Decoding and learning from a business failure

Have you experienced a business failure? Are you currently at risk due to events you cannot control?

Not all companies are successful. Your end game could 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: Why did an entrepreneur fail? And then: What lessons were learned from that failure?

You will have “seen the movie before”

One VC I know calls this entrepreneur someone who “has seen the movie before” and even if it was the investor’s money lost as well, he spends time questioning the entrepreneur on lessons learned, often praising the person for having figured out the issues leading to the failure.  Investors learn too, and often invest in a failed entrepreneur a second time if believing that those lessons have been well learned,

Success can teach lessons too

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, of COVID-based markets drying up, and with the knowledge that 50% of all startups fail anyway within a few years of formation, there is a lot of learning to be had out there.

What questions should you ask?

[Email readers, continue here…]   Questions you should ask 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 miss the chance to pivot based upon rapid market changes?” “Did you seek outside guidance?” “Was this a failed idea from the start?”

Blaming failure on undercapitalization or…

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

The economic environment changing downward

Add the economic environment to the mix of reasons for failure, including jolts such as the Great Recession of 2007-8 or COVID’s devastation to travel, retail and other personal experience-based businesses.  Sometimes a failure is out of a business leader’s control, such as mandated stay-home orders from city, county or state authorities during the COVID crisis.

But sometimes, a failure comes from the investor side

Occasionally the investor does not fulfill those promises, even if in documents optimistically created at the start. This risk is especially dire when relying upon individual investors experiencing their own problems during a recession.  There are lessons to be learned about reliance upon outside investors, including your too-early use of investment funds, or your irregular communication with investors until needing money, all to be gleaned from such experiences.

Failure as an opportunity?

So, consider a failure as an opportunity. Some entrepreneurs 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.

How about you?

Have you experienced a business failure, or are feeling like your boat is being controlled by the tide no mater what you do or did?  If this is a current risk, can you pivot?  If in your past, can you analyze and learn to explain the reasons for the failure?

What about next time?  Now, that’s a question for anyone experiencing or having experienced a negative outcome.  We are mostly a bunch of optimists.  Let’s rely upon that to drive us all forward, no matter what the course to be navigated.

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