Friday, March 28, 2008

Multiple failures by one entrepreneur

Recently a colleague and I presented a paper on multiple failures of one entrepreneur. Despite it being an "academic" paper it makes for interesting reading and conclusions. If you are interested, look at the full paper but read selectively. There were so many people in the audience that recognised some of the things that happened to this specifc entrepreneur who failed seven times. I have used it several times afterwards with great effect.

Here is the abstract:

Current theories of repeat entrepreneurship provide little explanation for the effect of failure as a “trigger event” in creation of successive ventures. Multiple failures offer potentially valuable insights into this relationship. New venture creation could potentially be the consequence or cause of failure. The relationship also depends on whether the entrepreneur learnt from the preceding failures. Our study indicates that preconditions of failure differed between the ventures, notwithstanding some similarities. None of the failures triggered the next opportunity, as every time the entrepreneur was already exploring new opportunities. Finally, the transformation mode of the experiences to entrepreneurial knowledge appeared mainly through exploration rather than exploitation as the moderator of the transformation process. Corrective actions depend on deliberate reflection.

Wednesday, March 26, 2008

Learn from failure

My first failure in business was many years ago.

The story goes like this:
A friend and I attended a presentation on wireless alarm systems (which was new technology at the time). It was easy to start - you buy a unit, find a client, install the unit, take your profit and order a new unit for inventory. Some other issues surfaced like first in the area will have preference (franchise area) but I mainly made my decision on not wanting to miss the opportunity as my friend decided to go for it immediately. I had to decide and did so based on nothing but the lure of the idea. So "Alert Alarms" came into existence during a 3 hour drive back home.

We started without a single financial projection on paper, no market research, no competitor analysis, no business plan, yes nothing at all was done. The hype of the idea pulled us into our first business.

Long story short - We sold one product and ordered the second which I sold to a neighbour and ordered the next. Things seemed to improve but then somehow things between the "partners" did not work out. We had no formal agreement, no formal business structure, no labour division, no profit share structure, no cost allocation structure - again there was no thinking going into planning especially the operations.

Thereafter we sold nothing and the "inventory unit" I installed in my own house. The business just did not exist anymore - nobody spoke about it thereafter again. It just died.

What did I learn from it and took to the second attempt?
It was only many years later that I started to understand some important issues namely:
* If you have no knowledge of the industry you want to enter, you are looking for trouble. Get some or at least do some serious market research. This has been referred to as "school fees" that you should rather pay beforehand and during the start-up.
* Develop a business plan - its more for your own sake as it forces you through the thinking required to put everything in place - use it a "peer review" of your plan. Ensure that you cover at least the following: Positioning, business model, cash flow, sales and demand projection and resource fit. Great ideas have the ability to lure you into trouble - make sure it is a real opportunity.
* If you want to lose a friend for sure - start a business with them without having a proper agreement in place. The same goes for family - especially family as I have seen many of these in my later research.
* I had a full time job at the time (so did my partner) so I think there was no pressure to perform, a total lack of urgency to seek sales and do the business. If I had more money invested, maybe I would have put in more effort.

What caused the failure?
If I am honest today I think these contributed:
* Lack of knowledge and skill at the time (industry and basic business)
* Lack of thinking (maybe I should say no thinking at all)
* Pursuing an idea that was not an opportunity yet

Invite to tell us your story
The aim of this blog is to gather data on business failures and the associated experiences of the owners / managers involved. I am intersted in anything and everything about your specific experience. This includes the causes of declines, any signs of it coming, your feelings and thinking during the decline, your decision processes and whatever you think may be important. Please share with me and others who can benefit.