Bouncing back

Entrepreneur, March, 1998 by Karen Axelton

They're successful now, some with millions of dollars in sales under their belts. But they still bear the scars. When they talk about the experience, their voices rise in anger, drop to a whisper or quiver as if it had happened yesterday, not five, 10, even 20 years ago.

What they're talking about is business failure - and it's no wonder these entrepreneurs harbor such strong emotions. "People whose [businesses] fail are made to feel like characters in a Hawthorne novel, branded with a scarlet 'F,'" says Jeffrey Shuman, director of Entrepreneurial Studies at Bentley College in Waltham, Massachusetts.

How, then, are some entrepreneurs able to pick up the pieces and start all over again? And why do many so-called failures find success the second time around?

The answer, say experts and entrepreneurs who've been there, lies in changing the way we look at failure. It means learning to accept, as Shuman puts it, that "failure is inevitable" for everyone. Yes, everyone - and, yes, that means you. You see, no one stands to learn as much from failure as the entrepreneur who hasn't been there - yet.

HITTING CLOSE TO HOME

Business failure takes many forms, from the company that goes spectacularly bankrupt to the failing firm that is quietly sold at a loss. But whether the business goes out with a bang or a whimper, the emotional impact is the same. "The death of a business is like the death of a [loved one]," says Tualatin, Oregon-based consultant Gary Goldstick, who still vividly recalls the "nightmare of despair and humiliation" he felt when his electronics manufacturing company went bankrupt nearly 20 years ago.

Business owners go through the same stages as those dealing with death, says Princeton, New Jersey, psychologist Susan Edwards, Ph.D. - shock, denial, anger, depression and, finally, acceptance.

How to speed the process? You can't. "[After a business failure,] you need a period of decompression to rethink and recharge," contends Will Sogg, a partner with Cleveland law firm Hahn Loeser & Parks LLP. "People are too quick to rush into the next thing just to prove they can do it."

Because entrepreneurs invest so much of themselves in a business, says Edwards, failure batters both personal and professional self-esteem. What can you do to rebound? Spend this "downtime" investing in your personal life. "Spend more time with your kids, family, going to church or whatever works for you," Edwards advises. Counseling, support groups and stress management techniques can rebuild self-confidence, too.

"Remember, your business has failed; you haven't," says Penny McConnell, who successfully started over after Penny's Pastries, her Austin, Texas, specialty bakery, went bankrupt in 1996. "Don't get stuck in the negative energy of 'You are a failure.'"

After the shock wears off, entrepreneurs typically have one of three reactions, says Mark Rice, assistant dean of the Lally School of Management & Technology's Center for Technological Entrepreneurship at Rensselaer Polytechnic Institute in Troy, New York. Some realize they aren't cut out for entrepreneurship and go back to working for someone else. "At the other end of the spectrum are the entrepreneurs who say 'I did my best, but it didn't work out. I'm going to take what I've learned and get it right next time.'"

Rice, a former business broker who has dealt with hundreds of struggling entrepreneurs, says the danger zone is somewhere in between. "There's a group that doesn't realize their mistakes. If they start a business again, they often repeat the same errors."

The key to future success is an honest assessment of what went wrong and a plan to make it right. "Put yourself through a healthy, constructive period of self-assessment - preferably with advisors, such as a trusted accountant, investor or attorney," says Rice. "Ask them to help you think through why this happened and what you can do differently [next time]."

Outside consultants are crucial, Goldstick agrees, because entrepreneurs tend to be better at action than reflection. "Self-analysis isn't always in their bag of tricks."

When Goldstick analyzed his strengths and weaknesses, he realized he didn't want to manage a lot of employees or seek capital from outside sources. The second time around, he launched G.H. Goldstick & Co., a one-man management turnaround consulting business requiring minimal capital outlay.

Equally important is accepting responsibility. "Don't blame others for your errors. Don't blame yourself unnecessarily, either, but realize what was in your control and what wasn't," says 40-year-old Eric Ruff, who was forced out of his first software company, Gazelle Systems, in Orem, Utah, as a result of power struggles. "We all have a responsibility to learn from our mistakes and improve."

BACK TO THE WELL

One asset entrepreneurs who bounce back from failure share is support from friends, family and colleagues. "Ninety percent of the people I knew were incredibly supportive," says McConnell, who re-launched Penny's Pastries in late 1996, just months after going through Chapter 7 liquidation. "That helped me decide to go back into business."