Learning From Failure Is What Makes Entrepreneurs Better Leaders A CEO shares a few of his past failures with the hope you don't have to learn things the hard way.

As I have matured, failure has become my creative ally for developing a leadership perspective that emphasizes learning from mistakes and poor performance instead of defending them. For entrepreneurs, the key to success is how quickly we convert failure into education and, ultimately, into lasting changes in behavior.

Recently, I was sitting in a coffee shop preparing for a meeting with a mentee, and I started thinking about the key themes I needed to share. My mind wandered a bit, but I soon focused in on a key leadership characteristic, which is to learn from failure without allowing it to define your self-image. As I waited, I took out my patent-pending thought leadership toolkit, which consists of a pen and a blank sheet of paper. On that paper, I wrote a question at the top: "What have my business failures taught me?"

In 2007, I was still a rookie CEO and had not experienced a major setback, so I missed a key piece of advice from my mentor Grant Williard, I-Cubed founder and founder of Joulebug: Chasing big goals and new initiatives are great, but be sure that you manage the downside.

"Sounds great, Grant," I said to myself, "but as you can see from my first year as CEO, I managed to achieve double-digit growth, so I've got this."

I took my eye off the ball and invested in a new product rollout. In addition, I pulled key people from our core business to chase this new game-changing idea. To be clear, things did not end well. The product was never completed. We lost ground in our core business, and I had to lay off several people to address the financial issues the failure created.

The critical mistake was allowing my enthusiasm for gain to move the project forward without understanding the cash-flow impact if my assumptions were wrong. It's ok to take risks. As a matter of fact, it's vital, but you must manage the downside. From that day forward, I have looked at the potential positive and negative outcomes before making any big decision.

As an entrepreneur, you must learn that cash is king and losing money is never cool.

Related: 8 Ways Intelligent People Use Failure to Their Advantage

This is serious, even if you have had a great funding round from angel investors and VCs, you have to understand that losing money is not success. Businesses are measured by how much money they make, and in 2007, I learned this lesson the hard way.

I failed because I allowed my quest for gain to minimize my role as the steward of cash for an emerging firm. Cash flow is the oxygen of any company, and you must always be aware of how your decisions affect your ability to sustain the business.

I have always prided myself on being a business leader, who creates jobs, grows profit and expands his company. In 2007, I had to lay off employees because I mismanaged cash. Whether you run a bootstrapped or VC-funded firm, you must always keep a pulse on cash flow.

During my tenure I have made some bad hires, good hires and some great hires. The great hires are the ones that accelerate your business success and make you look like a stellar CEO. My failure from a personnel perspective was that, in the past, I was too quick to terminate people without finding the root cause of their poor performance.

Related: How Entrepreneurs Benefit From 3 Types of Failure

Here's the thing: Some of your great hires look like bad hires because they are in the wrong job.

Over the years, I have seen countless examples of people who were deemed bad hires or a bad fit for their company. Taking time to look at their skills and align those skills with the right role creates loyalty with the employee, strengthens morale among the overall team (letting people go creates fear) and generates better business results for the organization.

A few years ago, our team deployed a very bright technologist as a customer-facing consultant. Customer complaints were high. His team leader recommended we terminate him, and the employee seemed unwilling to accept coaching or take corrective actions. Because of my early personnel failures, I enacted a policy that no one could be terminated without my meeting with their manager, the human resources department and the employee.

This proved useful because as I talked one-on-one with the employee, I learned that he was a strong introvert. He had been told that his customer-facing role was temporary, and he was frustrated that the company did not keep its promise, but he didn't know how to communicate his concerns to management. We agreed that if we could find a job for him involving more targeted development work with less customer interaction, he'd be a top performer. We found the right role, and he became one of our most dependable technical resources with specialized skills that were hard to replace. The education I received from my early personnel failures allowed me to look beneath the surface to find the real issues at the root of his poor performance and then determine the path forward.

Related: Failure is Not the End. It's an Opportunity to Learn.

Sometimes as leaders, we put people in positions to fail and then place the blame on the employee for issues. My mistakes have humbled me because when a leader fails, it not only impacts your business, but your employees and their families as well. The ability to reflect on situations and embrace the lesson contained within negative outcomes is a core component of my leadership growth.

The failure of 2007 provided a foundation for the next seven years of profitable growth in our tech firm until its acquisition in 2014. Through the years, there were many accolades and pats on the back, but I also remember each individual who stuck with me through my leadership failures.

The truth about winning was revealed to me through the feedback of results-oriented mentors and my experiences working with incredible employees. These mentors and employees helped me understand that failure was actually an opportunity. It allowed me to demonstrate my ability to stay positive and focused under duress and lead teams that win in the end.