ON_Failure: The How, What and Why…
As is probably the case for many of us, the Covid spring of 2020 sprung ample time upon me to reflect on both the past and the future.
And, although as a technology investor I am often preoccupied with thinking about the future, history has undoubtedly taught me a lot. Particularly in the context of history repeating itself as well as learning from my past failures. After spending almost three decades working as an entrepreneur, I’ve experienced no less than four economic downturns (1992, 2000, 2008, 2020), all of which had patterns that preceded them.
Apart from the obvious parameters such as interest and unemployment rates shooting up whilst the stock market plummeted down, I also saw repetition in my own behavior as well in the behaviors of those around me.
Cyclical uncertainty
Throughout my experiences, I have learned to be more content in my approach to tumultuous times. It is not that I have necessarily become wiser by age, but that I have become a bit wiser by having lived through similar scenarios several times. It is Groundhog Day, but instead of a comedy, it can just as often be a tragedy. Regardless, it is these similarities that have guided me to act.
Or not to act, because my main takeaway after thirty years of working is not to overreact. Time is the great healer after all, and all crises must eventually pass. To not overreact, I find that staying on course and maintaining vision is key. At the same time, it is essential to remain aware that strategies are there to be scrutinized and that ultimately, no matter how good the former duo are, they mean nothing if you cannot execute them properly.
Conversely, if you keep the faith, stay humble to strategic realities and maintain a standard in execution, then you will always be able to weather the storm. All crises bring uncertainty, but with time, experience, and reflection, periods of uncertainty can be massaged into more concrete understanding, with lessons learned for the next wave of unknown.
For me, whether it be starting a business in Romania in 1991, commercializing nanotechnology in the early 2000s, or co-founding a ski resort in 2006, life has provided a library of preparation that helped me achieve my Ph.D. at the university of uncertainty.
And then there is the rest. I am a long-time member of the European startup scene, with more than 25 investments ranging from deep tech innovations to software and internet companies. In the past 25 years, my portfolio companies have gone out of business, awoken from the dead, or conquered the world. Others have been sold to major industry players or gone on to be listed on the stock exchange, returning anything from 0 to 52 times the initial investment.
I have seen both sides of the startup and investor coin. I have been there witnessing a major technical breakthrough, when the first client places an order, when the first funding is in place, when an over-qualified CFO accepts the offer to join, when you reach 1, 10 or 100 million EUR turnover, when you are part of an IPO or when your company gets sold to the ideal industry partner.
I have also made lots of mistakes, I have been frustrated by missing deadlines, missing orders, having had the unfortunate privilege to inform the staff that their salaries will not be paid on time, been back-stabbed and undermined by people I have trusted for years, just because they blindly followed the money.
As an owner, I have been the last person standing when everyone else has left the board and stopped returning my calls. I have been in court defending my actions when saving a company, its employees, and investors. I have been the one taking responsibility for mismanagement and poor governance, paying portfolio companies taxes from my own pocket as well as being sentenced to substantial fines for not handing in an annual report in time.
What I mean by all of this is that, if I can state anything as for certain, it is uncertainty. And taking action in times of uncertainty, always comes with the risk of failure.
There is a wrong way to do wrong
Yet this is by no means a bad thing, but it can be a bad thing if approached the wrong way. As Roy Amara’s law goes: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” We can never be certain what the future holds, and often get it more wrong than right.
Remember when the dotcom bust everyone said that it was just a bubble. Back then, e-commerce sites were too heavy to work over 64k modems. Fast forward 20 years and e-commerce is killing traditional retail, Black Friday is the new Ides of March, and with Covid’s help, the debt is going to be paid.
The same thing happened recently with companies like WeWork inventing new KPIs like “Community Adjusted EBITDA”, what a joke to even try to claim that it was different this time (again). Where are they now? Best not to talk about it.
We often disregard history and hold misunderstandings around the value of failure. An inherent belief that situations exist in-situ in time, separate from both the past and the future. Yes, it did not work that time, but that does not mean it will not work now. Vice versa, it may work now but that does not mean it will work in the future. Reiterating your strategies and execution is paramount in adapting to an ever-changing scenario.
Then there is the horseshoe effect, and how, just as there are those who react to uncertainty with panic because they think it’s the worst it has ever been, at the same time others rest on their laurels believing that what they have come up with is, in fact, new under the sun.
Both of these approaches fail to learn from previous failures, and both are worse off for it.
And a right way
When it comes to those who are more successful than most, these approaches are non-existent. This is because the acceptance of failure is baked into the entrepreneurial ecosystem: people who try new things and push the boundaries tend to fail, and fail often. It is quite simple: the more you fail, the more you learn, the more you try, the luckier you get.
But this is not the only essential trait in the ecosystem: having strong beliefs and the ability not to quit are essential to the success of an entrepreneur. Even here, the “quit” part is something of an oxymoron. There’s a fine line between successful perseverance and failing stubbornness.
Quite clearly, failure after ten years is worse (and more mentally exhausting) than failure after 10 weeks. And for most, to quit is to fail. The most successful ones understand that failure can breathe life into success. A commitment to vision, an acceptance of the bending nature of strategy and an understanding of the importance of execution in tactics are brought to the fore here.
