Entrepreneurs sometimes fail before they succeed. Although most of us know that this is the case, the fear of failure and being associated with failure of any kind is deeply ingrained in our culture and often works to discourage not only the entrepreneurs our society needs but also their investors.
But history is full of examples of just how damaging a failure to embrace failure would have been. Take, for example, Henry Ford. In January 1900, Ford had finished his first prototype and was urged by local angel investors to launch the Detroit Automobile Company. Detroit boasted forty four millionaires at that time who were ready to invest in good opportunities–a ripe angel network, if you will. Ford raised $15,000 from Detroit’s canniest businessmen, who included a lumberman, a politician and the president of a local bank. In November 1900, after eleven months and over $86,000 invested, they lost their shirts when the company was shut down.
That could have been the end of the story. Imagine where would we be if Henry Ford had not tried again? What if he gave up and went back to the farm, where his father urged him to spend the rest of his life?
One year later, in November 1901, William Maybury and William Murphy, two angel investors who had originally backed Ford kept their faith in him. They invested $30,000 in his second start-up, which was called the Henry Ford Company. But this second start-up was doomed from Ford’s perspectives when the angel investors brought in an experienced CEO over Ford, an exacting perfectionist whom they believed would complement Ford’s creative spirit. But Henry Ford would have none of that. Four months later, he left this second start-up in a huff because he did not want to take orders from anyone. (This second start-up eventually became Cadillac Motor Company, itself destined to become an epic brand.)
Now, two start-ups later, was this wild Henry Ford doomed to failure? Not quite yet–the angels were still hovering in Detroit. Enter Alexander Y. Malcomson, a stocky Scottish immigrant who used to sell “Hotter than Sunshine” brand coal in Michigan. Besides getting his hands sooty, he made a chunk of money in the trade. He promptly invested $500 in Henry Ford’s third start-up, which incorporated a year later in November 1902 as “Ford Motor Company”.
So far, so good. But bear in mind, by now there were 88 start-ups in the United States devoted to building cars. But Henry Ford beat most of them: the Ford Motor Company sold 1708 cars in its fifteen months. His angel investors were paid more than 100% dividends in the first year of operations. The rest, as they say, is history.
Moral of the story: the next time you encounter an entrepreneur, support him or her in some way. Don’t give up on them the first time they fail. Don’t necessarily let the fact that he or she has 88 active competitors bother you. As the old adage goes, I can tell you how many seeds there are in an apple but we don’t know how many apples there are in this seed. And the next time you see an angel investor, thank them for taking on these risky bets. Our world becomes a better place for their efforts.
If you are an entrepreneur or investor, we’d love to hear how you handled and triumphed over your start-up failures. Send me your stories at firstname.lastname@example.org. We’ll publish the best here. And you will also receive a copy of uber-angel investor Brad Feld’sbook “Do More Faster” – expert advise on how to accelerate your start-up.
In my next blog, I will share how Henry Ford fired his angel investor. Till then, as William Clay Ford Jr., says “Work hard, Stay humble, and remember that we’re never where we want to be.”
Note: For factual data, I have extensively relied on a wonderfully well-written biography of Henry Ford titled Wheels for the World: Henry Ford, His Company, and a Century of Progress by Douglas Brinkley. If you have a few spare hours, please read this 846 page thriller.