How do you know when it's time to give up on your entrepreneurial dream?
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It's time to face the truth: Being your own boss is not easy. In fact, the career paths of most entrepreneurs and business owners are strewn with hurdles, detours and, in some cases, insurmountable roadblocks.
So how do successful entrepreneurs navigate this bumpy terrain? Brent Goldfarb, an associate professor of management and entrepreneurship at the Robert H. Smith School of Business at the University of Maryland, said the best minds in business know when to keep plodding along and when to cut and run.
In an email interview with Business News Daily, Goldfarb shared his advice for today's entrepreneurs — from how to keep your business alive to why you should embrace your failure, instead of fear it.
Business News Daily: In your experience, what's the most common cause of entrepreneurial failure?
Brent Goldfarb: I believe that the most common cause of failure is the lack of product-market fit. In other words, the product or service being offered does not solve a big enough problem for a sufficiently large group of customers.
That said, it is very difficult to quantify this, because oftentimes, the reasons for failure are complex and interrelated. For example, an entrepreneur might not be sufficiently responsive to market signals and might not change his or her offering to better fit demand. In this case, is the failure because of the product/market fit, or is it because of an overly rigid entrepreneur? It is hard to say.
BND: Is there a threshold for failure? How many times should an entrepreneur fail before deciding to give up?
B.G.: I don't think there is a set number. Many entrepreneurs might fail several times. The key is to learn from each failure, to lower the chance of failure the next time.
Every time a venture fails, the market was giving feedback that a particular idea wasn't working. If an entrepreneur is bull-headed — in the sense that he or she does not respond to signals from the market — then maybe that person should go work for someone else. [Why Creativity Matters Most for Entrepreneurs]
BND: Why shouldn't entrepreneurs be afraid to fail?
B.G.: Every entrepreneurial venture is a way to figure out if a guess that the entrepreneur has about the market is true or not. If success were clear from the beginning, then everyone would be doing it. It is only an entrepreneurial venture if there is considerable uncertainty about whether it will succeed.
Hence, failure is an integral part of entrepreneurship. However, oftentimes, our best guesses about the future turn out to be wrong. When that happens, it is foolish to keep going. As Yogi Berra once said, "Prediction is difficult, especially about the future."
The trick is to minimize the cost of failure. One way to do this is to figure out how much you can afford to lose and then make sure not to invest more than that. Then, if failure happens, it might not be so painful.
BND: Why shouldn't entrepreneurs be afraid to throw in the towel?
B.G.: Every minute spent working on a failing venture is a minute not being spent on something more productive. Experienced venture capitalists, who have invested in dozens of startups, still fail to identify the best ideas and teams most of the time. This isn't necessarily because of a lack of talent or effort; it is often just bad luck.
For instance, I was speaking to an entrepreneur last week whose business failed because he bet on near field communication (NFC) technology, and then Apple decided to not support NFC. This wasn't a failure that the entrepreneur could have prevented; it was just an unlucky bet.
BND: How should business owners deal with their fear of failure? What steps should they take?
B.G.: Just because a business failed, that doesn't mean that the entrepreneur did too. Instead, think of it as another semester of college (expensive, but hopefully, you learned something).
Skilled entrepreneurs will try to figure out what they might have done differently — they won't just play Monday-morning quarterback. Each decision was made based on the information available at the moment the decision was made, not the information gained afterward. So, the entrepreneur might have been wrong about something in hindsight but made a perfectly reasonable decision in the moment. That way, an entrepreneur might learn to do it differently next time, but not put oneself down for making the "wrong" decision.
I don't want to belittle the emotional aspect of realizing a venture has failed. It can be similar to mourning. The key is to go into it recognizing that it is an opportunity to learn. This will allow entrepreneurs to systematically figure out what mistakes they made so they learn for the next time.
Originally published on Business News Daily.