What entrepreneurs can learn from failure

In 2007, after seven years running my own web development agency, I was finally getting my big break. And it came in the form of DIY casseroles, pot roasts and chicken bakes.

Let me back up. Back in the mid-2000s, “meal-assembly kitchens” were all the rage. The idea was you’d go online and choose the meals you want to make. Then you’d head over to one of these kitchens, where all the ingredients would be laid out for you  – just like in a cooking show. You’d prep a bunch of, say, panko-breaded chicken breasts, stick them in freezer bags and take them home.

But making it all work smoothly required some pretty decent software, which was where my company  – which had about 20 employees at the time  –  came in. Our developers built an application for these kitchens that allowed customers to go into their site, pick out the type of meals they wanted, pay and so on. A few months after releasing it, we were approached by a franchise of 300 meal-assembly kitchens across all of North America.

It was our first six-figure deal. We immediately scaled up, putting 15 people on the project, and for a few months the company was the busiest and most profitable it had ever been.

Then, 2008 came along and the recession changed everything. For weeks on end, not a day went by without us losing another customer who had gone out of business. Before the year was out, the meal-prep fad was over and our six-figure contract was worthless.

Making sense of failure

It was devastating. We had to lay off all the new employees we had hired. And all that money  – which was going to let us bring on new engineers, expand our marketing team and finally level up as a company  –  was suddenly gone. There were a few dark days there when the office seemed awfully quiet and empty.

But over the course of the next weeks and months, I realized we did learn a few things. For starters, in our eagerness to land a huge client, we had allowed them to defer the bulk of payment until the end of the contract. This is a mistake we’ve been careful not to repeat: big clients, it turns out, are often the ones most willing to pay up-front.

The experience also drove home another dead-obvious lesson: as a startup, don’t put all your eggs in one basket. Luckily, we had a second product called Memelabs that was also built at around the same time. It helped people create and manage online video contests, and it landed us several large brands.

As fate would have it, these companies also asked us to promote their contests via social media. After a few weeks of constantly logging in and out of their different Twitter and Facebook accounts, we realized we needed a tool to better manage multiple clients and social channels. This was the genesis of the social media management tool HootSuite, which now has 11 million users, including most of the Fortune 100 companies.

Why having a culture of risk-taking is a good thing

It took some time, but I also took away a deeper lesson. Failure isn’t always bad. Yes, we had overstretched ourselves. We had gambled on a product  –  and an industry  –  that didn’t pan out. But if we had just kept doing the safe thing  –  developing web tools for a handful of local companies  –  we might be doing much the same today.

Instead, we went after a much more ambitious target, falling short but also proving we could attract larger clients and scale up quickly. That confidence was pivotal when getting Hootsuite off the ground  –  we went after big fish early and sought major investment partly because we had been down that road before.

Even today, when we have 800 employees in a half-dozen offices around the world, risk-taking remains a big part of the culture. Part of letting people take risks, of course, is that failures will happen. Teams will occasionally fall a little (or a lot) short. That’s OK. A fast-growing company in a brand-new space doesn’t have the luxury  – or really the incentive  –  to fall back on tried-and-true solutions. We’ve got to make our own, and that process is inevitably messy.

Failing right

Having said that, there’s a right way to fail and a wrong way. The wrong way is the old lipstick-on-a-pig approach. Something goes wrong  – very wrong  –  but instead of owning up to that and learning from it, the team involved spins the disaster into a win. To me that’s real failure: not acknowledging mistakes when they do happen and not learning from them.

Failing the right way, on the other hand, can be good for business. It starts with accountability, not spin, and soul searching, not finger pointing. What went wrong? What can we salvage? Is there an upside? How can we prevent the same thing from happening again? When companies have a culture where it’s OK to acknowledge failure and ask these questions, everyone benefits.

A while back, my company had a watershed moment when we landed our first seven-figure deals. That might never have happened if our first six-figure deal hadn’t fallen disastrously apart all those years ago. While success is always the goal, the reality is that risk  –  and failure  –  can sometimes be just as valuable in the long run… maybe even more.

Author: Ryan Holmes is Chief Executive Officer of Hootsuite.

Image: A man walks past pillars at a business district in Tokyo November 12, 2012. REUTERS/Yuriko Nakao