I was watching the LiveStream from the TechCrunch Disrupt conference, and I heard  co-founder of Sun Microsystems and venture capitalist Vinod Khosla say the title of this post:

My Willingness to Fail is what allows me to Succeed

Khosla was referring to the high risk, high reward investments as part of his multibillion dollar fund. In his world, one really good exit can offset a hundred less successful ones - and he has been pretty successful in finding ambitious tech companies that have had big exits. While I don't quite play in his world as far as monetary risk or reward, I really think his words apply to me and so many people I know.

Most businesses fail

Business Failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not generate adequate cash flow to meet expenses.

Research from the U.S. Bureau of Labor Statistics suggests that most failures of American startups will occur in the first two years of their existence. After that, the rate of business failure slows:

“The data show that, across sectors, 66 percent of new establishments were still in existence 2 years after their birth, and 44 percent were still in existence 4 years after. (See chart 1.) It is not surprising that most of the new establishments disappeared within the first 2 years after their birth, and then only a smaller percentage disappeared in the subsequent 2 years. These survival rates do not vary much by industry.”

That means by the end of 4 years that over 80% of businesses will have failed. So if you try to start a business, the data supports that you will likely fail. So why do so many people try to? Is failing actually a deterrent or an acceptable outcome? 

Why people start businesses

Building your own company sounds like a really cool thing to do and it can be incredibly rewarding on many levels. But it is insanely hard, often thankless work. I can't even begin to tell you the number of sleepless months I have went through and some of the opportunity costs I probably should have considered in pursuing my dreams. For me it's worth it.

From a recent survey among new entrepreneurs, here are the top 5 reasons people start new businesses:

Personal Freedom.

Plenty of people are frustrated by their daily grind. It's sounds pretty cool to be able to go on your own, control your own fate, and work when you want to.

Be careful, because you may get what you ask for. Starting a new business is typically more work, longer hours, and you will be tougher on yourself than  yourself.

Personal Development.

Lots of folks feel pigeon holed or burnt out from work. They don't feel there is an opportunity for personal growth.

Starting a new business will absolutely give you the opportunity to see all sorts of new perspectives. You’ll have to learn an insane amount (most of which will be stuff outside your existing realm of expertise / comfort zone), you’ll grow immensely as a business person and human being.

Running a business is hard. It's not all cool stuff, there's usually administrative stuff and customer service that will distract you from personal development opportunities. You get stressed, you get tired, you get distracted. all sabotaging your personal growth.

Ego.

Many entrepreneurs have a healthy ego. You’ll need it. You might even need a slightly unhealthy ego to drive yourself day in and day out to succeed. No matter how great or small your ego you can succeed; but recognizing your own value and the value of your work will improve your success.

Ego drives people to say, “I can do this better than so-and-so.” Often, people realize they can do a better job with what they’re already doing as an employee, but on their own.

Money.

We read about all these amazing exits. Instagram  makes no money and Facebook buys them for a billion dollars. It's so easy for us to dream of our idea will be in that a very small percentage of super successful entrepreneurs make more money with their businesses than they would as employees. But is that really the case for everyone?

Rob over at businesspundit tells us:

The truth is that you are likely to make less money over your career as an entrepreneur than you would in the corporate world. Research shows that only the top quartile of entrepreneurs make more wages than their corporate employed counterparts. That means 75% of entrepreneurs would be better off financially with a regular job. You could counter by saying that wages may suffer but you can build wealth through your business, but you would be wrong again. The majority of entrepreneurs have $20,000 or less in business equity, and 30% of them have zero business equity. Surprising?

Not everyone starts a business to replace their full time gig. Lots of people are looking for part time or supplemental income, and not ridiculous wealth.

Passion.

This is the best reason to start a company. It's something you love and/or a problem you are obsessed with solving. It keeps you from sleeping at night. It's all you want to talk about, think about, work on.

Entrepreneurs are a more passionate crowd than non-entrepreneurs. It takes a lot of bravery, faith, and commitment to choose chasing after something you want than more comfortable alternatives. 

Why do people who want to start businesses never start one

So not everyone is meant to be an entrepreneur. It's often an incredibly challenging task to build something new, with a relatively low chance for success. You have to be really committed to what you are doing. 

