Small Business

Starting Over When Your Business Fails


Slide Show >>GO Corporation was touted as a company that would usher in the next generation of computing by replacing the keyboard with a pen-like device. The Silicon Valley-based startup raised around $50 million in venture capital before tanking in the early 1990s. Co-founder Jerry Kaplan made no secret of its demise, chronicling it in Startup (Penguin Books).

Then, instead of retiring from entrepreneurship, Kaplan went on to found the successful Web retailer Onsale.com, which merged with Egghead.com, whose annual revenues peaked at $541 million in 1999 before it failed. His most recent venture is Winster, an online gaming outfit. Kaplan, who is chief executive officer, has raised around $1.5 million for it.

One third of all new businesses fail by the two-year mark, and almost 60% fold within four years, according to a 2005 Monthly Labor Review study. But resilience can be rewarded. So can keeping a positive perspective. Investors, especially venture capitalists, will fund entrepreneurs who have failed before, but not those who burn bridges and lash out at others when they fail, says Kaplan(see BusinessWeek.com, 8/1/06, "15 Things You Need to Score Venture Funding").

He is successful today in part because he managed to separate his identity from his business. "The business failed, not me," says Kaplan (see BusinessWeek.com, 7/10/06, "How Failure Breeds Success").

FAILURES IN THE WHITE HOUSE. Kaplan is just one contemporary example of a failure-turned-success story. History is filled with them. Lewis Tappan, founder of Tappan's Mercantile Agency, the precursor to business credit reporting agency Dun & Bradstreet, failed as a silk merchant before going on to invent one of the most pervasive systems of measuring business potential in existence. Today Tappan is known as the father of the credit-rating system.

A number of U.S. Presidents watched their small businesses fail before arriving at the White House. When Abraham Lincoln was 23, the Illinois retail store he was running went bankrupt, and his next store followed suit. Harry Truman's haberdashery store in Missouri went bankrupt after World War I. As President, he was still writing checks and sending them to his creditors from 20 years before.

Other renowned world-beaters have failed businesses in their personal histories. Bill Gates' first business, Traf-O-Data, which he started with Microsoft (MSFT) co-founder Paul Allen to analyze automobile traffic flow, was a flop.

SECOND CHANCES. Today's entrepreneurs could stand to learn a few things from these resilient souls, says Scott Sandage, professor of history at Carnegie Mellon University and author of Born Losers. "It used to be that we as Americans thought of failure in business as something that happened when we were overzealous in expansion, when we went too far too quickly, or tried to expand into a business that we didn't know enough about," says Sandage.

Now, failure indicates you're an overall washout and is used as a catchphrase to describe laziness or someone without ambition. "We're so attuned to the possibilities of success that we don't have a vocabulary for talking about failure," says Sandage. "That's why we have catch-all words like loser," he says.

What marks those who bounce back is a balance of optimism and pessimism—the ability to confront what went wrong honestly but not lose self-confidence. Failing doesn't automatically make you a loser, but that's something many people have to be taught.

FINDING A BALANCE. To help businesspeople become more resilient, Andrew Shatté, vice-president of research and development for Adaptiv Learning, an executive coaching firm that conducts resilience training for Fortune 500 companies, teaches a technique he calls "causal analysis." "It's the ability to sit down and work out exactly what caused the failure and make sure you don't repeat the same mistakes," he says.

Overly optimistic people tend to blame failure on temporary factors and overlook the root causes, while pessimists give up too easily, thinking that there is something intrinsically wrong with them or their approach, says Shatté. What's important, he says, is striking a balance.

To see a gallery of famous failures, Click here for the slide show


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