Failure is part of the venture game

Saumil Majmudar says it was an emotionally intense period for him. He had started a venture, raised funds, found a CEO to run the business, had himself stepped aside. But a little later the venture had to be shut down.

“I was 27 at that time. Typically, we wouldn’t have experienced failure. There is this whole thing that if you are a well qualified person, sincere, hard working then things will automatically fall into place. That may be right in the job context, but not in an entrepreneurial context, because there are many other things to being an entrepreneur,” he says.

In hindsight, he says, maybe he should have made an attempt to get the business up and running again. Maybe… There are numerous possibilities, all in hindsight.

Saumil took a short break, joined a software company and worked in the Bay Area in the US for a few months. “The first three months in the job were interesting. But after that, the interest started waning,” he recalls now, a good decade after his maiden venture as an entrepreneur folded up.

Nine months in the job, Saumil says he was itching to get back home. He quit his job, got back to Bangalore and joined a friend’s company. That was for a few months. He then started another venture, this one related to sports. After a few twists and turns, the sports venture underwent a lot of changes and now is successful, running the physical education programme in more than 225 schools across the country.

As Bharati Jacob, Partner, Seedfund, an early-stage venture capital fund, says, “there are no failed entrepreneurs. There are only failed ventures.”

Only rarely and reluctantly should a venture be closed down, says R. Ramaraj, a Senior Adviser with Sequoia Capital and who actively mentors start-ups. It is difficult for anybody to accept failure or defeat.

In a society and culture unforgiving of failures, it becomes all the more difficult to close down a business. There is a stigma attached to failure, because of which a venture is kept alive much beyond the stage when it can be salvaged. “We are not from that culture. In the Valley, it is different. This culture is unforgiving of failures,” says Venkat Rangan, Co-Founder and CEO, Market Simplified, whose first two ventures as an entrepreneur failed.

Ask Saumil, Co-founder and Managing Director, Edusports, if he let go off his venture earlier than he ought to have, he says, “with hindsight, maybe I did.”

Mode of control

There is this point that Sadhguru Jaggi Vasudev, founder of the Isha Foundation, made while addressing entrepreneurs recently, about letting go. His take: A pilot can let go off the controls of the aircraft only after it has reached a certain altitude. The plane would crash if he gave up the controls before the aeroplane had reached the cruising altitude. “You have to keep control of everything. Even at a certain altitude, you have to still keep control. It is just that the mode of control has changed.”

Saumil, 39, a B.Tech from IIT-Bombay and MBA from IIM-Bangalore, first started a venture Learn@Home, a computer training business, which morphed into a remote technology support called QSupport. When it started in 1999, says Saumil, QSupport was among the first companies to provide remote tech support to customers in the US.

Venkat Rangan, 33, joined as a partner in a company called Pacific Multimedia that was into Web-based and computer-based training. This did a couple of good projects, including for Citibank. Then the 9/11 attacks in the US happened. Pacific Multimedia was not a funded company and it found it difficult to continue.

After that Venkat founded a company Media IP Exchanges, which was into making IP-based set top boxes. This venture too did not take off. Undeterred, Venkat then started another business, Market Simplified, which provides a platform on the mobile for trading on the stock exchanges. Right now, it is available only for brokers and institutions, but Venkat hopes it will be able to go back to the original plan of offering it to retail investors.

R. Narayanan, 66, gave up a corporate life more than two decades ago and started a company called Gum India that made bubble gum and chewing gum. It had a nearly two-thirds share of the market in the country then. He then started another company that made the machines and the batter to cook and sell dosa . Within a few months, he realised the venture was doomed. “I ran out of money and the machine didn’t work,” says Narayanan, on the reasons for the business failing. He is now an angel investor and mentors entrepreneurs.

Signals to watch out

What are the signals? Are you executing as per plan. If you are not, is it because of the entrepreneur, the team, the opportunity or due to regulatory issues. Look at what has changed since the plan was drawn up, says Ramaraj. See if any of the variables in the business can be tweaked with. You should fix a deadline and decide on a metric before you take the next step.

