Start-up businesses differ from existing, established small businesses in that they are still in search of a sustainable business model. This means that a start-up owner has to deal with inevitable failure because not every business model they try out is going to succeed overnight.
One commentator recently said that experts say if a start-up is going to fail, there are two options – it needs to fail fast or learn faster. This may sound cruel or harsh but really all it is saying is that a business needs to learn faster by pivoting, a concept from the lean start-up movement. The business really needs to redesign or change its product or service and go into a different direction where there are better opportunities.
You’ve really only failed as a start up when you run out of ideas on how to find new opportunities or lack the creativity to change direction, scale up or alter your strategy.
Most of the emphasis in starting up is on the new business idea. But ideas are not just needed at inception. To get a business up to scale when it becomes commercially viable, new business ideas and creativity are needed together with real-world reality of the marketplace. The same tools and techniques that are used to generate new ideas for new products and services will stand you in good stead when coming up with ideas for changing your business model and looking for new opportunities to grow your business.
Handling failure as a start-up owner requires a shift in mindset. Making mistakes and failing is a part of learning. All that failure really means is that you have not yet come up with a solution. One expert that teaches entrepreneurship says that we can see failure as an investment that we can seek return from. He calls it return on failure.
Return on failure requires that you do a careful and detailed analysis of where you have failed. You need to describe the failure, examine the root cause, look at any other ways you could have failed to achieve your objectives, describe how you will use the insights to eliminate or minimise failure in the future and determine what other key learnings you can obtain from failure.
It seems easy to say that there is an upside in failure for a start-up owner. But it takes guts to admit that the start-up you have invested in is not working out as you planned. It’s also difficult to make the decision to cut your losses and close everything down. Your personal reputation is at stake. You may feel embarrassed among your peers, suppliers and most importantly the customers you have been trying to serve. But any business is driven by a profit motive even if it is a small organisation established to make a difference or is more purpose driven than solely profit driven. Knowing when to cut your losses as a start-up owner is a critical business decision. It need not lead to a closed door for ever but a way to open new doors and opportunities to you in the future.