Archive for the ‘Failure’ Category

Entrepreneurs’ Favorite Mistakes

April 16, 2007

By Stacy Perman, Jeffrey Gangemi, and Douglas MacMillan

Success and failure are two sides of the same coin. Any successful business person, from a multinational mogul to the owner of a corner taco stand, has made a mistake-in most cases several. But those who have come out on top all say the same thing: It wasn’t so much the mistake but what they learned from it that made the difference toward their end goal of success. recently spoke to small-business owners and entrepreneurs and asked them each to pick their favorite mistakes and explain how they turned their mishaps around.

David Landis

Founder and president, Landis Communications

Public relations firm
San Francisco
Founded in 1991
Sales: $1.7 million

“I learned the most important lesson during that last economic downturn (and a new way of doing business that is still in place at our agency today). Namely, that for CEOs and CFOs to understand the value of your product or service, you must quantify the results and demonstrate value that supports their business.

“We developed a new proprietary ROI metrics program-we call it ‘Promised Results.’ At the outset, we sit down with new clients, tangibly define what success will look like-and then individually tailor an ROI metrics program that supports the bottom line.

“‘Promised Results’ is my favorite mistake. Because of it, we had our second-best year last year, with revenues of $1.7 million, and we’re on track to do even better this year. Here’s to more mistakes!”

Jodi Gallaer

Founder, Jodi Gallaer Lingerie

Maker of lingerie for full-busted women
Newport News, Va.
Founded in 2004
Sales: NA

“When I first started, I figured the best thing was to get my product into as many stores as possible. Most new lingerie terms will ask for payment right away or COD, but some retailers will ask to pay later. If a store asked for 30 days of credit, I was too willing to provide it. A couple of them had been in business for a long time, so I thought it would be no problem. It took me months and months and months to collect. I never extend credit anymore, at least not for any new clients.”

Patricia Helding

Owner of Fat Witch

Wholesale brownies manufacturer
New York
Founded in 1991
Sales: NA

“The only thing I could bake was brownies. I think we might have been more successful sooner if we had a broader scope. On the other hand, I think what it did in the long run was help create our brand. [Now] we’re going to branch out with cookies and stuff.”

Peter Tourian

Founder and CEO, Synergy HomeCare

Franchise company offering in-home, nonmedical care to individuals requiring daily living assistance
Gilbert, Ariz.
Founded in 2002
Sales: NA

“I was eager to attract new franchise owners. I spent tens of thousands of dollars on Internet advertising only to find that traditional marketing methods, like referrals, direct marketing, and PR, were more effective for me.

“I have since cut back on Internet advertising and found that the quantity and, more importantly, quality of my leads have increased. To date, franchise sales have increased 35% since decreasing Internet advertising and relying more on these old-school methods. I expect to reach my goal of selling 300 franchises over the next five years with this continued approach.”

Mark Smith

Owner and chef, Tortilla Press

Mexican restaurant
Collingswood, N.J.
Founded in July, 2002
Sales: $1.22 million

“The first three and a half years of the business, I kept hiring people who were ineffective, just because they were nice people. We were hiring basically on personality and not on experience and qualifications. We decided that wasn’t working for us, and we ended up developing a profile for the job and a specific list of criteria for the candidates. As a self-made entrepreneur, you have to keep trying things until you find the right combination. Somebody either had to beat us over the head or we had to make the mistake.”

David B. Demyan

Franchisee, Express Personnel Services

Provider of personnel employment and payroll services
Boca Raton, Fla.
Founded in 2006
Sales: NA

“Before becoming an Express Personnel Services franchisee, I had been in the staffing industry for the past 20 years as half-owner of a technical staffing firm in New Jersey. After moving to Boynton Beach, Fla., in 2003 and trying to run my New Jersey staffing firm from afar, I realized I simply could not be in charge of day-to-day operations while living so far away. I would need to either give up that role or give up my ownership in the business.

“Not ready to retire, I decided to sell my interest in the New Jersey business and open an Express Personnel office in Boca Raton. Living just a few miles from my new business, I could make all important decisions regarding daily operations. I wish I had done this sooner. It was difficult and frustrating not being able to grow my previous business. I felt badly that I was not able to give my all to a company that I helped build.

