Lessons from entrepreneurial failure

ClosedWhy do so many businesses fail?

Many statistics are bandied around and different countries measure success rates in different ways, but overall you can’t argue the fact that too many businesses fail. We don’t need to talk statistics, we all know the situation could be much better.

So what are the differences in businesses that succeed and fail? Many thing come to mind such as, the business model, funding, the executive team, marketing, sales, distribution, product mix, competition, industry, regulatory environment etc. I could just go on. All of these and more have an impact on every business large or small. So I want to share three of the first major lessons I learnt from my experiences.

In over 25 plus years as an entrepreneur I have had my share of successes and failures. As a matter of fact more failure than success, but in saying that each fail was a major lesson. The mistakes weren’t repeated again. Shortly after leaving the Royal Australian Air Force, I started my first business, Prior to that I had been involved in my fathers contracting business for many years, but had never gone out fully on my own till that time.

I had no idea what was involved in running a business. I could run projects on time and under budget and complete them with a skeleton crew, but I wasn’t responsible for the whole business. I didn’t have to make sure that the invoices went out, payments collected, books balanced, taxes, wages and suppliers paid and so on.

My first serious venture was a success, for a while anyway. It was bootstrapped with a van, phone and tools of trade. That’s it. A name was registered, cheap business cards printed and off I went in search of work. To get the sales, cold calling was the method of choice.  It wasn’t long before I had a team of installers and I was doing the rounds with customers, managing the jobs and managing the back end of business. Next thing you know more work and then a cash flow squeeze. Well that’s what overdraft facilities are for isn’t it?

Lesson 1.

  • With growth, in any business, but especially in the contracting game where you get paid 30, 60 or sometimes even 90 days after the work was completed you need funding. If you don’t have enough funds you will fail. Making sure that invoices are sent out promptly and followed up regularly if payment is overdue will increase your probability of success.

There were other issues. When you start a business for the first time its all about getting the next job or project. Some are small, and others may take more time and effort to complete. Being a new business and wanting to build up credibility we were taking on every job we could and making sure it was done to the best ability possible to get more follow up work and recommendations. Where is the problem you say? Well, some of those jobs weren’t being invoiced. They were being done for no charge. They were slipping through the cracks and not being properly tracked. Materials costs and expenses taken care of, but no revenue.

Lesson 2.

  • You must have systems and processes to track and measure everything. Jobs, costs, hours, materials, purchases etc. Primarily ensuring every job is billed as soon as it is completed. Establishing systems and processes for your business is the key to being able to manage it effectively.

So after a couple of years of this, things were great with a good revenue stream but there were more lessons, to come. We were growing at a fairly steady pace, we had developed systems to track most things and with multiple installation teams on the road on various projects my work hours were getting beyond ridiculous.

Most days starting around 6:00am ensuring all teams had the tools, materials and plans they required for the day’s jobs ready to go. During the day, running around and visiting each job and customers, cold calling, visiting prospects and quoting jobs as well as fighting fires anywhere they arose. At close of business I’d be back in the office taking care of all the other things you need to do to run a successful business such as invoicing, paying bills, submitting taxation reports and so on. Some days I was lucky to get home by midnight. Lets face it, I was burning out and fast. I needed a break but there was no one to take on my role.

Lesson 3.

  • You may be great at what you do, but you need to plan for the bigger picture and not just being better at what you do. I chose to grow my business to its potential, but failed to start building a management team early on. When the business was thriving there was a big gaping risk. Me. Plan for your success. Failing to plan is as good as planning to fail.

I got a lot out of these three lessons. The great thing is they happened early on in my business adventures. Any one of these events could have pushed the business to failure. If we hadn’t been able to organise an overdraft facility, we would have had to close up shop as there were no operating funds. If we hadn’t picked up on the fact invoices weren’t being raised the business would have again slowly run out of cash. And of course, if you burn out, the business will also suffer and possibly fail as there is no one else ready to take over from you.

There is one more lesson here, and that is you will make mistakes and most of them will not be fatal and you will recover. However the key is learn from those mistakes and don’t make the same one twice.

There is an addition to this blog post with the title “More lessons from entrepreneurial failure.” Please check it out.



38 thoughts on “Lessons from entrepreneurial failure

  1. Hi Don,
    Great post. It’s amazing how all these little things somehow slip through the cracks….and we forget them sometimes and have to revisit. I can completely identify with what you have written as I was once there also.