For, failure, for all its failings, reveals the importance of all of these factors.
Failure is fundamental
This is something that many have begun to understand. Although there has long been a social stigma around failure, in many countries this stigma is beginning to disintegrate as people learn to accept the inevitability - and value - of it.
Yet sadly, even here I still see one clear difference: that the people talking about their failures the most are the ones who have won in the end. After all, it’s not hard to admit that you’ve failed when you’re a unicorn founder or world record holder.
So how can we all make sure to rationalize behavior the right way? There’s a lot of models out there, all of which have certain truths tucked within.
The three stages of failure
One I have found particularly relevant to my own story is described as the three stages of failure in life and work, a framework that helps identify three significant aspects of failure and facilitates the proper assessment of failure in order to be better prepared for future success.
The stages - the failure of tactics, strategy and vision - are illustrated in a pyramid format, with each playing a crucial role in whether success is achievable.
Failure: How
At the top of the pyramid sits the failure of tactics. This is best described as HOW the mistakes were made. These mistakes are your troops on the ground, the systems in place where quick decisions are made. Basically, this is when you cook a delicious dinner then drop it smack-bang on the floor as soon as you get out of the kitchen.
Or for me, this was like when my nanomaterials company was let out of the research lab and incorporated way too early.
How this happened was that, as one out of two of the first investors in a nanomaterials company in 2006, I was impressed by the research and patent portfolio and very eager to assist in taking the product to market. Little did I know that it would take 14 years to lure in the first customer. During that time it became more and more clear that the company had left the lab too early. Instead, it would have been wise to continue as a research project for several years, while simultaneously building the IP portfolio and industry network.
In short, what I learned from this was not to believe your own hype, tread carefully, and with a level head. At the same time, if I had done nothing at all I would emphasize that, when wasting time one way or another, to not dick around.
Failure: What
Next up is the failure of strategy, WHAT mistakes were made: you may understand what you have to do, and be able to do what you think you should do successfully, but if it is the wrong way to get about achieving the initial vision then the energy will be wasted. In simpler terms, if your vision is to get across a river, and you decide to drive a car through it to get there, you’ve picked the wrong strategy, even if you know how to drive.
My real-world example would be the microscopy company I co-founded, where we partnered with a large industry player for our go-to-market strategy.
What happened here was that as a deep tech startup commercializing an instrument that could move around individual atoms, going global with a staff of 10 people was a challenge. Imagine the relief when we were approached by two of the largest industry players wanting to cooperate in marketing, sales, distribution, and service.
First, we partnered with Company A (or F actually), and after initial meetings with their top management, spent 6 months negotiating with their Head of Partnerships and among other things (without success) trying to convince them that there is no way we could build a safety stock of 100 systems, each with a manufacturing cost of 50,000 EUR. This opportunity then faded into legal oblivion.
We then (stubbornly) tried again with another large player (Company G). Here we actually managed to get a deal in place, but totally failed in implementing the strategy and failed to convince the partner to actively sell our systems. This experience made it obvious that looking out for yourself and making sure that you own your customer (in this case) is vital.
From this, I reassessed what had happened and learned that from a company perspective, it’s best not to assume that anyone else is protecting your interests: always look after yourself.
Failure: Why
The final and fundamental failure is that of vision: the WHY factor. If this is incorrect, you are sitting on a dead duck in a world where people do not give a damn about dead ducks, yourself included.
This failure occurs when you have not really stuck to your guns and kept your principles to heart. Or worse, stuck to it when reality is screaming at you to change course. Worst of all is the realization you never knew what you wanted in the first place.
Take for example the ski resort I co-founded, where the vision has roughly stayed the same over the last decade and through one restructuring. The vision may be the same, but it was misaligned with the growing reality of a world brutally affected by climate change.
For years we worked to create the most modern ski experience in Scandinavia. Stumbling along the way, facing (and clearing) serious financial obstacles during the crisis, and then reappearing on the other side with lessons learned and armed with fresh perspectives.
Did we adjust the vision? Nope, it is still going strong but we now accept that the financial appetite for weather-sensitive-investments is limited.
Why I did not notice this even when I look back and see several occasions during this journey where it would have been reasonable to quit and pull out of this venture, both as an operator and as an investor was because this is perhaps the hardest failure to scrutinize, but also the most important.
Personally, quitting is something that has been a challenge in all of my ventures, be it as a founder or as an investor: when I should call it quits as an operator, or when should I take my money elsewhere. (Actually, come to think of it, as a very early stage investor, these two perspectives are often the same…). I still have not deviated from this vision, and only time will tell if I will get my investment back, but the odds are not looking too great right now.
And although I may have failed at doing it myself, from experience I now understand that it’s never too late to quit.
Time of the season
Failure then is a failure in spending your time wisely, but even more so, it is a failure in recognizing that you are doing just that. Once you have admitted that the time has been lost, it is possible to convert some of that time into something gained. This is because what is certain is that within all past failures lie the seeds to future success, it just takes some time to understand that.
But On_Time, I think I will reflect on after a few more Covid spring and summer days…