Business failure is extremely common. It is not typical for a business owner to experience wild success in their very first business endeavor. 90% of small businesses fail. This is a well-known statistic in the world of startups and small business. If any founder has launched a business, chances are, they have (or will) have a business that does not succeed. Because it is so common, many investors have come to expect that their entrepreneurs will experience a failed business at some point.
Still, there is a stigma placed on failing. Entrepreneurs sometimes internalize successes and failures, feeling they are a direct reflection of their own abilities. During investor pitch preparations, we often hear concerns from entrepreneurs about how to position prior failures. Entrepreneurs wonder if their history will be viewed negatively by investors. They worry a past failure will be a reflection of their ability to succeed. However, a failure is not necessarily a bad thing to investors. Consider these insights from Anish Patel, founder of Brightlane Ventures, who is an investor with a clear perspective on prior failures. Anish sees an entrepreneur with a prior failure as a lower risk investment. Compared to a new entrepreneur with no prior losses or failures, someone who has failed has a unique perspective. The lessons learned and information gained from failure makes an entrepreneur wiser. His perspective is a common one – many investors see a prior failure as a good thing. It means the founder has already “gotten it out of the way” so to speak. Again, statistically, a failed business is a probable milestone for most entrepreneurs. Investors respect this, and they would prefer to not be the one to help you through that first failure. They would rather get involved when your first success is on the horizon.
Explaining Past Business Failures During a Pitch
When entrepreneurs are preparing for pitching, there is a common question that surfaces. Should information about a failed business venture come up during a pitch to investors? Our answer during pitch consults is always “yes, strategically“. The best way to incorporate a failure story depends on a few different factors based on your circumstances. Remember, the failure itself is not a bad thing! As Anish mentions in his Investor Insights, sharing about your failures shows a sense of humility and business acumen. However, the way you share is important, especially if you only have a few precious minutes to pitch your business idea. For instance, consider this entrepreneur we’ll call Steve. Steve is a project manager working in commercial construction. He has a very unique and innovative time management app that he developed in his spare time. He believes it has great potential and wants to bring it to market with investor support. Steve is very experienced and has a long history of supporting large, high profile development projects. He knows the target market for his app becuase he developed it out of personal necessity. Despite his confidence that he has a great product, he is nervous about his new venture because the last one he launched went bankrupt. Back in 2005, Steve had launched his own construction company. In a few short years, his company and reputation grew. It seemed he was an overnight success, and although the pace was intense, he was learning as quickly as he could. He wanted to run a great company, and thought he was doing everything right since he was able to grow so fast. Then the economy went into recession, and things began to fall apart. Like so many others, in 2009, his business went under. The economy had impacted his business badly, and with mounting debts and canceled projects, he made the difficult decision to close his doors. Today, Steve is concerned that his prior failure will be an issue to investors. He worries that his inability to save the construction company will be seen as a bad thing. To get ahead of this, Steve adds a few slides to his pitch deck and a few pages to his business plan, all explaining about what happened in 2009. He also worked on his verbal pitch, adding some context to how and why he has failed before.
Optimizing Your Pitch with a Story of Failure
Steve is a real person, and he came to Written Success for pitching support. His idea was absolutely amazing, and his passion for making it work was unforgettable. When sharing about his failure though, he became a different person. He immediately lost his confidence, his energy, and even his focus when he talked about his construction company. It was as if he was reliving the pain all over again, right in the middle of his investor pitch. He spent more than 10 minutes on the story of his construction company. He shared what happened, how he started it, how successful it was, and how he still couldn’t believe how things ended. There were a few problems with his approach, and these are relatively common.
These are three things to focus on to refine a story about business failure during an investor pitch:
- 1. Length / duration
- 2. Lessons learned
- 3. Relevance to the future
First and foremost, when you share about your prior business failures, remember to be mindful of your time. If you have 30 minutes with an investor, be careful not to spend more than a few minutes on the failure of a prior business. You want as much of your interaction to be as meaningful as possible. Taking a few moments to share the story is fine, but be careful not to rabbit hole down memory lane. This leads to the second point: the sharing of failures should be with the goal of sharing important lessons learned. Having a failed business is powerful if you learned something from the experience. Explain the business, the outcomes, and what you gained in wisdom. What would you do differently, what insights did you learn? Be sure to share key takeaways from the experience. The third thing is to be sure your story has relevance to the future. Every part of your story should have a consideration to, why does this matter now? How will this impact my new business? The lessons learned from that business failure should have some relevance to your next business endeavor. If you ran a restaurant that failed in the past, and today you are launching something in a completely different industry, make sure you can tie the concepts together. Be able to explain how that failed restaurant taught you something that you can apply directly to the new venture.With Steve, we worked to bring his construction story to a more concise and powerful backstory. That business launch and failure revealed a lot about his perseverance, his character, and his ability to lead. It also gave unique insight to the needs of a business owner in construction, which is his target market for his new app. His ability to deeply understand his target market is invaluable, and he used it to create a very powerful product that addresses a need in a new way. Because of this, his business failure is what created a great opportunity today. His prior failure was a necessary step in his success story.
Final Reframing of “Business Failure”
We try not to think of failing as a destination. Each of our clients has a story, with a mix of pains and celebrations. To be an entrepreneur is to be on a journey. That journey will include huge wins, like great launches and big sales. It will include losses, like poorly handled problems, and sometimes, hard decisions about pivots and closures. None of those things are an end, they are simply a milestone. Each of these milestones brings you closer to the next great success in your journey.*Special thanks to Anish Patel of Brightlane Ventures for this Investor Insights contribution. Brightlane Ventures is a seed-stage fund that invests in early stage consumer-tech startups. They provide valuable connections, hiring solutions, and capital support ranging from $25K – $300K. Brightlane Ventures is an entrepreneur driven fund aiming to build relationships with startups in the B2C and B2B2C space. To learn more, visit www.brightlane.co