Wise words from a legendary venture capitalist years ago helped us to remember to focus on what we are learning from our everyday experiences.
One of the technology venture groups in Silicon Valley that Dave and I approached for funding for an earlier company had a well-known partner, Vinod Khosla, an almost legendary VC. We did our homework before we went to the meeting and knew both what he had done in terms of starting a very significant company and also backing many fledging high tech companies that went on to be powerhouses in their sectors. In the meeting with him we were clearly impressed with his ability to fully grasp our business and the proposition. His questions were penetrating, and he got to the risk issues quickly. In almost everything that he said, his insight and experience shone through.
One question in particular caused us to pause – have you ever gone bankrupt? As Canadians, avoiding bankruptcy in a risky business had been a prime objective. Even as we struggled through years of insolvency, our eye was on avoiding bankruptcy. We did not want the stigma associated with bankruptcy, but more importantly, we did not want to let our investors down, losing their capital. Our answer included a question back to him – no, and why do you ask? Vinod then explained he rarely invested in companies where the principals had never gone bankrupt. He said that failure was a valuable learning experience, something that seasoned young entrepreneurs in small start-up ventures and got them ready to take on bigger opportunities with the benefit of a harsh experience.
We pointed out that we had been insolvent for a considerable period of time and that probably was equivalent in terms of the learning experience he desired. We hung over the precipice of failure for multiple years, and that had taught us a lot of harsh lessons. Over the years we have often reflected on that conversation, and indeed we believe that there is a lot to be learned from hardships generally.
What we learned
We learned to stay focused on the things that needed to be done to stay in business in the short term and that were required to build for the long term. Having a focus only on today may be delaying the inevitable. Yes, people can scramble to keep a company alive through a series of tactics and activities, but something of a longer term nature needs to be built to have opportunity tomorrow. That balance between short- and long-term perspectives and activities is tricky and hard to pull off, but necessary.
We learned to be resilient and relentless, to keep coming back even in the face of apparent failure. Being able to stick with something over a long period of time is challenging. Calling something a failure, giving up and moving on is easier to do than staying with something that is hard to get started. We kept to the same schedule, weekdays and weekends.
We learned to be creative. When something failed to have as positive an outcome as we expected, we and our team had alternative strategies readily at hand to keep trying. We weren’t paralyzed by our small failures and saw them as opportunities to respond creatively.
We learned to make choices about where we could best spend our limited funds. We lived within our means, and for many years that was a break-even budget. We ate what we killed, and when sales didn’t come through there wasn’t enough money to pay ourselves.
We learned to be optimistic and happy with small wins. An order. A compliment from a prospect. A company award. A positive story in the press about the impact of our products on our customers. Great staff. All of these things were cherished as we struggled.
On a personal level, we learned who our true friends were, the people who would stick with us when we were pouring our heart and soul into something that looked like a lost cause.
While we never did go bankrupt, we feel our near-bankrupt experience was a real learning experience. Easy was never in the cards for us, and in hindsight easy would not have served us well. If we had received the venture funding we sought, we may have wasted it. If the market for our products had developed faster than it did, it may have attracted well-financed, savvy competitors who could have crushed us.
So, Vinod’s question was a great one, one that we have never forgotten. It has kept us focused on what we are learning from our everyday experiences, both positive and negative.
We will always want to avoid bankruptcy – business or personal – but we have changed the way that we think about it. Measured, considered risk taking is necessary for new entities to get off the ground. Having the courage to take the risk, to learn from it and grow personally even as a business may fail to grow are all fundamental to the development of an entrepreneur. Bankruptcy laws allow for the orderly windup of failed entities and the ability of the people to begin again, if they choose. It’s the building of entrepreneurial capacity where we see the greatest value creation.