Embrace Losing – It Will Make You Stronger

Posted on Aug 25, 2009 | 34 comments

Embrace Losing – It Will Make You Stronger

This is an updated post from my ongoing series on Startup Advice that I learned from founding two companies.  frustration

I HATE LOSING. I hate it.  I really, really, really hate it.  It chaps my hide.  It rips at my core.  I don’t get over it easily.  I lose sleep.  I fucking hate losing.  It’s not so much the actual outcome that I hate – it’s the process.  The fact that I lost when I should have won.

I think about it for months, often years.  But I embrace losing.  It is how I learn.  I relive the moment so many times over in my mind wondering if I could have done this differently or if I shouldn’t have said or done this or that.  I talk to trusted sources about it.  I ask for feedback.  I hate losing.  I don’t want to lose next time.

I believe that it is part of the DNA of an entrepreneur – being so competitive that you’re practically sick when you lose.  It’s what makes you stand out from the rest.  Entrepreneurs are neurotic about it.  They’re competitive.  It’s the one thing I miss having switched from player to manager – I love the joy of winning and of competing.  It is never as rewarding when you’re the coach (but coaching has many other benefits 😉

Don’t get me wrong – I’m not a sore loser.  I don’t break tennis rackets, cry foul, fall over like an Italian soccer player or work the referees.  Quite the opposite.  I’m usually quite a gracious loser.  I don’t hold grudges.  I move on.  I keep my competitors as friends and those that didn’t choose me or my product as friends, too.  But I never really get over it.

I’m not talking about garden-variety losses – that sort of loss I get over in a couple of days or weeks (but you don’t want to be around me that evening for sure).  I not even too bothered by the occasional deal that got away.  I’m talking about the hard fought battle.  The one that you thought you had.  The one you were counting on.  I’m talking Tom Watson at the British Open or Andy Roddick at Wimbledon.

On Losing in VC

Last year I lost a deal in a company that I wanted to invest in and that I thought I should have won.  I was angry – mostly at myself.  Rather than blame the team that I thought should have chosen me, I became reflective.  They were in LA and I was in LA.  They had a prominent NorCal investor already so I thought a SoCal lead would make sense – that I could help them in a more hands-on way.  They had agreed!

I had lost a previous deal where the team said they liked me but didn’t know my partners well enough so I promised myself never to let that happen again.

So I organized a team dinner with all four of my partners and all three of their founders.  I wanted to be sure that they knew how much all of our partners loved what they were doing with their company.  I wanted to be sure that they felt they knew all of my partners well so they could see why I joined up with them in the first place – they are smart guys who have a 20-year track record of winning.  15 companies North of $1 billion exit.  And they are normal, down-to-earth people as well.

After dinner on a Thursday night I thought we had the deal and that the team knew how hard I would work on their behalf if I were chosen.  By Monday morning after their board meeting in NorCal I didn’t get a return phone call.  I knew what this meant.  Good news always comes quickly, bad news takes time to simmer.  By the time I got through to the guys on Tuesday we had lost.

I knew that the, “I’m really sorry” message was coming.  I embraced it with honor and didn’t give them a hard time.  But I obviously asked, “Why did it happen? I need to learn for next time.”

There were two main reasons that I could distill from their kind words of solace:  1) the existing NorCal investor didn’t know me well enough & 2) the new NorCal investor had a good knowledge of and presence in China, which they believed would be critical.

I decided to put both of those issues to bed in 2010.  I came several times to NorCal (where I grew up, actually) and went and met several partners from each Silicon Valley firm.  I didn’t want this to happen again – that people didn’t know me.  I also made several trips to New York & Boston.  Next year I’m going to spend time in Seattle and Boulder in addition.  I realized that it is not enough to know one partner per firm and it is not enough for only the management team to like you.  VCs have a seat at the table in deciding future investors.

I also spent two weeks in China and vowed to make it back frequently.  China is indelibly an important part of the future of the global technology system.  Although I had lived and worked in more than 10 countries – it wasn’t good enough. I didn’t know the one that mattered most to their future.  And for my own good I vowed to have relationships in China and knowledge of the local markets.  I’m not looking to invest there – I’m looking to understand the trends, the people, the innovation, the regions and how China can become an integral part of any of my portfolio companies as they scale.