    1. Thank you Graham. Starting out for the first time, most of us have no idea what is involved and if you don’t learn fast and take immediate action you crash and burn. That is the reality of small business and start-ups. Experience counts.


  2. I’m with you, I think that “failing” does teach you far more than success although the guys at 37 Signals with their last book ReWork says that failure is overrated. I think you take what you take from the experiences you have.

  3. Don this post really hit home for me as this was the year my own business, an ad agency, crashed and burned, taking me down with it. All your points are important to keep an eye on, but it was #1 that did me in. I didn’t have sufficient capital to get me through a few bad months. Great clients, good reputation, healthy growth potential, but two quiet months sunk me….because the rent, the payroll, the payables: they are relentless.

    This was my first business venture and I sure learned fast that when you are an employee and waiting for your paycheque, two weeks seems like two months. But when you are doing the paying, two weeks seems like two days.

    My business went down publicly, on the front page of the local paper, and was quite devastating to me. I am on my feet again now 7 months later, but the most important lesson I learned is that if you don’t have a passion for the business side of things – or have a partner that does – something will fall through the cracks eventually.

    Terrific post.

    1. Doug. Thank you for being so sincere and sharing your story. It is tough running a business especially when the cash dries up and the bills don’t stop. I was lucky in the sense that I had a good relationship with the bank and at the time money was fairly easy to get in the form of an overdraft.

      Being your first business venture makes it a very hard lesson… but I’m sure one that you will never repeat. And the front page thing… I feel for you… no one wants that. I’m glad you are back up and I hope looking for a new venture opportunity. Don’t give up.. there are many more lessons to learn.


  4. Great blog. It very succiently explained what many small business owners go through. I’ve met many small businesses owners who end up selling out or closing down because they get to the point where they can’t take holidays, there aren’t enough hours in the day and they can’t take that next leap to the next size up where they can hire more employees etc.

  5. Invoicing (and other administrative matters) may seem small, but it’s so critical to a business’ ultimate success. You’ve raised some great examples from your personal experience.

  6. A great post, it reminded me that when we end up spinning so many plates in our growing businesses, it’s the fundamental steps in business that should be kept in focus at all time.

  7. Great Post! And a cautionary tale, I might add. I often meet new clients who started out with a wish and a prayer, not sure if the thing will go anywhere, or where they actually want it to go, and then the business takes off. The thing is, they navigate the dirt roads and shallow creeks of start up and then get on the highway of running the business and forget or imagine that they don’t need a plan for the rest of the journey. From your post I am hearing strategic and contingency planning, and resource-based growth. And then there is the succession strategy – not necessarily meaning who will succeed you in the business, but part of contingency planning – how to take the pressure of yourself to do whatever it is you do best so that as the business grows, you do not burn out. Always a pleasure to read your posts!

  8. Hi Don, definitely some valuable ‘lessons learned’ in this post… one of the things that’ve always kept me away from starting my own business is well, you could call it the paperwork. I’d need someone to take care of the invoices et cetera. Fast. It’s not like I couldn’t do but it would take up too much time and energy. It’s a good thing you fixed that issue rather than having your business fail. Thanks for visiting my blog!

  9. thank you for this blog. As a budding entrepreneur, this is a warning and a ray of hope that we learn as we go and never giving up defines who we are.

  10. Thanks for your honesty on this. I think another common challenge is that small businesses get busy doing one thing and then neglect the other – e.g. they’re busy with work they have so they’re not chasing new work, and then when the current work ends, there’s a “down” period of no income while they try to find new work. One has to wear so many hats as a small business owner!

  11. As an ex-employee of the IRS, I worked with many small business and self-employed people. There are just too many hands wanting something from the small business owner. Too many taxes and too many expenses to be able to make profits substantial enough to stay in any business now-a-days. Along with more competition from other small businesses and big businesses, very hard. I knew people that opened a shop almost next door to another like business and instead ended up putting them both out of business. There has to be the mareket for whatever you are doing. Our culture is establishe to make a bunch of stuff no one really needs and then hire others to “sell” it to them. Your business has to be very innovative.

    1. It’s a tough game for all small business and self-employed people. But no matter how tough it is, people find opportunities they want to pursue because they can and because they feel they can make a difference.

  12. Nice read.In business, l guess it is better to fail fast and quick.That way you are likely to make a quick recovery and carry on if you are not discouraged.l ended 2012 with a pile of debt all because my costing for the projects l won was very poor.

  13. Great post! I think every new start-up business owner should read this. The experiences of real people are always more powerful than just reading the same advice in a textbook.

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