Business Failure — You Do Have One, Don’t You?

There’s an idea among some venture capitalists that no entrepreneur is investable if s/he hasn’t already had a business failure. The idea is that someone who’s already done it may better recognize the million little pieces of evidence leading up to an eventual failure. The understanding is they’ll be more sensitive to those signals when they notice them the second time around. They’ll be more likely to try new strategies. They’ll be better stewards of an investment at later attempts.

We humans have a sometimes-toxic desire to look good. We resist looking bad or being embarrassed at any opportunity. The result is we also may have a tendency to avoid sharing or discussing facts that could be interpreted negatively. For example, we might hide information, or we might dress up a presentation or fact pattern to overstate the positive and understate the negative.

For someone who survives and learns from a failure, there is likely a greater likelihood of sharing negative information and enrolling team members to manage the situation sooner. Someone who hasn’t effectively managed through and dealt with failure may be more likely to repeat the errors of the past one more time.

There are many victims of business failure:
  • owners lose passive income and equity,
  • employees lose jobs and personal income,
  • the remaining happy customers must find a new supplier and processes to manage that new relationship, and
  • competitors must accommodate the influx of new business, without sacrificing service and product quality.
  • Can you name others?

I once had a small business, and I eventually learned I was better at running the business than selling new business. Eventually, work ran out and I went to work in a “real job” in a salaried role for a large corporation. It’s been humbling to see how much more I had to learn, to effectively share and sell a business. It’s been a wonderful opportunity to develop myself in those areas!

Later, I once started a business with relatives. I quickly realized it wasn’t going to work for me. Winding it up had a brief negative impact on our relationships.

Consider And Act

  • What failures have you had that were difficult to discuss at first, but eventually you overcame?
  • Have you ever been involved in a business failure? What were the costs to you and other stakeholders?

 

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