Archive for the ‘entrepreneurial failures’ Category
This is a guest blog by Eve Baxton.
Owning a professional business is a huge responsibility. It involves all the potential risks and traps that are imaginable. According to a survey in 2009 by PrinceWaterHouseCoopers more than half of the enterprises suffered from the economical crimes. In most of the cases, small sized enterprises are the best prey to fall for potential traps around.
These dangers include employees or managers misrepresenting or manipulating the financial information, customers misusing the enterprise’s borrowing in criminal activities and contractors producing false bills. Along with that, other elements exist that perpetrate fraud against the enterprise by electronic means. This includes hacking, manipulating the telephone service and robbing customer’s confidential data, such as credit card numbers or usernames and passwords.
The ultimate quest that should be taken care of as soon as possible, to protect your business is identifying the sources of potential fails. That is not an easy task to take on, for a less experienced businessman. By just considering some basic and yet important things, the enterprise can be easily protected from potential frauds, however.
According to the statistics, the most common reasons for falling into these traps are the lack of experience, commitment, and, most significantly, management. Let’s take a look at the potential traps that most of the enterprises, no matter big or small, fall for.
- The Innocent Employee Trap
According to the facts, most of the time insiders; employees, managers, or company’s officials, are the main reason for an enterprise to fall and fail. These employees “innocently” steal the assets of the company, and commit accounting frauds. Detecting such actions is vital; it requires a lot of methodologies and commitment to be employed, however.
- The Clever Customer Trap
Another hazardous trap that most of the enterprises fall for is the clever customer trap. It has been found that many customers are using fake identities, stolen credit cards, or are filling out fake liability and injury claims to perpetrate the company. All these actions by “the sweet customers” only results in the enterprise’s money being taken away.
- The Fake Return Scheme Trap
The most common victims of this type of frauds are retailers. It is the best scam for the clever customer to perpetrate against any enterprise. Most of the times, the customer brings back used merchandise that has not been bought from the same place and tries to return it and get new merchandise under the shelter of the fake return schemes.
- The Greedy Contractor Trap
Most companies rely on outside service providers for its survival. Therefore, many of the enterprises fall for the greedy contractor trap. It is not uncommon for the contractor to bill more than the task he has done is worth, and more often even asks for the billing of a task that has not yet been completed. Strong policy, terms, and conditions should be presented to the contractors, before entrusting them with any task, to avoid these attempts, and leaving no room for the contractor to commit such frauds.
Protecting Your Professional Businesses
After viewing the potential traps, let’s take a look on the precautionary measures that an enterprise can take to avoid unnecessary fails; these important methodologies can fraudproof your business against its very own employees.
- The Method of Anonymous Employee Reporting
Utilizing this method is one of the best methods for detecting the potential dishonesties that can occur within your business; compared to scheduled employee reporting, the violators’ opportunities to destroys any vital fraud traces are severely limited.
- The Method Of Surprise Auditing
Along with the regular, scheduled internal audits, surprise auditing should also be performed in the enterprise, as it significantly increases the chances of detecting potential irregularities, thus making your company more protected.
- The Method of External Auditing
Along with the above mentioned methods, this is also a significant tool to determine a potential fraud; it should be held at regular intervals.
Business Insurance – The Ultimate Protection
Along with all the above methodologies, the most important step in stabilizing an enterprise is business insurance. It plays an important role in the art of preventing the failures related to undetected frauds. Professional business insurance protects the business from many unexpected frauds, and it enables a recovery from what may seem as a catastrophic loss. Even when insuring your business, you should consider several key factors, however; for your business insurance to be viable for you, it needs to offer an equal protection for any business, regardless of its size, and to provide protection from all sources of frauds and failures. First thing that comes to mind is protection from theft. Theft is the most common and uncontrolled source of assets loss that occurs in most enterprises internally and externally, making insurance without theft protection almost useless. Protection from litigation is another important aspect; while unfounded law suits from wealthier competition are likely to turn out in your favor, the costs before you prove your innocence can cause your business to fail, so proper insurance has that covered. Protection from unwanted liabilities provides you with protection, when the assets, coming from your company, are used for any illegal activities, which is not a rare occasion with internal frauds and thefts.
