No business owner has a perfect track record. Mistakes happen all the time for a multitude of reasons. You might not have all the facts or you might be swayed by your emotions. Whatever the reason, you could have made a significant financial investment in your business, only to see it turn bad. But if you can learn the right lessons from your first investment loss, you can turn it into a positive outcome for the future. As Marcus Lemonis says, “In business, you can’t be complacent. If you do, you’re going to go backwards.”
Why A Company's First Loss Is Important
Experiencing your first loss in business can provide great value if you think of it as a teachable moment. It is actually very important because if your decisions on investments go smoothly from day one, you may delude yourself into thinking that things will never go wrong. Though you don’t want to be fearful in business, it is important to be realistic. When mistakes happen, they can teach you about when to choose a different path or to proceed with caution. The learning you take away from your first investment loss will arm you with tools you need to be successful.
The Importance Of Learning From Your First Loss In Business
Learning from your first loss is crucial to avoid repeating the same mistakes. Lessons learned can be used to build your decision-making skills and get your business on track for success.
In the field of project management, there is a closing phase at the end of every project dedicated to conducting a review of events, documenting lessons learned and archiving information to use for future reference. Rather than burying the experience, think of it as a personal asset for your organization. Keep a record of the decisions made and what led up to those decisions. Review this information the next time you plan to set sail for new waters.
Benefits Gained From Your First Loss In Business/Investment
The primary benefit you can gain from your first loss in business is knowledge. That’s why it is so important to step back and consider the reason it occurred. Here are some possibilities:
Your passion for success may have led you to go a step too far in an expansion plan. Alternatively, your fear of failure may have made you too cautious in your investment.
Your business might not have had the necessary financial or human resources to make the investment successful.
Perhaps you, your partners or your employees lacked the knowledge or skills that were required for a successful investment.
You might have been late to the market, and fallen behind the competition.
Lack of Research
You might have invested in a new product or service without conducting a survey, holding a focus group or gaining customer feedback. As a result, you didn’t offer the right features and benefits.
You might not have put effective processes in place to implement your investment. For instance, the sales team might not have been trained, or your inventory and delivery system might be too cumbersome.
But once you have completed the analysis of your first investment loss, try to avoid dwelling on it and wasting energy with finger pointing and remorse. Take advantage of this time to regroup, assess the situation objectively, and adopt a fresh perspective.
Lessons To Learn From Your First Investment Loss
In the business world, a first investment loss is almost inevitable. But the lessons you learn will help determine your future success. The following are some ways that you can move ahead with confidence, while realizing that future mistakes are still likely to occur.
Passion does not always equate to good business sense. If your passion for your products or services was the driving force behind your first investment loss, you may need to rein in your heart and use your head. Unfortunately, the owner of an Illinois luxury car dealership wasn’t able to learn this lesson. When Marcus met with the owner, a former successful real estate broker who had a love for classic cars, he quickly realized the owner lacked the experience and knowledge to operate an auto dealership. Having never worked in the automotive industry, he made many poor decisions, investing in cars that were too expensive and not having a solid grasp of the market. While he was passionate about the business, ultimately his lack of knowledge and reluctance to learn the industry resulted in him leaving the company.
An entrepreneur needs a strong vision to convey focus and cohesiveness. But if you made an investment without considering your vision – and how that is exemplified in your brand and messaging – you were likely headed for a loss. Marcus saw this firsthand when he consulted with the owner of a New York fashion brand. While the owner was a creative designer, the company lacked organization. The branding was unclear and the styles felt a bit disconnected. When pressed to describe his vision, the owner had a difficult time conveying his primary focus. Marcus urged him to pick an item and then build a new collection around it, ultimately helping him reign things in and create a clear and concise branding message for his clientele. As Marcus says, “You gotta pick a path. And you gotta GO!”
You may have overestimated your business’ capabilities or underestimated the risks involved with your investment. So, along with your passion and vision, you have to be realistic when looking ahead. Preparing a good business or marketing plan can help you identify those risks in advance and make well-informed decisions about future investments.
Was poor marketing the reason for your investment loss? Some businesses have a great product or service but fail to reach the right audience. For example, your company name might be out of sync with the brand messaging. Your overall concept might have been innovative but did not follow current trends, so there was no market demand. Whether you work with a marketing firm or take a more homegrown approach, it’s important to understand your audience and know the best ways to reach them.
Some investment losses occur because the owner, partners and senior managers are not aligned on the same vision or disagree with how to implement key decisions. That can result in lack of leadership, creating confusion, frustration and even rage – particularly when multiple generations are active in a family-owned business. Therefore, these leadership issues need to be addressed before making significant investments going forward.
6. Customer Experience
Customers are the lifeblood of business. But if you make an investment in a product or service that does not meet the needs of your target customers, you may well wind up with a loss. The late Steve Jobs, founder of Apple, said: “You’ve got to start with the customer experience, and work backwards to the technology. You can’t start with the technology and try to figure out where you’re going to try to sell it. I’ve made this mistake probably more than anybody else in this room.”
- Follow your passion, but think like a business owner.
- Have a clear vision and build a brand around that.
- Understand your risk tolerance level. Perhaps you are not in a position to take on as much risk as you originally anticipated.
- Get customer feedback – before you make the next investment.
- Put the right leadership team in place.
- Consult with a professional business advisor to help you create a formal business plan.
- If business partners were involved, this is a good time to reevaluate the partnership, disband the group, or bring in additional expertise.
As you navigate your business through your first investment loss, work toward turning a negative into a positive. Learn the right lessons and try not to make the same mistake again. However, if you experience losses down the road, look for patterns that might explain any gaps in judgment. Don’t give up. Many successful companies have experienced a big loss and come back with a vengeance.
- What was your first loss in business/investment?
- What knowledge did you gain from that initial loss?