Dan Isenberg failure story - the photo-printing company undone by the dot-com collapse

Dan Isenberg is the executive director of the Babson Entrepreneurship Ecosystem Project and the author of the great new book "Worthless, Impossible and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value." As part of our longer interview (available here), after discussing the pros and cons of the culture of celebrating failure, Dan related his own failure story and what he learned from it. He talks about a startup that grew quickly and imploded ever faster than that in the crazy dot-com bubble era of 2000-2001.

Dan Isenberg's online photo printing story (4 minutes).

The failed venture. Lessons from the failure - the sixth sense of business danger; the speed of failure; reading the macro situation; the "Dersu Uzala" story.

Growing past a microbusiness requires letting managers make mistakes

From the New York Times "You're The Boss" blog, Josh Patrick discusses how a business changes as it grows from a "microbusiness" - i.e., very small, to a "lower middle" business - one with more than $5 million in sales and more than two dozen employees. He describes his experience in growing his own vending machine business to that level:

The real change for me was learning how to manage. I couldn’t do it by brute force. I had to learn to set standards and then to inspect to make sure our standards were being met. My dashboard was part of the solution. The other part was providing face-to-face feedback and learning to hold others accountable.

That required learning to trust and to allow our managers to make mistakes. When we were a small company, mistakes weren’t O.K. They happened, but no one would admit they happened, least of all me. As we grew I had to learn to let others make decisions and then learn from their mistakes. The key was keeping the mistakes small enough that they didn’t sink the business. The better I got at allowing myself and others to learn from their mistakes, the better my company became.

In a small business, the owner makes every meaningful decision. Workers follow her direction. But as Patrick points out, by the time you approach the lower-middle size, there are simply too many decisions to make. Meaningful delegation is required. And, with that, the ability for people to mess up and learn from it. "Creating the Culture for Learning From Mistakes" is a chapter in the upcoming Mistake Bank book, and the process described here is part of that.

Small-business owner Linda Kelly: what she would do differently? Go bigger

From an interview with Laura Kelly in the New York Times You're The Boss blog. Kelly is founder and owner of The Handwork Studio, a kids' needle arts and fashion studio near Philadelphia.

Q. If you were starting all over again, what would you do differently?

A. I would pick a business with bigger returns. Working 12 hours a day are the same 12 hours whether you are dealing with sales of thousands or millions.

Jerome Chazen from Liz Claiborne: "We allowed the growth potential to overtake the company"

This mistake story is from Knowledge@Wharton's interview with Liz Claiborne co-founder Jerome Chazen, author of "My Life at Liz Claiborne: How We Broke the Rules and Built the Largest Fashion Company in the World."

Knowledge@Wharton: What would you say your biggest mistake was running the company, or even before you became CEO, during that whole 30-year tenure?

Chazen: Well, with the benefit of hindsight, I would have worked harder to moderate our growth. I think we allowed the growth potential to overtake the company instead of us being in charge of it. It's a hard thing to explain. But you know, it was so exciting, for me anyway, to report better and better numbers, especially after we went public. I mean I loved it. I loved those quarterly [numbers] that were up 20% or 40%, whatever.

I think, looking back now, that I got carried away, that we should have done things more moderately. I very much appreciate, and I do mention in the book a couple of times, that the Ralph Lauren model was a much better model long range. He's still around and still cooking, and things are going well. Now of course he's primarily in the men's business, which is a much different business and in many ways a much easier business. But he balanced out. I wanted our company to eventually become very important in our own retail business. Unfortunately, we had grown so fast with the department stores and we were so locked in and dependent upon those people -- not only for the clothing we made, but for every other division in the company, including jewelry and fragrance and accessories and so on and so forth -- that we just couldn't move anymore. We couldn't make any moves.

Knowledge@Wharton: Too big, too fast.

Chazen: We did open some stores, but we were never able to be successful because, at that time, we were getting caught in the whole sale mentality of the department stores, which is another thing.... I tried very, very hard to stay out of those messes with the department stores, but it just became impossible.

Chazen vividly describes here what a seductive mistress growth can be. It was "exciting." He "loved" it. But at the end of the day, growth was a trap.

The company called Liz Claiborne will change its name in May 2012 to Fifth and Pacific. It owns the Juicy Couture, Lucky Jeans and Kate Spade brands. The Liz Claiborne brands have been retired.

