Many argue that entrepreneurs succeed because of their confidence. “Fake it until you make it,” will get you you there, they say. At what point should an entrepreneur look in a mirror and face the facts—that their business is failing?
On Tuesday, June 23 in the Penthouse at One East Avenue in downtown Rochester, an audience of over 80 gathered to hear the lessons learned as told by a handful of local entrepreneurs. Failure Sessions, presented by the Entrepreneurial Special Interest Group of Digital Rochester, brought together three brave entrepreneurs, Pete, Zach and Larry, to share their stories of meteoric rise and fall. (We’ll omit their last names and businesses to maintain some anonymity.)
Interestingly, all three of the stories shared a common theme: the unfailing self-confidence of the entrepreneurs and the missteps they took when they refused to face the truth—that their businesses were fizzling.
Pete started a business young and ran into many obstacles, as any entrepreneur would. His tech company received a sizable amount of funding, and all things were going well—his was a success story. With a seeming surplus of funding, Pete thought it was time to expand his business by hiring additional employees and opening new offices. He, blinded by his status as a successful entrepreneur, spent money on a wide range of things without first ensuring his revenue model was well in place. Meanwhile, he ignored signs that his business was overspending.
Lesson 1: Have a plan to grow your business at a pace that suits your burn rate.
Says Pete: “While you bring in money, make sure that you have plans to sustain the amount of money coming in.”
Zach shared his story of taking on too much too fast, resulting in hasty, poor decision making. While consistently working 14-hour days, Zach came to a fork in the road: let down his customers or sell to a more powerful owner with the liquid cash to support their immediate needs. Exhausted and focusing on getting out, he sold his company without taking the time to properly consider the terms. His loyal customers went underserved by the new management, and Zach ended up with a raw deal. He proceeded to spend several years disputing the acquisition contract signed after the deal went awry.
Lesson 2: Use caution when selling or negotiating collaborative contracts.
Says Zach: “Know who you are getting into business with and what your contract says; don’t make the easy choice unless it is also the right choice.”
Larry started an online business in the peak of the Dotcom bubble. Highly successful with over 40 employees and a strong cash flow, his company was operating unaware that the industry was about to hit a wall. While Larry felt this change coming, his investors told him not to worry and to maintain pace in hopes of finding an exit before the bubble burst. When the market crashed, his revenue and profits did too. He had to close his business.
Lesson 3: Pay attention to your instincts about what’s coming next.
Says Larry: “It’s never a good idea to risk everything when you can feel the timing isn’t right.”
Failure causes introspection; it allows people to take a step back and examine what went well and where missteps were made. Regardless of how much confidence an entrepreneur has in their businesses success, sometimes too much confidence can get in the way of reality.
Dance deftly on the line between confidence and reality, and you will surely maintain your footing—business intact—at the end of the day.