Last week I started this four part series on starting your business. I talked about the importance of being unemployable and becoming an unreasonable person. Hmm….

This week, we’ll continue the happy thoughts with…

Step 3: Get to Know and Love Failure

The only lessons that you ever truly learn come from failure. Since you’ve never done this before, you need lots of lessons. Success only brings money. Money means taxes. Figuring out the ins and outs of a K1 and quarterly withholdings will take you at least 5 years.

Early on in Tightrope’s history, we made a product called a media retrieval system, which played back video in classrooms from VCRs and DVD players located in a central head end. Teachers scheduled and controlled these playback devices using our web application.

One day, a college contacted us about our system. It was a big job and in order to land it, we had to do some custom programming. They wanted to play VCR tapes in a window on desktop computers. We would do this by installing tuner cards that would switch to the television channel that any one of 32 VCRs were playing on… hmm… this may sound too confusing. Let me recap:

Computers, which are good at playing video files, are controlling VCRs located in a remote head end, which are playing video over a television channel on their closed circuit television network. Said computer tunes to said VCR’s TV channel and the person at that computer then controls and watches the tape, which must be loaded into the correct VCR, at the appointed time, by a highly paid librarian.

If this doesn’t sound like the most insane  application of technology that you’ve ever heard of, then you need to read the above paragraphs again. If it still doesn’t seem incredibly stupid, then consider this: After we installed the system, they installed Cytrix on all of the desktops. This is a system that centralized all of their desktop applications, turning these same computers into dumb terminals, which in turn made local video playback from the newly installed TV tuner cards completely impossible.

Not one person in this college ever played a single video from this convoluted piece of crap system that we had our name attached to.

In short, we failed.

What did we receive for this tuition? What did we get for wasting 6 months of our time and loosing money on plane trips, unpaid invoices and lost reputation? We Learned, with a capital ‘L’, that you don’t do custom work unless it makes your product better and adds value to your company over the long term, no matter how much you need the money in the short term. (we’ll talk about this more next week)

Each time you make one of these bone-headed mistakes, you’ll Learn with white-hot intensity a valuable lesson that a book or a marketing teacher could only tell you. When you learn with the capital ‘L’, the lesson is permanent.

By the way, how do you react when you fail?

Again, early on in Tightrope’s past, I was driving home and decided to call a venture capitalist whom I had begged for money from. He finally picked up his phone after several attempts at reaching him and graciously informed me that we were not a part of his plans and bid me good luck.

I thanked him, said goodbye and then hung up. Next, I reenacted the scene from Pulp Fiction where Bruce Willis is beating the hell out of his Civic as he’s screaming at his lover, who forgot his watch, in a way that he could not if she were actually in the car. Then I called my mom and used her as a proxy for the VC guy because screaming into thin air wasn’t satisfying enough.

You need to be the kind of person that gets mad, not the kind of person that gets sad. You double down when you fail. You don’t question your idea, you just work harder. That VC that turned you down or that account that you lost or that loan officer that said no?

Each one a fatally flawed moron.

They will one day be a part of a row of mounted heads in your world headquarters — a monument to their disgrace and a testament to your unappreciated genius.

Step 4: Avoid Venture Capital

Venture capital almost never works. You’re better off using your own money, credit cards or a relative to help you with any capital that you absolutely need.

When you have venture capital, you’re spending their money. This is now their venture, their business and you work for them. What they want and what you want are different things and they get what they want and you do not. It will feel very much like the employment you were trying to escape back in Step 1: Get Fired.

You want their money and then you want them gone so that you can change the world.

They want to treat your business like they’re flipping a house; tarting it up for others to see, spending as little as possible and then selling their interest as quickly as they can for as much as they can. Not exactly the Bo to your Luke.

What’s worse, however, is that a VC can put a million dollars worth of novocain between you and your stupid mistakes. Pain means you fail fast and move on. Money dulls pain, which greatly reduces the pressure that you’d otherwise feel and frees you to keep acting stupidly.

