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Failure is the Greatest of Teachers

Not all companies are successful. The end game can be a failure of the business. In fact, many angel investors or venture capitalists look for and respect the lessons learned by entrepreneurs that have survived a failed business. The key question is how did the entrepreneur fail? And then: What lessons were learned from the failure?

One VC calls this entrepreneur one who “has seen the movie before,” and spends time questioning the entrepreneur on lessons learned, often praising the person for having figured out the issues leading to the failure. Yes, it works both ways. A successful entrepreneur who has seen the movie before is even more valued. But in these days of fast failures, and with the knowledge that 50% of all startups do fail within a few years of formation, there is a lot of learning to be had out there.

Questions to be asked include: “What were the major factors contributing to the failure?” “How quickly did you and your team change the plan when faced with the first signs?” “Did you seek outside guidance?”

Most failed entrepreneurs blame undercapitalization for the cause of the failed business. Investors do not like to hear this excuse, even if absolutely true. Any business can use more money. It is up to management to scale the development, marketing and production based upon resources available.

But sometimes, that includes the promise of investment or loans upon reaching milestones, and occasionally the investor does not fulfill those promises. There are lessons to be learned about reliance upon outside investors, early use of limited resources, and communication with investors, all to be gleaned from such experiences.

So consider a failure as an opportunity. Some will flee to safety and seek a stable job in the wake of a failure. Others, often serial entrepreneurs, will carefully think out the experience and vow not to repeat it, creating an intellectual advantage over others making their run in the establishment of a new venture.

This article was originally published by Berkonomics

Published: September 23, 2013
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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