Failing Fast

by Howard Edelman, co-founder of BUILD

Several years ago I had decided to start my first medical device company. For the first year, I was slogging it alone in my garage building and testing prototypes and struggling to prove a concept.  Given the stage of the project, it made the most sense to be on my own for time. I knew the project needed to be managed and executed this way until a certain amount of risk was removed. After that, maybe then the project would become something more. I thought I would be able to attract more capital and the right team members after I achieved certain goals.

For a long period early on when discussing or presenting the company, I would refer to it as “the project” thinking this somehow made is more manageable with the skeleton crew.  I remember squirreling this lesson away from a board member during my salad days at another startup. His project had suffered through years of lean times later to graduate to a “company” when he felt supported by the right management team that took him years to assemble.

My mindset then was tempered by really hard lessons of controlling the budget as frugally as I could and mitigating as much risk as possible.  I had somehow absorbed some of these business lessons from my father. He and two other partners had a garment factory in Bridgeport, Connecticut for many years from the 1960’s through the 1980’s. They worked hard and dealt in cash as much as possible with the post-war Eastern European immigrants and their first generation children in mid-town Manhattan in what is now a largely forgotten industry. Given many of them were raised during the depression, their reputations for “getting a deal” was epic. That left an impression on me and I used to take great pride in telling people that I was the “CEO or Cheap Executive Officer”. Working summer months at my father’s factory was my introduction to manufacturing. I can easily recall the hot and humid days listening to the constant starting and stopping of a hundred sewing machines.

Even though I was building a technology company in the orbit of Silicon Valley, my mindset was to get the company to be self-sustaining as quickly as possible. There is only so long one can survive on savings and I had a young family to support. I was hustling as fast as I could to get to meaningful sales. Although the Valley was emerging from the mindset of placing a premium on top line rather than bottom line growth, the “hockey stick” always takes up a large corner of the conference room. Raising capital, especially R&D capital, is always difficult despite milestones achieved and risk removed. It is the first and hardest money in. The future is always uncertain and execution, despite the best planning, can be difficult to control. Anyone who has gone out on their own to start a business is very well aware of the odds stacked against them. Riding the day to day roller coaster of several early stage businesses, disaster seems the ever close companion. Fortunately I was able to find some comfort in a very useful perspective I learned from a collective voice of other entrepreneurs I met. Defining failure was an important part in managing the project.

I attended a Northern California MIT Chapter meeting in Palo Alto. The speaker was San Maslak. Sam was the founder of Acuson, a very successful story in Silicon Valley and the medical device world. Acuson was always in a leadership position in ultrasound imaging for many years. I recall his retelling of the early days of Acuson in his presentation to the group. Sam left Hewlett Packard to found Acuson. He plugged away for 3 years prior to any funding. During that time he and his wife divorced and he was in a constant struggle keeping his fledgling company alive. He was eventually able to raise capital from Kleiner Perkins, not because he was able to convince them of his superior technology, but because of his drive to succeed. The drive and persistence is an obvious trait we all understand, but the counter balance or knowing when to quit is not so clear.

As an entrepreneur, failure runs counter to why you get up in the morning. But, understanding what failure is and defining it is an important perspective to have to temper your own risk. I think of the countless times I attended investor meetings and heard pitches that are difficult to see any path forward for their project. It is rarely about the commitment of the team. It is always about sales. At 17, that was the first lesson I learned about business listening to my father’s button and zipper supplier. I was listening to the two of them talking about winter orders in a warehouse full of zippers. “I need more orders,” Arnie complained looking out over the endless sea of boxes, “or the winter’s gonna be cold!” “Got it,” I thought, “Sales fix everything.”  And that is the main reason businesses fail. Of course any honest long term investor will tell you about the long list of great companies that flopped and the equally long list of ones they thought didn’t have a chance that are the next big thing.  But then there is the vast expanse in between. How does the entrepreneur balance the drive to not quit with when it is time to and to do it quickly?

During the question and answer period after Sam talk, I couldn’t help myself and raised my hand. I asked him how he handled impending failure every day during the early period of Acuson.  All the eyes in the room turned on me surrounded by expressions of disbelief that anyone would ask such a question. I thought that none of these people have had to make payroll. Sam responded with advice that help guide me through many tough times.  In essence, if you create value every day and you continue to meet your personal and professional goals, you keep going. When you cannot meet these objectives and see that you are headed to fail, then you want to fail fast and move on. I have come to learn it is that simple.

Like many I know, I am a list maker. I do that shopping for groceries and I do that when starting a project. I do this as the outline for the actual business plan. This is the plan we use to raise capital and also to run the business. (I know that sounds silly.) I list all the areas that need focus, what has to be achieved as we progress and the associated risks along the way. And I try to do this through the end game of the business. That’s the exit question by the investor. Every area has to be considered in a fair and balanced way especially the areas with which you are least comfortable.

Many early stage entrepreneurs I meet tend to be technically oriented. They often have significant gaps in their knowledge about large areas of business. This is understandable and why we all hear the advice about surrounding yourself with great people that can fill in these gaps. But I also often tell them that in the early phase, when this team is not in place, you have to be a Marine. Marines run towards the gun fire. You may not have realized this at the startup moment, but you just enlisted to be a Marine. You have to face the uncomfortable with zeal and immerse yourself in all key areas to manage and mitigate the risks. Would it not be better to not start something that would certainly crater in 2 years if one took the time ask honest questions now? Image how much collective suffering you could avoid. Can we truly achieve sales traction? Is our sales cycle long, laborious, too highly dependent on key decision makers, too sensitive to exogenous forces we cannot control? Do we have a defensively unique offering? Are we a single product company highly prone to competition? Could trends too easily overtake us? Do we continually need to invent or innovate at an unsustainable rate? Can I really raise capital in this market? Can I survive on savings for 12 months? Will my wife/husband/kids be supportive? Do I truly believe what I am doing will be impactful and return a reasonable return to my investors? Of course there is a larger set of questions and you weigh the answer constantly over time to make sure the train stays on the tracks.

Most things can be overcome by a well led team with hard work, persistence, and good honest communication. (By the way, hard work, persistence and good honest communication are really, really hard things to do day in day out especially if you’re worried about payroll and untold other pressures.) Some things cannot be overcome. I have been on that precipice many times for one reason or another. As we progressed with that new company, my team found their way through because we saw, with whatever adjustments, we could continue to create significant value and push the business forward. But I knew what the failure points were. They were close companions. These companions kept me mentally prepared for the worst. And when that time came, I was ready to embrace it and move on as fast as I could.

NOTE: If you’d like to reach out to Howard Edelman, you can email him at howard [at] buildandcode.com

Make Your Comment: