Failure is the best teacher

“The road to success is paved with failures” is an oft-quoted truth of entrepreneurship. Or as Thomas Edison allegedly put it: “I have not failed, I’ve just found 10,000 ways that won’t work.” 

It is an inevitable part of the life of an inventor – and most entrepreneurs.  

And most of us learn more from our failures than our successes. The really smart ones learn from other people’s failures, too. 

I’ve been directly involved with half a dozen start-ups over the past 40 years – in Norway, Sweden, Singapore and Australia. Some were successful, others less so. My first – a company that developed the world’s first hand-held point-of-sale terminal for restaurants – celebrates its 35th year in 2020 and remains a leading provider of point-of-sale systems in Scandinavia and Europe. 

Back in the mid-noughties, I started a company that was going to change the way people bought mobile phones and plans in Australia. After the initial euphoria and market acceptance we hit the not uncommon roadblocks of needing more funding just as the global financial crisis hit. 

Timing is important in business, too, but that’s a different story. We went broke. These are some of the lessons I learnt. 

Get advice from others, and listen to it. 

Mistakes are made in every startup. It is not admitting to or acting on those mistakes that can end up being costly. Entrepreneurs are by definition blinkered. Carrying the vision forward is your job. Removing obstacles and meeting any challenge front-on is a prerequisite for success. 

It is easy to see those well-meaning comments and opinions on your venture as distractions, and I know I certainly did a lot of the time. Challenging as it may be, listening to other people can be the difference between success and failure. The point is not about right or wrong, but about being able to constantly evaluate and analyse the business, the market, the products and the money and people that you need around you to make it happen. 

It doesn’t mean you’ll act on all of the advice you get, but another perspective is rarely wasted. 

Establish a well-functioning board (of advisers) 

Failing to establish a board of people that can provide strong advice from day one was one of my biggest mistakes. I was happy that the board “took care of itself” as many of the shareholders were keen to be involved as directors. 

Having shareholders on your board is fine, but being a shareholder doesn’t in itself qualify anyone for a board position! Whether you are setting up a formal board of directors or an advisory board, make sure it consists of people that have diverse experience in areas related to your venture, and that they are prepared to challenge your wisdom and question your plans. 

As a matter of fact, having an advisory board can be much more useful than a formal board. It is much easier to recruit competent people to contribute as an adviser rather than as a director. Being a director carries considerable responsibility and associated risk, an informal advisory board can be much more useful – unencumbered by risk and fiscal responsibility. 

Investors don’t necessarily agree with how much money you need 

Another reason for not having a board dominated by investors is that it may well cloud their judgement when it is time to raise more capital. Particularly if things aren’t going exactly to plan in the early stages, and they never do. You may find resistance to getting your board to raise sufficient capital for the next stage at a reasonable valuation. “Reasonable” may well be below the initial expectations that you set, and the fear of being diluted can easily lead to irrational decisions being made by a board consisting mostly of your shareholders. 

Don’t put a value on your business – the market takes care of that 

There is no such thing as successful entrepreneur who hasn’t, at one time or another, had an eye on the pot of gold at the end of the rainbow. But whatever expectation you have, reality will be quite different one way or another. 

When presenting your idea and your vision it is all too easy to dazzle the audience with the size of the market, the uniqueness of the product, the future growth curves and the substantial profits to be expected within a few years of starting up. 

Importantly, the investors that “buy” your numbers are in all likelihood not the investors that you want. A savvy investor will make their own assessment regardless of what you say, and valuation (surprisingly for many) is relatively low on their list of investment criteria. And if they do decide to invest, the value of your business is merely what they are prepared to pay, plus some room to negotiate, of course. 

The really savvy investors will use their own knowledge, network and valuation tools to assess your business opportunity. 

Numbers mean nothing until delivered 

The reason publicly listed companies shy away from giving too specific revenue and profit guidance to the stock market is that it creates an expectation that cannot be undone once published. 

I am not for a moment advocating that you should not budget, but focus on budgeting for what you need to get the business to break-even, then double the expenses and halve the revenue. 

Avoid setting lofty budget goals for what you’ll achieve in two or three years. Starting up a business is all about focusing on what needs to happen now to fulfil your vision for tomorrow. And a vision that is too focused on numbers doesn’t have the depth to be taken seriously. 

At Howitt & Co we focus on a range of factors when we assess the potential of a business, valuation and budgets are a relatively insignificant part of that analysis. Having been involved in dozens of start-ups and early stage companies, as well as a plethora of mergers and acquisitions, we’ve also learnt the hard way what success looks like. Not the least of which is a meticulous attention to the right details – more on that in part 2.