Crash Landing

by Aldi Haryopratomo

“The very first company I started failed with a great bang. The second one failed a little bit less, but still failed. The third one, you know, proper failed, but it was kind of okay. I recovered quickly. Number four almost didn't fail. It still didn't really feel great, but it did okay. Number five was PayPal.” 

 

Max Levchin's (Co-Founder of PayPal) quote on failure is one of my favorites. It shows how important failure is to Paypal’s success. Unfortunately, most wannabe entrepreneurs learn by reading the success stories of start -ups that got bought by Google or completed a multi-million dollar IPO. A few spectacular failures such as Boo.com, an online grocery company that raised $375 million before folding, are well known, but few of the “common” failures are published. It’s not surprising as entrepreneurs don’t like publishing them, because students don’t enjoy learning about them either. HBS cases like Cake Financial, where the entrepreneur had the courage to reflect on his/her mistakes are far and few between. This is too bad because “fear of failure” often trumps “desire for success” as a motivator.

Cake Financial showed that understanding why startups fail is important, but learning how to prevent a crash landing is much more important. More often than not, preventing a crash landing is the result of failure to acknowledge, failure to alert, failure to act, and failure to learn.

Failure to Acknowledge: In the 1997 Korean Air crash in Guam, the experienced pilot made a mistake that he never acknowledged ignored the subtle warnings of the imminent crash by his younger co-pilots. 

If the “reality distortion field” is very strong and the founder is a very dominant figure in the start up, founders can find it difficult to see the problems with their current business model. Many of the company’s employees would see the failure but would be too afraid to tell him. Even if they tell him, he probably wouldn’t listen. Acknowledging failure is the first step.

Failure to alert: The National Transportation Safety Board’s explanation of the Avianca airplane crash was “the probable cause of this accident was the failure of the flight crew to adequately manage the airplane’s fuel load, and their failure to communicate an emergency fuel situation to air traffic control before fuel exhaustion occurred.”

Which reminded me of what a seed investor told me on the way to the airport today to the airport today  “I wasn’t too bothered about the fact that the idea didn’t work out. Losing money is a part of the game. What really got to me was that the founder never told me about it until too late for me to help him.”

Failure to Act: Perhaps this is when the analogy fails. An airplane pilot who could die will certainly act if he’s acknowledged the situation and has alerted the air traffic control station. Yet entrepreneurs who have acknowledged that their original model is doomed could still prefer to ignore their investors and find new investors. The original investors would be happy to pass the rotten apple and the company stays alive. It’s hard to imagine an air traffic control crew that would be happy to pass along a falling airplane to another airport. The key is to the soft landing is to face the mistakes head on and not try to avoid it.

Failure to Learn : Dodgeball founders built Foursquare after being disappointed that their original idea, Dodgeball, was shut down by Google a few years after it got a acquired. In this case the founders made some money still, but more often than not a few million dollars of losses can lead to a priceless insight.