Failure stories are at the core of the entrepreneurship and startup ecosystem.
Failure is one of those things that we are taught to be afraid of since we are little kids.
It’s something that you have to avoid: To fail.
Then, as we grow up we face the inevitable truth, that is: It’s impossible to grow without failing.
In entrepreneurship, it might be even more evident. To fail is to learn, and even if we want it or not, we all will have to fail a lot in our lives.
The core of the matter of course is: How to get the most out of those failures?
We talked to our Founder & CEO, Wenyi Cai, to try to frame some ideas around the importance of recognizing, documenting and celebrating failures as a fundamental part of the journey of building transformative companies.
Before funding Polymath, Wenyi spent some years in Silicon Valley as the COO of Milo.com. What she remembers about the ecosystem there, is its focus on celebrating and getting as many insights out of failure.
“What’s really insightful about failure is that you learn a lot through it” Wenyi Cai.
That’s one of the things that makes Silicon Valley a hub for innovation and entrepreneurship. People are not afraid of failures, rather they are eager to make mistakes because they know how valuable that knowledge can be.
There is this idea of entrepreneurs from Silicon Valley being an overnight success, but that's just B.S. Sucess for the majority of people doesn’t come as easy as we all see it from the outside.
Usually, the kind of success that strikes, comes only after a process of repetitive failure and learning.
Especially in entrepreneurship, as Wenyi says:
“In order to create really breakthrough businesses and companies you have to learn how to learn better”.
So let’s stop for a bit and really think about that phrase: “Learn how to learn better”.
That’s when experience comes to play. Most breakthrough ideas and businesses come from insights that cannot be obtained in books. In order for a company to really understand the nuances of their business, the only thing they can do is to operate the business itself.
Learning does not happen in steadiness, on the contrary, it happens in movement.
That’s why if you are trying to create transformative companies, you will have to unlock access to knowledge and insights that other people couldn’t, and again, those are things you cannot read about because not everyone has access to them.
The thing is that experiences can’t all be good. In fact, most of them might feel bad or at least uncomfortable, and when you start feeling that, you know you are on the right path to learning something new.
“The real insights about a market, an industry o certain costumers comes through experience, and it’s really hard to make all those experiences, good experiences.
Almost by definition in order to gain these differentiated insights you have to go through a lot of experiences and a lot of them are going to be failures or not entirely successful experiences”. Wenyi Cai
That’s how having funded 2 or 3 companies before you “succeed” is not a sign of failure, rather it’s a sign of evolution, process, and a path filled with unique learning experiences.
Silicon Valley’s culture rapidly embraced the idea of celebrating failures and that helped build a community with a mindset of falling and bouncing back as many times as it is necessary to achieve something extraordinary.
In Latin America that spirit is yet to be fully embraced, as the early ecosystem that it is, we are just starting to see these second or third-time founders, or even exceptional talent coming out of unicorns to capitalize on their learnings by building something themselves.
The challenge from now on will be not only to celebrate and embrace failure but also to maximize the learnings we all take out of them. The success of the ecosystem depends on it.
“One of the things that are really difficult is that if we don’t embrace failures and understand what are the best ways to come out of them and take the learnings, we are losing a lot of talent and we are losing a lot of access to those learnings as an entire ecosystem”. Wenyi Cai
There are many things that can contribute to a business’ failure. Some of them are exogenous, or things you have no control over. These could be the market you are trying to reach, the financial situation of the region or even the political state of a country.
The best thing you can do about those things is to deeply understand and monitor them, so you can take more informed decisions about your business. But even if you closely analyze them every day, there are few things you can do to shift their behavior to your own good.
On the other hand, you have the things you can control, these are related to how you build your team, the business model or features your product offers.
In our 10 years path of building companies, we have encountered many of these problems. Some of them have led us to pivot entire business models or even close some of our ventures. The fact is that no matter the final outcome, we have always found a way to learn from failure, and become better. That´s what we understand as being antifragile.
Because of the way we build companies at Polymath and at the Venture Studio level, we are very intentional with our learning processes which have allowed us to concentrate our efforts on specific business models and solutions that we now know work better for the demographic (middle-class) and the region (Latin America).
A real-life story
Now that we have outlined the importance of failure in the process of building companies, let’s deep dive into a real-life story to better exemplify how we leverage our learnings.
Taximo was one of the first Ventures we launched at Polymath. It was 2013 and technology-based companies in LATAM were just starting to rise, with very little or no money coming from Venture Capital at the time, it was a very challenging but fun ride.
The initial business model aimed to help drivers who couldn’t own a car access lending options so they could work and make a living by using Taxis owned by other people, who at the same time needed drivers for their cars.
In its history, Taximo evolved from a “simple” lending business model, to be more of a tech enabler for the Taxi market, focusing its efforts on developing solutions not only around connecting drivers and car owners but also becoming a Software + Data + Service Provider business model.
After years of small successes and many iterations around the business model to drive more innovation and value to the specific industry, Taximo finally closed its operation in late 2019.
Here are some reflections from Wenyi on Taximo’s learnings:
One of the fundamental reasons why it didn’t work: It’s not that the taxi market is small, or that people don’t need loans or financial instruments to have that business, it’s more that we decided at some point to have an asset-light model in which we were kind of the software, credit assessment and collection.
The problem is that in Latin America there’s not a lot of depth in terms of financial institutions. Most of the formal banking sector doesn’t have as much competition as you have in other markets, but even below that, there are no specialist financial institutions even if they are not banks. It is a very shallow market in LatAm.
