Article originally published in the Philadelphia Business Journal on February 19, 2019
For those of us who have a lifetime of business and leadership experiences, it is an honor to be invited to share those experiences with the future generation of leaders. At the invitation of Dr. Barrie Litzky, associate professor at the Charles D. Close School of Entrepreneurship of Drexel University, I recently spoke to two of her undergraduate entrepreneurship classes, titled Ready, Set, Fail.
Quoting from the Close School course catalogue description of Ready, Set, Fail: “There are many students who say they want to be an entrepreneur, but they are often not ready for the risk that comes with starting and growing a business. Taking risks requires a deep appreciation of failure.” This course is about how to deal with and recover from failure – something we all need to learn. Taking risks with occasional failure is a natural part of life.
Every entrepreneur needs to assess their propensity for taking risks and recovering from failure. If they are taught how to deal with risk by de-risking their decisions, they will have a higher propensity for taking risks.
So, how does one de-risk a decision? The following principles are valid whether one is an entrepreneur, works for a start-up or works for an established company.
How well do you know the market?
Does the market need the product or service you’re developing? If the product or service already exists in the marketplace, does the differentiation between what you are developing and what currently exists in the market provide sufficient incentive to get customers to switch? If the product or service is new and future customers or clients don’t yet know they need what you are developing, how will you convince them that they need it?
Have you performed market research on your new product? Conducted customer focus groups? Sold prototypes and gauged customer acceptance? You should always be asking: “Why will customers buy my product or service?”
Imagine what could go wrong, and how you would mitigate it
Andy Grove, the former chairman and CEO of chip maker Intel, once said, “Only the paranoid survive.” Every business leader thinks about what could go wrong and what the proper reaction might be. In the case of entrepreneurs, they may need to pivot quickly and take a different approach if they hit an impediment.
Can the introduction of a new product to the marketplace be phased in, so the capital and resources required are not invested at once but over time, allowing for adjustments in strategy as more is learned about product acceptance?
When will your business become financially viable?
What is your new product or service worth to those who will be purchasing it? Will that price cover your costs plus make a profit? Build a financial model with which you can determine if and when your new business will become profitable. This will serve as a guide as to how much capital you will need to raise and invest in your business. Your investors will require this information.
Understand the cost of failure
Can the new initiative be undertaken in such a way that failure won’t sink the ship? The higher the risk, the higher the importance of understanding the cost of failure and how failure can be mitigated.
Seek the opinion of others
It is a strength, not a weakness, to ask the opinion of others, even if one has complete authority to make a decision on an initiative. Many times, through discussion, an alternative path on how to proceed emerges, better than the one originally contemplated.
Do your employees have the skills to make your business a success?
Hiring staff is among the most important decisions an entrepreneur will make in their fledging business. Are the employees you hire the right people? If it turns out that they are not the right people, part company with them. The longer they stick around and are not replaced with other, more competent people, the more time and capital you will waste. People and capital are the most important assets of any startup or business initiative.
Walk away from a failed initiative sooner rather than later
It is difficult for an entrepreneur to walk away from their idea if it appears it will not be successful. When to walk away is a matter of personal judgment. Should you push ahead trying to make an idea successful, or cut your losses and move on to something new?
Learn from past experience
Every significant initiative should be reviewed after an appropriate period of time so that learnings can be applied to future initiatives. When I became the CEO of PQ Corporation, the board asked that my team and I review all acquisitions during the past two decades to determine what went right, what went wrong and what we would do differently when making future acquisitions. This was an arduous lengthy process, but very valuable. In the five years I was CEO, we made seven acquisitions, all accretive, which helped drive our strategic and financial performance.
Learn and apply the lessons from your past successes and failures. It will lower the risk of your future initiatives.
Albert Einstein once said, “If you have never failed, you have never tried anything new.” Winston Churchill said, “Success is not final, failure is not fatal. It is the courage to continue that counts.” Both quotes describe the traits of all successful people, especially entrepreneurs.
Failure happens. It is not the end of the world. Learn to mitigate risks. Fred DeVito, author of “Barre Fitness,” once wrote, “If it doesn’t challenge you, it doesn’t change you.” Get outside of your comfort zone. You never know where the future will take you.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com. Follow Silverman on LinkedIn here and on Twitter, @StanSilverman.
Great article and wonderful visit to my classes. Thank you Stan!
Fail fast, cheap and often.