“Had I made the decision earlier, I would have had three extra years to grow my new business. If someone is planning to move to another state, I recommend they give up the daily responsibilities associated with running the business. If they are not ready to do that, then they should start a similar business near their new home.”

Nina Riley

Founder and CEO, Water Sensations

Maker of clear-liquid flavor enhancers for water
Southport, Conn.
Founded in 2005
Sales: more than $1 million in first year

“I would’ve rethought the pricing strategy more specifically. Instead of going with the 16-count, I should’ve gone with the 12-count package size [of the product]. With a price point at $3.99, instead of $2.99, we were limiting the number of people who would try the product.

“When things go bad-at the first indication-you gotta nip it in the bud, wrestle it to the ground to fix it. You just can’t let it go. If this is your own company, you have to strive to be perfect.”

Nick Lindauer

Owner, Sweat ‘N Spice

Online hot-sauce vendor
New York
Founded in 2001
Sales: $130,000

“Making investments in product lines that aren’t marketable was the first learning curve we [dealt with]. We were brand new, didn’t know the industry quite as well, and we bought a bunch of product that didn’t sell very well. We’ve learned to pick out the correct products that are going to sell online. Those that we’re unsure about, we’ll buy a smaller amount and we’ll test-that testing has really let us pick out the right products for the mix.”

Bob Kodner

CEO, The Crack Team

Foundation and crack-repair company
St. Louis
Founded in 1985
Sales: about $10 million

“If we had to do it over again, we would’ve incorporated humor into our marketing campaign earlier than 2002. That’s when we rolled out [logo and character] Mr. Happy Crack [and] our leads went up 80%. We were just in the process of starting to franchise and immediately found that we had this powerful brand that separated us-not only from competitors in our industry, but from a slew of franchise opportunities that people had to choose from. Entrepreneurs should go with their instincts and roll the dice now and again.”

J.B. Schneider

Co-founder and marketing & product development manager, P’kolino

Maker of innovative children’s playroom furniture
Dania Beach, Fla.
Founded in 2005
Sales: NA

“If I could call a do-over, I would replay our initial manufacturing strategy of finding a one-stop shop. In theory, having only one source for fine-tuning and producing our premier product would save us time. In reality, it nearly cost us our company.

“We were so determined to follow this strategy that when we could not find willing parties in the U.S. or China (we were too new and too small), we went to Brazil. The distance, communication gap, and unfamiliarity with U.S. regulations [took] so much time-so much of our time. Seemingly simple product changes prove

d difficult. There was just too much that was out of our control and we were often left waiting.

“The one-stop shop can be a tremendous asset. But for a product startup, I would now much rather have the control and flexibility of a small local manufacturing network to get a product to market.”

Peter Marston

Founder, Marston & Langinger

Designer and manufacturer of custom-made residential conservatories, greenhouses, garden rooms, and interior furnishings in Europe and the U.S.
Founded in 1972
Sales: NA

“When we brought Marston & Langinger to New York, I was determined not to make the classic cultural mistakes-New York isn’t California, which definitely isn’t Michigan. I’m sure Americans are as irritated by Europeans talking of the USA as if it were one homogenous market, as Brits are by being lumped in as a stop on a Europe trip or sales campaign.

“We learned from our mistakes when we opened in Germany [and] got everything wrong, such as opening on Saturday, which we learned wasn’t the way things were done.

“This time, coming to New York City, we were much more careful about understanding who we are serving and where to be. We had the help of a brilliant Realtor who steered us into SoHo, which has proven to be ideal for our brand and the lifestyle we sell.”



Take Two Yields One Speedy Startup

April 16, 2007

Will Anderson, a 2006 Stanford B-school graduate, knows something about making the most out of a business failure. Despite winning the 2005 Business Association of Stanford Engineering Students (BASES) business-plan contest, his company, Adaptive Hearing Solutions (AHS), which aimed to revolutionize the hearing aid industry with its sound filtering technology, proved to be a dud. “We had gotten to the point where we could test the technology, but in the end, the tests didn’t pan out,” says Anderson. “The assumptions didn’t hold, and we had to give up. Otherwise, we could have spent four years trying to make something out of nothing.”

