Early, Cheap, and Often: Failure as a Key to Success (Unedited Notes)

This is a talk with some local entrepreneurs who are going to talk about some of their failures as business owners, and how they’ve dealt with that. They’re all graduates of an entrepreneur training program here in Austin, Acton. Looking forward to what they have to say.

They hope that we’ll leave with a sense of encouragement about growing a business. It’s not always glamorous and easy, but it’s possible to overcome these setbacks and keep growing.

Outbox Mail is the company that Evan Baehr and his partner Will started a few years ago. They raised over $7.5m in venture capital money, and then decided to close the company down. It was more expensive to acquire customers than they thought, it was more expensive to provide them service than they thought, etc. They were unprepared for the actual cost of the infrastructure because they couldn’t really prepare for what would happen.

They found out that the cost of running it was more than it was worth. They started with no plan and no money, and then got $5m still having no plan, and had to go back to their investors and tell them that the idea wasn’t working. They thought the investors would demand their money back, but in fact the companies were investing in the team, not the product. So they were able to start over with a new product.

Lawson Boothe had a similar experience. They built a business that they didn’t feel comfortable or excited about making their life of, so they had to shift and pivot to change the business and create something they would be proud of.

Nate Little’s company developed a scheduling software for schools. They weren’t great at sales, and knew that going in. They had to set dates to meet targets in order to really keep on track with customer acquisition.

Did you know that you were going to be someone who’s ok with failure? Were you worried? Sometimes our expectations are worse than what actually happens when you’re facing the future. We also have a fear of failure, which often makes us afraid to try. Evan and Will wrote a note of gratitude to their supporters which was really a testament to how it’s possible to fail with integrity.

Don’t fail because you’re unethical or sloppy, fail because you’re trying so many new ideas.

Don’t lie to yourself, do what you say you’re going to do, and if it doesn’t work adjust. Don’t try to make excuses or spin it another way so you’ll feel better, just make a change and communicate openly and appropriately. The leader has to create the culture that we can openly learn from our mistakes and move on from them since you’re not going to be actively involved in every decision anymore after you’ve got those first 5 or 6 people working there.

Do co-founders help?

It’s nice to have that support and backup from someone that you trust and care about. It can be difficult, of course, to keep it together when things might be falling apart. Evan and Will have very different personality styles, so they tend to take on slightly different tasks, and their wives also help them out a lot.

Nate’s business partner isn’t actually involved in the day-to-day of the business, but acts as more of an advisor to help keep Nate on track. He helps to hold the company accountable for the goals that they’re setting out, and keeps an outside perspective on the business. They all agree it’s nice to have someone else to talk to.

Testing assumptions is key. Before you dump a bunch of money in something, you should know what assumptions you’re running on and then test them. You might have a lot of things to figure out, so you can narrow down the list by talking to investors and they’ll tell you which things they feel most skeptical about. If you have 3-5 assumptions that could make or break the company, those would be the ones to test and tweak until you find something that could work even if you’re wrong.

Write out 100 assumptions that you have about the business. Christensen Assumption Testing and Assumption-based planning: move the red assumptions to yellow and eventually to green. This way you know going into it exactly what problems you might run into ahead of time.

Also surround yourself with people who are on board with your plan and your direction.

Questions from the Audience

Can you describe your support system through all of this? Friends, family, etc? Nate had two kinds of support.. the family support and the honest support. I’m thinking about this, is this stupid? It’s good to have someone like that even if it’s uncomfortable. It’s best if that person has a good understanding of the business too.

Missed the question, but got this out of the answer: Time is your biggest liability as a startup. If you think something is going to take 3 months, think about what happens if it takes 18 months. Working with government agencies or other large organizations can hinder the startup way of doing things quickly.

“One benefit of failure is that people want to talk about it.” —Evan

After a situation in which some code messed up some stuff for a customer, Lawson went off on the developer who screwed up, and his company hasn’t really recovered from his reaction. It changes the culture and people’s reactions in the future in a way that’s hard to fix. In hindsight, he wishes he hadn’t done that especially considering it really wasn’t that big of a deal in the first place. He just got mad and didn’t appropriately handle the situation as a manager.

“Going ballistic over that one event has hurt our culture.” —Lawson

How you talk to the team about failure immediately after it happens really defines how your team will handle failure in the future.

On culture: We’re a learning company, we’re ok with failure, and we can talk about everything. You have to work to keep that culture up and actively spend time building it. Be open and show that everyone makes mistakes, even the boss. This helps to keep that culture of openness and fearlessness consistent.

Have a plan in mind for situations that could go wrong so that you don’t react on impulse.

Evan used a method called 15Five to help keep his team on track every week. It helped to keep up that discussion on what’s going well, what’s not, etc.

If you stomp out failure all the time, you might be a very operational company but you won’t be very innovative.