Anatomy of a Business Failure

036: The Anatomy of a Business Failure [Podcast]

by | Dec 3, 2013 | 2 comments

Wonder what it looks like when a business fails? After all, according to the U.S. Small Business Administration, the failure rate of small businesses is well over 50% within the first five years. I personally disagree with that failure rate, but that is a blog post for another day. Today, I want to help you take a look at one of those failures that I personally can take credit for helping push over the edge.


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But, perhaps more importantly, I want to share with you some of the common mistakes I made and some tips about how you can avoid these same mistakes in your ventures.


What’s Up with Me

I am about to close the 2013 year of speaking engagements. So far in 2013 I have logged over 17 official speaking engagements not including my normal teaching and volunteer teaching. I will end it this year in one of my favorite cities, Nashville. I will be speaking to the Nashville Project Management Institute on December 3rd. If you are in the area, come join us!

[reminder] What’s up with you? If you have an announcement of something you are doing to promote your authority or business venture, post in the comment section. [/reminder]


Works for Me: Tools and Tips for Productivity and Profit

I am constantly taking notes of things to do. Some are on paper, some in audio form using a voice recorder I keep with me. But at the end of the day (or week) as I go through my GTD review and cleaning out all my inboxes, I have noticed I have way too many inboxes:

  • email
  • paper on my desk
  • voice recordings
  • Evernote notes

One of the biggest issues is the voice notes I do when driving. (I must be really productive in the car, because I end up with tons of these notes.) So recently I have decided to make full use of Evernote!

Now when I have a voice memo, I use Evernote instead of a voice recorder. I open Evernote, create a new note in my inbox, and then record the note with my iPhone. The voice recognition translates to text and I am done. Now, no more listening back to my notes and translating them by hand into Evernote! One less device to carry and multiple tasks killed. Simple. And I hope highly effective.

Now my GTD end of week process involved cleaning out my Evernote inbox, email, and paper. Soon it will just be Evernote inbox.

[reminder] What tips can you add to the list? [/reminder]

Topic of the Week: Anatomy of a Business Failure

Some time ago a former client of mine drug me into his new startup business. It was not what I really wanted to do, but because the funding depended on me and one other person being part of the team, I played along. I was the Chief Operating Officer (COO) of the new startup. The venture capitalist (VC) friend of mine became the CEO, and the founder became the Chief Technical Officer (CTO).

We were a wireless company. Our new CTO was ambitious and was setting up a platform to provide wireless service to most of the business parts of the city. While my gut told me we should start smaller, I felt he knew the business better than I did so I went along. Our CEO went to work trying to connect us with more cash while the rest of us built a network around the city.

What happened next is that I found myself in 2 to 3 meetings daily taking to potential partners. It was exhausting work. The only people being paid were the three of us: CEO, COO, and CTO. Yet, we were burring up over $20,000 per month plus on just salaries. Again, I thought this did not make sense, but failed to trust my gut. I was just along to help operationally after all.

After a few months, the CEO bailed out to go after other adventures and the chairman (one of the investors) called me and ask that I take over as CEO. I reluctantly agreed, but felt behind the ball the entire time.

I quickly realized that I was now in charge, and those minor things my gut told me were wrong suddenly were a big issue. We had let the CTO run the company. While this guy was brilliant at the technology, he really lacked the business skills to be running the show. Yet, to this point he had run the entire operation and spent a great deal of the money.

The Exit Plan

The plan for this startup was to grow it to a certain size and then be acquired. Fortunately when I took over as CEO we began to engage with a potential buyer. The company looking at making the purchase was generating well over $100 million per year and needed our technology to grow. Their CEO and CTO came and made a visit. Over several conversations things moved along nicely. Their CEO called me daily to touch up certain details. While all this was looking good, all other things were shaky at best.

We were having a very hard time selling the products. Our cost to deliver the new wireless service was too high, and we could not connect on value. Suddenly I realized I as CEO had never talked to our customers to validate the idea. And, neither had our investors.

  • Our CTO was a powerful energetic an optimistic person. But now I was beginning to realize the his optimism was not all we needed. We had cold hard facts facing us.
  • I had hired a sales person who was used to selling to major markets from a large company. He was struggling to move small items on small budgets.
  • Then it all came to a head and I realized that I had waited too late to take serious action. I was now putting bandaids in places we needed major stitches.
  • The CTO and investors (who were family members) had other ideas from me. It became clear that neither of us had control, and our buyer suddenly got scared and disappeared.

As quick as it had opened, our the door though our exit plan slammed shut.


What Caused The Failure?

I am known to state that business fail due to tha lack of leadership. But, being that I was the CEO right before we crashed and burned, I really hate to think that is the case. Sadly however, it is. But here are some key factors that I see that caused us to crash.

Lack of Leadership 

I have looked back at this The first CEO was not leading at all. He was focused on raising cash and we let the CTO lead. This is not a slam on the CTO, but his skill set was not business nor leadership. Looking back I realize that he was not trying to lead, but in absence of other leaders, he had to lead.

When I tool over as CEO, I tried to lead, but failed to make the critical decisions. The first critical decision I failed to do was to LEAD. I just simply did not take charge fast enough.

The investors also did not try to lead, trusting that we knew the business.

But the key thing is that is was up to me to lead, and I failed to do so.

What I Should Have Done

While it is easy to be critical of the decisions others made, I have to deal with my decisions, or lack of decisions.

  • I never should have decided to join. Not because I was not capable, but because I was not 100% bought in. This kind of activity takes commitment at every level, and I was not there.
  • I housed have trusted my own judgement and analysis. I should have asked the obvious business questions:
    • Who are the customers?
    • What do they care about?
    • How do they value what we offer?
  • Then I should have validated the answers by talking to multiple potential customers. Had I taken that simple step, I would have known that we needed to go another direction with our pricing and offerings.

Was It Really a Failure?

When I talk to all those involved in this venture, no one really considers it a failure. Sure, money was lost. But all have recovered and learned lessons along the way. Failure is not fatal, but a temporary setback from which one can learn.

As you look to your plans for next year, remember that failure is not the real issue. It is not to be feared. Failure is not fatal, but inaction is. Take action.


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[reminder] Have you had any failures that you would consider a success?    [/reminder]

About the Author

Dale Callahan

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  1. Dennis McIntee

    Dale… I appreciate your transparency with this topic. It makes it very helpful!

  2. Dale Callahan

    When I have looked back at this, I have always come up short holding myself accountable. I found plenty of others to blame. It was hard putting this in writing.

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