It’s your responsibility to implement a fraud proof protection method, that suits best to your enterprise’s needs, properly. All it requires is some commitment and dedication towards the business; no matter how malicious the fraudster’s aims are, you can stop your company’s fail before it’s to late!
If we’d known we were going to make it, the challenge would not have been the same – we might have not gone. If we’d known what lay ahead, we certainly would not have gone.
The paragraph above typifies most entrepreneurial undertakings. It always starts with a bright idea, sense of uniqueness, and feeling of going to accomplish something important and doubtlessly rewarding.
However, the excerpt has little to do with business. It is an account of journey, the longest at the time (1980-1982) from the Bronx Park (in Northern Winnipeg, Canada) to Belém (in Brasil, where Amazon meets the Atlantic) on canoe, spinning some 12,000 miles (20,000 km). Below is the final entry in the original diary (links are mine).
We have taken some 20 million paddle strokes to get here and have traveled every variety of waterway. We have slept on beaches, in jungles, in fields – sometimes in canoe, on the open water. We have shared simple food and lodgings with the Cuna Indians, the Guajiras, and the Miskitos; we have dined aboard million-dollar yachts. We have eaten shark, turtle, paca, tapir, wild pig, manioca, palm hearts, cactus. In Cartagena, we ate heaps of roasted ants.
We have encountered hundreds of species of creatures: snakes, crocodiles, piranhas, morays, sharks, whales, bees and scorpions. Strangely enough, the only animal that has given us any trouble was man; we have been arrested, shot at, robbed, jailed, and set upon by pirates. At one point we were led off at gunpoint to be executed.
We have been taken for spies and sabotoeurs, have capsized 15 times at sea and spent terrifying nights in pitch blackness riding the ocean breakers without navigation. We have had brushes with the drug trade, suffered food poisoning, blood poisoning, and dehydration. Forty-five times our canoe has been broken on rocks or reefs. Our skin has been baked to scab by the sun. We have been close to starvation.
This is reminiscent of journeys of so many of those leaving their mark in history of business, politics, arts – all human endeavor. Only the details differ, yet how many of those aspiring entrepreneurs have an idea of what awaits them alongside their journeys? How many would carry on having a foresight of future? How many would continue and endure? Not many. Yet at the end, winners always invariably stand alone:
In spite of all we’ve endured, our arrival here in Belém was anything but triumphal. No banners, no champagne, no tears or kisses. Nobody at all… Perhaps we deserve such a fate. We have come too far.
Many aspiring entrepreneurs, without having previously started a business, already have a fixed set of conceptions about embarking on a new venture. The most wide-spread and misconceved of those are:
- I need lot of money to start a business (many ways to start-up with no money or with a bit of bootstraping)
- I will get rich soon (although some successful startup founders get rich and advise others how to get rich, it will require time till your business gets traction and starts making profit for itself and for you; brace yourself to get rich slowly, in the best of cases)
- I need to have a well-conceived and thorough business plan (it is true that business plan is an important fact, but many consultancy and web service providers started off without one)
- I need a unique and great idea to build upon (it is far more important that the idea addresses an open need or delivers in a better, more efficient or more affordable manner that currently available on the market; Betamax vs. VHS story)
- I am the boss and I know better (your employees, your customers, your shareholders, and most importantly, your competition will affect and have sawy on your decisions)
- It will take lot of time till my business makes profit (while number crunching to project profit is useful, it is by no means sufficient; focus on customer needs and offering value is what will eventually bring profit; some take lot of time and other take a year or two)
- I will have more time and freedom (nothing can be further from truth; this is your business and every idea, problem and solution – especially at the beginning stage – will have to go through you, worry you, make you sometimes anxious and other times happy)
- I have this nice/cool product/service and will surely get customers/market share (Apple Newton, Motorola Iridium, and many of top dot-coms were built with this idealogy and resulted in failure)
- I am the boss and I can pay myself as much as I want (while there is much debate about how much a founder’s salary must be, it is obvious that a founder needs to share love with employees if he expects their loyalty, devotion and passion in work)
- I need to take a bold risk in order to succeed (was Bill Gates a risk taker? you rather need to be flexible and adopt to realities, solving problems as you go)
The misconceptions above (and any of their combinations) usher in a bad start, difficult and eventually unsustainable growth of businesses.
