6 Things You Learn When You Fail

Over the course of one year, Craig Reiss went from think­ing about a $1 bil­lion val­u­a­tion to clos­ing his doors for good. He offers his story to save oth­ers the emo­tional dev­as­ta­tion. While this is a story of fail­ure in busi­ness, I think we could find some appli­ca­tions to life in gen­eral of the prin­ci­ples he men­tioned here.

Craig Reiss has been a senior level media exec­u­tive and the prin­ci­pal cre­ative for more than 300 mag­a­zines and web­sites in 37 cat­e­gories from auto­mo­tive to action sports and from enter­tain­ment to agribusi­ness. He has men­tored many lead­ing edi­tors, jour­nal­ists and design­ers who have won hun­dreds of mag­a­zine awards, includ­ing dozens of National Mag­a­zine Awards. Most recently, he became an entre­pre­neur, becom­ing an inter­net pub­lisher of video-driven enthu­si­ast web­sites that con­verted mag­a­zine adver­tis­ers into inter­ac­tive video marketers.

1. Sur­vival Mat­ters Most.
In order to sur­vive, we must ded­i­cate the total­ity of our­selves to it. This is very dif­fi­cult to do. Con­cen­trat­ing on sur­vival instead of focus­ing on suc­cess runs counter to the moti­va­tions and self-confidence that led us to be entre­pre­neurs in the first place. Yet it takes self­less ded­i­ca­tion to strip away accom­mo­da­tions we’ve made to the real­i­ties we face.

Mak­ing a stone-cold assess­ment of the sit­u­a­tion, no mat­ter how unbear­able the con­clu­sion, is essen­tial to sur­vival. There can be no tol­er­ance for denial, no sus­te­nance in vic­tim­iza­tion, no excusals required. We must be able to strip the truth as we have ren­dered it from the real­ity that con­fronts us. To let real­ity in, we must get out of its way. And sur­vival is very much about what is real.

The means to sur­vive are always before us. We must make our­selves able to see them by embrac­ing the inverse of what we are doing. We must be will­ing to change com­pletely, even if the busi­ness that sur­vives no longer resem­bles the busi­ness we started. We need to aban­don what we hope or believe could happen–especially any­thing that would absolve us from the need to con­sider mere sur­vival. Noth­ing else matters.

We are man­agers of our com­pa­nies. And man­agers man­age risk. In the end, we are judged on noth­ing else. Good times can obscure the cost of delu­sion. Bad times, like these, expose it for the lethal vul­ner­a­bil­ity it is. Had I not failed at this, I would have a busi­ness of some kind today. It’s that basic.

2. The Toxic “If … Then“
Here’s an easy test to deter­mine if you should be tak­ing sur­vival strat­egy very seri­ously: Have you made any of these state­ments in the past 30 days? “If we can just get around this cor­ner, then things will pick up.” “If this one deal comes through, then oth­ers will fol­low and we’ll be all right.” “If we can hang on until we feel the impact of the eco­nomic stim­u­lus bill, then things will work out.” “If we just pour some more money in to get us through the tough times, then we’ll end up being successful.”

If you’re overly con­fi­dent or help­lessly hope­ful, you can sub­sti­tute the word “when” for the word “if” in any of those or sim­i­lar state­ments, but you’re still in jeop­ardy of being unable to respond to what you have to do to survive.

I used every one of those “if” propo­si­tions (except the one about the stim­u­lus pack­age), and in my analy­sis every “then” had some mirac­u­lously pos­i­tive out­come. Noth­ing con­tributed to my fail­ure more than my unre­lent­ing ded­i­ca­tion to my orig­i­nal con­cept of suc­cess. It almost worked, but it didn’t.

3. Money Has a Strong Sur­vival Instinct.
It is dif­fi­cult to remember–or even imagine–that just a year ago there were great sums of money look­ing hard to find some­place to park–anywhere that would return more than the stock market’s 10 per­cent to 20 per­cent a year. In times like that, money is down­right cordial.

But when money’s paper value drops 20 per­cent in a day, and by half or more in a few weeks, with no fore­see­able chance of recov­ery, money switches into sur­vival mode. It changes its phone num­ber and e-mail address. It becomes impos­si­ble to find.

If you think you can find invest­ment money, you’re try­ing to buck insur­mount­able odds. If you think the new admin­is­tra­tion will trickle stim­u­lus money down far enough that you can grab some, you’re delu­sional. There is no bailout com­ing our way.

The beau­ti­ful thing about cap­i­tal­ism is that it accepts any and all adven­tur­ers. The down side is that cap­i­tal­ism is a harsh and unfor­giv­ing matron. When judg­ment is ren­dered, you either made it or you didn’t. It’s up to you–and you alone.

4. Act on the Worst Case While You Still Could Be Wrong.
If every­thing goes com­pletely wrong, can you sur­vive? If every­thing gets even worse than you can imag­ine, can you sur­vive? Have you cal­cu­lated what seem­ingly des­per­ate maneu­vers you would have to take to sur­vive, and pre­cisely when those changes should kick in? Are your sur­vival weapons locked and loaded? Have you elim­i­nated any­thing that could muf­fle the blare of the alarms?

