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2 Lessons You Can Learn From Entrepreneurial Failure

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In Real Leaders Don't FollowSteve Tobak explains how real entrepreneurs can start, build, and run successful companies in highly competitive global markets. He provides unique insights from an insider perspective to help you make better-informed business and leadership decisions. In this edited excerpt, Tobak offers a real-world example from his own life that illustrates the powerful lessons you can learn from business failure.

We may be born with unique DNA into different circumstances, but we all begin as infinitely elastic sponges thirsty for knowledge and experience. Beyond our upbringing, what happens next is entirely up to us. We’re all free to pursue the American Dream, but there are no guarantees in the outcome, and there are penalties for failure.

When you take control of your own destiny to start your own business, you take on enormous risk and responsibility. You are, in a very real sense, putting yourself and your future on the line.

These days, however, popular culture has romanticized entrepreneurialism to the point where the downside doesn’t seem real. But there's nothing romantic about being your own boss: Entrepreneurship is a risky business that’s far from the utopia it’s been made out to be.

Since every choice you make has an impact on the outcome, you should never make business decisions lightly. There are all sorts of trade-offs and factors to consider before determining where you go next. The following stories about an early encounter of mine with the startup world will provide invaluable lessons about failure that can help you position yourself for long-term success, just as it did mine.

After nearly a decade learning the ropes at two enormous technology corporations—Texas Instruments and NEC—I’d had about all I could take of being buried under layers of bureaucracy. It was time to step out and search for an opportunity where I could be a bigger fish in a smaller pond.

Soon enough I got an offer to run three technology design centers across Southern California and Arizona. It was a big step up in terms of responsibility and compensation. But before I could accept the offer, the hiring vice president I was already starting to think of as my new boss called to tell me he and his boss, the president of the company, were leaving to lead a startup as vice president of engineering and CEO, respectively. And they wanted me to join them.

I ended up taking the startup job. After all, who could resist what sounded like a no-lose proposition—same position, same money, way more stock? But my confidence lasted about a day into my first week of customer meetings  with customers I knew and trusted. I told them not to pull any punches, and they didn’t. They explained in eminently clear terms why our concept would never work.  

But I was a pro and didn’t give up. I fought hard for months until a pivotal moment came that brought reality into razor-sharp focus.

We managed to get a large defense contractor to do some prototype testing of our technology and had a meeting in Los Angeles with both companies’ top brass. Our CEO did his pitch, then one of our customers’ executives got up and presented the results of their testing. We were treated with slide after slide of data that absolutely undermined everything our CEO had just presented. Our technology truly flopped.

That's when our fearless leader went ballistic. To say it was uncomfortable is an understatement. I wanted to crawl under the table and hide. The executives went back and forth until finally, the meeting broke up and one of the VPs showed us out .

The next day, seven months into my first startup experience, I resigned. I learned two valuable lessons from that enormously painful and personally embarrassing experience:

Lesson 1: Utopian thinking kills companies and careers.

Even the smartest and most accomplished people on earth are subject to utopian thinking. Successful executives and venture capitalists with decades of experience are all capable of convincing themselves and others that the sky isn’t really blue and monkeys can fly. They can screw up just like everyone else, except that when they do, they tend to drag a lot of other people’s jobs and money down with them.

Watching my company's CEO scream at the executives from the defense contractor was the first of many times I would observe business leaders who should know better make terrible decisions that impacted countless people. And that leads to one of the most important axioms in life: “Past performance is no indication of future results.” It’s intended as a word of caution for investors, but it’s as true of anything and anyone as it is of stocks and mutual funds.

If you call “Heads!” and flip a coin 20 times and it comes up heads each time, you might think you’re on a roll. But even though you’ve called it correctly 20 times in a row, the odds of it coming up heads again on the next toss are still just 50/50. While real-world decisions are by no means pure luck, it’s human nature to think that success leads to more success when in fact it doesn’t.

In my experience, the opposite is true. Time and again I’ve seen successful business leaders live in a delusional state of infallibility while their enormously oversized egos write checks that reality can’t cash. That’s certainly what happened with that ill-fated startup. From that day forward, I never again trusted another human being—no matter how smart, accomplished, or successful—more than I trusted my own judgment. Yes, I listen to what they have to say. Then I listen to my gut and make my own decision. And that has served me well over the years.

Lesson 2: Entrepreneurship is risky business.

There’s a lot at stake. Actions have consequences. And while we’re all too fond of drawing connections between risk and reward, we rarely talk about the far more common connection between risk and loss. Just look at all the popular phrases: no pain, no gain; no risk, no reward; nothing ventured, nothing gained.  

Granted, all those sayings are true. And I certainly don’t mean to imply that risk taking is a bad thing—nothing could be farther from the truth. More often than not, we’re too risk-averse for our own good. That said, in The Prince, the great Renaissance philosopher and political realist Niccolò Machiavelli wrote, “[T]here is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

In other words, there’s a great deal of nuance behind smart decision making when it comes to risk. There are lots of shades of gray in between the black and white of extreme risk aversion and throwing caution to the wind.

Even if you ultimately make the decision to start your own company, get one thing straight. The goal is certainly not to take enormous risks and assume everything will work out. The goal in business is to minimize risk by making smart decisions based on sound intelligence and experience. Failure may be a necessity of business life, and it can certainly be the source of great humility and wisdom, but it’s not the goal. The goal is to win, not lose. The goal is to succeed, not fail.

We learn lessons and become stronger because failure is so painful that we dare not repeat it. My first startup experience certainly wasn’t my last, but the 25 years since have included two IPOs, a successful merger, and running marketing for the $2 billion company that acquired us. I never would have achieved such strong business results if I hadn’t gotten my hands dirty and learned that experience is the best teacher, to think for myself, and to trust no one but myself.

The point is, the term common wisdom is an oxymoron: Wisdom is never common. It rarely comes from the mouths or the writing of others, and it never comes from popular groupthink. Wisdom comes primarily from your own experience, observations, thought process, and instincts. It comes from inside you.