Failure. Success. What association do we have with each? Google search of the word “success” returns nearly 281 million results whereas that of “failure” 119 million. These are telling numbers and they seem to reveal the underlying “logic” of our lives. We are afraid of failures, whether they are in our personal lives and in our careers (whether changing a job/career or starting your own business).
Many are driven and inspired by success stories, recipes and recommendations of others. Success, even if it is not yours, feels good. It feels comfortable. Present and future, in that one instant, seem to become brighter and more rewarding. We live in that instant and want to stay in it.
Many are afraid of failure. We hide our failures. We try to forget them. We mostly attribute our failures to a bad luck, an out-of-control happenstance or an incident. Very few of us openly admit a failure, even less their part in it.
What we don’t necessarily know is that fear of failure destroys any chance for a possible success in future. What we also might not know is that failure breeds success.
Throughout our history, many a successful entrepreneurs, businessmen, politicians, scientists failed first before reaching success. Google returns about 672,000 search results for “failure quotes,” and each of those pages – this is a good example - contains quotations and saying of those who made history.
I selected excerpts from some of modern (and currently very) successful entrepreneurs, businessmen and bloggers who tell of their failure stories and experiences.
Have you failed before? Was it as terrible as you had anticipated? Well, here you are reading this article, so it seems you survived all right. Truth is, failure is almost never as bad as we imagine. Fear of failure is usually much worse than failure itself.
I was what they call a “hyper responder.” I’d buy just about anything that promised freedom and fortune. I bought programs about how to trade the commodities market (and I actually did that and made money); I bought programs on how to bet the horses; I even bought a program about how to become a “waste auditor.”
But as my drive intensified, I began to make larger investments.
I dropped $5,000 on a real estate investment course. I realized too late that I was uncomfortable using the techniques in the program; it was basically worthless to me.
And while that loss hurt, it didn’t hurt nearly as much as the next mistake I was about to make.
Yes, he made mistakes. We all do. But he came out of these mistakes and experiences a stronger person.
Because weird as it sounds, failure is a requirement for success.
And like it or not, without failure you can’t truly succeed, so avoiding it pretty much makes you dead in the water right out the gate.
I’ve met (and worked with) some serious “power players” in business. Not just on the Internet, but offline biz owners, too. I’m talking about people who sometimes make more scratch in a DAY than the average working stiff makes in 6 months toiling away for the corporate beast masters.
And you know what all these people have in common?
They started out as miserable FAILURES.
Last but not least, remember one thing. If you are failing or what you are doing is failing and things just seem plain bleak and without any perspective, then perhaps, it is time to give up what you are doing and start anew. Or perhaps, it is time to start doing something else.
There is a right time to give up. There’s a right time to quit. The trick, and it is a HUGE trick, is knowing which is which.
Remember that surrender is every bit as much a part of strategy as victory. Learning when to surrender or lose a smaller battle has been part of the success plan of every major war ever fought. The trick is in knowing what really matters, and never letting go of that. The problem we have is that we fall into the trenches and think the battle is the war.
Failure. Success. Two sides of the same coin. One cannot exist without the other.
Embrace your failure and you will succeed.
There is no ready receipt to make your business succeed, but their are components many successful companies embrace in order to go from red, bloody competition-driven mindset into a blue, value-based, innovation driven one. The name of the game must be value (for employees, customers, stakeholders, society and environment) innovation.
To build a viable and sustainable business model based on value innovation, the following four strategic dimensions need to be decided upon: buyer utility, price, cost, and adoption.
To decide upon each of the dimensions above is equivalent to finding exhaustive and compelling answers to certain questions. For example, at the first stage, Buyer utility, to go or not go ahead with a service/product you are thinking of (re-) introducing to the market is determined by seeing whether your offer is useful and whether there is a compelling reason to buy it. If any of the two questions do not get a resounding YES, then you are risking to enter a competitive market without guarantee of attracting a big enough crowd or having to put forth your offer without getting expected/necessary revenues.
The most important part in Buyer utility stage is to position your product/offer on the following target “buyer map,” you will determine whether your product/service will create new demand/market (like Nikon is now trying to do, a market for energy goods or in a production of arts) or enter into an already existing market. The map also allows you to check existing competitor products/services, their locations and where the gaps, hurdles and unmet demand exist for your offer.