Since shuttering the fledgling business, Anderson, 30, started Start-up Fund, an incubator designed to test potentially VC-worthy business ideas. Anderson was determined not to waste any more time than necessary on ideas without legs. “The purpose of Start-up Fund was to find, test, and launch one company that would have a high probability of success (compared to a typical seed-stage startup). Once this company was formed, Start-up Fund would be folded into the new company. It was not meant to be a perpetual new venture incubator,” says Anderson. His plan was simple: He’d spend about one month assessing each opportunity, identifying the critical assumptions upon which its success would depend, and then spend the next four to six months testing the assumptions, with a target budget of less than $100,000 per idea.

Multiple Pitches

For money, he relied on a handful of investors whom he knew through Stanford and the BASES business plan contest. Unlike traditional investor/startup relationships where investors bet seed capital on a single entrepreneurial venture, Start-up Fund relied on investors willing to throw in between $50,000 and $150,000 each, who would count on Anderson’s experience with the failed AHS to determine each idea’s viability. Since Anderson wasn’t pitching one idea, investors had to be convinced that he would be able to find good ideas, identify and test the critical assumptions, and then execute a business strategy to make the company successful. And Start-up Fund was designed to own equity in the company that resulted from it, so the investors wouldn’t receive a payout until the company achieved a successful exit in either an IPO or acquisition.

The ideas Anderson tested came from a variety of sources. Some of the 10 or so on his list were his own. Others were technologies developed at Stanford or ideas referred through contacts in VC firms, where partners see a lot that are just too early for their funds. “It used to be the case that an engineer could get funded with little more than a patent application,” says Anderson. “But, in the last seven or eight years, VCs are now doing less but bigger deals. This means they have to chase the bigger, later-stage deals and can’t focus so much on the seed deals. This is the market gap that I wanted to exploit,” says Anderson.

The Bottom Line

Anderson believed an entrepreneur with a good idea might only need $100,000 to test a potential blockbuster, but with all the other costs—including manpower, technology, market research, and other resources—the actual cost could approach $500,000 to prove its worth. Start-up Fund’s system was designed to wipe out the extra $400,000 in expenses.

Many times, entrepreneurs need to raise seed capital from a number of different investors, only later going to the VCs if the idea has the promise of scalability and big profits, says Anderson. But he believes it’s important to do the testing before building out a whole company structure. “You wouldn’t want to build a huge sales force before you know your technology,” says Ira Ehrenpreis, general partner at Technology Partners, a Palo Alto (Calif.)-based venture capital firm. “The [venture capitalist’s] discipline is in the initial identification in what the elements of risk are, and ensuring that you’re capitalizing a company to reach discrete risk mitigation milestones,” Ehrenpreis adds.

Start-up Fund embraced that idea. It just sped up the process by removing the inefficiencies of the startup process. It enabled Anderson to test several ideas under one legal entity, without going through a separate fund-raising process for each, while maintaining the ability to kill an idea that didn’t pass validation. “Rather than investing $500,000 to test one idea under the old model, a similar amount of money could test three or four ideas under the Start-up Fund model,” says Anderson. And they would get a bigger stake in the resulting company—providing it is successful.

In the Driver’s Seat

Anderson was in the process of testing various ideas when he hit pay dirt: a Web-based automobile loan origination platform with products aimed at solving problems faced by dealerships, lenders, and borrowers. He quickly set about launching the new business, folding Start-Up Fund into it and maintaining the same pool of investors. His new company, Risk Allocation Systems, closed its Series A funding and officially incorporated on Mar. 21. On July 1, the Redwood City, (Calif.)-based company will launch its first lending products in California, with initial customers consisting of Bay Area automobile dealerships and lenders.

“For me, I just wanted to build and manage a fantastic company. Start-up Fund gave me a better starting point for doing that,” says Anderson. Today he is doing what he originally set out to do—using his experience with failure to increase his chances of success.