Linda Rottenberg of Endeavor: "Go Big or Go Home" sometimes means "Go Home"

This story by Linda Rottenberg, co-founder and CEO of Endeavor, an organization promoting entrepreneurship in emerging markets, is part of "Failure Chronicles," a section of the April 2011 "Failure Issue" of Harvard Business Review.

As the plane took off for New Delhi, my mind was still grounded in the intense board meeting I had just held in New York. It was 2007, and Endeavor, the organization I had cofounded a decade earlier to support high-impact entrepreneurs around the world, was expanding rapidly. We had offices in nearly a dozen developing countries, from Brazil to Turkey. But our board was agitating.

“Linda,” the directors said to me firmly, “we’ve been operating in emerging markets for 10 years. Why are we not in India?”

We were not in one of the world’s fastest-growing economies because I felt that India, with its thriving culture of entrepreneurship, was not the right market for us. Endeavor’s mission—to mentor young business leaders, to get them access to capital, to turn them into rock stars—had already landed in India. But the board made a compelling case, arguing that if Endeavor was serious about growth markets, we couldn’t ignore one of the biggest in the world—not to mention one in which many of our own entrepreneurs wished to expand.

Once I was on the ground, my resistance softened further. I had encouraging meetings with top business leaders in Delhi, Mumbai, and Bangalore. Sure, India had a vibrant community of entrepreneurs, they told me, but more local innovators were needed. Within months, Endeavor had secured $1.5 million in committed funds—half the capital required to launch local operations—and three (out of the needed six) local business leaders were ready to join the board. At our annual gala, I announced the news: Endeavor India had arrived!

But so had everyone else, I soon realized. Silicon Valley’s premier VC firms were already active in India. The media were full of homegrown entrepreneurial success stories like Wipro and Infosys. Although we were off to a successful start, I feared the seeds of failure were already planted.

Still, I was reluctant to give up. I had faced this situation before. A decade earlier, Endeavor’s inaugural office, in Chile, had been struggling because of lackluster buy-in from the local business community. I decided to shut down the office. Six months later we reopened, having received calls from many business leaders there expressing their desire to work with us. Endeavor Chile swiftly became one of our top offices, led by an all-star board.

Was India another Chile, I wondered, needing only time to flourish? The answer was no. We had trouble recruiting additional local board members. Also, people were asking Endeavor to relax its “high impact” standards by focusing outside the capital cities, on the base of the pyramid. I feared mission drift. I needed to face reality: Failure was an option.

I soon announced that we would close Endeavor India.

As the leader of a fast-growing organization, I know the importance of setting an ambitious course of action—and stubbornly following it. I believe passion is a powerful guide. But the Law of India, to me, is: You can’t always will an outcome. You can’t always win. You just need to fail smart.

I often think of that plane ride to Delhi and of how important that experience has become to my understanding of entrepreneurship. One of my favorite business mantras is “Go big, or go home.” We talk a lot in business—and at Endeavor—about the first half of that equation, “Go big.”

But we need to spend a lot more time on the second half, “Go home.” Sometimes knowing when to shut down a failed initiative is as vital as knowing when to start one. Sometimes embracing failure is as important as toasting success.

This is a very difficult decision for entrepreneurs. Persistence is a critical success factor - but persistence in the pursuit of a failing objective is a drain on precious time and resources. The magic happens at that margin - between doubling down and going home. When do you decide it's time to "Go Home" on a new venture?

A consultant grows, and grows deeper into debt

Adrianna Gardella of the New York Times writes a terrific series entitled "She Owns It," featuring stories of women entrepreneurs. In a two-part post, she profiles consultant Carissa Reininger, whose struggles with managing growth and cash flow should be required reading for anyone wanting to scale up a people-based business like consulting. Here are a few nuggets from part 1, where Reininger describes how the situation spun out of control:

“I had no start-up capital, no experience, and no real idea what I was doing.” Still, Ms. Reiniger said the company grew quickly and sales rose from $29,000 in 2005 to $1.1 million in 2007 — when cash flow became an issue. “It was literally, money in, money out,” she said. Silver Lining never had a line of credit. Instead, Ms. Reiniger said, “I had a credit card with a $17,000 limit.” She said Silver Lining’s small-business clients had their own cash flow issues, which didn’t help matters.

By late 2006, Ms. Reiniger said, Silver Lining’s financial woes prompted her to start “calling people and making ridiculous deals.” For example, she would request a loan of, say, $50,000 and promise to pay it back in 60 days — at a 20 percent interest rate....

