Proof That Failure Is the
Key to Success
Failure:
The Cold, Hard Truth
Based more on the collective wisdom
of venture capitalists I’ve interviewed, your odds of achieving start-up
success on a large scale -- meaning starting a company that is worth at least
$1 billion -- are about one in 10,000.
The logic behind this is that I have
spoken with many VCs who talk with about 1,000 entrepreneurs for every one or
two that they fund. This means that the other 999 or so, either get funded by
another VC, find some other way to get capital, or shutter themselves. And out
of every 10 companies in a VC’s portfolio, the general thinking is that one of
10 ends up being extremely successful, two or three more do reasonably well,
and the rest close down.
Since April 2011 when I started
researching my book, Hungry Start-up Strategy, I have interviewed
at least 200 start-up CEOs. And one of my favorite recurring themes from those
interviews is how so many successful start-ups failed over and over again
before figuring out how they could succeed.
Three such stories come to mind--
pay service PayPal, team productivity enhancement app-maker Collaborate.com,
and recruiting software as a service company Bullhorn.
Case Study: PayPal
The first is PayPal. Surely you have
heard of this e-payment service that eBay acquired for $1.5 billion in 2002.
What is interesting to me about PayPal is that one of its co-founders, Max
Levchin who is now chairman of Yelp, told me that he originally started
Confinity -- one of PayPal’s predecessor companies, to provide operating and
systems software for the Palm Pilot, a handheld device that was very popular in
the 1990s as a place for people to store all their contact information.
One of Confinity’s features was the
ability to make payments online. Levchin kept receiving emails from eBay users
who asked him to develop that feature to make it easier to pay for items
purchase on eBay more securely. But Levchin ignored those emails from users for
six months because he wanted Confinity to be a Palm Pilot operating system
company.
But ultimately he abandoned his idea
and focused solely on the eBay payments technology. In 2000, he merged
Confinity with another payments company, X.com, co-founded by Tesla CEO, Elon
Musk and eBay bought PayPal two years later.
Case Study: Collaborate.com
On July 9, 2013, I heard the story
of Collaborate.com from Matt Cutler, who started Kibits in January 2011. “We
had a general idea that we wanted to create private groupware that would be a
Swiss army knife of functions -- Dropbox, social networks, and work-related
activities. We were ahead of the market on social but we found pockets of
intense use.”
Those pockets were in the area of
business collaboration. According to Cutler, “Business teams told us that it
was great for collaboration. They said, ’It is organized the right way. Please
add these features.’”
Now Collaborate.com is booming. As
Cutler explained, “We are enjoying triple to quadruple digit growth. Active
users, registrations, average purchase price -- all our operating statistics
are up and to the right.”
Case Study: Bullhorn
On July 15, I spoke with Art Papas,
CEO of Bullhorn, which provides software as a service to employee recruitment
firms. Papas started Bullhorn in 1999 but it was not until 2008 that he really
figured out what Bullhorn was good at.
He failed in his attempt to make it
a platform for connecting freelance workers with employers and at turning
Bullhorn into a provider of software to help procure creative services.
But Bullhorn stumbled onto a problem
that led to a very successful outcome. Papas met “Mike O’Donnell in Woodbridge,
New Jersey who was willing to pay us to build a database for his recruiting
firm to keep track of his operations over the Internet. Based on that, we were
able to raise $750,000 from our original investors.”
By solving that problem, Bullhorn
put itself onto a path to a profitable sale of the company to a private equity
firm that leaves Papas still in charge. “We now have 6,000 customers in 34
countries and after raising $26 million in 2008 we reached $40 million in
revenues by 2012 and sold our stock to a private equity firm for over $100
million.”
Even after selling out, Bullhorn
remains private and Papas is CEO. “I can now get access to the money I need to
make acquisitions and add new products. By 2017 we should reach $150 million in
revenues and be in a position to go public or be acquired," explained
Papas.
These three stories bring to mind
the famous saying of GE founder, Thomas Edison, “genius in 1 percent
inspiration, 99 percent perspiration.” For aspiring entrepreneurs this
means that if you have an idea for a business, build the product, give it to
customers, and see what happens.
If the customers don’t like your
idea, try something new. If they like part of the idea, develop that. And if it
fails, keep trying until you succeed.
| Peter Cohan | http://www.inc.com/peter-cohan/most-important-key-to-start-up-success-fail-fail.html?cid=em01016week29d
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