Failure has a stigma associated with it that few people want to be burdened with. Once they fail, they think they are therefore a failure, a label that will then sit around their neck forever. However, failure in business is essential for success, Thomas Edison failed to get the correct filament for the lightbulb thousands of times before it worked, in WD40 the 40 represents the number of failures before they got it right, and Travis Kalanick failed consistently for over a decade before he created Uber.
However - publicity nightmares aside - each of these examples shows that failure is in fact a good thing. Kalanick learnt what not to do, Edison found the things that didn’t work, and WD40 even celebrated its failures in the name of the product. In the current environment, 90% of all startups fail, but the kind of people who have the guts to create them in the first place are the kind of people who need to run companies and come up with new ideas, so labelling them as failures isn’t productive for anybody.
In fact, when a company realizes that things won’t work out as they hoped, it is essential that they fail fast and fail well.
Many company leaders will fight long after the war has been lost, creating insurmountable debt, discontent amongst clients, and the destruction of relationships with workers. This causes major problems in the future as banks are less likely to give you loans if you’ve defaulted before, you will likely never get those clients back to your next company, and key workers will not want to work with you again. It is for this reason that failing fast and well becomes key to the longevity of innovation within startups. If you don’t practice then your first failure could easily send you into bankruptcy and stop you from starting another company for several years as a result.
However, this is not as simple as just dropping everything at the first signs of trouble - after all, every business has ups and downs - but instead judging when things have gone beyond the point of no return. Ironically, this is the kind of thing that can only be gained through experience, and the first time it happens few are going to get it right. It is therefore essential for new entrepreneurs to have mentors who have been in their position before and can be called on to be honest and frank about the severity of a situation.
One of the key elements of this is always going to be making sure that advice is on hand. It is something that almost every successful entrepreneur had. Mark Zuckerberg, for instance, had Sean Parker, who, despite being only 5 years older than the Facebook founder, already had his experiences from Napster and Plaxo to help the fledgling entrepreneur. Even Steve Jobs was mentored by Bill Campbell, who persuaded the Apple founder to air the famous 1984 Super Bowl ad after Jobs was close to pulling it.
Once this has occurred, honesty is the most important element. Be honest with those at the company, be honest with any potential investors, be honest with clients, and most importantly be honest in your own feedback. It is always difficult to accept that this kind of failure came about from bad decisions, but there will always be reasons within your control. Even if it was due to a manufacturing partner or freak accident, the fault may well be in effective vetting of potential partners or suitable disaster planning in future.
If you can take the time to fully assess the reasons why the company failed, maintain relationships with clients and staff, and then learn from them on your next project you are well on the way to creating an effective company in the future.