Essential for Price stage is to understand the economics of similar offerings. Target buyers will more eagerly buy a product/service recommended/referred to them by their peers/others rather than one that only few buy – network externalities. Hence, the need for correct pricing to attract that initial threshold of customers, which will then cause a snowball effect.
Another important factor for determining a price is the idea of rival (for example, production materials, which exclude their use by their rivals/competitors) versus non-rival (for example, ideas, which can be adapted/used by their rivals/competitors) types of products/services. By looking at similar offerings – same form and function; different form, same function; and different form and function, same objective – you will be able to narrowly define a price corridor for your target customers that will be feasible from your side (ensuring sales and profit).
For the Cost stage, the counterintuitive but winning strategy is to have price-minus costing rather than cost-plus pricing, if you are willing to have a cost-structure that is both hard-to-match for competitors and profitable. To be able to attain your preset cost target, there are three ways:
- Cost innovations (from manufacturing to distribution – Swatch’s innovative approach to material and number of parts for their watches)
- Partnerships across the same or a complementary vertical (SAP-Oracle partnership)
- Price model innovation (NetJet’s time-share, slice-share, equity interest)
And finally, for Adoption stage, you need to consider that new things tend to always be met first with resistance even by those for whom they are made/offered. Hence, a need to clearly communicate, address issues and receive “acceptance” before going ahead with employees, stakeholders, target market, generic public.
Failing at any (or few) of the four strategic dimensions is what usually leads a company down the drain..
I have previously blogged about top dot-com flops. By chance I came accross this great round-up of failed startup post-mortems on ChubbyBrain. The list includes, among others, the following:
- Devver (and here is my take on its failure)
- Monitor110 (see here for my own take on its post-mortem)
An article (also pointing to the above source) on GigaOm featured information about post-mortem of the infamous StandoutJobs . As for main reasons why statups fail, have a look at Paul Graham’s article and my previous blog post. Finally, here is good set of lessons from Mark Goldenson, founder of PlayCafe (one of failed startups on the above list). I especially like his “Set a dollar value on your time,” which helps prioritize tasks and clarify what is and is not important for your business.
Many entrepreneurs and businessmen, especially those tech-savvy (co-) founders whose rise is almost as accidental as that of Facebook, do not know or give enough consideration to business model of their businesses. Small businesses and startups are especially prone to this problem, as they focus on (new) product releases and never pause to assess and review their businesses or just vow for a “marketplace” business model. The results? Many startups created but most of them fail without achieving any traction nor causing any significant impact.
What is needed is a paradigm shift. Every business venture/initiative needs to have a business model in a short- or long-term. The model expands on how the parts of the business work together to create profit and (eventually/ideally) growth. While the proven razor-and-blades model has been working and stil lworks for many a business, many startups and small businesses grow exponentially by embracing innovative business models for such wide and overcrowded markets as online gaming or discount markets.
What is needed is creation of a business model around a thick value. A flawed/misconceived business model might have a number of shortcomings, including:
- un-Sustainable – if the business is built on momentary or not well-thought-out concept/trend, it cannot be sustained for long, only working (and perhaps providing profits in a short time span).
- un-Scalable – This is usually the result of business short-sight when first launching the business. User-base, marketing or demand growth can all lead to decreasing efficiencies/quality of the product. ‘How long could my business continue to operate successfully without me?’ If the answer is not long then it is to dependent on you. The result is your business can not be scaled up beyond your own personal efforts.
- un-Profitable – Companies might grow but not become profitable, the eventual side-effect of any sustainable and successful business. There is a deep need of understand the concept of a profit model.
- un-Valuable – Is the business creating a real, thick value? Is it addressing an (un-addressed) need in a market? Is it addressing an (addressed) need in a more innovative, cheaper and sustainable manner? If NO for any of the two, than perhaps it is time to re-invent your business.
Ever since, we have been struggling to break-even, all the more given the unfamiliarity of the market with the concept and with many semi-alternatives such as Starbucks-style coffee shops with moderate Internet connections/quality.
Initially, our agreement was – I was doing it with an Egyptian friend of mine and a partner – that I will take care of the business side and he will be in charge of the logistical and day-to-day management of the company. It took few weeks for me to realize that, however professional and hard-working my friend was, he was not committing the time or brain work required to the company, especially considering the initial stage of our startup and the fact that we did not seek any venture capital, but decided to boostrap. We were both employed full time and Elegua was to be our side project, which we wanted to grow.
