StartupCafe

Our Stanford REE Series continues with ‘Lessons from Failure’ from Heidi Roizen’s keynote speech. By guest blogger Jill Lin.

Learning from failure is not an unfamiliar theme in the context of business. Heidi Roizen, who is the founder of Skinny Songs, a former Venture Capitalist and a role model of fearlessness for entrepreneurs, provides an insightful explanation and many practical examples in her talk on ‘Lessons from Failure’.

The greatest lesson on failure is that of trying to figure out why, most of the time, the product is great but the company fails. We expect failure but we need to avoid making the same mistakes. All of us know that it is a tough job. John Cleese once said “I’ve learned from my mistakes: I’m certain I could repeat them exactly.” What we can learn from coping with failure is how to experience yourself and go through the failure, and sensitize it so that you may response to it quickly. The essential and right attitude towards failure is to see difficulties as a turning point in the business. No-one likes to make bad deals but people learn from losing huge amounts of money. Why do great products collapse? There are three main sections of questions that we need to ask beforehand.

Capital structure:

Questions to Ask:

• Does the structure align all stakeholders as closely as possible?
• If the capital is insufficient, will one stakeholder have excessive control over future fundraising?
• Has anyone put himself or herself in a situation of personal financial crisis if things don’t go perfectly?
• Are there hidden agendas among stakeholders that might change their management of the investment in the future?

Instead of putting emphasis on evaluation, entrepreneurs shall notice the importance of terms, the real outcome, the capital structure and the process. Since the business is neither a total failure nor a total success, taking the same route does not lead to absolute success.

Partner structure:

Questions to Ask:

• Does the department make financial sense for the company? Even if some of the assumptions prove incorrect? In this case, look at your assumption and check if it is wrong. When it is wrong, move to another direction.
• What are our partner’s expectations, and how are they going to judge success? We need to know how to get out of things that didn’t work.

Company design:

When Microsoft gave out their software for free during the mid-nineties, Heidi was trying to synthesise her company structure, distribution channels, and platform relations. In spite of this, most of the time, “Your investors don’t like you, they like their money and they want it multiplied and returned by a certain time” says Heidi. Therefore, if company is a product and the buyer is another company the company needs to be designed.

Questions to Ask:

• Do we own as many rights in our products as possible?
• Are our products synergistic?
• Does our company itself hold together form a “product marketing” perspective?
• Is there an acquirer into whom we will be a natural and complete fit?
• If not, how do we get into or out of products in the best possible way to create a better company from a “product marketing” perspective?

Learn from failure. One should always check and verify your capital structure, partner structure, and company design during the entrepreneurial process to lower the risks of failure.