A 70% failure rate for innovation is considered common and studies by Boston Consulting Group and Booz Allen Hamilton have confirmed these numbers.
The ideas can start in the wrong direction and make the wrong assumption. But the more important question is what lessons the entrepreneur can draw from the misstep and how they can use it to build a successful business. That’s what good entrepreneurs do.
As Donald Trump famously said, “Sometimes by losing the battle, you find a new way to win the war”.
It’s a lesson learned by three entrepreneurs at different stage of their business development.
1. Coffee reviews
Peter Christo runs melbournecoffereview.com, an interesting site that reviews the coffee establishments around Melbourne. It makes its money from the cafés that subscribe to it. It started out as a blog and then it became a book of cafés.
Based on that, Christo approached potential investors with a proposal for an iPhone app, an mCommerce platform that would allow people to pay for the coffees in advance with Christo’s business clipping the ticket.
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“We believed that the future direction of our business was by allowing mobile payment via technology that we would be partnering with someone with. At the time, we thought that was the way forward for us,’’ Christo says.
“We had all these people who love coffee and we thought they would find coffee through our app and they could pre-order their coffee before they get to the café via our technology.”
The investors, however, knocked it back.
“They rejected it on criteria that were a bit nebulous and couldn’t really explain,” Christo says.
“The bottom line was that they didn’t understand it. As a consequence of them saying no, it forced us into boot-strapping another way which has given us a more stable platform to grow on.”
As a result, the idea morphed into the now successful business idea of the web site.
“When café owners aspire to show case their café, they subscribe with us which means they get a listing with us and then based on merit, they will get reviews and bean ratings, independent of whether they are subscribers or not,” Christo says.
He admits now that the app idea had not been scoped as a business model.
“What we did as a consequence of not getting investment probably saved our a–,” he says.
“We would have gone up the mCommerce path and burnt our bridges because the technology wasn’t right or something.”
He said there were lessons he drew from the experience.
:To be successful, you need to adjust to changing new information,’’ he says.
“What I learned was to keep moving. You don’t sit there doing a post mortem on something that did or didn’t work. You just keep moving.”
2. Personal training
Personal trainer Saba Alamayo learned some valuable lessons from rejection that resulted her in establishing a health and well-being business.
Graduating with qualifications in personal training, and still studying business, she first decided she would set up her own business as a personal trainer.
Thousands of brochures were distributed in the area along the Maribyrnong River. She went out and letter boxed suburbs like Ascot Vale, Moonee Ponds and Avondale Heights. She also used Facebook and scoured the data base of everyone who had turned up to her sessions.
The response, however, was minimal.
“Believe it or not out of the thousands of brochures, I didn’t get any follow up at all,” Alamayo says.
“All the follow up I had was from people who had engaged in my previous programs.”
That was the point where she realized she was targeting the wrong market.
“It’s a really crowded market to get into,’’ she says.
“There are a lot of personal trainers that get pumped out every six months. So in terms of marketing to that market, it’s time intensive and money intensive for the return you’re getting. You have to do mass advertising and mass marketing to a big group and I realized that the area was saturated with trainers and personal training companies.
“In terms of money, in terms of the effort and time I wasted on marketing, it was not going to work.”
Then out of nowhere, she was approached by a business looking for someone to provide personal training for their employees.
Inspiration struck. Business was an area that few personal trainers, if any, had targeted. And the numbers told her that she would get a better return.
With personal trainers doing one on one work, the charge is about $40 per hour. That also has to cover the overheads. That means a personal trainer would need a whopping 50 clients a week, or 10 a day, to make $2,000 in revenue. But by focusing on a business, the trainer would be working with 100-plus people.
As a result, she has transformed her business from personal training into a health and well-being company that will work with businesses. She plans to launch it in April at the health and safety show where she will be meeting many occupational health and safety officers. She is already in discussions with one business.
“I don’t do any individual training or one on one,’’ she says. “I only aim it at businesses where you can get a lot more return on your investment marketing effort than from direct one on one selling to one on one clients.”
What were the big lessons?
“The key mistake I made was that I didn’t do my target market correctly,’’ she says. “I was coming to an already saturated industry. I didn’t think about that.”
“The general lesson was to look carefully at the target market and see if they were profitable or not.”
3. A rocky road
Malcolm Lambert is in the process of finding investors for his business Intresto (Intelligent Rearrangement of Stone) which is marketing Rocksolver.
Rocksolver is a unique piece of software that Lambert, an atmospheric physicist, has developed to solve the jigsaw puzzle you get when you try to build houses, seawalls and other pieces of infrastructure with irregularly shaped rocks instead of concrete.
The software crunches the data from the rocks and creates a virtual structure based on the data from the rocks using the optimization algorithms. From there, builders will be able to follow a layout plan devised by the software to build a real structure.
The plan is also to have smart phone app where someone can digitize the shapes of the rocks into data and send it in.
Rocksolver would then take it in on a server and then send back the layout plan.
“It’s a green building technology that works with software as a service,’’ Lambert says.
Lambert says the big advantage is that using rocks consumes one-tenth of the greenhouse gas emissions generated from building with concrete.
Lambert, who comes from Armadale in New South Wales, says he had approached angel investors in New South Wales to raise $475,000. Confronted with their reluctance, he has now modified his capital raising requirements and his approach.
“We found we were too early for them, they were looking for a company that was already making sales and getting traction in the market place,’’ Lambert says.
“So I have had to restructure that and reduce the amount we were looking for… I’ve had some pretty good feedback so far.”
“I found with the angel investors, it doesn’t matter where they are, they usually only invest in someone local. Secondly, they are not too keen on investing in a start-up company that doesn’t yet have sales unless it’s mining or biotech.”
“I’ve had to learn what they are looking for. I’ve learned that I’ve had to change my approach so I only approach angels that are local to the area where I am.”
To address the second problem, he has signed a non-binding memorandum of understanding with a French technology company which wants to integrate Rocksolver into their system and then sell it to construction companies like Thiess and Leighton. That will generate sales, attracting investors.
He says with the changes, the signs from investors are starting to look encouraging.
“For me, the lesson has been about learning about what the market is looking for and that can be customers but it can also be investors, and the different types of investors. Something else I’ve learned is to concentrate on getting a product out into the market and getting people to buy it.”
Three entrepreneurs share the same sort of lesson. Faced with rejection, they rejigged their offer to meet the market demand. For them, they have learned one truth that applies to start-ups: there is no such thing as real failure, only feedback.