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Bouncing back from failure: Four bits of advice for phoenix entrepreneurs

If your startup burned down, how would you rise from the ashes?

By Steph Bailey

A phoenix entrepreneur sees their business burn to the ground but instead of being defeated by it, they rise from the ashes, take what they’ve learnt and do it again. 

 “[A phoenix entrepreneur] is an entrepreneur who didn’t have their first and potentially second startup go as planned and they’re back attempting to do it again,” says Bailey Morrow, director of consumer internet at Silicon Valley Bank. “It’s the idea of the phoenix rising; you’re coming back, after not having the outcome that you wanted.”

But for those founders who are trying to start again, what can they do differently the next time round? What should they be focusing on, and how can they use their failure to build a success?

 We spoke with Morrow, who has worked with failed ventures as a lender, and Alex Threipland, Silicon Valley Bank’s director of early stage and a previous founder of a tech-enabled home furnishings startup that closed doors, about their best advice.

 1. Learn from your mistakes

 According to Threipland, phoenix entrepreneurs have an invaluable well of experience they can pull from.

“If you’ve had a historical exit, a successful exit, it goes on the CV as a point of credibility and most likely gives you some capital to do the next thing,” he says. “If you’re a phoenix, you don’t have the money element or the reputation element, and quite often whatever you built in your first company is gone, but experience will remain with you.”

Threipland says this invaluable experience includes technical aspects such as founding a company and getting it off the ground, as well as running a company, including sales, hiring and firing and sorting out legals and HR. But more than that, experience gives you a stronger foundation of knowledge on which to build your next venture.

“If you’re a phoenix, you don’t have the money element, and quite often whatever you have from your first company is gone so experience is what’s left.”

He adds phoenixes also have the experience of failure, so are typically sensitive to repeating the mistakes that led them there. While they don’t have a path to instant success, he emphasises they aren’t disadvantaged, and have lost much of the potential naivety and inexperience of first-time founders which should lead to fewer mistakes.

“There’s also the experience of what it is to have a business fail, and I can speak very much from experience, failure hurts,” he says. “I don’t necessarily think you’re going to build a better business because you’ve had one fail before, but there’s absolutely no reason to think that if you’ve had one fail you’re going to be any worse off. In fact, the added dose of reality you’ve experienced will likely put you in a good starting position.”

2. Think about market fit 

For Morrow, her first deal as a lender — with an entrepreneur that had worked at a Big Five tech company — taught her lots of lessons. While she lost money on it and the startup folded, she learned the market doesn’t always match the hype of investors.

“[The startup] received a lot of investment from VCs because this person was well known within the ecosystem, so if they’re doing this then it must be successful,” she says. “It turns out they just didn’t have product-market fit, the brand was off… I don’t think consumers were quite ready for the product they were putting out to market and frankly I think we as lenders perhaps got a bit over-excited on the individual rather than the business.” 

To avoid this, she advises founders to do as much research into the market and with potential customers as they can before looking for investment. 

Morrow also uses this startup flop as an example of the positives that come when a phoenix founder speaks openly about their failure. She says she recently saw the founder speaking on a panel about their journey — an openness she encourages. 

“When you can speak openly about your failures, it levels the playing field for those that are starting a business,” she says. “This founder is now an acting board member for several companies and speaks about how to holistically grow businesses.

“When you can speak openly about your failures, it levels the playing field for those that are starting a business.”

3. Find a balance between optimism and realism.

While founders need to be optimistic to drive their startup forward, Threipland says phoenix entrepreneurs should use their previous experience to remind themselves how much work a growing company needs. 

“Once you have a failed venture under your belt, when you’re going into your second company, the unrealistic elements of optimism are often gone,” he says. “Optimism is a key character trait of entrepreneurs, and what you need as a founder remains, just a more realistic version. You go into it with a much more sensible approach.”

Morrow agrees, adding phoenix entrepreneurs should try to find a balance.

Founders go in and have to raise money from VCs. Of course, you sell a vision and that’s why we all believe it, but it’s always better, in my mind, to under-promise and overdeliver,” she says. “I would always caution founders on finding the right balance between being optimistic and forward-thinking.”

“I would always caution founders on finding the right balance between being optimistic and forward-thinking.”

4. Make sure you have a strong team around you 

Morrow says one of the top reasons some startups fail is because the founder doesn’t build a strong enough team around them. 

Find the right people and be really honest with yourself about where your shortcomings are as a founder and backfill them with absolutely rockstar talent,” she says. “That’s how you prevent failure, bringing in diverse experiences and diverse people so that if something doesn’t go right, there are enough voices around the table to be able to steer the ship in the right direction.”

“Be really honest with yourself about where your shortcomings are as a founder and backfill them with absolutely rockstar talent.” 

Threipland says a network, such as Silicon Valley Bank, can act as an extension of your team.

“It’s a massive network and especially in our world of working with equity-backed companies, it’s a very tailored network,” he says. “We can bring those experienced founders who are further down their journey in to share their experiences with our founders the early stage.”

Morrow says it’s an opportunity for phoenixes to be given a clean slate.  

We love a phoenix entrepreneur, most of the companies that we work with, we work with the founder on two, three, or four endeavours,” she says. “It’s actually a clean slate every time… We all make mistakes and we all have highs and lows.”

Make next happen now. In the world of innovation and change, you define what comes next. Learn more about startup banking from Silicon Valley Bank.

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