I hear plenty of people tell me that their dream is to be entrepreneurial and build a company, but they never move forward in any way. Some of these folks are extremely well educated (MBA, PHD) and have had considerable success in corporate scenarios. Most of them will talk a big game, but aren't willing to try. Here's some of the reasons I routinely hear:

• I would be working on something right now if I just had an idea
• I don't have the money or funding, I don't have a developer 
• I don't think my idea is good enough to make money
• I don't have time or energy
• I am too busy, it's not worth my time

To me, these all sound like excuses where people are putting off following their dreams/ambitions in fear of failure. The most important part of building a startup is to start. No matter how you prepare, business is unpredictable and you won't have all the answers beforehand. You are going to make mistakes, you going to not succeed as you'd hope in certain scenarios, you are going to learn, and you are going to change your mind. If you accept there will be some aspect of failure along the way, then there is no reason to fear failing. I would argue that it is a good idea embracing that failure will happen, so we should plan how to quickly find when failures happen and plan to mitigate the impact (referred to as failing fast).

We are talking about making your dream become a reality, or at least attempting to. For me, it had better be something really insurmountable to keep me from even trying.

My path to entrepreneurship

While I was 18-19 years old, I paid for school by working in the warehouse (picking, packing, unloading trucks, inventory) for fast growing and successful sports apparel company. One of the founders had left a senior level position in well established company to build something of his own, changing the industry with his innovations in many ways. He was one of those rare leaders who understood his vision and was able to build a culture of extremely dedicated employees focusing on execution. There were many things I learned from the environment, but the following two statements made to me are what stuck with me:

• If you don't really try to go after your dreams, you will always live with regret.
• I am not the smartest person you will ever meet, but no one will ever out work me.

60-80 hours a week of manual labor at $7/hour (while going to college full time) was not my favorite work experience, but I learned an awful lot. I got to see many interesting things I could have never learned in any class - like how the company was organized, the way people interacted, who moved up through the ranks, and the logistics of how product went from design to manufacturing to sales to fulfillment. Since this was how I paid for school, I knew I needed to make the most of the experience to move into something I would find more personally and finanacially rewarding.

After my time with this company ended in 1994 (it was sold to competitor for a healthy exit), I knew I really wanted to find something I was passionate about. Since I have loved sports and collecting sports cards ever since I was a little kid, so I figured this would be something I would like to pursue. I also was interested by computers, math, and economics, so I kind of figured these things might give me an opening once I found the Usenet groups in the college computer lab.

After finishing a very introductory "Intro to Computers" course during my freshman year, I was determined to build a system to keep track of fantasy sports - as it took forever to compile the scoring manually. I really had no idea what I was doing, but I stayed up many nights on end in the computer lab (neglecting homework and my social life) to figure out how to link text files in excel and ran a bunch of macros to calculate the statistics for my Fatnasy Basketball league. The Com Sci students working in the lab were in shock I was able to make it all work. I wound up building similar spreadsheets to support leagues for football and baseball leagues - and a new business was born. I was able to charge local fantasy leagues for the service for the next year or so. Eventually email and the Internet became more mainstream and the business wasn't really viable.

I decided to try something else computer related, it led me to spend time exploring when I found the Internet in the campus computer labs. I taught myself HTML, built my first web site on free hosting from angelfire, and sold sports cards from my apartment my senior year (way before amazon and eBay were mainstream). I also ran auctions via Usenet groups and email groups. While this was quite time consuming, I only made a little bit of profit.

The opportunity costs of failure

You invested time/resources trying to build your business and it failed. Obviously that investment had some value, that likely did not reach the desired result.  I would argue that time is the most valuable asset you can invest because, unlike money or favors, you can never get time back.  

In a previous post, i defined Opportunity Cost as the benefit that could have been gained from an alternative use of the same resource. So objectively measure what the failure cost you, you'd need to consider other things you could have used your time/resources to achieve. Perhaps working on another venture, spending time with family, sleeping, vacationing, buying a new car/house, etc.. This is an exercise based completely on speculation of what could have happened, and the impact of the cost will vary for each person and scenario.

For me, I sacrificed lots of personal time and maybe some performance in my schoolwork. Maybe it would have led to me having a very different outlook and taking a completely different path in my career. Who knows?

Failure is not all bad

So you fail... is it a bad thing? Did you become an entrepreneur to "not fail" or was it something else? Did you want to be inspired, solve a problem, learn something, challenge yourself? 

