Failure is Part of the Journey

What's up, everyone? Welcome to another episode of Founders Journal. First of all, I want to give a shout out to the literally hundreds of you that have emailed me. I'm currently looking at just a swath of emails and I'm thinking to myself how awesome this is. But also, I may have made a terrible mistake because I probably have about 12 hours of replies that I'm going to need to get to. But I don't care. It is so awesome to see so many of you getting value from Founders Journal. Before we hop into the show, I just want to give a shout out to a few random names that I'm looking at right now. I'm literally scrolling through Gmail and I'm looking at David T., J.D., Erica H., Curtis C., Yoni L., Nathaniel B., Deborah H., and Michael L. Thank you all so much for writing in and look out for an email from me very soon. Also, if you aren't one of the hundreds of people that emailed me, what are you doing? Don't put it off any longer. Just go for it. Shoot me an email at alex@morningbrew.com. Just say what's up, and I will get the conversation going with you. I would love to learn more about my listeners and also what topics you want to hear me talk about moving forward. Okay, now it's time for the show. Today on Founders Journal, I am talking about closing one of my businesses. That's right; it failed. Let's hop into it. So I was recently interviewing one of my clients for my ghostwriting agency, and he said something fascinating to me. I asked him, what are the best decisions that you have ever made in your entrepreneurial career? His first answer, picking my co-founders. His second answer, deciding to close down my last business. Now, this is someone who has built 2 mid-eight-figure businesses by the age of 35, and he said that failing and moving on is one of the top 2 decisions that he's ever made in his career. And it makes perfect sense when you think about it. By taking the loss and realizing that his previous business could never get to the scale that he wanted it to, it gave him the time to dedicate to an idea that could become huge. Now, this experience with this founder reminded me that a few of my favorite, most informative entrepreneurial experiences have been studying the failures of entrepreneurs Not studying their successes. And I vividly remember in the early days of Morning Brew going to this event in Madison Square Park that was called Startup Graveyard, where founders that had shuttered their businesses would give TED Talk style presentations about why their business failed and the lessons that they had learned. It was fascinating, and it's honestly one of the only startup events that I've been to that I thought was actually worth the time. One of the founders who spoke was the founder of the original hoverboard, and he gave this talk, and I learned everything from the risk of credit card fraud that they dealt with in their business to knockoffs, and how the rise of knockoffs of the hoverboard is really what ended up sinking their business. And I really think there's so much to learn from these founders who have the experience and the courage to share these stories. And beyond Startup Graveyard, there are these other great resources with failed startup case studies that I've studied over the years. One is called Failery, and the other is this list of 452 startup postmortems that CB Insights has written up and keeps updated. So I'll link to both of those in the show notes for you to take a look at. But beyond these valuable, abstractable lessons that any founder can take from the stories of failed businesses, I think there's an even larger benefit, and that is the unfiltered story of entrepreneurship. I think there is so much revisionist history around the entrepreneurial journey. We tend to celebrate successes but never stop to recognize all of the failures that preceded the first big win that a founder had. And I believe that's super dangerous. It creates a lack of security around learning, pivoting, and trying again. And I think to myself, there must be so much pressure that aspiring entrepreneurs feel if they think they need to hit a home run their first at-bat in the startup game. It's such a daunting idea, in fact, that many potentially great founders never actually go for it. They never actually start their business because they can't stomach the idea of failure. So I commend those that are willing to share the entire entrepreneurial experience, not just the Instagram version. And to pay it forward, I want to share my experience talking through the failure of my backyard game business, The Plunge. So I want to give a quick refresher because some of you maybe don't know about this business that I was working on the last, let's call it, 6 months. The Plunge is a backyard version of ax throwing where you throw plungers at a glossy board, and the goal is to get the plunger to stick to ultimately earn points. And I was excited about this business for a few reasons. First, it felt like pure play as I was building it. I was loving building the business. I was loving creating a physical product for the first time ever. And I was genuinely pumped about creating a product that could disconnect people from technology and reconnect them with the people that matter in their lives. I was also excited about it because it felt like a game that could naturally go viral. I saw this opportunity to create almost Dude Perfect style trick shot content on TikTok and Instagram and YouTube Shorts where you could use the Plunge, you could create trick shot content throwing plungers, and then you could use that content as organic marketing to ultimately acquire customers and