Chapter 21 - On Failure and Resilience
To read:
Peer at failure’s portrait: One thing failure gives you is a full, vivid portrait illustrating of what New York City real estate entrepreneur Daniel Neiditch calls, ‘the other side of trying.’
How to pivot: Just remember: The more you prepare, the less you need to prepare. And other insights about pivot strategy in a great read produced by the Founder Institute.
Leading through COVID-19: I share a series of five articles that chronicle the phases a leader goes through during a worldwide pandemic.
Chapter 21
On Failure and Resilience
“And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.”
— Haruki Murakami, novelist
Of all the bromides in and around the world of business and entrepreneurship, none seem to get the attention quite the same way as this chapter’s subject — success and failure. Entrepreneurs are told to fail early and fail fast. It’s often said in business circles that the line between success and failure is wafer-thin. Failure is not just about error messages, it also yields valuable data. Failure on the road to success builds character, reinforces grit, and demonstrates the willingness to take risks.
If that sounds familiar, it’s because it’s all true. But if inspiring, is it ultimately helpful? For Americans, perseverance is a virtue central to our identity. We celebrate the come-from-behind, underdog stories of persistence: Thomas Edison’s thousands of non-functioning lightbulbs before he got one that worked, Michael Jordan’s rejection by his high school basketball coach who didn’t let him on the team, or Steve Jobs’ banishment and return from the wilderness to lead Apple to greatness. It’s no wonder that how-to-succeed themes always dominate the books on offer at the airport kiosk.
I embrace all the sentiments. I’m endlessly inspired by Edison, Jordan, Jobs, and so many others. And I’ve read more business books than I can count — my library at home is full of them and it’s only a sample of what I’ve digested.
But my summary of it all is fairly simple: While there are a million ways to fail, there is really just one way to succeed. This is resilience, sometimes called grit. But resilience too needs to be unpacked as a concept. Vince Lombardi is credited with saying, “Hope is not a strategy.” Similarly, resilience is not just hanging on, burning more cash, or lighting an incense stick to appease the gods of commerce. In other words, it’s not Albert Einstein’s parable of quantum insanity: “Doing the same thing over and over and expecting a different result.”
Above all, resilience is all about mastering the art of the pivot. Because just as generals advise that no battle plan survives contact with the enemy, no business plan survives contact with the marketplace without an entrepreneur capable of the pivot.
I’ve done my share of pivoting and witnessed many others, and it’s often akin to a walk across hot coals. I’ll share more on that later. But I also want to share the experience and counsel of two good friends who I believe to be the true grandmasters of the art of the pivot. One you have already met in Chapter 3, Advice for the Middle-Aged Entrepreneur. This is Austin’s Cotter Cunningham, the founding CEO of RetailMeNot, a company that has gone through a series of transformations since it launched in 2010. It had a successful IPO in 2013 and was acquired in 2017 for $630 million. He’s now an Entrepreneur-in-Residence at the Austin-based VC firm, Next Coast Ventures, in which we are proud investors. The other pivot virtuoso I want you to meet, if you don’t already know him, is Co-founder and partner at Floodgate, Mike Maples Jr. Floodgate, one of the nation’s top VC firms, is based in Palo Alto but active in Austin. Before that, Mike was the founder of serial startups and an early investor in not only Bazaarvoice but also Twitter, Chegg, Okta, Lyft, and many others. On the Digital Companion, you’ll find an interview I did a few years ago with Cotter when I was Entrepreneur-in-Residence at the McCombs School of Business at the University of Texas at Austin. I also include a lecture Mike gave some time back at a forum of the Founder Institute sponsored by TechCrunch magazine.
In Cotter’s case, it was the hard lessons of failure that I think really laid the foundations for his later success. As you’ll recall from the earlier chapter, Cotter was a successful executive but didn’t become an entrepreneur until his 40s. The opportunity he saw was in information services for people going through a divorce, who need advice, support, and guidance on the inevitably painful process — an event that Cotter, thankfully, has not had to endure. The company he founded was called Divorce360, and while he was backed with $1 million in funding from the VC firm Austin Ventures, he also wrote a check personally for the same amount to launch. In the first year, Cotter spent $400,000 and earned just $19. In the second year, the company spent $1.5 million and made $300,000. Ultimately, it was time for that hardest pivot of all, and Cotter sold the company.
“I felt like we failed because of the business model,” Cotter told me. “I didn’t feel that it was something I’d personally done wrong. We judged the market poorly.” His takeaway lesson is that divorce is an intense distraction, and those experiencing it simply want to get beyond the trauma and begin building post-divorce lives. Their attention for the kind of services he was offering, actually comes later. And so he moved on. But it’s certainly a credit to Cotter that Austin Ventures realized that while the business may have failed, he had the spark and drive to pick up and try again. So Austin Ventures backed him in his next venture, which became RetailMeNot, and which has been wildly successful. So I hope you’ll listen to the full story of Cotter’s journey on the Digital Companion.
