I was invited a couple of months ago to make a speech on failure as one of seven important metrics to build the entrepreneurial culture in Egypt. The event was organized under the LIFT-OFF program organized by Endeavour and the Institute of International Education. At first the topic shook me, as I thought to myself why me? Am I such a failure! But then I recognized that I had something important to say on the topic, so let me share the highlights of my speech

Failure is such an important topic for any entrepreneur, or wanna-be entrepreneur, since we all graduate from different schools and universities where failure is considered more of a taboo (repeating a year, or having to re-do courses in summer…) of course with a high price associated starting from missing summer studying, to parents looking down upon us… Then we graduate and join the real-life work-force, where failure becomes one of the main aspects of hands-on learning. If we look at some research numbers, we realize that entrepreneurs, who failed before, have higher chances of successes in their new start-ups thanks to the learning they accumulated from prior failures; and no successful businessman I know of, knew success without failure. In fact most successful businessmen failed more times than they succeeded, but the successes they achieved eventually compensated for all their failures financially and much more. So in my opinion failure is one of the important metrics to accept for any entrepreneur who wants to succeed eventually. Even when we look at Venture Capital funds, their whole model is based on 8 out of 10 ventures they invest in, failing or stagnating, while 2 out of 10 ventures succeed with very high returns that compensate for the rest of the portfolio. In fact this is why VC funds target IRRs in the 50-100% versus typical PE funds that invest in less risky ventures (thus lower failure rate), leading them to target lower IRRs of 20-30%.

Over the past 10 years, I was a part of 7 new ventures, 4 out of which failed at different stages of their venture lives, 2 stagnated (no growth), and 1 succeeded (compensating me for all the prior failures and more). But let me share with you my failures (that I am proud of), and what I learnt out of each;

1. My first entrepreneurial attempt in 2002 was done with a friend of mine called Mina Guirguis, as he had the brilliant idea of starting Zambaleta, an arts, music and entertainment resort in Egypt. We started with putting his ideas on paper, focusing on the value added of what we wanted to do, gathering market data, up to developing a complete business model with projections. We competed in several business planning competitions like the MIT business plan competition, and always got as one of semi-finalist teams with a lot of encouraging praise and feedback on our business model. We naturally wanted to move to the next stage of starting the venture, by tackling businessmen to finance our new venture. After plenty of efforts, one of the major businessman in tourism and entertainment in Egypt (without mentioning names) agreed to take a look at our business plan, during a car ride from one location to another. As he sifted through the papers, he was initially impressed by the idea, and its merits, until he got to the part that talked about salaries we were asking for, % equity we wanted to retain, at which point he opened the car window and threw the business plan out of the window, and that of course was the end of the discussion! My partner Mina did not lose hope, and moved back to the US and eventually started the project as an NGO based in San Francisco http://www.zambaleta.org/. I can assure you we learnt a lot out of this failure like how to prepare a business plan, refine our ideas, prepare cash flows, and look at research. Even though we failed in the way we presented it to a potential businessman, we learnt how to present further on from this failure!

2. Another failed attempt of mine was to build an FMCG company to manufacture and distribute food products. The venture started with a partner of mine as we both booked “free” government land in a new location called Maidoum in Bani Sweif, we prepared some of the initial business plans, with potential financing partners. What we forgot to look at were the contracts and conditions associated with this “free” land. As we reviewed this paperwork 9 months later, we realized that the “free” land had construction and operational conditions linked to it, that we of course missed, and the land was going to be taken away from us 3 months later! We eventually succeeded to return the land, and unblock the credit guarantees we had submitted to book the land with some financial losses, but fortunately, not too heavy. I can assure you that since then I have not missed looking at one single clause in any contract I sign, and I take contracts/shareholders agreements/conditions very seriously!

3. Another failed attempt of mine when I lived in Algeria 2005 2006 was to support a friend of mine to start up her own advertising and PR agency, VectorGraphics. The venture had a great initial success since its first year of operations, with great revenues, amazing profits placing us as one of the largest 10 PR/advertising agencies in less than one year, where my partner was interviewed on radio. What we missed in this venture was that growth is associated with working capital requirements without which the venture could not grow! So we signed one of our contracts for over 1M US$ during the second year, that we could not finance in terms of working capital that led the company to bankruptcy. The second mistake we made was the full dependency of the new venture of the selling skills, management and full involvement of my partner even though we had more than 10 other employees. For the irony of it, one of the main reasons of the failure of the venture was my partner marrying, getting pregnant and leaving the business on maternity leave for more than 3 months; where no other employee was even close to fulfil 10% of her role. What I learnt out of this failure was the importance of building up an institution rather than a company based on a single person, as well as the importance of cash/working capital management (the cash flow statement we never bother to look at!)

4. My last example not to bore you to death was a company I joined as shareholder called E-Arabia (http://www.e-arabia.com/), an online agency that buys online ads, and sells them packaged with other services to customers besides owning 4 of its own websites in Egypt. The company was simply over designed with a lot of employees, expensive HQ, heavy investments in marketing and PR to place ourselves next to Connect Ads and other large firms in the sector. We spent more than 200K LE per month, while we generated less than ¼ of this figure. Of course it went bankrupt in less than 2 years, and we currently manage it at a much lower scale with no overheads more or less. To conclude this article, failure in my opinion is one of the most important metrics for any entrepreneur to learn and succeed future ventures, as the learning you make out of your own failures sticks way more than reading in textbooks. My only advice is not to take risks you cannot financially absorb, that would not lead you to personal bankruptcy or majorly impacting the daily bread for you and your family. And let me finish with a quote from Lawrence of Arabia:

“All men dream, but not equally. Those who dream by night in the dusty recesses of their minds, wake in the day to find that it was vanity; but the dreamers of the day are dangerous men, for they may act their dream with open eyes, to make it possible”