Failure is rarely fun. But it can still teach us things! Here are four lessons we’ve learned about entrepreneurial failure from the incredible stories in the first four episodes of SPI Media’s newest podcast, Flops.
This post contains minor spoilers, so if you want to avoid them, just hit play on one of the track players below, or go find Flops on Apple Podcasts or wherever you like to listen.
All right, on to the lessons from failure!
Failure Lesson 1: If It Seems Too Good to Be True…
(from Episode 1: “The Pyramid Scheme” with John Vuong)
In the inaugural episode of Flops, SEO expert John Vuong joins me to discuss a big mistake he made in his twenties, when his ambitious, risk-taking personality led him down a path to ruin.
John got caught up in a pyramid scheme that lost him $100,000. Thankfully, he was in twenties, with a full-time job, and managed to escape bankruptcy and put his life back together with the help of his family and friends.
On the surface, the scheme, which involved selling bulk paper products to generate lucrative returns—looked a little too good to be true. But John was charmed and hoodwinked by the scheme’s mastermind.
“He was always selling me. He was always saying the right things at the right time, providing me proof,” John explains.
But as John later found out, that proof—bank statements, invoices—had been forged, and the whole business was just a lie designed to take people’s money.
As John says, “If it sounds too good to be true, it probably is.”
As an entrepreneur, it can be tough to be vulnerable and share our struggles with others, especially when dealing with an embarrassing failure. But as John says, one of the best ways to avoid and manage huge failure is to “surround yourself with really, really good people.” Here’s how to avoid the entrepreneurial isolation that can lead to loneliness and bad decision-making.
Failure Lesson 2: When You’re in a Hole, Stop Digging
(from Episode 2: “The Rock-Bottom Beach” with Colin Clapp)
Colin Clapp found out how easily pouring yourself into your business can cloud you to the reality that it’s just not working.
In 2016, Colin and his partner, Evie, were living in New Zealand with their toddler. Colin was working as a business coach/consultant, and Evie was doing social media marketing for the owner of a local business that delivered organic produce to people’s doorsteps.
She was trading her marketing expertise as a barter for his fruits and veggies—an arrangement that was working out nicely for the little family.
Then one day, Colin was home when the weekly delivery arrived.
“I opened the door and I saw this bedraggled, frazzled man on the doorstep, who I knew was a father of two kids. And I was a father myself, and I just looked at this man, and I just wanted to help him,” Colin recounts.
They went into business with the owner, with Colin creating systems to streamline things, while the owner was responsible for driving sales.
But for whatever reason, the owner couldn’t keep up his end of the bargain. Colin and Evie soon found themselves in a deep hole, with insufficient cash flow to keep the business afloat.
They knew the business was in a tough spot. The problem was, Colin was unable to grasp the extent to which the partnership was failing.
“We were digging a hole, but when you’re in a hole with enthusiasm, you don’t know. You’re the last person to see it.”
And it wasn’t just their financial health that was suffering. Colin and Evie were drained mentally, emotionally, and physically, too. But like many stubborn, ambitious entrepreneurs, Colin was determined to stick it out.
It wasn’t until a phone call from a concerned friend, and a midnight walk to a deserted beach, that Colin was finally able to see the predicament for what it was.
Failure Lesson 3: Don’t Chase the Money
(from Episode 3: “The Hotel from Hell” with Tina Cheesley)
Like John in episode 1, Tina Cheesley let her ambitions get ahead of her. And like Colin and Evie in episode 2, she found herself and her family in a hole as a result—a hotel-sized hole.
After a successful run renovating houses, Tina and her husband, Alan, decided to leap into the big leagues. They found some business partners, and bought a house near a local airport that they planned to turn into a hotel.
As they embarked on this massive project, they saw a ton of upside—a fully completed forty-one-room hotel that would provide a healthy stream of income for years to come.
They had also structured the business to maximize their income. In many countries, including the UK, a partnership is a legal structure that provides tax advantages (i.e., money savings). For that reason, Tina and Alan opted for a partnership instead of something like a limited liability corporation (LLC).
The hotel was going to be, as Tina puts it, “my cash cow.”
But they weren’t fully considering the downside. If the project were to fail, the partnership structure would leave them liable for a potentially huge loss.
The money chase had blinded them from seeing the worst-case possibilities of their business plan. In the end, Tina and Alan lost about half a million pounds—almost $700,000.
In their defense, luck and timing weren’t on their side; they couldn’t have foreseen the Black Swan event of the 2008 crash and recession that followed.
But even without a global economic disaster, Tina and Alan’s downside exposure was still significant. A different business structure, like an LLC, could have softened the blow by reducing their liability. But they still would have been in for a rough landing.
Tina and Alan aren’t the first entrepreneurs to focus on the monetary upside of a project and become blinded to the downside as a result. Read about Pat’s experience with “chasing the money,” and what it taught him.
Failure Lesson 4: Always Sign a Contract First
(from Episode 4: “The Case of the Missing Contract” with Trudy Rankin)
Trudy Rankin has spent much of her professional life helping others find jobs and create businesses.
In 2015 she was consulting for an organization called Vision Australia, which helps people who are blind and partially sighted find employment. After helping an intern monetize his blog, Trudy saw an opportunity to help more blind and partially sighted folks create income opportunities.
So she took her idea to the CEO of Vision Australia, who was excited to try it. They set up a pilot group of would-be entrepreneurs eager to learn how to use the internet to build their businesses.
The pilot was a hit, and Trudy kept working with Vision Australia for two years.
Eventually, her success caught the attention of an organization in another country that wanted to replicate Trudy’s model.
Trudy was excited about expanding her program—and the organization was enthusiastic about it, too.
Says Trudy, “They were just keen as mustard to run this same program.”
Unfortunately, amidst all the enthusiasm, getting a plan in writing became a lesser priority for Trudy.
I’ll let you listen to the episode to hear what happened next. But let’s just say that sadly, in the world of business, someone’s word is often only as good as the paper it’s printed on.
More Stories of Mitigating and Navigating Failure
As an entrepreneur, failure is going to happen, but you can still do your best to avoid the worst kinds. I hope these entrepreneurs’ experiences of failure have given you an idea of how to sidestep or navigate similar scenarios in your own business-building journey.
For more lessons from big failure, tune in to Flops—subscribe and get new episodes on Wednesdays via Apple Podcasts, Spotify, or wherever you listen.
Originally published on Smart Passive Income.