GO
Loading...

Small Business Failures: How to Learn From Them

Jessica Wilkins, Special to CNBC.com
Sunday, 25 Nov 2012 | 8:47 PM ET

Damian Kimmelman runs data provider Duedil, a website which allows users to search private companies' information for free.

However, back in 2010 Kimmelman's digital agency, We Are VI posted a loss of approximately a quarter of a million pounds and made 25 staff redundant.

It was unable to juggle the demands of its big name clients and had failed to build a recognizable niche in the cut-throat world of advertising.

The shuttering of the company came at a time of worsening economic gloom. It has been a tough double dip recession for the U.K's small and medium-sized enterprises (SME), with the failure rate increasing by 800 over one year.

According to an independent report carried out by Leeds University Business School: "In the first quarter of 2012, the total number of insolvencies reached 5,200 up from 4,400 for the same quarter in 2011."

Retail, wholesale, hotels and restaurants were hit particularly hard along with construction and real estate.

Surprisingly, publishing and printing firms were found to have performed better.

We Are VI would have grown stronger if they had stuck to one really distinctive product idea and built a reputation around it, Kimmelman admitted.

After posting losses, Kimmelman realised he "really hated agency life" and shut down the company.

He is now happily building his data provider, which gathers data from a range of sources including the tax authorities, the Patent Office and magistrates' courts.

"One thing that is different between my first business and second is that I am a lot more comfortable with failure," he said.

"I think one of the most important things you can do in a start-up is really learn how to make mistakes quicker and extended successes…to be able to make mistakes that won't cost you your business and learn how to figure out what is going right."

He also encouraged budding entrepreneurs to stop planning and start doing:

"Stop writing the business plan and just start figuring things out. You can write so many things before, but you need to test out your hypothesis. You need to be able to understand if something is a success or failure."

Hard to Swallow

While 30-year-old Kimmelman's entrepreneurial career is in its infancy, failure still strikes established business leaders - even those as recognizable as James Caan, the CEO of the private equity firm Hamilton Bradshaw and a former member of the BBC TV program Dragon's Den.

Five years ago the British-Pakistani businessman bought into a sandwich chain which had more than 600 staff and a turnover of 25 to 30 million pounds.

"The problem was that we were operating in a very competitive market and our customers were incredibly price sensitive," Caan explained.

"At the same time all of the shops we had were in prime locations which meant we were paying the highest rents in the retail market."

The company was losing around 100,000 pounds per week and Caan admits he did not have the time or the space to make the business profitable. He cut his losses after six months.

The multi-millionaire dubbed the investment "a bitter and disappointing process", but he has taken away three "valuable lessons".

Lesson number one was "forewarned really is forearmed" when dealing with investments:

"Never underestimate the importance of thorough due diligence when you are about to invest in a company. You should never get into something without doing thorough research first."

Caan's "rude awakening" also taught him not to believe his own hype:

"The second thing I learnt was that just because you are good at running one kind of business it does not make you an expert in every sector. I really did not know anything about the sandwich trade and it was a rude awakening.

However, the third and final lesson was "the most important" for 51-year-old Caan - walking away from the venture.

"But the most important lesson I took away from the whole episode was about handling the decision making process. Sometimes you have to make really tough decisions which you know are going to have an effect on other people."

He added: "If you put it off then you are probably only going to make an already difficult situation even worse!"

Tenacity

Some entrepreneurs learn tough lessons even when they avoid failure.

David Fishwick is the largest supplier of minibuses in the U.K and a self-made millionaire. Frustrated by the lack of funding for small to medium businesses from Britain's major banks, he started his own bank in his home town of Burnley.

"To be honest we have not had a failure. I have not posted a loss since I left school at 16. I have been really, really lucky."

The turning point for Fishwick was the abuse he suffered while being bullied at school.

"I got to the point where I had been hit so many times that it did not hurt anymore," he said.

"At 12 it completely revolutionized my life. From that day to this I have never let anybody bully me since I fought back."

It is this tenacity and self-belief that Fishwick says is at the core of an entrepreneur's ability to make the business survive.

"Deep down you have got to have self-belief without self-belief. You can't achieve anything if you don't have self-belief. Self-belief and common sense, or you can't talk people into anything," he explained.

Fishwick, who gives advice to business owners in a column in British newspaper "The Sun", swears by his Carpe Diem attitude.

"It is easier to ask for forgiveness than ask permission. Don't necessarily look to get permission."

He added: "If there is something that you want to do, grab it by both hands."

James Caan hosts CNBC's new series on entrepreneurship called "The Business Class". Tune in on Wednesdays at 10 p.m. London time.

  • Caan is one of the U.K.'s most successful and dynamic entrepreneurs as well as the guest presenter of "The Business Class."

The Business Class Extras