I know I won’t win every deal I want to in VC.  There are other great VC’s in SoCal and there is always the allure of the NorCal guys flying down and talking about how they invested in Google, Facebook, Yahoo! or eBay.  But I will learn from any deals that I want to do and am not able to do.  I will embrace my losses.  May they be few and far between.  I can’t afford more sleepless nights.

This company is back on the market raising money again.  I love the area and the team as much now as I did a year ago – probably even more now that I know them better and have seen them perform.  I’m dropping everything non-portfolio related in the next few weeks and setting my sights on righting my wrong.  One great thing about losing is when you get a second chance.  I hope the next chapter will be written by the victor.

Make sure you learn your lessons from losses.  Specifically:

lockerroom1_original1858421. Ask your customer why you lost. Tell them that you’d like to learn so that you can improve.  Promise you won’t be defensive or try to change the decision.  Best to ask after the dust from the decision has settled.  Ask multiple people involved with the decision.  Be gracious.  Write things down.

2. Discuss with your team – do your post game analysis.  Don’t ignore your losses.  Don’t blame the people involved with the loss.  Don’t accept your internal team’s answer of why you lost – hear it for yourself.  Make sure that you hear all of your team’s perspective.  Draw your own independent conclusions – even if they are different from other people’s point of view.

3. Triangulate. Who else was involved with the decision?  Were their consultants?  Can you discuss further down the line with your competitor?  Do you have friends on the inside?  The clearer picture you have of why you lost the more you’ll learn for next time.

4. Learn.  And don’t make the same mistake twice.  Obvious, but I find that some people just never learn.  I read this post from Marc Hedlund at Wesabe on why they lost to Mint.  It’s one of my favorite blog posts.  I don’t know Marc but now I feel I want to work with him after reading this.  I had planned to blog about it at the time but I waited 2 days and the whole world blogged about it so I didn’t pile on.  If you never read it, please do.  It’s brilliant, reflective & humble.  And I think he’s right that Mint never solved the problems the industry wanted to solve.

Looong Appendix (only for those interested in reading another story about losing a sale & key lessons):

A personal story of losing a sale that haunted me for years

soccer loss

In the 2003/04 timefame I was living in the UK and running my first company.  I had been competing to win a contract at Thames Water, the largest water company in the UK.  They were looking for a collaboration tool to manage all of their large water development projects.  The initial contract was worth about $500,000 and the whole value of the contract would have been worth a couple of million over the years.  I was working hand-in-hand with my close friend and associate Stuart Lander who was running our UK office and with one of our local sales reps.

We had initially been told that we had no chance because they had previously purchased Documentum and it would mean changing the system entirely.  They had a team trained up in Documentum and we certainly had enemies from the inside.  But we worked the account tirelessly for months.  We helped the write out their requirements for a system.  We met everybody in the organization.  We had every reference client we worked with call their senior team members (we had already won a major project at Scottish Water, Anglian Water and another at a large water company in Paris, France).

There were about 8 initial contenders for the work and in the end it came down to just 3 of us.  As the founder & CEO I personally went and met with as many people at Thames Water as I could.  We felt this was a marquee account and one that would help us take our collaboration tool global as Thames owned assets all over the world.  Winning the contract meant that we would hit our quarterly revenue figure and be in good position for our annual sales target.

And then the news came.    A woman named Trish Hannon called me with the good news that we had won the project.  I was to tell noone until the contract was signed.  I immediately put a full team on contract management and another on drawing up an implementation plan.

DefeatI later learned one of my biggest lesson in sales.  You are most vulnerable right after you have won a deal.  It is when you’re competitors have nothing to lose.  It’s when the people who are part of the decision making process who don’t support the decision seek ways to undermine you.  That is when you potentially become complacent.

Two weeks after winning the deal and well into implementation planning we released a new version of our software.  We had made the decision that we would no longer be supporting IE v 5.5 (we would support 6.0 and 7.0, which was in beta).  Even Microsoft publicly said that there were security flaws with 5.5 and that people should upgrade.   But Thames Water was still on version 5.5.  We assumed they would take our advice and upgrade.  We had discussed this with Trish.

An internal resource inside Thames Water used our upgrade and lack of 5.5 support as a way to re-open the decision.  How could a company like ours be so callous as not to support their software (even one more than 4 years out of date)?  Did we really have good change management procedures if we were willing to launch products without backward compatibility. And so on.  They decided to re-open the competition for 3-4 more weeks.  I knew THEN that we had lost.  We fought hard to stay in the game.

