It comes upon you suddenly, and without warning. Fear. The kind of fear that strikes you physically like electricity running through your body.
You resist the urge to be physically ill. Death would seem merciful, but this isn’t going to kill you. It’s just going to embarrass and humiliate you. It will lay bare the truth: You are not what you seem. At least you are not the person you want others to see and believe in. You are a failure.
I hope you’ve never actually experienced this. I have and it’s awful.
Like so many other entrepreneurs, I couldn’t understand how this happened. I was busy building a business and doing so involves so many things. It’s about chasing an idea and taking risks, endless work, slow and sometimes spurting progress.
It’s about fighting yourself and sometimes your employees. And it’s about scratching, clawing — even begging for business — something to sell and someone to believe in you enough to write a check.
Slowly, over time, I found success. With it came money, employees and more resources. All of this had an insulating effect that led me to forget what it was like to worry about cash, paying bills and making payroll.
I had people — multiple people — to manage cash flow and profitability while I focused on growth and my vision for the business.
Then, for the first time in my career, I took my eye off the ball.
One evening I received an email from my new controller. ACH’s would be done in the morning. And we were short — quite a bit short. How could this happen? Why was it happening? Could I do anything about it? What if I couldn’t?
After regaining my composure, I studied the cash analysis carefully. We were in trouble. I was in trouble. And, there was nowhere to hide. People were, and would be, looking to me for answers and solutions. Now, what could we do about the problem? What could I do?
I developed a plan to address the shortage that required collecting receivables, drawing on a line of credit I had set up years ago and never used, focusing on paying payroll first and the other bills when we could. Would it work? What would my team think? What would others think if they found out? Was it over or just a steep hill in the never-ending climb to business success?
Needless to say, I didn’t sleep at all that night.
The Elements of Failure
By early Monday morning, with my plan in motion, I asked myself again — how did this happen?
Here is what I learned:
- We had too many people on our payroll who weren’t producing to the level we had expected.
- I was overly optimistic about our future and no one was willing to tell me.
- Our team did a poor job of recognizing the peril and failed to make timely adjustments.
- Larger than expected bills came in.
- I did not have excess cash on hand due to an investment I had made earlier in the year that depleted our reserves.
Those five elements were contributing factors. But I was the cause. If I had not taken my eye off the business’ cash flow, this could have been avoided. Although it is fair to say my operations, accounting and senior management team should have seen this coming and taken appropriate steps to avoid the crisis, I was ultimately responsible and to blame.
As I have reflected on this terrible time in my entrepreneurial career and shared it with others, I’ve realized that my experience is not unique. Many times, similar experiences have been fatal, and I was fortunate that we survived.
I have learned that entrepreneurs are endlessly optimistic risk takers but the very things that make success possible can set us up for failure:
- Optimism makes it difficult to hear contrary views of the future. When we don’t hear them, really hear them, it is easy to fail to prepare for potential reversals.
- No one can do two things at once. Anyone can do multiple things in sequence. The trick as an entrepreneur with more than one business, or even business activity, is to keep your attention moving and fully focus on each thing frequently enough to fully understand what is happening and why.
- Business failure is intensely personal.
Takeaways for Future Success
Fortunately, I survived this failure and lived to tell the story. What have I learned?
- As the owner of the business, you can never take your eye off cash flow. Though it’s fine to trust people to watch it for you, you must challenge your team, and yourself, endlessly. Ask: Do we have the cash reserves we need to sustain any unexpected situations?
- Growth is awesome, tremendously fun and satisfying to the ego, but it should not replace adequate profitability. Trying to expand in too many directions or too rapidly is risky and demands even larger cash reserves. Without adequate cash reserves, expansion into new products or businesses shouldn’t even be considered.
- Growth and strong cash flow encourage sloppiness. At least it did for me. I failed to recognize a team that was too large and riddled with underperformers. This is unacceptably poor management and can quickly lead to serious trouble. Consistent fiscal discipline is the key to long-term growth and success. Forget that at your peril.
- Have a “plan B.” And a “plan C.” And a “plan D.” Like me, you’ll need all of them eventually.
- Keeping a sharp eye on cash and operations through times of growth, as well as times of hardship is critical. It is the key to moving your business forward and avoiding failure.
- If you’re going to be in business for yourself, grit is required. When the crap hits the fan, you alone must deal with it. Your employees can help, but you must provide the leadership. Sometimes that means making very difficult decisions.
- Success isn’t permanently assured. Ever. Any business can fail at any time even at the height of its success. And the causes of failure are common and can be summarized as taking your eye off the ball. There are many things that can become the proximate cause of business failure and the entrepreneur must know what each of them is for his or her business, ceaselessly monitor them and adjust.
Those six things are all important. In fact, they’re critical. But, the most important lesson I learned is that failure is part of life and a critical learning tool. And when I learn from failure, it changes its character and its power. It becomes transmuted into tuition for something else. My worth as a person shouldn’t be based on my business success or failure. I have both failed and enjoyed many successes. I have learned from both and I’ve survived.
On balance I’d rather avoid failure if possible, but I have learned that what doesn’t kill you does indeed make you stronger and more capable. It also makes you humble.
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