Learning from Failure: June 2009 Archives

We already know that higher tax rates decrease the rate of entrepreneurial start-ups in an economy.  My friend and colleague John Wark passed along a post from TaxProf Blog that cites a recent study by Rafael Efrat, of California State University-Northridge suggesting that taxes are also a culprit in small business failures, as well. 

TaxProf Blog offers this quote from the conclusion of the study:

Consistent with the growing tax burden on small-business owners, as well as the growing body of evidence linking higher tax burden with limited entrepreneurial growth and higher closure rates, this study has found that tax problems constitute an important reason for bankruptcy filings for a sizable number of entrepreneurs. Interestingly, those entrepreneurs that attribute their business collapse to tax problems do not come from disadvantageous background. Instead, the average entrepreneur in the bankruptcy sample that has faulted tax problems for his financial woes was typically older male, white, native-born, well-educated and an experienced business owner. Nonetheless, the typical entrepreneur with tax problem in the bankruptcy sample was facing enormously higher debt burden with more than five times as much debts as other entrepreneurs in the bankruptcy sample.

I have not written about a golf metaphor for entrepreneurship in quite a while, but the US Open from this past weekend offered an important lesson.

No matter how good you are or how well you prepare, there are certain things that can happen that are totally outside of your control.  The golfers who got the bad end of the weather this past weekend at the US Open experienced this first hand.  Some of the golfers played their early rounds in constant rain and windy weather.  Others, due to their tee times, played with little or no rain -- just a soft and receptive course awaited them after the rains ended.

Was this fair?  That is not the point.  It is, as they say, what it is.

I tell my students that we can help them manage about 80% of the causes for failure in their businesses. 

About 40% of failure happens because the entrepreneur jumped into a business that was doomed from the start.  They did not properly assess the opportunity prior to launch.  Rather, they impulsively moved ahead with little forethought. 

About 40% of failure happens because the entrepreneur is not ready for success once it happens.  Growth is a dangerous time for a small business -- just ask any banker.  If you are not prepared to properly manage and develop your business as it grows, you will soon join the legions of entrepreneurs who failed due to their own success.  They did not create the systems, grow the team, or secure the resources necessary to deal with the growing pains that sink so many promising ventures.  We try to prepare our students with the skills and knowledge to manage their growing ventures successfully.

But then there is that other 20% of business failure.  This failure comes from what you cannot predict nor plan for.  Call it uncertainty, risk, or just bad luck.  Sometimes things happen to even the most skilled and prepared entrepreneurs that are totally outside of their ability to manage. 

My favorite example of this is an old diet supplement that used to be on the market -- it was called Ayds.  The product was growing nicely until a deadly disease with the same sounding name crept into our consciousness -- AIDS.  The sales of the product plummeted.  The spread of a deadly disease with a similar sounding name is nothing that could have been predicted, and there was very little they could do to adjust in time once people stopped buying the product.

This is why I put the Serenity Prayer, or as I call it the Entrepreneurs' Prayer at the end of most of my syllabi for my classes:

GOD, GRANT ME THE SERENITY
TO ACCEPT THOSE I CANNOT CHANGE,
THE COURAGE TO CHANGE THE THINGS I CAN,
AND THE WISDOM TO KNOW THE DIFFERENCE