What is the definition of failing over the long term? Losing.
I recently had to spell this out for an inexperienced entrepreneur who considered his string of failed ventures proof I should back him -- as if they were badges of honor. He believed failing is like earning a point. Accumulate enough, and you deserve success.
For an entrepreneur, there is no more dangerous outlook. Failure comes from having tried, and no accomplishment comes without, as Theodore Roosevelt said, being “in the arena.” But no one wins simply by virtue of having lost. Failure isn’t pre-greatness. And it’s not enough to apply what you learn. While that’s smart, certain failures can put you out of business.
While the following three areas didn’t bring us down, they could have, had not forces beyond our control aligned.
1. Pick the right investors.
A strategy is only as right as your backers. And right does not mean deepest pockets. It means venture capitalists (VCs) who believe in you and want a long-term partnership -- not just return on investment. Early on, as a team of four, we pitched a Seattle-based VC, who was powerful at the time. There we were, chief scientist, tech lead, my co-founder and I. We all knew the co-founder and chief scientist were moving on but wanted to help us raise more funding first. Though we’d gotten term sheets elsewhere, we really wanted this VC, who had AT&T and Microsoft connections.
After our presentation, the team said they were enthusiastic but had “some thoughts.” And those thoughts were: Your (half-engaged) chief scientist should run things, and that tech lead (who really was running things) needs to go; your co-founder (who was returning to finance) should be CEO while you, Tasso, might direct business development.
You know what? No, thanks.
If you have any inkling that a potential investor doesn’t love you as a leader and entrepreneur, do not take their money -- unless you want them to walk away with your company or force you into wrong decisions. We already had a few terms sheets before this meeting, but if we hadn’t, signing would still have been worse than not getting a dime.
2. Build your team the right way.
I wish we’d invested five years ago in a detailed training, growth and promotion plan rather than simply rewarding accomplished employees with more responsibility. We’ve spent the last year creating career ladders and management training, but we unnecessarily lost great people and opportunities along the way.
Shame on me. I’d seen it happen earlier in my career, when superstar contributors got promoted to completely different work. They had great ideas and follow-through, but lacked experience coordinating a team, motivating other people to get things done.
We wasted time by not addressing these issues when experimentation would have been faster, affected fewer people. I made one of a leader’s worst mistakes: I assumed no news was good news. I should have dug for these issues, asked questions. Because without doing right by the right people, you have no business. Period.
3. Minimize dependencies.
Acquiring customers is outrageously hard -- you have to generate awareness of your product, then convince people to part with their money. Partnering for distribution makes sense. We went this route, selling our mobile safety software through wireless carriers.
Great plan, right? It worked, but some of that was timing. What we underestimated was how many obstacles come with depending on entities that are practically small nations. Decisions about opening application programming interfaces, releasing product and marketing to end users aren’t yours. Internal politics, magnified at mammoth companies, can delay progress while your lifeblood hangs in the balance.
Don’t think that with the right partners that distribution is free. You’ll wait three to five times longer to get things done. And if your burn rate’s too high, you’ll run out of time.
Ultimately, entrepreneurs should consider failure one of two possible outcomes of small tests. Did that pitch work? That launch marketing campaign? That new product feature? If you think failing to choose the right funders or business plan or human resources approach will just require a pivot to be fixed -- guess again. Give yourself credit as a human for picking yourself up after a big startup loss. But that won’t mean you’re a successful businessperson. In business, you only get credit for winning.