What You Can Learn From Business Failure
I was in the process of finishing my master’s thesis when my dad called me. He wanted to talk. He sounded serious. In my mind, I made up dozens of stories of what could possibly be wrong. As it turned out, nothing was wrong. On the contrary, he asked me if I wanted to start a business together.
We started a business in fitness equipment. Wet behind my ears at 23, I dived in. Marketing, sales, logistics, HR, I juggled it all for almost six years. In the third year, we made our first profit. I felt on top of the world.
Then competition got ahead of us. We made some bad investments. We didn’t watch our numbers properly. We hired people we thought we could trust. And then it all started to crumble.
With every crumble, a piece of my confidence was shred to bits, exposing stress and overwhelm. I had to fire all of our staff at 27, people with families whose livelihood depended on us. I failed them.
We were on the verge of bankruptcy until we sought help from our supplier. Together, we drafted a plan to get out of the mess but it would take a little over a year to do so. I lost my business and was now employed by someone else at minimum wage. I was losing control and my creativity plummeted while having to earn back what we’ve lost.
I’m not going to lie, those months were gruesome. I fell hard, especially mentally. In hindsight, it thought me some of the most valuable lessons in business and life.
#1: Always watch your numbers
It sounds so obvious, but if you are an entrepreneur yourself, can you honestly say you do this at least every week?
It’s one thing to watch the numbers, it’s another thing entirely to understand them. Hire a good accountant and go over the numbers at least once a month together if you aren’t good with numbers.
On paper, your company could be rich, but if you’re cash poor, then all alarm bells must go off. When you don’t have money to spend and start getting behind on bills it’s already too late.
Make sure your business is financially healthy at any moment and don’t depend on a deal that might fall through. That’s one of my mistakes. We were on the verge of closing a big deal which would solve all of our financial issues. In the back of my mind, I always thought everything would be fine. Until the other party pulled out.
Monitor your revenues, expenses, your net result, and above all, your cash flow. Look at your numbers every day. If you aren’t good with numbers, ask for help.
#2: Take good care of yourself
Without your health, your business won’t succeed. If you become physically or mentally ill, your business endeavors will suffer because of it.
At the peak of our business, I was at the peak of my health as well. I just lost about 10 kilograms, had healthy eating habits, worked out regularly, meditated, etc.
When things started to head in the wrong direction business-wise, the same happened to my health. Slowly I gained weight. Mentally, I got the biggest kick in the butt I’ve ever had. I started to have panic attacks. I was anxious all the time. I began to drink more.
Needless to say, I was not in the best frame of mind to solve our companies’ issues. But I had to. It was only after I left the company that I was properly able to pick myself up and rebuild myself.
Through therapy, exercise and relaxation I slowly started to feel better. Now, when I feel stressed out I surrender and let go.
I started a new business on my own. I’m trying to lose the weight I gained again. And it’s still true: when I feel good, I’m productive, enthusiastic and full of ideas. This all benefits my business.
Invest in your health. Make it your main priority. A healthy you is a healthy business.
#3: If you try to serve everyone, you serve no one
I heard this piece of advice countless times, but I never listened. Naively, we thought we could serve everyone with our fitness equipment. Men, women, old, young. Our product could potentially benefit everyone.
If you introduce a new product to a market, no one knows why they should buy it yet. To successfully introduce your product to market and make sales, you have to identify your ideal customer and build a brand persona.
Perform market research. Where can you find these people? How can you approach them? Who will not only be open to your product but also has the money to buy it? Focus on them and don’t move on to “the rest” until you have successfully claimed your place in the market for that first niche. Then, pick the next. In the end, you might reach everyone when people in the first groups start recommending your product.
Focus, focus, focus. Pick one niche or specific target group and focus all your efforts on serving them as best as possible. Plan and make a strategy for the next group(s) you want to target. Map it out.
#4: Failure showed me new creative directions
I honestly believe you would not be reading this story if my business hadn’t failed. I might never have dared to try writing.
