Building on failure – businessmen

Bob Gatty

Building On Failure

I tried and failed, and I tried again and succeeded.’

So reads the tombstone of a man who had a series of spectacular business failures. They included the Terraqueous Wagon, designed to travel on land or water. It sank the first time out. He failed three times to obtain a patent on another invention. He obtained one on the fourth try but lack of capital and credit, along with poor sales, again wiped him out.

But he was convinced his product had potential and tried again with his process for giving milk a long shelf life through a vacuum condensation process. Gail Borden was 56 when condensed milk brought him his first business success.

A contemporary of Borden’s was also encountering failure around the midpoint of the 19th century. Though it seemed that a dry goods store in the midst of the California gold rush would be a sure bet for success, the founder watched it fail, just as he had watched two others go under. But Rowland Hussey Macy returned to the retail business fourteen years later, opening a dry goods store in New York City in 1858.

Still another small businessman of that era took it very hard when his business failed. He wrote that he felt like an outcast among his friends and business associates.

Those small business people represent a tiny sampling of the ranks of the entrepreneurs who, throughout American history, have refused to be defeated by failure. The determination of the founders to try, try again represents a common thread linking some of the largest and most famous corporations with today’s small businesses struggling to survive.

The shared experiences include unexpected setbacks and the shock of encountering consumer apathy to products they thought would revolutionize the world. For example, the San Francisco earthquake and fire reduced the Bank of Italy to a plank counter on a dock and a total of $80,000 in cash to cover deposits and meet loan requests. The firm survived, eventually changing its name to Bank of America.

In words many contemporary entrepreneurs might use, another turn-of-the century inventor wrote to his wife, “I have got it, our fortune is made.’ But it was to be eight years before King C. Gillette brought the safety razor to market–and he sold just 51 of them in his first year.

Government regulators were not unknown in the early days of what are today’s giant companies. Paul Galvin had twice been forced out of the storage-battery business, and the problems his third company encountered included not only the Depression but opposition from state officials who held that its principal product would be a danger on the highways. But consumer demand for radios that could be installed in automobiles was so great despite the Depression that the regulators backed off and Galvin Manufacturing Corporation eventually changed its name to that of the product–Motorola.

The determination of those earlier entrepreneurs continues among their spiritual descendants, like Ron A. Berger. In 1979 Berger was hot. His four-year-old brainchild, Photo Factory, was pulling in $40 million a year. He had 57 stores in eight states, and he was rolling.

Then, suddenly, he was broke.

His business had been leveraged with a $1 million line of credit. Interest rates skyrocketed, and the bank called in his loan. Because Berger had personally guaranteed the loan, he was forced to declare personal bankruptcy. Overnight, Berger plummeted from a net worth of about $5 million to zip. Job searches and depression followed. “I couldn’t come to grips with it,’ Berger says today. “I felt like a total failure. I questioned my own worth and every business decision I’d ever made.’

But today, Berger is back on top. He is chief executive officer, chairman and president of National Video, Portland, Ore., the top video franchisor in the country with sales of nearly $6 million for the last nine months of 1986.

After his Photo Factory folded and he couldn’t find a job, Berger “became convinced that success is the best revenge,’ he says.

In 1980, he lived for months off his wife’s credit cards while he researched the video business, studied franchising and put together a business plan.

Today, National Video has 710 stores and has sold 1,361 franchises. The system does $90 million in sales a year, Berger says, and rents more than 1 million movies a week.

Should your business fail, Berger advises, learn from it; decide what mistakes have been made. Then, try again.

What did failure teach Berger? “I learned not to get leveraged to the point where you can’t control the business,’ he says. “One of the main priorities must be to become debt-free. I will not borrow.’

Bert Wallace, president of Bert Wallace & Associates, New Orleans, a firm that specializes in helping engineer business turnarounds, advises companies that can’t pay their bills to be honest with creditors.

He learned that lesson from experience. In 1972, at age 38, Wallace was made president of Racquet Clubs of America, a new chain of indoor tennis and racquetball clubs.

“The first year we had a grand total of $30,000 of income–and about $500,000 of expenses. We had horrendous losses. But I made friends with vendors, lenders and construction people because I told them the truth. They eventually got paid, and my reputation was not damaged.’

T. Errol Harper, who today operates the spectacularly successful Heritage Lincoln-Mercury dealership in Hackensack, N.J., had a similar experience.

Harper, black and an accountant, obtained a Pontiac dealership in Upper Darby, Pa., in 1979. He quickly was bludgeoned by high interest rates, high inflation and poor sales of what he admits was then a mediocre product. To make matters worse, he says, he was a lousy manager. He was forced to liquidate in 1982.

Harper, then 35, had invested everything he had in the business. After several fruitless months of looking for work as an accountant, he took a job as business manager for a Buick dealer in Philadelphia.

Then, Thomas Mignenelli, now general sales manager of the Lincoln-Mercury Division of Ford Motor Company, was looking for a minority dealer in the area. Mignenelli believes that people who have previously failed in business and learned from the experience are likely to become better dealers than those who have never experienced adversity. Harper says he “begged, borrowed and stole’ all he could–including his father’s retirement money–to invest in the dealership.

“Things have gone straight uphill ever since,’ he says. Gross sales were $16.1 million last year.

Harper is careful to say that a better business climate has a lot to do with the turnaround, but he also learned much from his previous experience. “I was very slow in making decisions on personnel,’ he says. He had to learn to react more quickly to changes in the business climate. He also learned the need to investigate thoroughly all aspects of the business before investing.

“Just as in real estate, location is everything with a car dealership. My first dealership was in an area that had gone downhill. I thoroughly studied the demographics before I bought this one.’

And one thing Harper did right first time around was preserve his reputation and his credit standing. Despite the advice of some who said he should take his money and leave his creditors, he sold everything and made amicable settlements. That helped him get started again.

Not everyone does that; nor does everyone have the perseverance that helped Calvin McCracken, founder of Calmac Manufacturing, Englewood, N.J., to turn his fortunes.

An inventor with “many failures,’ McCracken, now 67, holds 84 U.S. patents. His inventions include a furnace that he licensed to a major furnace manufacturer. Several thousand were produced, and there were great plans for expansion. Then seven of the furnace firm’s executives were killed in a plane crash, and that also killed those plans. McCracken filed for bankruptcy.

McCracken says when he first started out in the 1940s, he worked with Theo Edison (the youngest son of Thomas) in Edison’s laboratory in West Orange, N.J. He says he learned much from Edison, particularly about the value of perseverance.

After all, Edison’s father–despite his enormous fame as an inventor–was mostly a failure if percentages count. Of some 1,100 inventions, only about 100 were successful.

Despite the furnace fiasco, McCracken went on to invent a new system to make ice for ice rinks. He sold 40 in two years and still sells them through distributors who handle the installation. He also has developed a system whereby commercial office buildings can shift the electric load from day to night and avoid overload problems during daylight hours.

Today, successful entrepreneur McCracken speaks before business groups about his career and about being an inventor. “You’re going to win some, and you’re going to lose some,’ he says. “Go to it.’

But, as car dealer Harper adds, “If, despite your efforts, the business fails, remember it’s just a business failure, nothing else. Don’t let it ruin your life.’

Photo: Determined dairyman Gail Borden put early failures behind him and persevered until his condensed milk idea blossomed into a commercial success.

Photo: Should your venture fail, advises Ron Berger of National Video, Portland, Ore., don’t give up. Learn from the experience and try again.

COPYRIGHT 1987 U.S. Chamber of Commerce

COPYRIGHT 2004 Gale Group

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