They hired a consultant to help them with the review.  They stopped allowing us to contact them directly.  The momentum had shifted.  Something happened and it was clear to me that this IE issues was just a smoke screen.  Somebody had gotten to somebody senior in the Thames organization.  It just so happened that the consultant they hired to chose a software vendor worked for a company that had owned one of our competitors.  It was a tiny little collaboration company that only had a presence in the UK (and therefore couldn’t meet their international needs).   And surprise, surprise the decision came back 3 weeks later than none of the preferred 3 vendors had won but rather this tiny little competitor owned by the consulting company charged with doing the review.

Outrage.  Scandal.  Surely inside Thames they would see it for what it was.  Given that it was a public tender the chairman of our board had encouraged us to think about launching a complaint with the UK government agency in charge of such reviews.  We talked with lawyers.  We felt totally deflated.  We decided it wasn’t worth the fight.  We licked our wounds and moved on.

I am still not over that loss.  I sometimes call Stuart and we recount what happened.  But that loss was really important in my career.  It taught me a lot of lessons.  We spent enough time dissecting it to really learn.

Here are my take aways from the loss:

1. In a sales campaign you always need to call as high as you can.  If you don’t, your competitors will.  If you don’t know them, somebody else does.  They may not overturn decision, but they sometimes do.

2. No deal is ever done until the ink is dry and the money is in your bank account.  Never take your win for granted.

3. You are most vulnerable right after it has been announced that you won (I will write a separate post on this). This is the most important lesson I learned from this experience.  All other lessons were sort of obvious.  This one was eye-opening.

4. We in the tech world extol the virtues of lots of product releases and rapid innovation.  I hear Silicon Valley firms bragging all the time about how often they release software.  In the consumer world, maybe.  In the corporate world this strategy is flawed.  Many large clients prefer stable technology and no changes – even sometimes when there are known security flaws.  When I was at Salesforce we launched a new version of our UI.  We gave users the choice to upgrade or keep with the classic UI.  Years later 10% of users were still on classic.  Go figure.

5. In every deal where you have serious competitors there is always somebody on the inside against you.  You need to find out who that is and neutralize them.

6. No matter how much your customer tells you that they love you and that they favor you it is possible they are telling other people the same thing or some variation of this.  (you would have thought I would have learned this lesson in high school 😉

7. No matter how much large clients tell you they want transparency in pricing, they always seem to fall for the same old trick.  Competitors price low to get in the door and then nail them with scope control, change orders, product extension costs and other hidden items.  You can try to convince them of your “pay no more once you’ve signed up” model but they fall for the other guy’s pitch every time.  Low numbers are sexy.  I stopped trying to win this argument and chalk it up as some sort of human condition that I can’t change (like thinking that $14.99 = $14).

8. Time is the enemy of all deals.  If you have a chance to close something – don’t let it drift.

9. Losing sucks.  But at least it has made me a better competitor.

  • http://twitter.com/steepdecline Tyler

    Good post Mark

    Curious if you’ve ever posted the story of how you arrived in Japan as a testament to your tenacity?

    I still can’t get over that one

  • marksuster

    ha, no. I’ve told that privately many times but never publicly. I’ll put it on the list. I have one section in my start-up lessons list called, “Beg for Forgiveness” – I’ll make sure to put that story in that post 😉

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  • http://lmframework.com/blog/about David Semeria

    Mark, given the risks involved with lumpy sales, has this experience had any effect on your investment thesis? In other words, would you now rather invest in a Coke than a Boeing?

  • John Galt

    Great post. I believe you can use the same concepts from learning after losing a deal to interviewing for jobs and when you get that call … “Thanks, but no thanks”

  • http://ExpenseBay Eric Sikola

    Loosing does suck. But good athletes understand winning and loosing. They know how to get back up on their feet once they experience a lost. One of my favorite interview questions is digesting a deal a sales person lost and what they learned from it. Or finding a rep that lost a deal and figured out a way to out-flank their competitor to win it back.

    My sales team in 2008 was able to do this at USAA – and to this day I still rave about how we came back in the 4th quarter, 2 mins to go and needing a touchdown + 2 point conversion.

    I would add the following to you list.

