What can entrepreneurs learn from failure? Would you believe how to succeed?
It’s absolutely true, according to many who’ve felt the ache of losing a small business, but have learned from the experience.
“What did Thomas Edison say? ‘I failed my way to success,’” said Carmen DeHart, regional director of the Missouri Small Business & Technology Development Center at the University of Missouri-Kansas City. “Failure can be a catalyst that drives us to success, because it’s constantly in our rearview mirror. We either embrace it or fear it, but it still moves us.”
About half of new businesses don’t last five years, but it’s not easy admitting failure in a survivor-biased culture that celebrates achievement—and rarely wants to discuss the unattractive alternative.
Still, dealing with failure is important.
“If you run away from your failures and never learn from them, you’re going to make them again,” said Nathan Kurtz, whose online lawyer-referral startup, LegalSonar, didn’t survive. “So be willing to take an honest look at it and learn from it.”
Founders of small businesses that didn’t make it did just that at “Fail Night,” an open-mike event that Kurtz organized earlier this year at the Kauffman Foundation, where he is manager of entrepreneurship. Scarred but smarter entrepreneurs got up in front of an audience to share their stories.
“It was phenomenal,” Kurtz said. “Here’s why: We had people get up and talk about their failures, which is something Kansas City, I think, generally lacks. There’s just not a platform for it. What’s amazing is no one who’s still ashamed of their failure is going to get up and talk about it. No one who’s failed, and isn’t going to try again, is going to talk about it.
“So the people that got up wanted to deal with this and help other people to not make the same mistakes. There were people almost in tears. There were people who said, ‘Hey, I’ve never told this part of the story before, and it’s so weird going back through it again, but, man, here’s what happened.’ And you could just see the weight lift off their shoulders.”
‘We Thought We Knew What We Were Doing’
In the summer of 2011, Kurtz and business partner Diana Kander launched LegalSonar, which created a website that allowed people to use their social media contacts to get referrals for lawyers.
“We were the first company to build its platform to have a second-connection visibility on Facebook,” Kurtz said. “Just like on LinkedIn, you could see your connections and whether your friend had a friend who was a lawyer, so they could tell you about him.”
But Kurtz and Kander soon discovered a major problem: they weren’t attracting enough eyeballs to the site.
“We had no trouble finding lawyers,” Kurtz said. “They were paying to be on the site. But their expectation was that, for the monthly fee, they should get X number of users a month. Even though we never set that expectation, they assumed it was going to be a feeder for a lot of users, and we couldn’t get enough users. So the lawyers weren’t likely to renew after a year, and when we realized that, well, the model wasn’t going to work.”
About a year after starting LegalSonar, Kurtz and Kander called it quits and laid off their seven employees. That hurt, but the insight they gained help ease the sting.
“We thought we knew what we were doing,” Kurtz said. “But before we tried to create a solution, we should have validated that our assumptions were indeed correct, that there was a big enough problem, that we knew exactly who our customer was and that we knew we could get this whole thing put together.
Deciding to end LegalSonar sooner than later was actually a success within the context of a failure, said Kander, a serial entrepreneur who is a senior fellow at the Kauffman Foundation.
“We said, ‘We could keep throwing money at this for years, and it’s not going to get any better, so we’re going to cut our losses and stop wasting money,’” Kander said. “But it wasn’t totally devastating, because this is a totally normal part of business. And we have resources left over so that we can go pursue other opportunities.”
In 2013, Kander and Kurtz went on to sell another venture, KR Legal Management, which generated millions of dollars in revenue.
Kander has also written her first novel, “All In Startup,” which is to be published in June. The story takes place in the world of professional poker, which she likens to the world of entrepreneurism—neither of which is really about gambling, she said, but rather about taking calculated risks.
In It to Win It
Entrepreneurs have to be in it to win it, but also in it to learn from failure, according to DeHart of the Missouri Small Business & Technology Development Center at UMKC. Her team provides one-on-one coaching to entrepreneurs.