When do you know that a venture is doomed to fail? “When it runs out of cash,” says Bharati of Seedfund. There is no timeframe for a venture to fail. It is an idea in the entrepreneur’s mind that has become a business. But, progressively when you realise the venture does not have traction in the market, it is best to call it off. “If you are the first investor and the company doesn’t have cash to grow, it is living dead, then let’s call it quits,” she says. How do the entrepreneurs take a failure? Most of them, she says, are pretty sentimental about the venture. After all, they consider it their baby. Some are more philosophical and say, ‘ok, I tried, it didn’t work out’ and move on. A few switch to corporate jobs while the hardcore entrepreneurs come back with a different venture.

Emotional path

There is an emotional path attached to failure, says Ramaraj, for the entrepreneur, the board and the investor and it requires a lot of maturity on the part of all to handle the failure.

There are many reasons for a venture failing. A great idea, badly executed is one. “We all under-estimate the importance of execution,” says Bharati. The idea may be ahead of its time or simply that the market is not there.

Saumil says, when a venture is failing, an entrepreneur tends to believe that the fault lies with everybody else but himself or herself. Most often, entrepreneurs face the dilemma of whether they should hang around and try to fix the problem or should they call it quits. The founder and the founding team are the glue, everybody else is playing the portfolio game, he says, without reducing the value of their contribution. If that glue becomes un-stuck, then the venture is doomed to fail.

If the idea is good and the opportunity still exists and if the entrepreneur has hit a low, says Ramaraj, you should try and convince the entrepreneur to step aside. Then, bring in somebody to run the business.

What are his learnings from the failure? The single biggest learning, according to Saumil, is not to give up. “If you think there is an opportunity then stay with it. The markets may change and the business model may morph.”

When you don’t give up and you spend more time in the market, people are aware that you are still around and more opportunities will come your way. You build a network.

Committing to a space is more important than committing yourself to a product, says Saumil. His second venture was related to sports. The initial model did not work out, but Saumil says he hung around knowing fully well that things will change. Thus, Sportz Village became Edusports. Pivot, try different things, don’t be rigid about the original idea, advices Saumil.

Narayanan says he aggressively discourages entrepreneurs from borrowing money for their venture if there is an element of risk involved. “I don’t tell entrepreneurs to prepare for failure. I point out to them that there could be failure. The whole game is to be able to take a decision under conditions of uncertainty,” says Narayanan.

Alternative plan

He points out that entrepreneurs need to have a Plan B in place, if the original plan does not work out. If you have raised money and your only goal is to conserve the cash and you are not in a position to take decisions, then it is cancer. Slow death, says Narayanan.

Venkat, who stopped studies after completing his 12th standard to experiment and obtained a BBA degree through correspondence education, says he was not disheartened when both his ventures failed. Not once did he think of trying to get a job with someone else. “I think you need to fail at least once before you could actually go on to build a company,” says Venkat, “that really seasons you.”

“You know that you are in control of your destiny,” says Venkat, but points out that after two failed ventures, you do not have the confidence to go to investors and ask for funds, after stating that two of your ventures failed. But, for him failures are like foundation stones. Without failures, you are still that person with ideas. You just love your ideas and stop thinking of the business proposition, he says.

Lessons to follow

One of the lessons he learnt from the failures was never to wait for the picture-perfect moment – where all the ingredients are in place – to start a business. The second lesson is pivoting. You should be prepared to change. “Don’t be so stuck up on your idea that if it doesn’t happen, your company fails. Realise that you have a larger responsibility than just your idea coming to light. You have stakeholders,” he says.

The third lesson is the importance of people. You are not expected to know all the issues and subjects. If you are weak in finance, bring in a professional to handle that job. Always remember you are recruiting somebody for his or her strengths. After taking that person in, don’t look at the shortcomings.

As far as the investors are concerned, if the entrepreneur is good and the venture failed because of changes in technology or market, they may support the entrepreneur in future ventures too.

After all, as the cliché goes, failures are the stepping stones to success.

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