    1. Having an internal coach is a MUST. Without it you will not win.
    2. Build a player/map – know the organization, who is on your side and your competitors. Understand who are the evaluators, influencers and decision makers (Classic TAS Selling)
    3. People buy from companies they trust, not b/c you get the best mouse-trap. Building that relationship with your coach and the decision makers win deals.
    4. Strong compelling events drive purchasing. By mapping pricing and implementation to your compelling event, you can get your deal through quickly.
    5. ALWAYS find 3-4 vendors that have done business with your prospect – find out how they negotiated and were treated throughout the purchasing process. This way you can create a pattern and if you deal does not map to it – red flag.
    6. Always be paranoid

  • marksuster

    Yes, it has changed my investment thesis. I wouldn’t invest in a company that relies on big, enterprise deals to succeed. I’m looking for businesses that can scale more easily. In enterprise I like the open source model. I also like SaaS where there is a mix of freemium. But I’m reluctant to invest in firms that need to kill elephants to thrive.

  • marksuster

    Totally agree. I was getting way too long so I didn’t extend to that point – but thank you. I think anytime you don’t get the outcome you hope for you need to do a post-game summary and be really honest with yourself. I believe you also need to seek honest feedback and not argue with the person who delivers the message. I try to give feedback to companies that I pass on. I’m not always right in my assessments but I prefer to give the presenters some feedback.

  • marksuster

    Excellent, excellent points. I plan to do a series on sales process in the future in which I talk about the PUCCKA methodology we developed. Every sale became a game in which we wanted to test out our methodology and see which bits worked and which didn’t. No question your 6 points are accurate. Maybe when I write my sales series I’ll have you co-author some of the posts?

  • http://ExpenseBay Eric Sikola

    Absolutely. I am sure b/t the two of us we can give plenty of good examples on correct and incorrect sales strategies.

  • Rajat

    Great post Mark! I’ve always thought that failure more than success is what defines someone personally. Hence this quote from MJ:

    “I’ve missed more than 9,000 shots in my career, I’ve lost almost 300 games. Twenty six times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over in my life. And that’s why I succeed!” – Michael Jordan

    I am also looking forward to your sales series, as someone just starting the process. Even pointers to where to look for advice (books? blogs? people?) would be very useful.

  • http://www.andhapp.com andhapp

    Worth reading “Peaks and Valleys” by Spencer Johnson. The guy who wrote who moved my chesse.

  • Rahul

    There is this character called ari gold in a show entourage based on real life hollywood agent ari emanuel(brother of rahm emanuel). He is supposed to be the tiger woods of salesmen and apparently rarely loses a sale. Check out some of his clips on youtube. He goes nuts when he is about to lose in anything.

  • marksuster

    Ari Gold … know him well 😉

  • http://journik.posterous.com Bob Wan Qi Kim

    Mark, Brilliant.

    As you know, I just recently found your blog and appreciate THIS insight:

    “I later learned one of my biggest lesson in sales.  You are most vulnerable right after you have won a deal.  It is when your competitors have nothing to lose.”

    I was once driven out of business 180days AFTER this point. A competitor using shell companies bought out all my inventory for months then returned everything at the end of their credit card cancel window.

    “Your competitors have nothing to loose.”

  • marksuster

    Wow. What a story. Yes, people sometimes play mean when they have nothing to lose. As a highly ethical business person who was “wet behind the ears” – this was a big wake up call for me.

  • http://www.seeingbothsides.com Jeff Bussgang

    Great post, Mark. One of my portfolio companies just lost a major deal and our CEO has been incredibly effective at using it as a rallying cry internally to learn from the loss and become a stronger, more effective competitor the next time. That’s true leadership.

  • marksuster

    Thanks. I agree that it’s the sign of a strong leader to galvanize teams around losses (in a positive way). Too funny that we ended up creating blogs with nearly the exact same URL and tag line 😉

  • Chris Hudson

    Excellent post Mark (just found this blog). I remember one of those initial implementation meetings, but never knew exactly what was going on ‘behind the scenes’.

  • marksuster

    Hey, Chris! Great to hear from you. Well, now you know the story how we lost Thames Water! Hope you’re well.

  • Adam

    Thanks Mark. These are some great lessons that only life can teach you.

    A few I have found in my early days of selling.

    * Don’t ever challenge “worse” (e.g. it could be worse). Because it always can.

    * Be careful with large up front costs and no residual revenue stream in your dealings (hence your point about low initial price and high implementation costs).

