Learning From Failure
April 17, 2020
There hasn’t been a lot of positive economics or business news lately. Between the millions filing for unemployment and the jaw-dropping daily losses on the Dow, many of hard-working Americans are ailing.
As a venture capitalist who’s spent much of my career investing in innovative startup ventures, what pains me most about this situation is knowing that the COVID-19-born economic downturn will prove fatal to many small businesses and newly minted firms. Innovative entrepreneurs who’ve worked hard and played by the rules will fail at the hands of the epidemic and its recessionary wake.
Yet, I urge entrepreneurs not to give up hope. After two decades in the VC business, I’ve come to realize that, in the eyes of an investor, past failures act more like prerequisites than disqualifiers. While I’d never encourage entrepreneurs to take uncalculated risks, every successful businessman has failed at some point. In many ways, failure is inseparable from the process of innovation.
There are ways, however, to fail and how not to fail. Be graceful, acknowledge defeat and look toward the future. Don’t chastise business partners or burn bridges.
Here are some of my tips on how to fail right and how to parlay failure into future success.
Own it and Learn from It
People often react to failure by simply shutting down. They block it out of their heads, refusing to think about what happened or to analyze what went wrong.
But a successful entrepreneur looks for the opportunity in failure. While losing a business is always heartbreaking, stepping away and refusing to conduct a postmortem will just make the situation worse. If you’re going to fail, you might as well own it and use it as an opportunity to examine what went wrong, what you did well, and how you can adjust your model for the future.
Owning failure is also key to preserving relationships with business partners and investors. Sure, it didn’t work out this time; but that doesn’t mean you’re consigned to failure in all future ventures. Your partners today could be your partners or investors down the line. Never unnecessarily burn a bridge.
Don’t Hide it from Future Investors
Just as you should be forgiving of your current partners, you should be forthcoming about your failed venture with future investors.
The conventional wisdom is that failure is a good way to get yourself blacklisted with venture capitalists. Reality, though, couldn’t be further from the truth.
While venture capitalists always engage innovators with proven track records of success, that true innovation is a process and the best strategic partners are those who have experienced—and learned from—past failures.
Think about it this way:
All entrepreneurs have failed at some point. But if you’ve failed in the past and have learned from your mistakes, the odds are slim that you’ll repeat those same missteps should I invest in your company – which puts my mind at ease.
What you shouldn’t do is cover up your failed former venture. Just be honest. You won’t scare investors away, rather, you may just attract them.