“They’ve got to go through losses to win,” DeHart said.
“Failure seems so finite, but if you’re entrepreneurial, if you’re innovative, you have constant failures before you get to that
success. They become so wise coming through that. It’s probably the best learning they get.”
DeHart urges her clients to write a comprehensive business plan, even if it takes multiple revisions. Failing to have such a plan, she said, is one of the most common causes of business failure.
“You have to have a plan of researching and understanding your target audience, your marketplace and your financials,” she said. “Are you actually going to have cash flow? Do you really have a well-defined marketplace? Have you looked at your competition, and are you going to have the advantage? A lot of times we see folks not taking that honest look, because it’s hard sometimes to really look inside ourselves.”
After a 30-year corporate career in information technology, Henry Grayum totally believed in his business plan for the fine-chocolate shop that he and his wife opened in 2010. And, at first, all seemed to be going to plan.
“Virtually everyone who came into the store loved the product,” Grayum said. “They commented on how wonderful our service was and how beautiful our store was. Everything was wonderful but our sales. Our sales were dramatically lower than our plan.”
The reason: “Not enough people knew about us,” he said. “And we were unable to fund an important marketing campaign.”
In early 2013, after two and a half years of struggle, Grayum closed his shop. But the experience exceedingly sharpened his entrepreneurial savvy.
“I’m just so much wiser,” he said. “I feel so much more confident in my ability to negotiate, to see multiple opportunities where maybe I wouldn’t have seen them before, to understand how things work with purchasing, who’s going to do your payroll, who’s going to do your accounting, who’s going to come clean out your grease trap in your kitchen.”
Grayum is now working as a small business consultant while continuing to look for another entrepreneurial opportunity. As a graduate of the Kauffman FastTrac NewVenture program, he has returned to speak to the program’s students about his hard-won lessons.
“What I tell people is to stress-test your financial plan,” Grayum said. “Do your research. Talk to competing businesses. Get those numbers as sharp as you can get them. And then ask yourself: what if my sales are only half of that? What am I going to do?”
To Palo Alto and Back
Ryan Bennett wanted his startup LivThis.com to live large in Silicon Valley. So in 2010, he left Kansas City for Palo Alto, Calif., where he rented office space and hired a team to develop his website into a social wish list to save items and automatically share them.
“I developed some really cool features and products, and people started using it,” Bennett said. “And three or four months later, all of a sudden, we see some of our users starting to drop off. I looked into it a little deeper, and it ended up that Pinterest was doing the same thing as us. And I started seeing our users switch over to Pinterest.”
Bennett tried to salvage his site’s most popular function—the ability to share saved items with friends—by offering it separately to entrepreneurs running e-commerce sites. But that didn’t go well, either, when users began doing comparison shopping and sharing the information.
“The e-commerce stores were going, ‘Whoa, whoa, we don’t really like that—don’t share that socially,’” Bennett said. “And that was kind of the whole point.”
Out of money, Bennett shut down in 2012 and returned to Kansas City. He’d given it his all, and he felt surprisingly empowered.
In many startup communities, he said, “failure is actually a badge of honor, because it shows that you’ve been through the trenches and you came out somewhat OK. And I see it that way.”
These days, Bennett is doing more than OK. Last year, he began selling his latest startup product, Idle Smart, an engine start/stop device that automatically reduces overnight idle time and keeps batteries charged for truckers who live in their cabs. This business is “doing real, real well.”
Failure simply needs to be appreciated, suggested “Fail Night” facilitator Kurtz, who hopes to schedule another confessional of the unsuccessful later this year.
“One attribute that defines a healthy entrepreneurial community is how it deals with failure,” Kurtz said. “The turnout and participation at this event is a strong sign that Kansas City is supporting entrepreneurs and learning lessons together. It’s a powerful state for Kansas City’s community.”