Because my creativity plummeted and I needed something creative to do, I finally decided I would give my writing a shot. I started sharing short stories on my blog. Things slowly took off and before I knew it I was writing blog posts about my writing journey, mental health issues, and business. Writing became a form of therapy.
My business failure drove me into a new creative direction. It completely changed my path. One thing led to another and in July I started my own business. Now, I help other companies build their strategies. I mostly focus on online marketing strategies and implementation. It’s so much fun and I can apply all the lessons I’ve learned.
I talk about “failure” but I don’t view it as a failure. I view what happened as valuable lessons I can apply for the future. And if I hadn’t “failed”, I wouldn’t be doing work I loved while at the same time created enough time to be creative.
#5: Follow your gut
I’ve hired about 15 people during the course of our business. Half of them were good at their job, less than a handful was excellent at their job.
Do you know what the funny thing was? With the people who weren’t good at their job or created conflict, I could tell before they started that something was off.
However, I didn’t listen to this gut feeling. I didn’t know it would prove to be right yet. Every person I had a serious conflict with or who didn’t meet our expectations, I was hesitant about when I hired them.
So, trust your gut feeling and continue your search for the ideal candidate. Even if you needed an Office Manager like yesterday. The work can wait to be done correctly.
We imported our products and while we had a lot of say in the international strategy, we didn’t make the final decisions when it came to the production process.
Expensive materials and labor, too many businesses down the value chain, logistical nightmares, production costs were too high. Every year, our margins further decreased, while the retail price went up!
For adding new products to the product line, or staying ahead of the competition, we were largely dependent on another business.
This is not an ideal position to be in. You have to be careful with a situation like this. Don’t bet on one horse. Find other business endeavors to add to your company and spread your risks.
#6: It’s better to sell more to existing customers than to find new ones
You spend a lot of money on attracting paying customers. If you do things correctly, you make a profit.
Our problem was, we only sold one expensive product. We did have some add-ons, but they weren’t that interesting (and don’t even get me started on the margins).
We spend a lot of money per paying client. We had thousands of satisfied customers who loved our product. Instead of keeping attracting new customers, we should have added interesting add-ons or related products to upsell.
Attracting new customers is costly. Selling something to your existing customers is far less costly, especially if they’re already a fan of your product and services.
I mean, if you own an iPhone, there’s a high chance you also have a Macbook, an iPad and perhaps an Apple watch.
#7: Be careful when entering the market with something new
To be successful with a new product nobody has heard of yet, or something that is a great alternative for existing products out there is challenging. The potential can be huge, but you have to invest and create awareness first, which will require a lot of money to be spent on advertising.
Then, when competitors start popping up, imitating your product, you’ll learn two things:
- I’m onto something good
- I need enough money to stay on top of the market
You want to make a profit and not just fight for survival burning through your cash and keeping up with the competition. But to stay ahead, you need to have deep pockets.
What I’m getting at, is that when you’re the first to enter a market, you have to make sure you have a hell of a marketing strategy and realize you’re likely to pay a lot of money to raise market awareness. Which competitors of course gladly use to their advantage.
#8: Measure, evaluate and pivot
“If you can’t measure it, you can’t improve it.” — Peter Drucker
Another element I underestimated was the benefits of measuring our performance, and then to evaluate and pivot. Especially in online sales, there are so many tools to help optimize your business. Use them! And if you don’t know how to or don’t have the time, hire someone to help you.
Critically look at all your marketing efforts. Perform an 80/20 analysis. Which 20% of your marketing efforts result in 80% of your sales? Cut off the noise and the cash eaters.
How’s your conversion rate? Is your website performing well enough? What’s the bounce rate like? You can spend another few thousand dollars on more ads, but if people click away once they land on your website, then what use was that besides stimulating Google’s sales?
Hold a survey, what do your customers want? Continuously work on your site. Change the user interface, perform A/B tests, use heat maps, and experiment. Your conversion could double, triple or more if this is done correctly. It’s time-consuming, but it’s the low hanging fruit of your business. And you don’t have to increase your advertising budget.