Choosing entrepreneurship takes courage, guts and conviction. But, even the most successful entrepreneurs can hit a point when their conviction gets in the way. Blind passion without thoughtful consideration can consign even the most innovative, paradigm-shifting ideas to failure.
At the University City Science Center, the country’s first urban research park, we’ve been incubating companies since long before the term "business incubation" was coined. As president & CEO (and a recovering entrepreneur), I've learned how to identify when the entrepreneurs in our business incubator are driving well above the speed limit. Wide-eyed with bare knuckles atop the wheel, they forge ahead, not always recognizing the speed bumps and pot holes in their path. It may sound counter-intuitive, but I'm an advocate for "failing fast." It’s an economical way to get off the road quickly when an idea has run out of gas.
I learned this lesson the hard way, through first-hand experience. Back in the 2000s, I took my clean energy startup Millennium Cell, Inc., all the way from launch to IPO to eventual failure – and got fired along the way.
As tough as that experience was, I learned a valuable lesson: entrepreneurs should be encouraged to fail. Success is wonderful. But it is failure that shapes and hones us. Baseball players are considered at the top of their sport when they bat .300 -- a hit less than once every three times at the plate. The success rate of a startup entrepreneur is quite similar.
So, when do you really know it’s time to pivot or scrap an idea? Here are three red flags:
1. The marketplace is too crowded.
Innovation is all about creative problem solving. Relentless innovators and entrepreneurs are able to identify a common pain point and then develop a strategy to overcome it – and make some money along the way. Uber reimagined transportation as it provided a new take on the humble taxi ride. But as Lyft riders and drivers will tell you, Uber is not the only company in this space.
Unfortunately, you may not be the first and only person to come up with your particular idea. The last thing any entrepreneur wants to hear from an investor is that their groundbreaking work is an “uncommonly popular idea” but it happens. When it does, differentiate yourself in a crowded marketplace or accept failure and use it as an opportunity to regroup and pivot to a better idea.
2. You’ve lost the passion for your venture.
Do you look forward to heading to the venture battlefield each day, or does the process fill you with dread? Are you eager to overcome the myriad challenges inherent in launching a business, or do you find yourself bogged down in the details?
Sometimes losing passion for your venture (or your team) can sneak up on you until you’re at the point where the best course of action is to walk away.
It may seem like you’re disappointing investors and employees, but it would be a long-term disservice to lead a rudderless operation. Instead, take step back, regroup and find a way to build on the positives and reignite the passion you had at the very beginning.
3. The market demand does not exist, at least yet.
Successful entrepreneurs know that it’s not just about coming up with an innovative product or idea and communicating its benefits. It’s also about understanding and anticipating market demand. If your innovation is not actually adopted and used, it’s essentially toothless.
At Millennium Cell, we tried to anticipate market demand for hydrogen-powered cars. Even though we had a proprietary process to store, generate and deliver hydrogen on demand, it was a premature model. We had a great idea, but were well ahead of the market. Despite a $30 million IPO, ground-breaking technology and President George W. Bush’s proposal to invest more than $1 billion in research on developing a clean, hydrogen-powered car, we could not successfully diffuse our innovation through to the market adoption stage. The gap between ideation and adoption was ultimately unbridgeable.
I may have correctly predicted Millennium Cell’s reasons for failure, but it didn’t take the sting away from failing. Sometimes it hurts to be correct. But that pain is a learning experience that will help guide your next venture – and the one after that.
To sum it up: Failure is tough. We’ve all suffered its sting. Given that we’re human, it’s inevitable that we’ll fail again. So let’s get used to it and, if possible, even embrace it. Failure is a valuable learning experience. It’s a natural consequence of risk. If there’s one common trait that resilient entrepreneurs share, it’s a high tolerance for risk.