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learning from a failed business venture

m. werneburg, 2013.01.24

At a conference in early 2013 the keynote speaker asked if someone in attendance could speak to a career setback from which they'd grown in a new direction. I rose to speak, choosing one of my small deck of such setbacks. This is (an expanded) record of what I said.

First, some background

I was thirty-seven years old when I launched my third business. Like the other two, this had at its core consulting in the information systems field. Like the others, it carried on for two years and met its end without having established a self-sustaining income. But unlike those earlier occasions I had already lined up clients for the consulting side that had previously already been clients when I'd been working for a large software firm. I knew that those clients needed my help, and knew I could provide the services they needed. This time, also, I had identified a speculative Idea for a Venture to explore. And the biggest difference: this time I was operating in Tokyo, not my native Canada. This is a difference that cut both ways, limiting my innate comprehension of the market but at the same time housing a substantial entrepreneurial environment and the investors who fuel it.

The timing was right for me in that a) my then current employer was imploding and b) they were offering an exit strategy that made such an exit attractive. Compounding the macro issues was the fact that the company's problems were making my particular role untenable: I was working seven days a week and watching many of the people I relied on being shown the door. Making the best of the information I had at the time, I chose to leave while the leaving was good.

To make a long story short, neither the consulting business nor the Venture took off. On the consulting side, the problems in 2008-2009 had blown up into the worst global recession in more than two generations. Major investment banks were withdrawing from the market and the clients my partner and I had lined up—the large life insurance firms operating in the country that used the software of our former employer—had cut formerly $100 million dollar IT budgets to nothing. I had greatly underestimated the risks of the core consulting idea, and had underestimated the tolerance of those firms to simply put off all of the things (some of them quite substantial) that they wanted to do with that software simply because of the uncertainty of the times.

My partner and I (and some additional contacts, with whom we made alliances) were exposed to several highly lucrative opportunities that, though they failed to materialize, involved operating at a higher level than we ever had as employees of larger software/services firms or the financial outfits they service. We were pitching C-suite parties on solving major business challenges, projects that would have cost millions to implement. The difference between being in a worker capacity, I learned, is very different from being there when a deal is coming together.

The Venture Idea, meanwhile, had also proven far more difficult than we'd imagined. It had been a speculative concept from the beginning, but we'd simply not comprehended the obstacles. In rough, we wanted to sell engagement rings on the Internet. This is already a giant market in North America, and with more than 750,000 weddings every year in Japan, it looked like an attractive idea in that country, too. Especially with the mark-ups on diamond jewelry at the retailers, which put engagement rings at a substantial multiple of their cost in other countries.

Glossing over the many months of work that went into the thing, I'll sum up:

A semi-functional copy of our then website remains online here. Enjoy!

I even took it as far as pursuing venture capital. But in the end, I could not raise any capital for advertising purposes, and we could not on our own drive the traffic that would kick-start the business. At a time when diamond wholesalers told me that retail prices were collapsing and their own margins were vanishing, we failed to sell a single ring. But worse than that, as the response I received from the would-be investors showed, we had to acknowledge that the Idea couldn't even convincingly overcome the discount rate in the net present value calculations we were putting in front of the people used to the entrepreneurial environment. In otherwords, as risky an investment as it may have seemed, their estimate of the payout didn't match mine.

It's not hard to see why. Although we'd done the work, we were still amateurs playing at a game for which there was not only no proven successful player in the market but couldn't validate our business model with as much as a single paying client. A couple of IT guys learning how to build a business and fumbling about in a largely-foreign marketing environment. One in which I spoke only a halting version of the language, barely sufficient to conduct a business meeting and certainly not good enough to undergo the one industry press interview we did without a translator. My partner was in better shape, language-wise, but we were a long-shot regardless.

By this point my finances needed to stabilize, as my dwindling savings were approaching my safety cushion. I found work in Toronto, and we moved away from Japan.

How this changed me

The heading above might have read, "What I learned from this", but that doesn't cover it. This experienced changed who I am.

The keynote speaker at the 2013 event who had me stand to deliver my recounting is named Kaplan Mobray. He writes, in a book on "personal branding", to seek failure. By which he means, to seek the activities that may very likely fail because they extend us beyond what we can currently do. To accept new risky challenges with a purpose.

I succeeded at that. Who I was at the end of that challenging run barely resembled the person who'd started it full-time two years prior.

This first was driven home in a really interesting way. I was speaking with a potential investor when I realized that we both knew a good friend of mine, someone who'd contributed to our project. I asked if he knew my friend, and he said, "Who, an IT guy? I've hired hundreds of those guys over the years." That this wealthy would-be investor and serial entrepreneur—who ran the market-leading business in an important sector in the world's (then) second-largest economy—would say this to told me that he didn't see me in that same light. But I had been just a career IT guy until that point.

Thinking about it on the way back from that meeting, it dawned on me that though it had taken fifteen months or so of full-time work, I'd accomplished many things I didn't even comprehend when I started. For instance, I can now use terms like discount rates for net-present-value calculations, neither of which I knew existed back then. There are a lot of examples I can point to: sourcing vendors and negotiating rates; studying and evaluating market segments; leveraging networks to obtain what I need; managing projects involving contributors from around the world (there were a number of people on the project I never even met).

This failed Venture, and the failure to get the consulting gig going, have reshaped me. I'm far more experienced, confident, aware, and adaptable. I simply work at a different level. This shows in everything I now do.

Would I do it all again? Hell no. But you see, I don't have to. Next time, it will be different.

What did all of this cost me

In terms of money, believe it or not I didn't lose some vast fortune. The project cost me less than I was paid by the bank during the severance process. I look at it like a fraction of a cost of even the most affordable MBA programs. And I now know several key things that will prevent this from recurring.

In terms of time, I speak of two years but it was actually somewhat less than that. It took about twelve and a half months from when I stopped working for the bank and our first launch. The next six-eight months were spent in a phase of augmenting, improving, rebuilding, and rethinking based on the input we were getting from a host of parties made more interested by the fact that we'd even launched in the first place. This included the parties who hadn't been moved to invest, but who still saw the value of what we'd accomplished. Frankly, this is all time I would re-invest without problem. Because it was free time to me; I won't repeat what my former colleagues at the now-ex-bank were telling me about what I'd missed by leaving what I did. But .. there was no comparing the two experiences.

In terms of tears, sweat, and blood: I was having a blast. It was an energizing time of my life, and I've found that that energy boost has continued to this day although I'm not currently self-employed. I have come through a fairly important accomplishment in this respect.

In terms of reputation: this seems to have not cost me a thing but in fact has been seen as a fairly important plus by the people I've since met. Maybe it's the increased confidence, I don't know.

All in, a worthwhile experience and I'm still glad I took this shot years later.


rand()m quote

When I let go of what I am, I become what I might be.

—Lao Tzu