    * People like to think the idea was theirs. Make them own it before you leave and they will then turn to you to implement it. It is a delicate balance, but if you can make them feel like they own it, you will win a long term client.

  • marksuster

    thanks for the insights, Adam. re: point 3 (people need to own the idea) – it is one of the biggest lesson in sales and life. And one that is very hard for most entrepreneurs who are almost definitionally ego centric!

  • http://strategus.com.mx Jose Lezama

    Mark, thanks for your openness on past failures. Acknowledging and learning from them means strategist greatness.
    Do you have by any chance some advice on how to deal with Boards too arrogant to recognize their defeat? Or CEOs blaming every one, instead of leading the learning process?
    Thanks again from south of the border (Mexico)
    PD Erik Sikola,Great feedback.

  • marksuster

    Jose, I’m afraid there is no advice for an arrogant board other than to change members. Arrogance is baked into your DNA or not. CEO’s who pass blame are the same. I wish there were a solution. In my book the solution = new company. Thanks for your comments.

  • http://twitter.com/jassim Jassim Ali

    Die hard but wiser …

  • http://twitter.com/jassim Jassim Ali

    Die hard but wiser …

  • http://twitter.com/jassim Jassim Ali

    Die hard but wiser …

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  • Matt T

    Great post Mark. I definitely share your passion for winning so many of the things you mentioned definitely ring true for me. In my experience, the easiest way to win is to proactively address any apprehensions that the person you are trying to sell may have. The problem is that often those don't come up until it is too late. Any advice on how to get ahead of those apprehensions, outside of improving things that have caused you to lose in the past?

  • OSU_Matt

    Awesome post Mark. I have always been very competitive and been frustrated that most of my family members, teachers, “elders” etc. have tried to persuade me to be less competitive and to hate losing less. No way I can do that. It's great to hear your perspective on how hating to lose is great, SO LONG AS you channel then anger into not losing again and to be gracious during the process.

    I think the hardest part of embracing losing, and I think you touch on it at least indirectly in your article, is you have to be very self-confident and mature to “man up” and take the honest truth and THEN proactively work your ass off to change. If you don't do this part it really doesn't matter if you bury your head in the sand, because unless you have the courage to change what was wrong embracing losing won't help.

    Another great post, and they always seem to re-energize me when I need it!

    I hope you and your family have a wonderful Thanksgiving! The whole start-up community is very thankful for this blog, that much is sure!

  • Steve-

    Really good post. I'd just add that sometimes dynamics inside your organization can derail what seems like a done deal. I lost two major million dollar plus deals after the customer asked for the contracts. Both times the other guy snuck in at the last minute and derailed the deal due to delays caused by “our” legal team in drafting the executable agreement. Getting from handshake to ink as quickly as possible is key.

  • http://bothsidesofthetable.com msuster

    Thanks, Matt. And Happy Thanksgiving, too. And never feel bad about being competitive – that's what drives winners.

  • http://bothsidesofthetable.com msuster

    For sure! re: getting from handshake to ink as quickly as possible – I wrote a post on this called “Time is the Enemy of all Deals” –> post is here: http://www.bothsidesofthetable.com/2010/02/25/time-is-the-enemy-of-all-deals/

  • http://byJess.net Jess Bachman

    To lose is to take a hi-lighter to you weaknesses. An invaluable discovery.

    I suppose it's good you didn't 'lose twice' on the Thames deals.

  • http://twitter.com/L1AD LIAD

    beating yourself up when you screw up is a good thing.

    analysing what went wrong makes you better for the future regardless of whether you lost the deal, the sale, the investor, the employee or the prom queen.

    the more it eats you up the more motivation you have not to screw up the same way again.

    (i dont think going from an entrepreneur to a vc is akin to going from a player to a manager. your still a player, just playing in a different game with different rules)

  • Josh Webb

    You lost a “deal” on the cusp and you were able to identify 2 reasons for this loss (being off this NorCal VC's radar and not being in the know on China). Earlier, you learned 1 more; that your prospective investment did not know your other partners.

    Reflecting back on the last couple of years can you think of any other themes that may have contributed to losses that you would have liked to be wins?

    Further, can you pinpoint a few ways that you think you may have turned what felt like a certain losses into an unexpected wins?

    It seems valuable to both understand and eliminate the weak points while celebrating and reinforcing the strong points. Maybe this it too much for a comment, but I'd love to see the post!