Among the most successful entrepreneurs in the U.S., failure is a more common theme than you may think. Milton Hershey’s first candy business failed. Steve Jobs was forced out by Apple in the ‘80s before he returned in the ‘90s. Jeff Bezos is known to have made mistakes that cost the business billions from the Amazon Fire Phone to a failed investment in Pets.com.
Failure may not be the key ingredient to greatness, but it’s in the mix somewhere, especially as it pertains to business. According to the U.S. Bureau of Labor Statistics in 2021, the year-one failure rate for companies was 20%. By the end of year two, it’s 30%. By year five, half had gone belly-up and by the end of a decade, only three in 10 startups were left standing.
One might think the failure rate would keep many would-be founders on the sidelines. Yet the very same year as the BLS data, the U.S. Census Bureau reported a record 5.4 million applications were filed to form a new business, a 53% jump from 2019.
“One of the things I tell entrepreneurs is things are most likely not going to go as planned, so be ready to pivot at any time. And it’s OK,” said Julie Hockney, who owns JH Interior Design, The Studio by JH, Boutique and The Winery. “If you go down the road and thought this was going to happen and it doesn’t, it’s OK. A lot of times employees come to me with a problem and I say, ‘I don’t care so much what happened. I want to know how you handled it.’
“What matters is, do you have that capability to go, ‘OK, this happened, this is how I’m going to handle it, this is what I learned from it.’ There definitely has to be a passion within to tackle things in entrepreneurs. There’s got to be the grit to handle stuff.”
Since business survival rates have remained more or less consistent for the past 20 years, failure can be considered a fact of life in the startup world. Failory.com reported the top three contributors were product-market fit, or lack thereof (34%); marketing problems (22%); and team problems (18%). Investopedia narrows down the fatal flaws of doomed ventures to the money running out due to founders chasing too broad a market and doing insufficient research.
“A few things entrepreneurs must consider are customer discovery; range, scope and reach; value/ROI and sustainability,” said Craig Boesch, center director for the Nebraska Business Development Center. “Customer discovery is where the prospective business owner impartially asks anyone if they thought the goods or services being provided would be a good idea and identify who might benefit most from it. Range, scope, reach and frequency of the product or service all seek balance; there’s such a thing as being ‘too unique’ and there’s also the opposite.
“Then, can you provide it to a customer with the capacity to pay for it, within the perceived or created value, while earning a reasonable profit? All of these things should add up to this being a business with repeatable growth and continuity.”
Mentorship is Key
Boesch said one of the ways NBDC assists founders is by providing mentorship to help navigate challenges and acting as a sounding board to improve decision-making skills.
“Some ventures require a full-scale ‘leap.’ Some can be eased into, allowing staging,” he said. “Helping the founder determine the next steps that best fit their individual circumstance is important.
“Part of it is determining where the entrepreneur is in the process and then addressing the steps and needs that contribute to success. If they’re struggling, I walk through the circumstance to better understand what decisions were made and the energies exerted to that point.”
Dale Eesley, business owner, professor and director of the University of Nebraska at Omaha Center for Innovation, Entrepreneurship & Franchising, said he regularly advises entrepreneurs on foundational business mistakes, such as viewing the proposed product or service in an unrealistic light, which invariably causes difficulties up to and including business failure.
“I see entrepreneurs so in love with their solution that they don’t really listen to potential customers or do the research,” he said. “When they do find demand, another mistake is not anticipating the true cost of delivering and supporting the service, lead times, supply chain issues and rapidly growing receivables. While growth is exciting it can be expensive and entrepreneurs need to have funding ready to handle this.”
Hire the Best
Eesley said another important area that derails a startup is cutting corners when it comes to hiring the right employees.
“Startups are tough, but if you have smart and experienced people, you can get through it,” he said. “Oftentimes there is a temptation to hire inexpensive and available people in a rush to fill orders or staff shifts. I think this is a big mistake. The first few people you hire will oftentimes set the culture of your business.
“I always encourage startups to spend more and hire A-level employees and get the culture right. If they start off with B-level employees, it will be harder to attract A-level workers later. Meanwhile, B-level employees will want to hire C-level and even D-level workers.”
The value of a mentor for any entrepreneur, Eesley said, is incalculable.
“I was trained as a professor of strategy, but no class can prepare you for the real world,” he said. “Outside of trial and error, I ask everyone I can find for advice. If you can find highly successful mentors who have already paid the tuition at the school of hard knocks, you can avoid a lot of mistakes you would otherwise make.”
A Place of Belonging
Julie Hockney also recommends finding a business organization to provide a network of like-minded founders and owners who can offer support and advice. In recent years, she said she’s “found her people” in Entrepreneurs’ Organization, which has 15,000 globally and includes a Nebraska chapter of which she is the first incoming female president. Having that network of support has been invaluable when facing critical business decisions or recovering from a setback.
“There’s no better way to sharpen yourself than through failure,” she said. “You probably won’t make the same mistakes twice, especially if they cost you money. Failure also gives you the experience to share with others. It just makes you more approachable on a human level.
“I was at an EO global conference in South Africa and Bear Grylls was there as a speaker. He told the story about how the good stuff in life is on the other side of failure – shortcomings, mistakes, all this – and there are no shortcuts. To get to the good stuff, you have to go through that.”