Shae Hong is no stranger to failure. His first company, ePods, which made a precursor to the tablet, didn’t survive the 2000 dot-com bust. His second venture, a line of countertop kitchen appliances, fizzled out in 2002 after Amana—from which Hong had obtained licensing rights—was sold to Maytag.
Down the drain went nearly $3 million in development costs, including half a million dollars invested by Hong and his parents, costing the family home and savings. Out the window went the company’s deal with J.C. Penney to sell the blenders, mixers and toasters that were ready to ship. Three years into the venture, Hong and his remaining staff closed shop.
“I was bummed. I’d crashed and burned twice,” Hong says, admitting that he considered throwing in the towel. But his dad, a successful U.S. entrepreneur who as a young man had emigrated from Korea with only a suitcase, encouraged his son to persevere and introduced him to Danny Lavy, the ’trep who would become his next business partner.
Today Hong is CEO of Sensio, the $150-million small-appliance business he co-founded in 2003. The New York City company’s five brands—including one developed with and named after celebrity chef Gordon Ramsay—sell at big-box retailers such as Target, J.C. Penney, Macy’s and Walmart.
“I’m 37 years old now and have failed many times,” Hong says. “The lessons I’ve learned over the years have definitely helped me today.” Among them: the importance of dusting yourself off, starting over and not repeating past mistakes.
Of course, resilience, persistence and hindsight are not enough. You also have to streamline your business plan, build revenue quickly and maintain your integrity—even when the you-know-what hits the fan. Here’s what Hong and other ’treps who have risen from the ashes to become successful millionaires have to say about their experiences.
Simplify your business model.
Throwing half a dozen ideas at the wall to see what sticks is one way to build a business. But Rob Bellenfant learned the hard way that it’s not very effective. In 2005, after selling the web-hosting business he built as a teenager, he immediately bought five online businesses on eBay without doing his due diligence on their financials. Four quickly failed, and the fifth—an online advertising company—began circling the drain when its main source of ad-space inventory dried up.
Bellenfant saved the business by shifting it to a digital marketing agency. But even then, he and his team were spread thin, chasing every shiny new opportunity that crossed their desks, including video production, credit card processing, even online dance lessons.
“At one point, we had 10 businesses operating from our main office,” says the Nashville, Tenn.-based ’trep. “Because we were throwing so much against the wall, nothing stuck.” In fact, Bellenfant admits, eight of those 10 ventures weren’t profitable.
By early 2014, he had reeled in what he calls his “idea attention deficit disorder,” homed in on his core strength (business technology marketing) and renamed the company TechnologyAdvice. Subsequently, both the revenue on the venture’s core project and its staff doubled in size.
“We feel like we’re well on our way, whereas before we didn’t really have the long-term vision,” Bellenfant says. “We were more or less flying by the seat of our pants.”
Hong, who got sidetracked in 2004 trying to market a portable audio player that was quickly eclipsed by Apple’s products, agrees that a business has to focus on its strengths.
“It’s enough to become the best in class at what you’re doing,” he says, admitting of his detour into consumer electronics. “If I had taken that 18-month period and just continued to only do small appliances and be the best at it, my company would probably be 20 or 30 percent bigger than it is today.”
Make money now, not in the future.
Serial entrepreneur Michael Diamant learned the importance of generating revenue and profits as quickly as possible through his experience with iClips, the streaming video company he founded in 1999. It went under after three years, despite having raised $6.5 million in private financing (including nearly half a million dollars of Diamant’s own money) and striking content partnerships with media leaders such as NBC, Cablevision and Yahoo.
“We really had no plan for building a revenue-based business,” Diamant says. Instead, the idea was to build the product, collect users and raise more money to stay afloat until someone acquired the company. When the capital market dried up in 2002, the 35-employee startup fizzled out in a matter of weeks.
In 2003, when Diamant co-founded his next venture, he got back to basics, starting with one product (a diaper bag) and hustling for every sale. Rather than seek outside financing, he bootstrapped Skip Hop with $75,000 of his own money. Within three years, the New York City-based business grew to $4 million in sales. Today the brand sells baby products worldwide through retailers such as Target and Babies R Us, generating more than $100 million annually.
Despite Skip Hop’s humble beginnings, scalability was always Diamant’s intent. “If you can’t make it work small, you’re not going to make it work big,” he says.
Nick Friedman, co-author of Effortless Entrepreneur: Work Smart, Play Hard, Make Millions, concurs. You have to think about your dreams for the next few decades, Friedman advises, but you have to temper them with tangible, three-year goals for revenue, staff and market share. “Everything you do in the business today should be geared toward that three-year milestone,” he says.
Place a premium on integrity.
At some point during the course of running a business, things will go south. You’ll make a six-figure mistake. You’ll lose a top customer. Your competitor will wipe the floor with you. You might even go under. How you handle yourself when adversity strikes—and how you break the news to employees, customers and partners—is key. It can even dictate the success (or failure) of your next venture.
When delivering bad news, ripping off the Band-Aid quickly, preferably in person, is a must. “As the owner, if you don’t operate with integrity and honesty, it can completely derail your reputation and ability to recover,” says Friedman, who is also co-founder of the $25-million College Hunks Hauling Junk franchise, based in Tampa, Fla. “One of the responsibilities of being an owner is having those difficult conversations, whether you have to fire somebody or you have to shut down a division.”
Sensio’s Hong is living proof that being swift and forthright when disaster strikes can salvage relationships. Back in 2002, when Hong’s Amana deal imploded, the factory he’d enlisted to manufacture the appliances didn’t get paid for multiple shipping containers of goods. But rather than turn its back on Hong, the factory became one of his next venture’s biggest suppliers and has since done$100 million to $200 million in sales with Sensio.
Likewise, J.C. Penney had already built the sales displays and printed the marketing materials for Hong’s never-delivered product line. “That’s a really big deal in retail,” he says. “That’s a no-no. They could have punished me by never doing business with me ever again.” Instead, the retail giant snapped up the next product Hong launched. In fact, he says, Sensio is now one of J.C. Penney’s largest home-product suppliers.
“Keeping those relationships intact and being open and honest enabled me to survive the failures and still have the ability to do business with them,” Hong says of his partners. “No matter how bad the news is, the best thing to do is just go in and be transparent with everybody about it. Delaying that information isn’t going to help anyone.”