Caarousel was the world's first digital signage system that you updated with a web browser! We somehow got there without VC money. weird...

To be sure, the VC will put pressure on you, but it’s not the same. That pressure is annoying and unwelcome. It’s not the sphincter tightening pressure that comes from delaying your mortgage payment by a couple of weeks or going without a paycheck for the second time in a row. Watch your kids eat romen noodles because you have a 7 dollar a day food budget if you want to feel real pressure. That kind of pressure focuses the mind.

What’s your percentage chance of permanent failure if you strike out on your own with no VC backing?

Answer: 0%

Every setback is just another lesson and we’ve already established that you’re pig-headed, arrogant and unemployable back in last week’s post. We know that there is no end to the number of lessons that you’ll tolerate.

You’re also perfectly convinced that your idea is rockstar, stated somewhere in that same post. If you’re not both of these things then money isn’t going to help you anyway, so why hedge your bets?

Bankruptcy? A chance for a court-ordered fresh start! Even if you get thrown in jail because your idea violates some obscure decency law, you can still visit your clients during appointed visitation hours. In fact, the only way that I know of to fail permanently is if you’re dead and if you are dead, you’re much less likely to care anyway.

What’s your percentage chance of permanent failure if you secure VC funding?

Answer: Much more complicated…

• 23% chance that you miss some arbitrary deadline imposed by the VC and he pulls funding or denies additional funding, calling the idea a failure.
• 8% chance the economy tanks or he gets a divorce and pulls all of the money he can out of his investments to throw under his mattress.
• 6% chance he gets bored and wants to pull out in order to work on something that is newer, shinier and goes, “Beep! Beep!”
• 47% chance that the VC forces poisonous ideas designed to gain market share, defensively combat entrenched competition, or to make the product attractive to other huge markets and more investors, all of which turn your idea into a huge pile of crap that could never possibly succeed.
• 14% chance that he figures out that you’re just bilking him for a steady paycheck and bonuses.

Even though I passed Algebra II with two Fs for each quarter and a C- in the final, I can say with some authority (and the free calculator on my Mac) that you have a 2% chance of success.

Sidebar: When is venture capital a good idea? When you’re a successful company that is looking to make the leap from being relevant and awesome to world dominating and all you need is a ton of cash and access to other really important people besides your rich VC buddy, like Rupert Murdoch or Donald Trump. If you’re in a land grab and you have a company with real value, you can negotiate with VCs as peer-to-peer, not master-to-servant. Sometimes it’s the only way to raise a great company up to a much higher level.

With a venture capitalist’s money, at best you’ve traded your passion for a steady paycheck for as long as you can con them into keeping the gravy train rolling. Then you’ve lost nothing. Not even bankruptcy! In fact, when they leave, you can start again, albeit delayed, but fresh with the knowledge that I was right and VCs suck!

At worst, well… let’s do more math:

• $0.00: The amount that your great idea is worth to the real world with nothing accomplished but a business plan.
• $1,000,000.00: The amount that you get a hypothetical VC to give you for your great idea + said business plan that promises him that your idea is as secure as a bank loan, but not from CitiBank.
• 60%: The percentage of the company he takes from you, because it’s his money and he will not abide your dumb ass in the driver’s seat.
• $75,000,000.00: The amount you sell your company to Cisco for, because Cisco buys everything for stupid amounts of money and everyone’s dream is to sell to Cisco.
• 60% x $75,000,000.00 = $45,000,000.00

Congratulations? In going the venture capitalist route, you’ve just received a pile of the most expensive cash you could have ever asked for. Instead of using a credit card at 25% interest, you’re using VC money at 4,500% interest, if your dream comes true. The Mafia has better terms than a venture capitalist.

Why bargain with a VC from a position of abject weakness, like when you’re just starting out and have nothing but your optimism and a business plan? As you can tell from my airtight math, you’re 98% and roughly 44 million dollars better off without them.

Next week we’ll cover the importance of pressure, finding the right business partner and focusing on one niche…