Here’s a question that should strike close to home. Professional investors like to quote this mantra to anyone who will listen. “Fail fast,” they say. But what if you believe so strongly in your budding enterprise that this seems to be the most ill-advised directive you’ve ever heard?

So here are some rules that might make it clearer for you and for those who so easily quote the mantra.

Rules to consider as tests of early success.

With the first round of funding, there should be agreed-upon milestones to be achieved. If they are not achieved within the expected time, the reasons must be analyzed by you and by your board and acted upon to avoid loss of capital beyond plan or expectation.

If you discover and become convinced that your vision is flawed, or the product impossible to create within cost and time expectations, or the demand impossible to quantify, or revenues never close to plan, then it would certainly be time to rethink the plan and product.

Could you pivot to save the company?

Could you and your team pivot if given the time and runway to do that? Would that restart the clock, putting even more pressure upon you to perform? Your investors know that an excellent management team is perhaps the greatest asset for any company—because it is just this team that has historically been able to make a drastic alteration of the plan, ultimately making a failing vision into a wildly successful one.

But if neither great management nor your vision for the product shows real signs of success in the market, then it may surely be time to listen to the investors and perhaps the board. Fail fast! Reduce further expenditures of remaining capital and protect the assets purchased with the original investment.

A personal story of failing fast

My favorite story of a fast failure was of a technology incubator started in the year 2000 with optimistic money from several angel investors, including me. Within a month after the tech crash, the founder of the incubator decided that it made no sense to incubate companies that were not likely to receive new investments soon following incubation in the winter-of-cash that followed the tech crash. He volunteered to close the incubator and he returned 96% of our investments to all of us angel investors. (That return proved to be the best investment return any of us saw in the several years that followed.)

Is it the end of your entrepreneurial world to fail quickly?

Half of all professionally managed venture capital or angel investments fail. There should be no shame to the entrepreneur in admitting such a failure. Some angel and VC investors will give special credit to those entrepreneurs who have experienced failures when investing in their next effort. The lessons learned are difficult to teach and are great assets in the next effort.

There is little shame and quite a reputation boost in acknowledging a failing plan and “failing fast.”

SOURCEBerkonomics
Dave Berkus
Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com