People Learn Little From Success but Much Through Failure

After eating dinner with my mother and daughters tonight... Yes, our new year's dinner was Chinese food.... I opened my fortune cookie, and the fortune was, "People learn little from success, but much from failure.

What a true and profound statement to fit into such a small and tasty cookie!

Of course, instead of just eating the cookie, and moving on with my day, I had to ponder the saying and write this blog post... While thoughtfully pondering, I reflected on the successes in my life, I was a world championship qualifier in Barrel Racing (yes, I was a cowboy when I was younger) several times before I graduated college. I was a sought after IT consultant implementing ERP / MRP systems in companies all over the Cleveland area in my early 20's, and had started a well known online art brokerage FineArtAmerica.com at 25 during the days of the dotcom boom, which sprouted a web hosting company TBhost.com - which had 100% compounded sales growth for 10 years, growing into a global web hosting company which I sold to a private equity group when my oldest daughter was born. And then there was Nexmation, an SAP consulting & staffing company I started with a partner, and we reached profitability in our first year, reaching clients all over the country.

Yes, those were all successes, and I did learn much from the rise to the top in each of them, all earned millions in revenue and to be fair, if the story ended there I wouldn't have much of real substance to write about. The success stories were fun, but the other side of the story is where the lessons were learned.

In Barrel Racing, I had a horse "The Midnight Missle" that was one of the most famous in the world at the time. Her image was even turned into the logo for the National Barrel Horse Association (the NFL barrel racing) People often asked me for autographs, and within that world I was really a "somebody". Outside, you could see the success, but not the work and personal sacrifice that it took to get there. I never attended a homecoming, a prom, or even my own graduation from High School. I had horse shows, and had to compete to keep qualifying for world championships. Nobody knew the broken noses, and the trips to the emergency rooms when I would get hurt, then back to competing the very next day. My name was in the industry papers, on the leader boards with the horses that were successful, but the ones that couldn't cut it, were forgotten and anonymous. Yet, the ones that didn't make it, were the ones that taught me humility, how to handle disappointment, and how to shake off a defeat because victory could be coming up in the next race.

In business, my art brokerage grew to $7 million in the first 3 months (with a $1,000 initial bootstrap investment and no outside investors), yet I lost it all within 2 years. Did I learn from the first part? Of course I did! I learned how to cold call, how to be bold, how to script my sales, handle objections, and many of the skills I use and teach today. But more importantly, I learned to watch the market. I started an art brokerage with the disrupting factor of not using paper catalogs (industry standard at the time)... mine was totally web based which saved costs, and allowed me to add artists, and do merchandising more quickly... it was fully consignment based, and was ahead of it's time..... which was what killed it. The problem was that the primary re-sellers which were locally owned mom and pop art galleries were not exactly tech leaders, and the internet was not in wide use in the industry in 1997. I had the products, I had the inventory, I had the merchandising, the licensing, the delivery, and the platform... but I was missing something very important. Connection to my primary customers. After a while, I had to give in and print paper catalogs, which added to my costs, printing, mailing, etc... was very expensive. And I was adding quality artists at a dizzying pace, so the printing and mailing costs were eating up my margins FAST. Then the Asian banking crisis hit, and the art market entered a major logjam. Yes, even art is part of the global economy, even in the 90's. I adapted, panicked, and shifted to marketing to consumers - which freed up some cash flow, but alienated my gallery buyers who weren't used to having products sold direct. In the end my cash ran out, I never quite took over the consumer market, and I learned some extremely valuable lessons:

• Know your market
• Watch your cash flow
• Control your costs
• Don't outgrow your financial ability to support your growth
• Have a backup plan

My backup plan? Well that actually worked out pretty well.... During the course of growing FineArtAmerica, I found that the hosting companies of the day couldn't provide high enough quality web hosting without pouring extreme amounts of cash into the hosting. So, having an IT background, I built my own infrastructure to host FineArtAmerica as well as several other startups that I had going at the time. We had excess space, and bandwidth which I started renting out to my IT consulting customers and TBhost was born. I built TBhost to be the kind of hosting company I WISHED existed when I was looking for hosting. More powerful servers, less crowding, and every customer from the first until the day I sold the company, had my personal cell phone number in case the support staff couldn't fix a problem. Hosting a $4.95 / month account? Yep, you got direct access to the personal cell phone of the owner of the hosting company. Accountability was our defining trait. We heavily concentrated on building a B2B reseller channel and affiliate program which kept my marketing and support costs low - (Fewer higher margin customers all growing themselves, most with higher than average tech IQ's). When the company kept growing, and the customer base was global with 24x7x365 needs, the support team grew to 15 people. The failure? That was twofold.