sell the game. And then the final reason I was excited about building this business is that I thought this game could draft off of the increased demand that axe throwing and axe throwing studios have seen over the last 3 to 5 years. But now let me take you through the reality of the situation. I have spent $37,000 of my own personal money on the game. We have a finished product, and we've played the game with About 100 or so people. And there are basically 3 groups of people who have played the game. The people who would hit the target, so they would get the plunger to stick and they'd keep playing. The second group are the people who wouldn't hit the target and they would get very competitive about it and they would keep trying to hit the target until they did, and then they would probably stop. And then I would say a pretty large group of people are those who wouldn't be able to get the plunger to stick. They would throw it, they would never get it to hit, and they would get discouraged after trying for a few And they would quit playing the game. Now, I want to take you through this, basically this go or no-go decision that we had for The Plunge in the last month. If we said go, we would then go and launch The Plunge on Kickstarter. We would start taking preorders, and if we hit our funding goal, we'd start fulfilling orders. If we said no-go, we would either pivot the product, pivot the launch strategy, or throw in the towel. And here's how I thought about the go/no-go decision. To make the decision to go full steam ahead with Kickstarter, I wanted to feel exceptional about the product. I wanted to feel like customers were obsessed to the point where they would lose track of time because all they could think about was playing the game. But instead, I felt so-so about the product. I think it's a well-made product. I enjoy it personally, but I didn't feel that There was addiction from potential customers, and that is what I was looking for. Also, just a little bit of a side note, one of the most interesting observations we made as we watched strangers play this game is that the most addicted audience we found was actually little children who love the suction aspect of the game. And it's actually what got us thinking about, should we create a version of this game or totally pivot this into toys for children? And so my fear around all of this was, If we pushed forward not feeling exceptional, the worst-case scenario would set me back significantly more than just $37,000. Here's how I played out the worst-case scenario in my head. We launch on Kickstarter. We sell, let's say, $250,000 worth of plunge sets, which is roughly 2,500 sets. People end up being dissatisfied with the game because they find it too difficult, which is this piece of feedback that we've gotten from several people that it's too hard to complete. It takes hours to actually score enough points. to win the game. And so my fear is that a lot of people would say this who get it from Kickstarter, and customers would ask to return it. What would happen is we would have to take returns, which means we would refund people their money. We maybe would have to pay for shipping, and then we would have to pay to warehouse all of these games that we would then have to figure out what to do with them. And so that left me with a few options as I thought about this go/no-go decision. Option A, say go and push forward with the game. And my worst case scenario is what I just described, and I'm in the hole for 6 figures instead of $37,000. My best case scenario in the go decision is that there's a little bit of profit on the first production run, maybe $25,000 to $50,000 if we're lucky. But more importantly, there's clear indication of demand for the game moving forward. Option 2, We try licensing the game to someone else. So how it would typically work in the game industry is you can pitch your product to a Hasbro or a Mattel or a Nerf, and if they want to license it, you basically give up all control of the game and you get something like 3 to 5% of net revenue as a check in the mail for however long they are selling the game. The best case scenario in the licensing deal is if the game blows up, let's say it sells 1 million units and there's $20 of margin per set that's sold, that's $1 million in licensing fees that I could get over time. Now, that obviously sounds amazing, but this also assumes that you have a top 5 backyard game of all time and a toy company agrees to license the product. Now, the downside of this option is all of the time that is spent pitching toy companies for more likely a way more modest royalty amount than $1 million. So that's option 2. Option 3 is go back to the drawing board. The idea here would be go back, create another suction-based game that is far easier so you don't have to worry about customers being disgruntled about the difficulty. And the game would more resemble an analog game that's already out in the market, like bocce or cornhole. And we'd just be creating basically a suction-based version of bocce or cornhole. Now, I think this could be a really interesting opportunity because Bocce or cornhole are game styles that already have product market fit. And you can also make the game smaller and lighter since you're now not throwing a plunger 35 miles an hour. So you don't have to worry about weight and stability, which means the economics of the game get better. But if you go with this third option, this third route, you now have to be down to spend probably another $10,000 minimum on R&D, which would bring my cost to $47,000. Just to get the opportunity to see if there's new product market fit. The 4th option is