Sometimes Failure Is Your Best Option

This post originally appeared last week in the Wall Street Journal as part of their Accelerators Program in answer to the question “When and how should you wind down a failing business.”

Some entrepreneurs and investors subscribe to the creed “failure is not an option.” I’m not one of them.

I strongly believe that there are times you should call it quits on a business. Not everything works. And — even after trying incredibly hard, and for a long period of time — failure is sometimes the best option. An entrepreneur shouldn’t view their entrepreneur arc as being linked to a single company, and having a lifetime perspective around entrepreneurship helps put the notion of failure into perspective. Rather than prognosticate, let me give you an example.

My friend Mark’s first company was successfully acquired. After being an executive for several years at the acquirer, Mark decided to start a new company. I was the seed investor, excited to work with my friend again on his new company.

Over three years, this new company raised a total of $10 million from me and several other investors over several rounds. The first few years were exciting as Mark launched a product, scaled the company up to about 40 people, and tried to build a business. But after two years we realized that we weren’t really making any progress — there was a lot of activity but it wasn’t translating into revenue growth.

In year three we tried a completely different approach to the same market with a new product. Mark scaled the business back to a dozen people in an effort to restart the business. Over the course of the year we tried different things, but continued to have very little success.

By the end of the year there was $1 million left. Mark cut the company back again — this time to a half dozen people. He started thinking about how to restart for a third time on the remaining $1 million.

Mark had never failed at anything in his life up to this point. He was proud of this, and the idea that he couldn’t at least make his investors’ money back was devastating to him. But he was stuck and started exploring creating an entirely different business, in a completely different market, with the $1 million he had left.

Mark was newly married and was working 20 hours a day. We were talking at the end of the day during the middle of the week and he was so tense, I thought his brain might explode. I told him that as his largest investor and board member, I wanted him to turn off his cell phone, take his wife out to dinner, have a bottle of wine, and talk about whether it made any sense to spend the next year of his life trying to restart the business with the remaining $1 million.

After resisting turning his phone off, I insisted. I told him that I gave him permission to decide that it wasn’t worth the next year of his life at this point and that as his largest investor it was perfectly ok to shut the business down and declare it a failure. I then said I was hanging up the phone and would talk to him in the morning. Click.

He called me back early the next morning. He was calm. He started by saying thanks for giving him permission to consider shutting down the company. This had never occurred to him as an option. During dinner, he realized he needed a break as he was exhausted. He wasn’t coming up with anything to do to reinvent the business and was just desperate to figure out a way to pay his investors back.

By morning, he realized it was time to shut things down, return whatever money was left, and take six months off to recover from the previous three years while he thought about what to do next.

We gracefully wound the company down and returned five cents on the dollar to the investors. Mark took six months off. He then spent six months exploring a new business, which ended up being extraordinarily successful. And he’s now very happily married.

Failure is sometimes the best option if you view the process of entrepreneurship as a lifelong journey.

  • http://www.justanentrepreneur.com Philip Sugar

    The posts with actual examples are golden. The ones where failure is discussed are diamonds.

    You have to be very confident to discuss failure. To me the one true indicator that you’ve had success is that you can discuss your failures.

  • Joseph Burros

    I am always amazed to hear stories of very famous and successful people throughout history who started their business or political career with a number of large failures, but then kept on working, only to eventually succeed beyond their wildest dreams. Thanks for this difficult, but inspiring story.

  • johnfein

    Love the message that failing at a startup doesn’t mean failing as a person or even in general as an entrepreneur. I actually think it helps startup leaders to account for various levels of failure – a task, project, or company – in their planning. Then they can visualize what comes next.

  • heyehd

    It’s only really a failure if you don’t learn from it. It looks like Mark took the lessons learned and created a successful business. Great post.

  • Tom Nastas

    Brad a suggestion/clarification.

    “Sometimes Failure is Your Best Solution.”

    Option is often interpreted as an alternative, should I or shouldn’t I close
    down the company, what else can I do, is there is still hope that we can snatch
    victory from the jaws of defeat??

    When the alternatives have been explored, tested, all done as humanly possible with results not meeting expectations, then we as investors and entrepreneurs must see failure as the solution; making the emotional and psychological decision to ourselves that this is the solution, and we can ‘live’ with it.

    As you eloquently stated, failure is temporary, for the here & now, but not tomorrow—so long as we continue to walk down the path of entrepreneurship as a lifelong journey, and keep that frame of mind.

    Be well and be lucky today

    Tom Nastas

  • http://twitter.com/SEEvaluations SEE

    Removing yourself from ‘active duty’, even for a day, can allow one to think about the situation differently.

  • hockeyman41

    Brad – thanks for posting this story. Sometimes a little perspective goes a long way.

  • Suriya

    Thanks Brad. sometimes taking a step back and evaluating the options to move forward helps alot.IMO.

  • Austin

    Great story, and two thumbs up for discussing the human relationship dimension as well.

    I always sort of cock my head whenever I see a job listing that requires “a continuous record of success” in a venture that clearly involves more than a bit of risk-taking. The candidate who has seen failure up close & personal at least once may in fact be the better bet.

  • http://twitter.com/RhondaNM Rhonda Marable

    Having worked at a startup for the past year, while I haven’t personally failed in my competencies, I share ownership for the lack of success we’ve been having even though I’m not the CEO. Hopefully I can learn from the mistakes and successes here to learn a bit about the failure. I have skin in the game but it’s nowhere near the skin that the CEO has. I’m sure I’d feel and react differently if it were. I love the insight I get form these posts but the more I read them, the more I’m sure that no matter how much you prepare or observe, you never really know what failure is like until you do it. I think I’m just crazy enough to try it out though.

  • http://akp-blog.com/ Arpan Punyani

    Great story, Brad, thanks for sharing.

  • Toronto

    Great post. Thank you. I SO needed to read this. I’ll take your sage advice to heal and regroup… get my mojo back before moving forward. :-)