Finding Business Enrichment by Failing (Part 2)
Editor’s note: Following is the second part of a two-part series by Juicy Jay. The first part appeared in XBIZ World’s April edition.
I was invested for six figures. Family and friends had told me it was a bad idea, but the world is full of successful businesses who ignored the naysayers.
Quite frankly, it was probably a bad idea to invest in a bar and restaurant in my hometown with my friend Stephan. The bar, restaurant and nightclub industry is notorious and everyone "knows" the industry has a tough reputation and a 90 percent failure rate.
Well, that's not exactly true, the failure rate within three years is actually closer to 59 percent, according to recent studies. The failure rate of business overall after five years is over 50 percent, making restaurants only 16 percent riskier than other enterprises — including porn and the adult industry.
Things had been bumpy to launch our bar and restaurant. The business did not seem to know its own identity as it competed as a bar, restaurant and night club.
The chance of failure was predominant in my mind by this point. Being so invested in the venture, was it better to push forward, or to walk away? What would you have done?
We had already lost most of the previous customer base through the many changes that had been made. Most of the original staff had either left one by one, or been fired by the managing partner, Stephan. The original plan had been to keep the bar and restaurant basically the same (until my investment had been recouped) then we would make the larger changes. The plan had been accelerated, and I was busy traveling the world trying to find myself while running JuicyAds, the Sexy Advertising Network I founded. Lesson learned: stick to the business plan and be there for your own investment.
I was not getting communication updates and was not being consulted for any serious problems occurring at the business since we launched in February.
I found out with a shock when I returned home from XBIZ Miami in May 2013 that our star chef, had quit. While I suspected it was a dispute with Stephan, the video surveillance footage from 3 a.m. when the bar was empty suggested he had had a personal breakdown of some kind. I never found out the truth. We were then solely reliant on our sous chef who did not have the consistency or experience of our former culinary hero.
However, things were much worse than that. Our big profit night was our Wednesday burlesque show that was one-of-a-kind in the city.
Once again, it seemed that there had been some dispute with Stephan and the burlesque dancers who had been the driver of success for years had quit. The replacements were shady and just completely terrible. Without a chef and our main draw, we were just another bar with a bad reputation. Lessons Learned: protect your core assets and ensure communication stays open at all times. Silence is bad for business.
Even as the minority partner, I wanted to save the business. No surprise, since I was the majority financial investor. I arranged for a consultant to fly out and shadow the business for a few weeks to determine the problems, recommend fixes and execute them. It was a bold decision to uncover the problems and push forward to success.
Stephan said no to the consultant (even though I would pay for it) and discussed the need for more money to be invested. In response, I asked for a higher percentage if I injected more cash, but Stephan refused. He insisted on maintaining his majority share and refused to let go of his 51 percent position. I pointed out the obvious — how much is a majority share of nothing versus a minority share of a successful enterprise? My business sense and his lack thereof was becoming a real problem. Lesson Learned: have a defined contract for the transfer of shares or ownership in a business. Regardless of this dispute, more cash made no sense because it was not clear where the problems were.
Follow the Money
The business was losing five-figures a month. My focus shifted to the finances, but Stephan had not kept them up despite them being critical to the business. I thought about the amount I had already put in, and how I could have just bought an orange Lamborghini instead. I started to follow the money and how it was leading to a huge failure. The highest expense was obviously our rent, and second was alcohol and that was where something was amiss. The alcohol sales did not match up.
I was paying for enough alcohol to earn at least $20,000 but our receipts for food and alcohol combined were a fraction of that. Our alcohol supply was going missing at massive rates, entire bottles per day. Stephan suggested it was the staff not punching drinks, so I discussed with the staff.
That's when I found out that despite having a line of credit for alcohol, we also ran out of beer multiple times on the busiest nights because the ordering wasn't being completed. Then the worst discovery — the bartender told me the missing booze was mostly Stephan drinking doubles all day, every day. Friends were drinking for free, and my business partner was hosting private parties nearly every weekend and drinking everything. Lesson Learned: Make sure whomever is managing the project is tracking all the money and accountable for it.
I did the math (and it was bad). The cost to gut the business and make it profitable would cost an additional six figures. Even though it was already painfully obvious, the problem at the core of everything was my managing partner, Stephan. He was as qualified as previous thought but was simply the wrong partner. The restaurant would never succeed with him.
