Failure has important lessons for entrepreneurs

Groupon launched as a social activism platform, designed to help people connect and take action in a common cause. After a year of effort and US$1-million, it was pretty much a disaster. So the founders re-tooled their offering into a pay-up-front discount offer service that was a wild success.

If at first you don’t succeed … relax. You’re not alone. Failing is often the only way to success.

Around 100,000 businesses are launched each year in Canada. Upward of 15% of them will fail within the first 12 months; only half will make it to their fifth birthday.

Bleak? Alarming? An entrepreneurial crisis? Of course not. It’s more like business as usual.

As a startup entrepreneur, it can be terribly hard to have to pack it in. Most live in crippling fear of their business not surviving.

“Every entrepreneur feels it. It’s like life and death, and it’s utterly pervasive,” says Jonathan Bixby, executive director of the Vancouver-based business incubator Growlab. “Trouble is, they’re usually the last one in the room to realize it’s time to give up.”

We see it at the Business Development Bank of Canada (BDC) as well, with the startups we help get off the ground. And while we never like to see a venture fail, we fully understand how daunting the realities of taking a brand new business from concept to customers can turn out to be.

When a startup fails, the single most important thing an entrepreneur can do is look for the  inevitably lessons revealed. Failure is not only inevitable for some companies, but it often results in better, more focused and more efficient re-tries down the road — 35% of Canadian entrepreneurs will try again at least once, while 60% have started between two and four other businesses.

Serial entrepreneurs learn to successfully live with the risk of failure, and they tend to become more savvy as a result, which significantly increases their chance of success with a subsequent venture.

That “try, try again” approach is critical to ensuring Canada’s business pool will generate enough winners to keep the economy growing. Business resilience — whether it’s making a course change that translates into turnaround, or taking a new plunge after an outright failure, is not only an essential quality for long-term success — but it’s being embraced across businesses of all sizes.

The “lean startup” methodology now being taught in leading business schools essentially calls for entrepreneurs to move fast, listen to your customers, refine your offering, and if it still doesn’t fly then cut your losses and get out quickly. Engaging your target customers early — even before you’ve worked out all the bugs, with the “minimum viable product,” as it’s known — can offer the best possible feedback and, if you’re nimble enough to adapt your strategy in response, it can make the difference between success and failure.

Groupon launched as a social activism platform called The Point, designed to help people connect and take action in a common cause. After a year of effort and US$1-million, it was pretty much a disaster. So the founders pivoted, and re-tooled their offering into the pay-up-front discount offer service Groupon ultimately became, using a pizza place in their building as the first test case. The response showed they had found the way to motivate users into action — a vastly different approach from the initial concept — and Groupon became the fastest company in history to book US$1-billion in revenue.

Whether they experience a near-miss or an outright turn-off-the-lights business failure, entrepreneurs who can apply the hard lessons and endure to fight another day are demonstrably better equipped for success down the road. How you play the game really does affect whether you win or lose in the long term.

Canada’s business culture needs to be more understanding when it comes to failure; to change the mindset and recognize that it is not the end, but part of the learning pathway toward genuine success.

If we want Canadian entrepreneurs to stay in the game, we have to change the perception. As bankers, when we see prior bankruptcy on a credit report, we need to resist the temptation to walk away from the deal and instead ask the entrepreneur what they learned from the failure. We need to view those scars as a sign of experience and determination against the odds.

When we teach our children to walk, we know they’re going to lose their balance and fall more than once. Business resilience – and especially the increased adaptability and willingness to pivot, re-evaluate and re-tool — must similarly be embraced and celebrated.

As the speed of movement from concept to customer continues to increase exponentially, Canadian businesses need to recognize that the road to penultimate success inevitably will be that much windier and feature more than a few potholes. But the determination to absorb the shocks and recalibrate your course — or even scratch what you are doing altogether and start over — is increasingly being recognized as part of the new normal in today’s startup environment.

From Financial Post