So for Taximo at the time, there were only 3 big players for it to sell it in Spanish Latam, so the depth of the market wasn't there.
That’s probably the most faithful decision that was made at some point and that was not correct. Alternatively, we could have chosen an asset-heavy model to underright the market and give these credits to taxi and uber drivers.
It’s very important to understand what really were the most fundamental things that you didn't do right because there will always be things that are exogenous and things you can’t control and usually make everything go slower rather than fundamentally derail the ability to build that business.
My reflection is that in Latin America if you want to be in the lending business you need to be asset-heavy because the depth of the niche financial institutions market isn’t there which is a completely different situation than other markets like the U.S.
This example illustrates how some decisions like becoming asset-light, can have made all the sense at that specific time, and ultimately ended up not being the right decisions for the market.
There are a lot of details that are recoverable mistakes, if you are a good founder and are able to pivot quickly, you can recover from many business decisions and even exogenous things happening.
But there are some faithful choices that are harder to recover from, and maybe people are not so intellectually honest about that. We could just say “This didn’t work because of the market or the competition” Instead of reflecting on our own choices.
A never-ending learning cycle
The most interesting part of all this is of course how we have been able to capitalize on those learnings to continue to improve the way we scale our businesses.
For example, all the learnings we had with Taximo’s journey were pivotal to the decision-making process of pivoting Aflore and Autolab to more tech-based companies, as well as to the building of Elenas.
If we hadn't experienced that failure with Taximo it would probably have taken us more time, money and energy to build the business models that we have now.
The most interesting part of this happening inside a Venture Studio is how it can occur repeatedly and generate a compound effect that goes from one company to another. It’s cross and scalable learning, a difficult but necessary thing to entrepreneurship.
About those learnings, these are some of Wenyi’s thoughts:
“Over time we have crystalized these learnings by focusing on certain business models that we think work.
Fintech lending, e-commerce platform, b2b2c services, there’s a lot underneath and we have developed a building thesis around those learnings.
We now better understand what is the level of fragmentation you need to be seeing in a industry for these business models to work or what is the gross margin we can expect, etc…
We have learned that for socially building for the middle-class you need to have a high gross margin in order for the effort to be really worth it.
We spent a lot of time thinking what is the value that the business adds to the different players and if we don’t feel we are adding this 10x better value, then we think that you also don’t get the kind of exponential growth that is needed to make these businesses grow.
In LatAm is happening something similar to what happened in China in the 2010s, when funding and opportunities were going to a specific kind of founders that came from universities in the U.S or had experiences in certain kinds of companies like Goldman Sachs, McKinsey, Morgan Stanley and some of the likes.
Then they realized that the more grounded founders, the ones that didn’t come from these places but rather have been working in the local sphere, were the ones building more scrappy and scalable companies, because they were closer to the ground, closer to the users and the channels and things like that.
Both profiles bring a lot of value and if you can get a team that combines those actually have pretty good results, but it’s not always possible”.
A message for the ecosystem
Latin America’s ecosystem is still young, and there are many things to be learned and experimented in the region.
We are excited by what’s coming and we believe there are many opportunities yet to be capitalized and that can radically change the way people live in Latam, especially those that have been neglected and underserved for years.
We asked Wenyi for her advice to founders and professionals working in the ecosystem and summarized them in 4 crucial points:
1- Recognize and celebrate failure: The first step to being antifragile is to be very intentional and reflective about the things we do and learn. If we want to build a more mature ecosystem, we shouldn’t only reflect on our own process, but also share it and celebrate our failures in public.
Creating an open conversation about failure will help other founders to learn from our mistakes and encourage newcomers to take the leap and build their own companies.
Wenyi’s words: “One of the interesting things about LatAm is that we all want it to grow but there are few conversations about failures. Do we learn from other people's failures and challenges in a healthy way? Or do we sneak behind the back of the people? Do we get jealous for other people's success? Or do we come all together to be helpful to each other and talk about lessons learned in an honest and healthy way. ”.
2- Develop a Growth Mindset: Recognizing learnings and growth opportunities in everything that you do is a way of living, it goes back to how you think and confront life, that’s what makes it a mindset-level conversation.
Here you would have to be transparent and make a growth mindset a requirement for your everyday actions. Also, it’s about sharing, because everything is about sharing.
Wenyi’s words: “The successful founder has to be someone who has a growth mindset, and reflecting on your mistakes in a very thoughtful transparent manner and then being willing to share is one of the best ways to have that growth mindset”.
3- Focus on healthy growth: One thing is fast-paced learning and other very different is throwing money at problems in order to move more nimbly.
This has always made sense, but maybe it has even more value now as we see a possible economic recession developing in the world. Learning how to fail, while being mindful of the resources is also a must for a healthier ecosystem.
Wenyi’s words: “There’s a lot of money going to businesses that haven’t generated that much value. Sometimes having that much money can make people not very discipline on the expending of money and how you can achieve growth not throwing money at it but rather finding real product-market fit”.
4- Embrace your weirdness: People that build the best businesses and projects tend to have very specific and diverse ways of seeing the world, that’s what makes them ideal for innovation and disruption.
You should be embracing that, and even making it part of your company’s culture, way of working, and day-to-day processes. Often times what makes us feel weird is also the thing that makes us stand out from the crowd.
Wenyi’s words: “You kind of have to be a bit weird to be a founder. We are all weird in our own ways but you can be weird in ways that become the secret sauce behind the resilience and vibrance of a business”.