Stephan offered that he would flip to my minority ownership and I would get majority, but that I would have to run the business. He doubted I could do better and obviously I knew better, but it would never work with him still helping run the business into the ground. I offered my friend $40,000 to simply walk away. This, after he had put forward almost nothing for cash and only a few months working on the project. He immediately refused but made a counter offer — he wanted $150,000 to walk away.
Then another surprise — with no profits and no way to have paid it, he owed $30,000 to the now-retired previous owner. There was this other contract I was unaware of and even if I got him out, I would need to pay this other contract to keep the bar. Lesson learned: you need to be able to trust any business partner.
With no realistic way to oust my partner from the business to change course and so much going wrong and abuse of trust, I advised Stephan that I was going to close my line of credit that controlled the alcohol. He used the chance to charge one last $1,000 in alcohol before it was finalized in the month of June. I told him I was not putting in any more money unless something changed.
Stephan vowed that he was going to make the venture work, that he would find the cash, another investor and some way to keep the dream alive. He scrambled and had meetings but nobody would step up. Stephan assembled the staff, and they were told that I was to blame for the bar being at the brink of closing and that I had chosen to kill the project and their jobs. At the same time, he exposed (gasp) that I worked in the adult industry. Over $3,000 went mysteriously missing one night. After that, most of the remaining staff quit or left because they did not think they would be paid.
So many things had gone wrong, so many things had been executed poorly, and the entire venture broke down. I drove by the property in July to find the lights off and door locked, the landlord had seized the property and everything inside.
Fueled by fears that I would sue him or feeling wronged that I had left the partnership, Stephan broke all communication and the friendship ended — we haven't spoken since. I met The Brunette just weeks after the landlord took control, and JuicyAds went on to win more than a dozen awards, and I have never looked back.
All of this happened in the span of seven months and is by far my most spectacular failure. Those lessons learned from this story have gone on to help many other ventures to become successes by building on those failures.
Success is quite often the result of a series of failures. Many successful people can tell you stories of previous failures and what they learned from them (and they are usually the more interesting stories). Failure is by no means a requirement for success, but even successes are filled with the constant battle against failure.
Do your best to ensure that your biggest risks are for projects that are of highest chance of success. Early successes make future failures easier to withstand, but early failures will cripple you and make future success far more difficult. Had I not had a previously successful venture (my affiliate marketing, followed by the launch of JuicyAds) the loss of the restaurant would have been a very suffering blow.
Make sure you have the right partner — whether it’s your relationship with your significant other or your business partner. You can't align with people who see the world differently unless its complimentary in some way. Your strategy and mission statement should be a shared vision and will avoid disputes later.
Don't jump in quickly. There are some opportunities that are very time sensitive, but most opportunities that are worthwhile and long-term will be there another day, week or month later. Do your due diligence.
Even with the best plan and strategy, things will go wrong and not according to plan. You will need more cash and resources than you think you will, and it’s important to have a plan for as many worst case scenarios as possible.
Pivot and do not be afraid of change. When things do not go the way you expected, market conditions change or things just aren't working, find a way to change it. It’s possible to push forward and continue with your original plan and vision but sometimes change is necessary to not just survive but thrive.
Know when to give up. This is the second-hardest for most people, and it leads to many going "all in" until there's nothing left. It feels so much better to give up and to take control of a situation and end it, rather than have the situation end in a way where you have no control.
The big one — admit failure when you fail. This is the hardest to do. Many people will adamantly defend themselves and insist they've never failed. These people have either failed and will never learn from it, or they haven't pushed themselves far enough taking risks in their life.
My business partner was both. Despite a failed marriage and several attempts to change his job path and career, he would never admit things had not gone his way and created an illusion of control over his own life that simply did not exist.
Our bar and restaurant failed, my marriage failed, and other things simply fail. If you delude yourself with excuses or reasons why something "didn't fail," you are robbing yourself of the valuable lessons and are destined to repeat the same mistakes.
I know for a fact that if my marriage hadn't failed so spectacularly, I never would have lost myself and been put on the path to meet The Brunette. I owe one of my biggest successes to failure.
You owe it to yourself to grow and find success in the most unlikely way — by failing.