Sometimes the process can be more valuable than boolean result of success or failure. Even in some the most classic failures (pets.com anyone), there are great opportunities for personal growth and learning. There's relationships you make along the way. Your failures can often lead to inspiration for something successful to later follow. 

Since both of my college ventures were not really scalable or sustainable, I guess they would classified as failures. While they didn't make me rich or famous or lead to viable long term employment, I feel like they were a huge success. They taught me that if I defined what I wanted to accomplish and worked really hard, there was tremendous opportunity for me to achieve my goals. The owner of my previous company was right, that I should go after what I wanted and make sure I put in an honest effort to get there. 

Some good things definitely came from these experiences:

1. My personal interest along with the skills I had picked up led me down a career path in software development and project management, something very different than what I had studied in my college coursework. These projects also helped shape my vision  for what I really wanted to create - the ultimate web portal for sports card and autograph collectors.
   
   
2. In 2000, I went on to build what would become the largest sports autograph community in SportsCollectors.Net. Fast forward to today (12 years later), the site is loaded with many unique features, 30K+ members, year over year growth, and it has been profitable each of the last 10 years.

While I am not wildly wealthy, I have been able to deliver some significant value for my day jobs over the years and to thousands of people that happily pay to subscribe to  SportsCollectors.Net every year. I would call both of these things successes. And these successes would have never happened without the experiences of my failures.

The next level

The most important things I learned from my failures were not apparent right away. In certain projects, I was completely unorganized and made every decision by the seat of my pants. I took some actions that I would have done differently had I planned better.

After some time to reflect and spending a few years working in software professional services organizations (where I got to see how other organizations functioned), I realized that that I needed to get better organized to be successful. I needed a to find a systematic approach to pursue any future startups. Here's what i came up with as a phased process for starting a company (that I used when creating SportsCardDatabase.com):

1. Discovery - Honestly assess the feasibility of the opportunity.
   
   I was the target customer for SprotsCardDatabase, so I thought I had a decent idea what was viable. I then asked 100's of potential customers about their pain points and what they envision a solution to be.  I came up with high level description of what I thought it should look like (with some messy diagrams), some revenue opportunities, and list of constraints. I assessed all of these and decided it would make sense to move forward
   
   There are plenty of scenarios that you may want to follow, but are not viable. I'd love to play center for the Boston Celtics, but I am 5'10 and not overly athletic. So it's obviously not a feasible scenario and I shouldn't spend any time moving forward.
    
2. Requirements - Document the vision and the goals.
   
   There are many different styles and methods to defining and documenting your business. Some folks write mission statements, some write use cases / functional specifications, and/or some write lengthy business plans. The important thing is to formalize what you want to do and how you will measure your success.
    
3. Analyze - Design an execution plan to accomplish those goals.
   
   Here is were you are going to figure the steps you'll need to take. You'll figure how to break the requirements in workable tasks, how long it take, how much it will cost, what is the best way to get it done, who do I need to get help from.
    
4. Build - Execute on the plan.
   
   Do the work that was laid out in the plan. Build/implement something. Deliver value.
    
5. Validate - Assess progress and learning.
   
   Determine if what delivered is working how you expected. 
   
   This goes far beyond what most people would call Quality Assurance (QA) - seeing if a feature has the desired functionality. It's about seeing if users actually like the deliverable, if they actually use it, and how they use it. This is the opportunity to learn the most about the viability and impact of what you are delivering. 
   
   This is also the place where you decide what your next course of action should be. Is it building on top of what you just delivered? Is it moving on to the next item in a punch list of features? Is it something completely different that has been inspired by your learning? Is it taking a break or spending more time doing analysis? Is it abandoning the project?
    
6. Iterate - Repeat steps 2-5. 
   
   I am big believer in dividing an ambitious amount of work into smaller pieces that can be delivered individually. This allows me to deliver value faster and gain learning/feedback from how people use them. 
   
   This allows you to observe successes and failures at a smaller level and make adjustments much faster. In fact, there is a popular term called "Fail Fast" which means you want minimize your risk by assessing failures quickly and putting in mitigation plans immediately.

So far I am happy with the progress of the project. I have changed the focus of the site's functionality based on the learning from small failures. I fully expect that as I continue to work on the project, there will be some missteps as I go along and I'll adjust from what I learn.

I have no regrets (even from the biggest failures) and I am eternally grateful that I was able to pursue building some things I am passionate about.