Failure isn't fatal

Adam Pritchard is a successful entrepreneur. He founded RJA Foods, which sells the pomegranate fruit juice Pomegreat, in 2003 and now has a turnover of £12million employing eight staff.

Pritchard is living the entrepreneurial dream - but wind the clock back just a few years, and he was resigned to returning to the grind of a nine to five job after the failure of his first two businesses.

My previous business failures had happened because I had not understood the markets I was in.

"The initial one was called Motoresolve. It was a car broking company sourcing vehicles on behalf of clients," Pritchard explains. "It was an ill conceived idea as I didn't know that much about cars. I spent between £30-40,000 on it and I didn't sell a single car. I almost sold one once but it had a broken window that I hadn't noticed and the deal fell through."

The venture lasted six months.

Pritchard then set up a premium rate telephone counselling service. "That was a disaster as, of course, people could phone up the Samaritans for the same advice," he says. "We had counsellors sitting in my front room waiting for calls that never came. We only had one phone call from someone who was abusive and who had reversed the charges."

Pritchard found the humour in his experiences but was sore about the cumulative £80,000 loss he suffered on the two businesses.

Failure also meant a return to the City and the job as a stockbroker he felt he had left behind.

"I didn't want to go back because I hated it the first time. I wanted a business. Then I heard from a friend who had gone abroad about a fantastic fruit juice drink he had found," Pritchard says.

He jumped on a plane, tried the as yet unrefined drink, enjoyed it and then spent the next six months researching the fruit juice market before launching Pomegreat.

"I felt that my previous business failures had happened because I had not understood the markets I was in. I didn't know the size of them or the opportunities within them," Pritchard explains. "With Pomegreat I planned well and targeted a certain area of the fruit juice market where I felt we could succeed. We have achieved that aim."

Alex Meisl lost a substantial amount of money when his telecoms business Taotalk failed after a key investor pulled out.

He took the failure very personally.

"If a business goes down you go through a period of grieving. It is very important to accept that some of the most successful people have had failures. That's what I said to get myself going again."

After 12 months of deliberations and consultancy work Meisl returned with a new business called Sponge which provides mobile services.

The major change he made was not to go it alone as he had done with Taotalk. "I went in with a business partner. It's important because if one person is down the other is up and can support you."

Frank Craig of the Scottish Institute for Enterprise says a failure on your business record does not mean the end of your entrepreneurial career.

"See it as a learning and ensure you don't make the same mistake twice," he states. "Setting up a business is risky and you might stumble and trip but continue your push to become better and better."

Pritchard states: "I'd be surprised if any entrepreneur hasn't got a failure on their record. Being an entrepreneur is about being prepared to fail. It is never ideal to have a failed business but it has never worried me. If you lose money you learn the hard way and you learn quick."

Positive words but do they wash with the people that really matter? What do business angels, venture capitalists and banks make of a failure on your record?

"An entrepreneur goes to the school of hard knocks," says Richard Anton, partner at VC firm Amadeus Capital Partners. "Having tried and failed is better than not trying at all. Some people fail because of unfortunate timings or bad luck. But you have to show that you have learned from the experience and demonstrate that you have learned your lessons."

Continued failures however will be viewed differently. "If you have had three or four failures without a success then it is a strong indication that you are not the person to invest in," declares Anton.

One factor in a lender or an investor's decision is how you close your failed business. "Winding it down properly shows your integrity," says Anton.

Both Pritchard and Meisl did just this.

"It's one thing going bankrupt and upsetting a load of suppliers and another thing winding your business up and paying off your creditors. If your name is mud you will struggle with lenders," says Pritchard. "The easiest thing to do is to keep running if your business is failing but you have to be ruthless and cut your losses. If it isn't working, it isn't working."

Meisl adds: "I didn't notice anything negative from lenders when I came back. You need to have a good enough reason for why you went down, the actions you took when it happened and that creditors and staff were treated fairly."

When it comes to closing or selling Craig says entrepreneurs must quickly face reality.

"Be honest about your cashflow and before you get into legal difficulties tell yourself to stop. Too many people believe they will survive and that their dreams will always come true," he says.

"Be objective and realise that if you want to sell then it may take six to twelve months and if you are going to wind down get professional advice immediately. You don't want to get into legal difficulties. Don't think of what your next move is going to be either. Do your best at closing your company cleanly and then take time to find the next opportunity."