In order to not fail, know how others succeeded. Wrong. In order to not fail, know why others failed.
Fernando Trias de Bes, economist, with an MBA from ESADE, is the author of El Libro Negro del Emprendedor (The Black Book of the Entrepreneur). Following is the English transcript of an article published in the Spanish newspaper La Vanguardia on 24th June 2007 where the author discusses some of the key areas that contribute to the failure of a startup.
The first key point is for the entrepreneur to distinguish between ‘the motive’ and ‘the motivation’ in starting his startup. Anyone and everyone has a motive to be an entrepreneur (to get rich, demonstrate something to the world, disliking working for others…). But motivation is something else – tremendous excitement and passion. You are either passionate or you don’t survive because there are just too many obstacles on the way. The entrepreneur who survives is the one who doesn’t give up.
The second area of error is the business idea itself. Those who justify there company on the business idea and nothing else tend to fail. These are the Gollum entrepreneurs, like the character in J.R.R. Tolkien’s Lord of the Rings who was obsessed with the ring (My precious! My precious!). They don’t explain their happy idea to anyone because they fear that it will be stolen. Only a naïve person keeps his happy idea to himself! These days ideas expire faster than yogurts. I define a new business as a genuine perspective over any idea. The good entrepreneur knows that he and his genuine perspective are irreplaceable.
The important thing is not so much the idea itself as the form of the idea and the business model that receives it. The first refers to how the idea presents itself to its final customers or end users. The good entrepreneurs know why their customers chose their products over other products. If one doesn’t know why customers will chose his product over the competitor’s product, he doesn’t have an advantage, and without a competitive advantage, there is no business. Each idea is corresponded by some business models that make it viable. Entrepreneurs who have failed have acknowledged that their same idea with a different business model would have probably succeeded.
The third area that accounts for mistakes is related to the sector of the business activity. I have seen the same people succeed in emerging sectors after failing in sectors undergoing crisis. A good sector is better than a good bank: exuding liquidity. There are more clients than suppliers, collections are fast and easy, and the margins are higher. Who thinks these days of starting a chain of video clubs? Nobody. Only a few years back it was a robust business. It is highly recommended to start something in which you have personal experience and interest. A good entrepreneur is not just someone who executes an idea, but rather someone who dominates and reinvents a sector. And, for that, you must know your sector.
The fourth area refers to the partners. We must distinguish between financial partners and working partners. With the latter, I will finish fast. I interviewed more than 50 founders. All but one assured me that it was better to start alone than with working partners. A partner is like a long-term loan and with 22% interest. People associate with partners for the fear of being alone. As one founder told me: “people prefer to cry in company than laugh alone”.
The case of financial partners is different. Financial partners are those who fund the business with the breathing capital. It has been said recently that these sharks yearning for return on investment have ruined healthy entrepreneurs who couldn’t tolerate the pressure. Entrepreneurs are so needy of capital that when they find it, they don’t stop for a moment to clarify the expectations.