Famous failures…

The stories abound of entrepreneurs who struck it rich “overnight” yet spent years making mistakes on their journey to success.  Walt Disney had a failed production company and was labeled as “lacking in creativity”. Thomas Edison was expelled from school and told he was too stupid to learn anything. Steve Jobs was fired by the company he helped to found after launching two products which lost millions for Apple. Bill Gates’ first business was Traf-O-Data and failed miserably. Arianna Huffington’s second book was rejected by over 40 publishers and she only garnered 1% of the popular vote when she ran for Governor of California. However, she went on to found the wildly successful Huffington Post and believes failure is part of success. 

A very current example is the Real Real. This is an e-commerce consignment shop for luxury resale. The founder, Julie Wainwright, began the company in 2011 from her kitchen table visiting customers with a U-Haul trailer. She had five prior start-ups, all failures, including Pets.com in the dot com days. The Real Real raised $288 million in venture capital funding in 2018 and rumor has it, they are on track to do $1 billion in revenue with an IPO in the near future. 

Fortunately for their customers as well as themselves, these entrepreneurs did not give up. They retooled, revisited, continued to forge forward and became huge successes. 

Containing risk…

One of the keys to surmounting failure as a business owner is containing risk. Entrepreneurs tend to leap before they look and do not spend a lot of time planning for the ‘what if’s’. Or they may plan for a downside scenario but not a steep decline or deep burn rate.

We have one client who should have fired his accountant (or the accountant should have recused himself) once he opened in Hong Kong. The accountant was not experienced in foreign taxes and the client ended up with a $5 million tax bill several years in to running their overseas operation. This happened to coincide with a very public, expensive lawsuit and the combination was almost the death knell for this third-generation family business.

Recently, I spoke with an entrepreneur who was on track to hit $150 million in revenue, opening up additional stores to hit 16 locations several years ago. He relayed to me that he had run worst case scenarios for reduced sales and increased expenses. But he had not planned for a trifecta of calamities which hit all at once forcing him into bankruptcy after 30 years of running a successful enterprise.

The key to longevity in any business is surviving through the tough times. Access to capital is critical. A friend reached out to see if I could help a friend of hers. He has a business in the food and beverage area and has financed his receivables but does not have capital to expand and add more lines or add to distribution. He is stuck and without something to collateralize a loan, no one is lending to him. Prepare for that sudden store by having an unused line of credit, excess funds in the bank or another pocket of funding should cash flow dry up is necessary.

Recognizing the signs of a slowdown or a problem with production, quality, landscape, the economic environment, etc. is also critical. All too often, we see business owners allow a slide in revenue to get worse before attempting to correct the course. 

Making hard decisions…

If you have run a successful operation for years and have loyal team members, it can be very difficult to make tough decisions when business goes awry. We have a pending client who is fourth generation and the current CEO is launching new initiatives with no tracking or specific goals, strategy or measures for success. Sales are down over 12% through Q3. They are also losing key employees at an alarming rate. The other family members are concerned but getting the ship back on track is not going to be a simple matter. It is quite possible that an outside CEO should be hired. 

Cutting staff is often something that must be done if the economic environment has shifted or your products are being surpassed by newer models from competitors. Getting lean and mean is easier said than done. Very often, we are maxed out with our roles and overseeing the big picture. The thought of cutting employees and having to pick up the slack can be overwhelming when business goes the wrong way. 

Outside advisors can be one of the best uses of capital even though it may seem an “extra” expense at a time when the business needs to conserve cash. We find so many entrepreneurs cannot “see the forest for the trees” so an outside advisor whether business consultant, coach, human resources experts, fractional CFO are just a few examples of advisors who can help the owner take stock and make decisions to get business back on track.

Failure does not have to be fatal but to survive and ultimately prosper again, the entrepreneur must minimize failure to one part of the business, abort a new product line or venture, add top line and bottom line to core business and work to be lean as well as nimble.