to hang up the plunger, cut my losses, and put my resources into something else. And I spent the last few weeks thinking about it, and I made the decision to go with option D, which is to cut my losses and throw in the towel for the plunge. And the way I made this decision was both in a vacuum for this specific opportunity and also based on the opportunity cost of my time and money based on other things that I have going on. And the way that I thought about it, just looking at this opportunity in isolation, is the risk-reward profile just doesn't make sense for The Plunge to be a meaningful business. And when I say meaningful, for me, that is something that I consider to be an 8-figure in revenue opportunity with healthy margins. For that to happen, one of two things would have to happen. Either we would have to sell something like 200,000 units of The Plunge per year, which is a shit ton, or we would have to launch a backyard game holding company with many other games. And to me, that is also equally as difficult because now you have to launch many hits in addition to the first hit that you launched. And so to possibly get the business that big without raising any money, it would probably take 5 to 7 years minimum. And then you look at the risk, and the risk is you either have hundreds of thousands of dollars in losses because the game doesn't have product market fit and The worst case scenario I described earlier is what happens, or even worse is a Kickstarter campaign goes pretty well, which creates almost a false positive, a false sense of hope that there is a huge opportunity behind this game, and you end up making very little money over the next 5 to 7 years, and you've wasted 5 to 7 years. To me, that is actually the worst case scenario. Also, I looked at this game through the lens of opportunity cost, so I didn't just look at it through the lens of I've spent $37,000 on this, I've spent months of time on it. What do I think is just the opportunity for this game? And do I think it's still worth the reward? But I also basically ask myself, what is the best allocation of my next $50,000 or 500 hours of time? And is the best use of that money or my time the plunge? Honestly, the very easy answer I came to is no. As many of you know, I'm in the process of spinning up an executive ghostwriting agency. It's called StoryArb. And I believe the path to $10 million and an even bigger vision beyond that is way clearer to me. It's a business that leans into my unique abilities around content strategy and building audience. It's B2B, which I generally think is easier than building a B2C business. And it's a business that you can get cash flowing on day one versus putting a lot of capital upfront into R&D and product like The Plunge. So taking a loss and hanging up the plunger is what I perceive to be the right decision. But it's not an easy decision. It's not easy, but maybe not for the reasons you may expect. The most obvious reason that I would say entrepreneurs generally are afraid to fail is because they're worried what others will think. They fear that they'll be considered bad entrepreneurs. They worry that it'll be harder for them to build a business in the future. They worry that they've lost to all of the haters that said their business would never work. Now, that's actually not at all what makes this a tough decision for me. I find it tough for a few different reasons. First, it's the death of a vision. When an entrepreneur starts a business, they have this image of the world today and how the world in the future will look different and better with their product in it. That's what gives many entrepreneurs so much firepower to keep building despite the pain and the setbacks. By officially bringing the plunge to a close, I am accepting that the vision won't be realized. The second reason is it's the death of a partnership. One of the reasons I love building businesses is being able to work hand in hand with other smart, motivated people. And for The Plunge, I've had an awesome partner who is equally as motivated to make this thing happen. There's something so special about problem solving and collaborating every day with someone on a business, and I'm experiencing it with my ghostwriting agency now, and I hope to experience it many times over in the future. Ending the plunge is ending the daily conversations with my partner that made this experience so rich. And the third reason making this decision is tough is it makes it very easy to be self-critical and have self-doubt. By throwing in the towel, I can't help but question my abilities. Did you jump into an opportunity too fast? Are you too reactive of a person, Alex? Are you taking the easy way out? Is this just a challenge that You would have pushed through with Morning Brew, and now because you're less motivated and softer, you're not willing to? Is your fear of spending money preventing you from seeing this opportunity through? These are just a few of the many questions that have gone through my brain as I've made this decision. But all in all, I am feeling resolute about this decision and about where I'm at. I understand that The Plunge failed because it didn't leverage my unique abilities, because trying to create new consumer behaviors is very hard. And because the cost to possibly find product-market fit was greater than the cost I was willing to sink into the business. But that's okay. I've learned from the experience. I really enjoyed getting to build with someone else, and I'm excited about hopping back on the horse and continuing to build. As always, thank you so much for listening to Founders Journal, and I'll catch you next episode.