Facing Failure (Part 1): The Unavoidable Consequences

September 20, 2011

This is a guest blog post from Robert C. White, Jr., Esq. – Equity Shareholder, Gunster. It is the first in a series of two posts that consider facing failure.

The information contained in this blog post is based on general principles of law and is intended for informational purposes only. I make no claim as to the comprehensiveness or accuracy of any of this information. None of this information should be considered as legal advice, and this blog post is not offered for the purpose of providing legal advice to any party. The information contained in this blog post represents my own personal views only, and does not necessarily represent the views of my law firm or any other lawyer in my law firm. My provision of the information in this blog post does not create an attorney/client or any other relationship between me or my law firm and the readers of this blog post or any other party. All readers of this blog post should consult their own legal counsel and other advisors before taking any actions or making any decisions based on any aspect of the information contained in this blog post. I am not certified by the Florida Bar as a “specialist” or “expert” in any area.

I’m going to jump right in and hit a very sensitive and unpopular subject: Failure. No one wants to think or talk about it, especially in the early stages of developing a business. I firmly believe, however, that startup businesses need to contemplate possible failure right from the start and learn from their own experiences and the experiences of others. Many times these lessons can help an entrepreneur avoid or mitigate failure in his or her current situation.

Failure: The Unavoidable Consequence

It’s somewhat of an unpopular view these days, but a certain percentage of business failures are an unavoidable consequence of entrepreneurship and innovation. You just can’t work on the bleeding edge of new business models and technological innovation without some things not working out. The incredible rate of change that faces most entrepreneurial and early stage technology businesses is an extreme challenge, and even a top-notch business plan can unravel very quickly due to rapid changes in external circumstances. In many early stage situations you hear someone at some point say “failure is not an option.” Great sentiment, but unfortunately not always true. Failure is always an option, but you can do a lot of things to avoid it.

It’s critical for entrepreneurs and innovators to realize that failing does not permanently terminate your chances of success in another venture. Rest assured that any venture capital or private equity firm, and any angel investor with any experience at all, will anticipate and expect a certain number of failures in the situations that they evaluate. In fact, in some cities with well-developed entrepreneurial or early stage business cultures, a “safety net” of some kind (for example, large companies with job possibilities) exists to encourage entrepreneurs to continue to innovate despite the possibility of failure. This is not to say that failure does not have significant negative consequences, but a certain level of failure is clearly contemplated in most entrepreneurial situations.

How to Manage Failure

All that being said, it is critical for entrepreneurs to do everything in their power to avoid failure. Failure costs money, and it has an opportunity cost as the entrepreneur’s time (which could have been spent productively on something else) may be wasted. Failure also has extremely unpleasant psychological effects, and may chase good entrepreneurs out of the early stage business arena. Finally, it’s an obvious conclusion, but having too many failures can put you out of the game for good.

The key here is to study situations in which failures have occurred and learn hard lessons from them. Some of our most successful entrepreneurs have several failures in their past. Study the facts of these situations and apply them to your business situation – did they encounter similar circumstances and problems? How did they try to resolve them? Most importantly, what went wrong? Why did they fail and can I learn something from their actions that will prevent me from failing?

Thank you to Robert C. White for providing the information in this blog post. Connect with him on Facebook, Twitter, and LinkedIn. Check back later for part two of this blog post about facing failure.

Bob is a member of Gunster’s Technology and Entrepreneurial Companies Practice Group, its Corporate Practice Group and its Securities and Corporate Governance Practice Group. He serves as the head of the Venture Capital and Private Equity Committee of the Firm’s Securities and Corporate Governance Practice Group. He represents clients in many business segments with an emphasis on technology, innovation and entrepreneurial situations. His regular practice areas include corporate strategic counseling, technology law, venture capital and private equity law, mergers and acquisitions, corporate finance law, corporate governance and general business, corporate and financial law matters. He regularly counsels business entities, entrepreneurs and executives in these areas.

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