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Barnacles, diamonds and cows: 5 startup failures and 5 lessons learned

Published: Monday, Oct. 8 2012 9:53 p.m. MDT

Editor's note: This article written by Alan Hall originally appeared on Forbes.com and is being reprinted with his permission.

In past columns, I have promised I would outline not just my successes but my own five business failures as well. Today I fulfill that promise. It is my hope that the lessons I have learned can influence your future successes as they have influenced mine.

Over the years, I have launched at least 10 new companies. As I look back on these initiatives, I note that at least half have failed. The five that imploded were my first efforts. In each case, the businesses unraveled quickly and at a financial loss.

Why was this the case?

Consider the clever ideas I pursued that failed: The first focused on helping ocean-bound private boats remove barnacles from their hulls by sending divers into the water below the boats with high-pressure hoses. Second idea: buy a Holstein dairy bull and sell ampules of semen. Third, use synthetic diamonds to make dental drills. Fourth, sell diamond rings to college students, and fifth, send computer data over copper electric wires.

For this column, I won't describe the nitty-gritty details of every situation, but I will summarize what I learned from each attempt.

Lesson 1: Launch a business in an industry or market that you know and understand. Consider knowledge and experience to be your best friends.

In today's fast-moving environment, it takes too long to comprehend the nuances of an industry, its people and routes to market. Generally, entrepreneurs who are highly successful are those who have spent significant time in a given marketplace and know everything about its products, competitors and customers.

Lesson 2: Listen to potential customers and learn about their needs, problems and current solutions. Talking to customers is the most important primary task an aspiring business builder should complete. Founders should dedicate most of their waking hours to visiting with individuals they consider to be their source of revenue. Entrepreneurs should study at length what's on the minds of potential buyers and to understand their frustration, pain and wishes.

They need to clearly understand how prospective customers currently solve their problems and what improvements they might seek.

Lesson 3: Build a product after speaking with customers, not before. Most businesses fail when an inventor makes a product no one wants to buy. This notion is a common and deadly mistake many founders make.

Large and small developers alike miss the mark when research and development creates the next great thing without a clear idea who will buy it. I like the axiom sell first, design second, then build.

This approach envisions an entrepreneur who sells his or her terrific product and then hurriedly returns to the lab to draw a blueprint, make it and deliver it.

Lesson 4: Know your competitors. Clearly understand why they win business.

Every entrepreneur should spend time learning about companies with competing offers. They should learn about their products, features and benefits. They should understand their pricing schemes, marketing and sales efforts. They should talk to customers who buy their products and should understand their competitors as well as they know their own companies.

Lesson 5: Win with a truly disruptive technology. Harvard professor Clayton Christensen, author of "The Innovator's Dilemma," has identified the battle plan to building a truly great company: Design and build an innovative product at the low end of the product line that every customer can buy, and offer a compelling price that can't be beat.

As you can see, of the 10-plus businesses I have created, it was the five failures that led to the greatest lessons I've learned.

Since that time, I have created multiple successful companies — in fact, MarketStar, Island Park Investments (angel investment) and Mercato Partners (venture capital) have been home runs.

Much has been written about my winning companies. But perhaps you can learn even more from my greatest failures.

You can reach me at @AskAlanEHall, or via my personal website at www.AlanEHall.com.

Alan E. Hall is a cofounding managing director of Mercato Partners, a regionally focused growth capital investment firm. He founded Grow Utah Ventures, is the founder of MarketStar Corp. and is chairman of the Utah Technology Council.

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