She said she entered a dangerous cycle — borrowing a sum from one person and paying it back, with interest, with a loan from someone else.

Ms. Reiniger said that from 2006 until 2008 she completely ignored the reality of her situation. “Admitting that I didn’t have a grasp on our finances and that I was going into debt every month was not going to support my image,” she said, adding that the company had a “rock star” reputation. But while Silver Lining’s annual revenues were $1 million, the company was spending more than that.

It got to the point where Ms. Reiniger said she couldn’t bear to look at the company’s QuickBooks records.

And here's a bit of Part 2, which covers Silver Lining's recovery:

After two years of trying to ignore her predicament, Ms. Reiniger was forced to acknowledge it. One wake-up call came, she said, from the husband of a creditor who went to Silver Lining’s offices in Edmonton, Canada, and threatened her and her employees. Some shell-shocked employees began to quit, and Ms. Reiniger was forced to lay off others. She was soon down to two employees from a high of 25. In a misguided attempt to grow her way out of debt, Ms. Reiniger had expanded from Silver Lining’s original Toronto office, adding outposts in Vancouver and Edmonton, Canada, and Las Vegas. In 2008, she decided to close all but the Toronto office.

Silver Lining had made its living coaching other small businesses on how to set and reach financial goals. Now, Ms. Reiniger’s own business was struggling to manage its growth. The irony contributed to her reluctance to face her financial problems head-on. She wasn’t sure what to do: “I needed either slower growth or more money,” she said.

Part 2 also includes a great discussion of pivoting a business model and how to regain the trust of creditors.

UPDATE: Here's Part 3 of the story.

Standalone innovation group creates "organ rejection"

In the mid 2000s I had the opportunity to create one of those innovation groups - the job of which was to get our company into new, growing markets, combining the processes we had with new technology - using partnerships to move more quickly than developing our own technology.

We had 10 folks, in marketing, product management, implementation and sales. We met every day, built expertise, became one of the top 3 names in this new market segment within months.

The biggest mistake I made was viewing the innovation group as a destination in itself. I saw it growing to become a fully-functioning company, rather than as a feeder to the main operating units. As a result, I didn't do enough to communicate with, collaborate with, or otherwise pave the way for the rest of the company to support what we were creating.

We sold three deals right out of the gate, a huge validation of our approach, in my view. However, when we needed resources and capabilities from the other units, we suffered "organ rejection" - my colleagues didn't accept our approach and decisions when it came to them doing the work. Completely understandable in hindsight - I hadn't asked them to participate in creating the solution - it was nonetheless devastating.

After several highly emotional and agonizing encounters, we found a way forward that integrated our innovation efforts with the main organization's vital capabilities - but in doing so we wasted valuable time and created lots of unproductive conflict. And poor decisions that more collaboration might have avoided also harmed the business.

Net result: we accomplished far less than we should have done.

Sue Pera video story: the perils of opening a second store

Sue Pera is the owner of the Cornerstone Coffeehouse in Camp Hill, PA. Visit them on the web at http://thecornerstonecoffeehouse.com. (Disclosure: I've been a customer there for over 10 years. It's a great place; if you happen to find yourself in Camp Hill, you must stop by.)

Transcript:

I've owned my own business for almost 20 years, and I've made several mistakes along the way. The one that truly affected us more than anything was when we decided to open up another coffeehouse. Instead of one Cornerstone Coffeehouse, my husband and I, who is my business partner with me, he and I decided that we would open up a second coffeehouse, about 15 minutes away from here. It's in a different area, and we were hoping that it would attract different people.

What I discovered, on the upside, is that I am much better at running one place. That's my strength in running a business - getting to know people personally. Making them feel welcome as though they're here in my home. I'm here to entertain them. To have the best food, the best service, the best baristas. What I found out when I opened the second coffeehouse, I was now dividing my time between two. And instead of making both of them do fantastically well, I was making both of them pretty mediocre.

Because I didn't have enough time during the day. Nor did I have the, maybe, business savvy that many people have, who can open up multiple locations. And so it wasn't really something that I took to heart, so much as I took financially to heart. It was a very large financial investment that we made in the new business. And I'll probably be paying that off for the next 5 or 6 years. It certainly was something, that knowing myself better, running my business now... It's something I'll never be able to do again.

I'm back to running one shop. Running one business is my forte.