Our first stumbling block was to find a comfortable and affordable space in the central Cairo, or close to where many foreigners were living – our target were mostly young, class A/B foreigners, students, young entrepreneurs, techies, geeks. Anyone with a laptop, a need for high-speed Internet connection, comfortable and relaxing working environment and willingness to network with like-minded individuals was qualified. All the more so as there was no real competition, besides the coffee shops with slow and unreliable Internet connections and few Internet cafes (in downtown Cairo there are quite few of them but they all look ramshackle and none allows flexibility of using your own laptop/WiFi).
We did not conduct a proper market research. Instead, we relied on my gut feeling and my partner’s knowledge of Egyptian market and our collective perception that a co-working space would not even need to be sold out. It would be so intuitively appealing that everyone would go for it.
What were the results 7 months later?
Modest revenues (not close to break-even). Many people loved the idea, but not many were ready to brave the Cairo traffic in order to reach the place.We kept on hiring and firing few employees as none were qualified enough- due to lack of time we opted for friends and connections of friends: high turnover. Elegua fan page on Facebook has 200+ fans which failed to convert.
In brief, a failure, but a failure with lots of valuable lessons for me, and surely for my partner.
The main factors in our failure were (my view):
- Choice of partner/co-founder (my partner was more ready to commit in words/ideas but not in actions as it became eventually clear)
- Time/effort commitment (both I and my partner treated Elegua as a side project and did not allocate enough time and effort for its growth)
- The place (the choice of the place was crucial for such a business – though it was central but still not enough to attract the potentially interested)
- Missing market data (we did not realize at the time how popular, reliable and affordable the Internet USB sticks became – many preferred to sit at any chosen place and plug-in a USB stick rather then to displace themselves to a coworking space)
Maybe we were to much in a hurry and could have been a bit more patient and perseverant. But maybe not. The time will show. In any case, I felt this was the right time for such a decision and as much as it was my original idea and closing it, even temporarily is not a joyous occasion, we decided to take this route.
I am moving on with my other project – more about that later – and will perhaps eventually reopen Elegua but with different offerings, another partner – in Egypt any company has to be 51% owned by an Egyptian, and I am not Egyptian – and in a different part of the city!
You have an idea – everyone has an idea – but so what? Just because you have what you consider a bright, innovative idea, doesn’t make it automatically into a ready-made product, service or any other added value to what already exists. To make sure your idea is worthy, firstly, bounce it off of as many different people – anyone who might give you a valuable input or opinion whether from within or without a relevant domain or field for you – and open your mind to critique (adding new value to your idea) as much as possible.
Once you start considering (a hitherto unconsidered) factors stemming from breaking initial presuppositions, stereotypes, narcissistic flavors and just plain and simple information about market, competition, trends that somehow slipped through your fingers, you will start clearly seeing, visualizing what you are after.
But, wait a minute. Even in execution there are ways and ways. The latter is what you must consider if you financial situation is still (or will shortly become) somewhat shaky.
In this era of mushrooming Internet technologies – especially web 2.0-related/devised – doing business online or putting an online business presence is becoming easier by day. Traditional means of creating, building and sustaining a business are either becoming obsolete or reinventing themselves. There luminaries like Umair Haque who has awesomely created Awesomeness Manifesto and much more.
And of course, with the current economic situation, we are all looking how to do it a 21st-century-style-innovative and to save money while doing it.
Let’s take an illustrative example. In 2004, Heather Allard “started 2 Virtues Inc. to bring my inventions, Swaddleaze and Blankeaze to market.”
She spent in excess of $54K (even without product manufacturing).
If I started 2 Virtues now in 2009, I’d do things so differently. I could start a business for under $1000 by doing these 5 things:
- Skip the Website
- Hire a Freelancer
- Become a Social Butterfly
- Free Stuff
If you read carefully the entire article (containing many nice tips, free tools and additional links) you will see how Heather – if she started in 2009 with all her current knowledge and experience – would have been able to economize on practically every aspect of her business initiative, thanks mostly to the Internet and free online tools, methodologies and techniques.
Instead of $54K, you can spend <$1K. What do you think about that?