing a venture that's never going to get you where you want to be. Pay attention when you start having doubts. If something isn't going to work, you should be able to sense that pretty quickly.
At Big Ass Fans, I--not we--made plenty of mistakes. A few that stand out: when I approved a product that was too complicated; when I OK'ed spending way too much on social media advertising; and when I decided we should jump into the smart-home sector before the customers did.
Now, when founders come seeking money and advice, I urge them to make sure their product not only solves a problem but also is easy to understand. I tell them that the customer acquisition cost for Facebook advertising is very, very steep, and that it's easy for Facebook to get the credit for other marketing successes. And I also caution them to tread carefully with new technology. The early adopters make up a small percentage of the public, and you can get into trouble when you try to appeal to them.
Starting a business is exciting. But it is also a huge responsibility and a constant education in what not to do. You really learn how to run a business by being wrong, not by being right. And whether you succeed in the end ultimately depends on how hard you're willing to work-- and how often you're willing to fail.