The key to sur­vival is stay­ing ahead of the need for it. No mat­ter what state your busi­ness is in right now, its cost struc­ture has to be amended. Rene­go­ti­ate every­thing. Leases and loans have to be brought to a sus­tain­able level, or the busi­ness must be restruc­tured with­out phys­i­cal loca­tion or need of cap­i­tal. Oblig­a­tions must be sub­let or aban­doned. Cut sales com­mis­sions. Elim­i­nate every job you can, and then elim­i­nate almost every job you think you can’t live without.

We all tend to put off mak­ing dras­tic changes because we con­sider con­se­quences. Cut com­mis­sions or salaries and we could lose our best peo­ple. Give up our loca­tion and we would look bad and no one will want to do busi­ness with us. Or we might think that we’ll never be able to get another loca­tion as good once things turn around. Or so we tell ourselves–and we’re wrong. Tal­ent is a cost, not a depen­dency, and it must be mea­sured against return. A loca­tion grander than its return is vanity.

Per­haps the biggest mis­take we make is to become par­a­lyzed by our sunk costs. We’ve all put a lot into our busi­nesses. We can’t just walk away from those invest­ments, cer­tainly not with­out fun­da­men­tally weak­en­ing the busi­ness as we know it and, more emo­tion­ally, because it would make us look like we’ve been damn fools. But that’s exactly what we need to do. Money spent is money gone. We need to ded­i­cate our­selves to the money that’s left. We have to mea­sure every move against its con­tri­bu­tion to survival.

5. Man­age Expectations–Your Own and Your Investors’.
When I had my first board of direc­tors meet­ing, one of my major investors opened the pro­ceed­ings by telling me he couldn’t remem­ber what this busi­ness was about, and that he’d only invested because his friend told him to do it. Would I please, he asked, start at the begin­ning? There I was, pitch­ing money I already had, but I sucked it up and deliv­ered. When my time was up, the board mem­ber told me two things: First, it was clear I knew my stuff; and sec­ond, he’d made some quick cal­cu­la­tions and he now fig­ured this busi­ness could be sold in few years for $1 bil­lion. He was mak­ing eye con­tact now.

His only follow-up ques­tion was whether I expected to hold the busi­ness until it reached a $1 bil­lion val­u­a­tion, or would we flip it before then and at what thresh­old? I remem­ber pulling a num­ber out of the air: “If we were offered $200 mil­lion,” I said, try­ing to sound more earnest than smug, “we would have to have a seri­ous conversation.”

I con­fess: that evening I read a mag­a­zine about boats (yachts, actu­ally) and DuPont’s Reg­istry of Fine Homes. The first time some­one says the words “bil­lion,” “dol­lars” and “you,” it’s heady stuff. But allow­ing that expec­ta­tion to be set was a curse from which there was no recovery.

The gid­di­ness of our expec­ta­tions made con­sid­er­ing rad­i­cal changes to the busi­ness (retrench­ments, cost reduc­tions, time delays, even sus­pend­ing oper­a­tions in order to with­stand any even­tu­al­ity) a severe dis­ap­point­ment to the investors–and to me, because I was both the largest investor and the archi­tect of the oper­at­ing strat­egy. But we pressed on. Besides, if we flipped it, what­ever prob­lems the busi­ness might be hav­ing would no longer be our concern.

A year later, I shut off the lights. No one remem­bered hav­ing been intox­i­cated. Instead, they asked sober and sober­ing questions.

6. Be Will­ing to Fire Your­self.
We are all vested in belief in our­selves. With­out that, we wouldn’t be entre­pre­neurs. We start busi­nesses because we believe we have tal­ents, will, pres­ence and com­pe­ten­cies that are instru­men­tal to the suc­cess of the enter­prise. With all of our being, we believe that our per­sonal tal­ents are core to our com­pet­i­tive edge. Noth­ing cor­rupts judg­ment more than the fil­ter of self-appraisal.

The prob­lem is that the entre­pre­neur is vested twice: as an investor with cash on the line, but also as the man­ager of the busi­ness. As an investor, money is equity and judg­ment is con­cise. The money is in to make money, period. It gets no sat­is­fac­tion from how that is done. Busi­ness is best when it is sim­plest. Emo­tions are complicated.

For the man­ager, sweat is equity and judg­ment is per­sonal. The man­ager side of the entre­pre­neur makes the busi­ness a busi­ness. The busi­ness is life, and life has its complications.

In order to sur­vive, you must ask your man­age­r­ial side to leave the room while you speak with your investor side. Only as an investor can you coldly ask whether you are truly the best per­son to be run­ning your busi­ness. Is there some­one else who could help it sur­vive, let alone pros­per? Would you be more valu­able as an investor guid­ing a man­ager and pro­vid­ing your spe­cial tal­ents where they would cre­ate the most return?

This was really the only piece of my own advice I tried to take while my busi­ness was still run­ning. Part of the agree­ment with my new investors was to assign man­age­ment con­trol of the com­pany to the lead investor in the group. I had known him a long time and believed that he had the busi­ness skills to lead us through our predica­ments, sta­bi­lize and solid­ify the com­pany, and grow us up.

And that’s the only rea­son I’m sure that, had the eco­nomic melt­down come even a few months later, my busi­ness would have been funded and this story would have been about the heroic entre­pre­neur who pulled off the next big thing. It might have worked out that way if I had fired myself sooner. A most impor­tant les­son learned just slightly too late.