The secret of success… is often failure

Is your plan to be the next Bill Gates or Zuckerberg?  Do you think you’re going to develop a product that takes you from nothing to billionaire in a weekend?  Forget it – you might as well be buying lottery tickets.

Sure, it can and does happen that someone goes from relative obscurity to a synonym for success in a short period of time.  It just doesn’t happen a lot because it usually takes a ridiculous combination of brilliance, chance, timing, and help from the right people.  That isn’t the normal path to success, though!

Failure is a Constant

At five years from founding, only about half of small businesses will still exist.  After ten years, less than one in three will still be around!  It doesn’t even seem to matter if the economy is good or bad, because these rates seem to hold steady either way.

Does that mean that seven out of ten people who start a business are going to be failures in ten years? Absolutely not!

Running a business provides rare and unique experiences you can’t get at a normal day job. I’d try to explain them all, but that is its own thousand-word blog post for another time. For now, I’ll just say that the primary value is in learning how to take full responsibility for the financial outcome. If you don’t get a raise or you can’t pay your bills, there’s no boss or coworkers to blame any more – just personal responsibility for the balance in your bank accounts.

Fail quickly to win

What is worse than spending six months on a dead-end business project? How about spending six years! A fear of failure could force us in to loyalty for a stalled business – and that is exactly when economists would remind you of the “sunk cost fallacy” and “opportunity costs.”

Sunk Cost Fallacy: Imagine you’ve got a lemon of a car. You paid $5,000 for it last year, but today it won’t run and it costs another $2,000 to fix. The mechanic even warns you that if you fix the current problem, new ones are likely to pop up right behind. You could sell it for scrap, but then you’d have to admit you should have researched the purchase better and accept the $5k loss.

So a lot of people will go for the expensive repair, just to find out that it breaks down for some other reason a few months later. Now you’re out $7k and you have the same option as before: Scrap it or pay another $2k in repairs.

See the problem here? You can keep sinking cash in to the lemon, but it won’t make it in to a decent car. In this particular example, you might have a case against the used-car dealer who swore it only had one driver and she only took it out to go to church on Sunday… but you’ll need to check with your local lawyer for that one.

Opportunity cost is a pretty simple concept that is too often overlooked. Put simply, it poses a question: What else could you be doing with the money and time you spent on keeping a stagnant business on life support?

Now, if you’ve found something you love to do and you manage to stay afloat with it, opportunity costs might not be so great. I could probably make a little more money in a corporate 9-5 job, but I don’t know if I’d have as much fun as I do trolling around the internet all day.

But… if you need a second mortgage to keep your business alive… it might be time to fold that up and find a new plan. Of course, you don’t give up on a successful business just because it hits a rough patch, but if you’re several years in and still waiting for some traction the plan might just be in trouble.

Entrepreneur on the resume

There are also a lot of reasons why you can’t just bounce from one business to the next. It can be frustrating to fail, and you might not be ready to set yourself up for that again. Often, the problem is simply financial: if you had enough money to start up a new business, then the first one would have been just fine.

So what do you do when you’ve got entrepreneur on your resume and you need a job? The prospects might not be that bad, even if you’ve since shut down shop!

Consulting is a huge area of business for ex-entrepreneurs if you don’t quite need the stability of a traditional full-time gig. According to this excellent article from the Wall Street Journal, even middle and senior management positions can be realistic goals! When you can find a corporation hiring in a similar line of business, and you’ve got serious experience working in that field, you could be exactly the kind of candidate they want. Of course, you’ll have to demonstrate that you’re actually ready to make a commitment rather than hiding out some economic storm until the next entrepreneurial activity pops up. Consider signing on for a contractor position first, then when it is time to renew and they see you’re still interested, something a little more permanent might be available.

So what is next?

You can’t be afraid to take risks, but don’t confuse sinking time and effort in to a dead end as a risk. Getting out of that comfort zone you’ve established might be the bigger risk, after all!

The important thing is to recognize the difference between a temporary set-back and an inherent flaw in the business plan. If you’ve got years of success, a few bad months shouldn’t tempt you to throw in the towel – but if you’re looking at months of success for years of almost fruitless effort, it is probably time for that backup plan.