February – Let’s Talk Vulnerability & Failures

Words: Phaedon Stough, CEO & Co-Founder, Innovation Bay

Aurora Retreat | Image credit: Tayla Lokman, Plus One Studio

It’s already been an action packed two months for us here at IB. Why, you ask?

So far this year we have:  

I’m trying to stay balanced and calm. The market is unstable, we are seeing so many mixed experiences from layoffs, to companies closing, to capital rounds, acquisitions and more.  It feels like COVID hasn’t let us go yet and we are running a race with our legs tied together.  I just want the space and freedom to run.  But, as we all fear, it seems the worst is still ahead.  I expect the next 4 months to be the hardest as interest rates continue to climb and the RBA seeks to ensure inflation is under control. 

On that note is my topic for this newsletter. When we launched our new and awesome Brisbane Horizon chapter, our dinner ice breaker question was, “what has been your worst investment and why?”. The reason we ask this is that it provides a great platform for humility and vulnerability, two things that enable us to have real conversations. The funny thing is, as Australians, we still struggle with failure and vulnerability. There were some great stories, but they were painful and few. 

If we look at the standard venture returns (of 10 investments, 1-2 might expect to return 10x, 2-4 might return 2-4x and 2-5 will fail…but we never actually say that, we say they will return their investment..). In our industry, which has a high failure rate, don’t we need to appreciate that while the returns can be significant, the rate of failure will be high? Why? Because we are pushing the boundaries of what is possible. We are not replicating existing business models, we are creators, disruptors and innovators. But most of all, we are dreamers. I heard someone say, the problem with founders is that they are all liars. They are not, they are dreamers and visionaries. We don’t invest, unless there is a vision.  

The Oxford Dictionary definition of a vision is, “the ability to think about or plan the future with imagination or wisdom”.  Founders do both, but no one can predict the future. If we wanted to purely make money, there are much easier ways. Our drivers, while mostly measured by economic returns, are not what motivate most of us. That motivation is about creation, innovation and doing things better. Striving to be unique, exceptional and challenging the status quo.  Most of us are making things up as we go, faking it until we make it, or not.  Most of the founders in our community have never been CEO’s before. Most don’t come from corporate development backgrounds. Most don’t have MBA’s, they are what I like to call street fighters of entrepreneurship. They hustle, they pivot, they get shit done.  

Someone asked once about what we do for our founder communities; is it mentorship, is it education, is it experiences? We help our founders make better decisions, by providing them with a peer network to talk through experiences, Data to help guide them in and the space in which to make decisions. Getting back to failure, we need more of it. One of the GP’s at Accel once told me, our favorite type of person to invest in is someone who has just had a failed venture. And you see so much of that in other well established and flourishing startups epicenters. 

To manage this, we need to invest smaller amounts earlier in order to get portfolio distribution.  But before we do that, we need to accept, no, we need to embrace the fact that 40% of our investments will fail. We need to let them fail. We need to encourage them to fail, rather than hanging on, not learning any lessons, struggling into a lifestyle business. We need to invest in founders who have failed and can demonstrate what they have learned, because those founders are the ones who will be great. It took Graeme Wood seven business until he got to Wotif. MCB had a failed business before Atlassian. 

As I tell my son, you miss 100% of the shots you don’t take. This year we will see more companies, more investments, not make it. Isn’t that a good sign that we are pushing the limits of what is possible. Doesn’t that give us an exceptional pool of talent to re-invest in? 

I’ve founded a couple of companies. The first one, Mitchellake, which I was in for 15 years. It took me to many places and enabled me to have many amazing experiences with some exceptional people. But it was a constant battle and I decided to walk away from it and leave it with my business partner, who has also been one of my closest friends. That was the hardest decision of my life, because I walked away without feeling that I had completed the journey I started on.  I left because I couldn’t see a way to achieve what I felt the vision of the business was. I felt like a failure, even though the business continues to do exceptional work with an amazing team.  

I learnt so much from that business, I will be forever grateful to the team and our customers.  I’ve taken those learnings to Innovation Bay and it has made this journey so different.  I know where many of the potholes in the road are. That doesn’t stop me from hitting them, but it just means that I can drive at a much greater speed, as I know where most of the issues will come from.  My failure to achieve what I dream of at Mitchellake will never leave me. It will be a burden that I carry for the rest of my life. But that burden is  knowledge and that knowledge empowers me now with my new journey of building IB.  

Let’s embrace failure, it’s never easy and will never leave you as a founder. Let’s re-invest in the founders who have the scar tissue, who still have visions of the future and the capability to get people excited. Who have learned from their experiences and still have the energy and horsepower to build something exceptional. As we embark further into 2023, let’s look out for the dreamers who are experienced and yearning to create impact. I’m very excited.   

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