1 - When providing thousands of global customers access to the CEO's direct cell phone - expect calls at 3AM. Yes, some people will bypass the support staff if they think its in their best interest. Also, the hired support staff will almost never provide the same level of urgency and care that the owner will because if things fail they can work elsewhere, but the owner's entire life is on the line with every customer.

2 - Watch out for commoditization of your market. When I entered the hosting business, a Domain registration was $75, a 5MB hosting account rented for $20 / month with 5 email addresses, no MySQL databases, and people expected answers from support within 24 hours during regular business hours. Anything better was a bonus! When I sold, $20 / month would get you an account that could host 100 wordpress sites, and people expected almost instant support 24x7x365. There was little left in terms of differentiation, a pretty website, wasn't enough, customer acquisition costs were running upwards of 13 months revenue. If ever you find yourself in a business where barrier to entry is too low, and there is a race to the bottom in revenue, you must differentiate or die.

With Nexmation, we were profitable our first year, had a solid business, and were diversified in a non - commodity market with healthy margins. We were selling consulting and staffing to the automotive, banking, and trucking industries, my second daughter was born in 2008, and things were looking great! All the lessons I had learned were in place, diversity of customers, conservative with cash, growing, but within our means, and providing excellent customer service. Then the crash came. Diesel tripled in price, putting the brakes on the portion of the business servicing the trucking industry. Then the banking / automotive crisis hit. My other two footholds evaporated in one press conference. Suddenly, my diversified, seemingly unrelated customer base was all in trouble. Contracts cancelled, orders put on hold indefinitely, and overhead that even though it was low kept going, and going, and going.... The industry suddenly commoditized, too many firms chasing the few customers left, and the pricing pressure hit. Just like hosting a few years earlier, we were suddenly in a race to the bottom. A year later, cash flow was bad, a divorce in the works, and I was a single parent, trying to rescue a business, raise my kids, and not allow my staff to become unemployed. I failed at some of those goals, but not the important ones. The lessons?

• Sometimes no matter how much you've planned, how many backup plans you have in place, and how good of a job you have done.... Stuff happens. We aren't in control of everything in our lives, so the best we can do is control the parts we can, and not be afraid to try again.
• Always have reserves of cash - there is nothing worse than being a month shy of your recovery when your cash runs out - Plan for your worst case scenario, then double your reserves
• I chose being a good parent over being wealthy. I had several offers to move across the country away from my children and make 6 & 7 figure salaries, but I chose to stay and make memories with the two most important people in my world, even though that has meant struggling financially at times. And I have no regrets. True wealth is knowing that you have a clear conscience.
• No matter how high you are flying you can always fall, and no matter how hard and far you've fallen you can always bounce back... if you only keep trying.
• Don't be afraid to fail, be afraid not to try!

What have I been up to lately? At a group of car dealerships, recruiting and teaching others to sell, keep a positive attitude, and to make money for the dealer while treating their customers fairly. It's been a great experience which has allowed me to meet a wide variety of people, see the world from a fresh perspective, and pass my knowledge of the psychology of selling, as well as scripting, cold calling, and customer service to consistently take people from never setting foot in a dealership before to selling 15-20 cars per month in 30 days. Oh, yeah, and I've even sold quite a few cars too.

And Nexmation? it's survived - not in it's original form, but as a smaller, more nimble niche company. Recruiting and Training Sales Rockstars in a variety of industries. That's a final lesson for this article.... success & failure aren't always cut and dry. What may look like a success today, may be a failure tomorrow, but a failure is only final once you've given up.

In the comments, tell me... What lessons have you learned from your biggest failures? Or what did your fortune cookie say?

John P. Kaufman is a sales trainer and recruiter based in Cleveland Ohio. Author of the book "The Recruiter's Secret", and nationally recognized thought leader within the sales and recruiting industries.

He can be contacted by cell: 440-487-1703 or through www.nexmation.us