Mike’s experiences, however, are of a very different dimension. Although he was an entrepreneur himself in the early days, he’s since become a national powerhouse as a VC and he’s backed firms, as mentioned, from Twitter to Lyft to, of course, Bazaarvoice. What you’ll learn if you listen to his talk on the Digital Companion is that most startups do a great job of building the business plan, which is really an operational document. But few, he argues, build an effective business model, which is all about defining the ways that you will convert innovation into economic value: “It describes how your company creates, delivers and captures value.” As Mike explains it, 95 percent of startups don’t even have a defined business model. And this is what gets them into trouble. When your business plan is failing, the entrepreneur’s reflex and response is to iterate, accelerate, and make changes on the margin. But when it’s clear that your business model is failing, that’s when you pivot. Or as Mike puts it, you iterate tactically, but you pivot strategically. Please, take time to hear Mike out on this on the Digital Companion, where I also include an essay from the Founder Institute that is specifically about the art of the pivot.
Which is an art I have been slowly but steadily learning throughout my career. Now with the six companies I’ve founded, I’ve thankfully not failed yet. But I sure have come close. My most dramatic near-death experience came with Coremetrics, when we hit the dot-com bust barely a year into our existence. As detailed in Chapter 6, The Fallacy of Risk, I had allowed extraneous projects to overshadow our core product, and we only saved the company with a painful pivot.
We pivoted away from pure dot-coms to sell to traditional retailers, which had only begun to sell online, after letting go of two-thirds of our people, many of whom I considered close friends. It was one of the most gut-wrenching experiences of my life. Walmart was an early win after that pivot, and then we took off. If it wasn’t for a fierce conversation that I had with Arthur Patterson, the Co-founder of Accel Partners, Coremetrics would have gone out of business in early 2001. Arthur stepped up and made a big statement to the market by leading a huge round of funding in our company at that time. Trust me, I know all too well how thin the line can be between success and failure.
We even had a difficult time getting data.world off of the ground. I estimate that it took us at least $40 million of funding to get to our first significant amount of revenue. One of our investors, Workday Ventures, liked to joke with me — or lift me up depending on your perspective — that it took them $100 million of funding to get to their first dollar of revenue. That is because the “surface area,” or in other words the amount of functionality required, in the Workday product had to be so large to effectively compete with PeopleSoft, which Oracle had bought in a hostile takeover. One strategy we tried at data.world that failed spectacularly was the launch of our paywall to convert from a free account to private use-cases. We falsely assumed that many would automatically convert. We made bets on how much revenue we would get from this strategy, and we were all wrong in the wrong way. It was anemic, and there was a lot of consternation about it. In hindsight, it made sense — data.world’s enterprise data catalog is a pretty complex sale. It requires a lot of integration with customers' internal data tools, such as Snowflake, Databricks, Tableau, and Microsoft Power BI. As a matter of fact, we already have over 90 of these integrations. And our enterprise customers really want to make sure our solution is secure and compliant. We are talking about cataloging their most valuable private data, after all. We always knew we would have an enterprise salesforce, even mythical “automatic-paywall-conversion” companies like Slack and GitHub have them. We still have the paywall, and we still get customers that way, but it is a fraction of our enterprise revenue today. We built out a world-class enterprise sales team, and if we hadn’t done this there is no way that Goldman Sachs would have proudly led our $50 million growth round, which we announced on April 5, 2022.
Another moment of terror was the early days of the pandemic, a time chronicled in my series, Leadership in the Time of COVID-19 — A CEO’s Journey, which you’ll find on the Digital Companion. As you can imagine in those early days of the pandemic, amid worries about our health and those of loved ones and employees, the markets had shed some $20 trillion in value by the end of March 2020. Overnight, we moved to a “distributed workforce.” We doubled down on Slack to get random eyeballs on problems and keep everyone apprised. We raised the synchronous sharing of Google Docs and Sheets to an art form. We became more expert internal users of our own data.world platform, adopting more of what we evangelized to our customers. We invited customers, partners, investors, and board members to join us more regularly on Google Meet or Zoom, to help lift the wind in our sails by telling us how much they believed in us.
At the time I thought of this moment as “Dead Reckoning,” a phrase of mariners. I’m not a sailor, but I think the term is a good way of thinking about resilience. It’s the final tool of the captain when the GPS fails, the radar’s broken, the records of distance traveled disappear, and there’s little information on the distance to your destination. In other words, a pivot. And we made it through. You can too. Like that famous ad for Johnnie Walker, the point is to keep on walking — strategically.
We all know the famous story of Apple, which at one point kicked out its Co-founder and CEO, Steve Jobs. After his walk in his wilderness, both literally and figuratively, he returned with a vengeance. In early 2022, Apple hit a net worth of $3 trillion. It is now the world’s most valuable company, leaving Exxon Mobil — the world’s most valuable company in 2013 — trailing with roughly 12 percent of that value. What if Steve Jobs had not shrugged off failure and gotten his mojo back?
One of my friends is going through a “failure” right now. The market for the product simply wasn’t a good one. It is an emotional time for him, but you simply can’t know this until you try.
So think of that Johnnie Walker ad, but think of it in a new way. Keep on walking. And be ready to keep on pivoting.
“Do not judge me by my success. Judge me by how many times I fell down and got back up again.”
— Nelson Mandela