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BWSmallBiz -- Cover Story October 17, 2008, 5:00PM EST

Entrepreneurs Turn Business Failure into Success

These entrepreneurs turned failure into triumph

By Amy S. Choi

For more on Eva Sun, click here. Roger Hagadone

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For more on Roy Warren, click here. Roger Hagadone

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For more on Jordan Ho and Josh Golden, click here. Roger Hagadone

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For more on Andrew Payne, click here. Roger Hagadone

Eva Sun's wake-up call came in 1997, and it came from the bank. For 10 years, she had entrusted Libra Trading, a rice distributor that did business with Asian and mainstream grocers across Canada, to her husband while she raised their children. Now she learned that the $3 million, 11-person company was $4.5 million in debt and behind on its payments. Sun owed an additional $2 million to friends and family who had invested in the business. Libra had plenty of customers, but many were unprofitable. The company was operating without any outside financial or legal counsel. The books were a mess. "When I got that phone call," says Sun, "I had no idea what was going on with the company."

Kenneth Lin, then Sun's husband, says managing the company was not his forte. He says he focused on sales and marketing, signing on large grocers such as Loblaws and IGA. "Growing sales was what I saw as my job when I took over the company," he says. "I didn't have a share of the business, so all of the accounting was left to her."

That phone call changed Sun's life, and quickly. After years on the periphery of Libra, Sun, who at 42 had just given birth to her third child, hired a team of accountants and lawyers—one of the few things she did right at the time, she says. Over the next few years, they shepherded her and the business through a painful overhaul. Sun laid off four employees and slashed benefits to others. She dropped several grocery products to focus on rice and stopped distributing brands that were barely profitable. Revenues fell to $2 million; her marriage was another casualty. In 2004, nearly seven years after that first phone call, Sun's attorneys convinced her that her debt load was unmanageable. She declared bankruptcy.

The collapse of a business can be devastating, both psychologically and financially. But even successful entrepreneurs have to reach a comfort level with the risk of failure. Only about half of all startups survive for more than four years, says Brian Headd, economist for the Small Business Administration's Office of Advocacy. That number remains steady in both good and bad economic times.

Failure doesn't need to be as bad as it sounds. There is, of course, total, abject failure, in which entrepreneurs permanently damage their reputations, go broke, and alienate everyone they ever worked with. But even Sun didn't experience that. Instead, she did what's often referred to as "failing up." She reached out to her business partners, financiers, and family. She explained what happened, took responsibility, and now, four years after Sun declared bankruptcy, Libra is again strong and profitable. And though she was broke, Sun discovered she was rich in resolve. "I never lost a night of sleep. I never lost my appetite. It was kind of shocking, even to me," she says, laughing. "But that's where being a mother is an advantage. There was no option for me to just feel sorry for myself and not move on. People would say things like, `You're so strong, you had to do so much,' but my three children aren't my burden, they are my support. They kept me going." Her ex-husband says that while the divorce was incredibly difficult, in some ways, it was good for both of them. "The separation gave her a better chance to survive because she could be fully in charge of her company," he says. "And she's very capable." For his part, Lin learned that managing doesn't interest him. Says Lin: "Maybe failure is a good starting point for the next stage in our lives."

Entrepreneurs who manage to fail up may be surprised by how much support they receive for future ventures, positioning themselves as stronger, savvier operators with far less probability of failure the next time around. "Failure is a great tuition payment," says Sanford Ehrlich, director of entrepreneurship at the Entrepreneurial Management Center of San Diego State University. "Failure is not something one has to be ashamed of.

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