Why it’s OK to fail sometimes in business

Chances are, you’ve probably never heard of Traf-O-Data. It was a venture started in the early 1970s by a couple of teenagers from Seattle, Washington. Using the Intel 8008 processor, Traf-O-Data analysed traffic data punched into paper rolls, so traffic flow could be improved. The budding tech entrepreneurs tried to market Traf-O-Data to local government.

The venture was founded by William Henry Gates III (now better known as Bill, of course) and Paul Allen, the dynamic duo that would later take their place among the world’s richest business men after setting up Microsoft in 1975.

Corporate history provides many other well-known business people who failed but went on to achieve phenomenal success

Flawed business model

In a 2011 Newsweek interview  Allen conceded: “Traf-O-Data was a good idea with a flawed business model. It hadn’t occurred to us to do any market research, and we had no idea how hard it would be to get capital commitments from municipalities. Between 1974 and 1980, Traf-O-Data totaled net losses of $3,494. We closed shop shortly thereafter.”

He continued: “Since then, I’ve made my share of business mistakes, but Traf-O-Data remains my favorite, because it confirmed to me that every failure contains the seeds of your next success.”

Corporate history provides many other well-known business people who failed but went on to achieve phenomenal success. Rowland Hussey Macy had many failed retail ventures, before (aged 36) launching R.H. Macy & Co, which became Macy’s, one of the world’s most successful department stores.

Henry Ford started two automotive companies that failed before he enjoyed enormous success with the Ford Motor Company (reportedly worth US$188bn when Ford died in 1947). Ford is quoted as remarking: “Failure is the opportunity to begin again more intelligently.”

Although we’re encouraged to fear failure, hide our mistakes and be embarrassed when we slip up, failure in business and life offers valuable learning opportunities

Creative thinking

Closer to home, Sir James Dyson made thousands of failed prototypes which sucked up his personal savings for 15 years before he finally created his hugely successful vacuum cleaner.

Speaking to Fast Company he recalled: “I made 5,127 prototypes before I got it right. There were 5,126 failures. But I learned from each one. That’s how I came up with a solution. So, I don’t mind failure. Schoolchildren should be marked by the number of failures they’ve had. The child who tries strange things and experiences lots of failures to get there is probably more creative.” The renown British inventor and businessman now has his own foundation, which “is dedicated to encouraging young people to think differently, make mistakes, invent and realise their engineering potential”.

Although we’re encouraged to fear failure, hide our mistakes and be embarrassed when we slip up, failure in business and life offers valuable learning opportunities. In many ways, failure is part of the entrepreneurial journey – it can drive us forward to achieve great things. And if you’re not prepared to risk failure by trying new things, you might never achieve great success.

We shouldn’t fear failure. Failure reminds us we’re human and that we can’t get it right every time. Never learning from your mistakes is another matter altogether, of course

Definition of insanity

In the USA, in particular, there’s a different attitude to failure in business. Indeed, some believe you cannot truly claim to be a success unless you’ve overcome failure. Many highly successful entrepreneurs have endured epic failures. The key is to recognise your mistakes, learn important lessons when things go wrong, don’t let it happen again and seek to improve. We shouldn’t fear failure. Failure reminds us we’re human and that we can’t get it right every time.

Never learning from your mistakes is another matter altogether, of course. Failure can lead to more failure – and eventually business failure. In the words of Albert Einstein: “Insanity is doing the same thing over and over again and expecting different results”.

• This blog appeared originally on the HSBC Knowledge Centre website and was commissioned by Atom Content Marketing.

COVID-19 government support: what about one-person limited companies?

In a recent blog I called for more support for the UK’s 4.8m self-employed, who, like many others, are badly affected by COVID-19. Most of them would have been relieved to hear the Chancellor’s latest COVID-19 announcement (26 March), which did include support for the self-employed.

Crucially, they will receive a “direct cash grant of 80% of their profits, up to £2,500 per month”, delivered via a “ground-breaking UK-wide scheme to help them during the coronavirus outbreak”, according to the government. They’re unlikely to get it until June, but at least it’s something.

Self-Employed Income Support Scheme

HMRC is creating the new “Self-Employed Income Support Scheme”, which will “bring parity with the Coronavirus Job Retention Scheme”, announced in the Chancellor’s first round of COVID-19 business support measures.   

The Self-Employed Income Support Scheme will help “95% of people who receive [most] of their income from self-employment”, says the government. “Cleaners, plumbers, electricians, musicians, hairdressers and other [eligible] self-employed people will be able to apply to HMRC for the taxable grant, using a simple online form, with the cash being paid directly into [their] bank account.”

The scheme will be open to those “with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. To qualify, more than half of their income in these periods must come from self-employment.” HMRC will use existing information to “check potential eligibility and invite applications once the scheme is operational”. Fantastic. Genuinely brilliant.

According to BBC News, a tenth of the UK’s self-employed population is made up of people who operate as a limited company.

What about one-person limited companies?

The devil is always in the detail, with the government also announcing that: “Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.”

This is bad news for very many people who, when starting their business or seeking to grow it, incorporated (ie registered) a private limited company, of which they are the managing director (and often sole share holder). Although not sole traders, many of these would consider themselves self-employed; their business is merely registered differently. According to BBC News, a tenth of the UK’s self-employed population is made up of people who operate as a limited company.

Many managing directors pay themselves £719 a month through the company PAYE scheme, so that they’re entitled to the benefits that come from paying National Insurance. The rest of their take-home comes from shareholder dividends they receive. The company also pays Corporation Tax (19% on profits).

A gleeful “boo-f**kin-hoo” was the reaction from some on social media to the news that one-person limited company managing directors would get as little as £560 or so a month to support themselves through COVID-19  

Reality check

A gleeful “boo-f**kin-hoo” was the less than kind reaction from some on social media to the news that one-person limited company managing directors would get as little as £560 or so a month (£140 a week) to support themselves through COVID-19. This is significantly less than furloughed employees will receive and far less than many sole traders will now get.

Some believe that setting up a limited company rather than operating as a sole trader is a tactic that enables you to pay significantly less tax. Once upon a time, it would have been, when no tax was payable on dividends of £10k a year (a measure introduced by Gordon Brown to encourage people to set up companies). Those days are long gone. The dividend allowance now is £2,000, after which a basic rate of 7.5% is payable on dividends (those in a higher income tax bands pay either 32.5% or 38.1%).

Dividends aren’t guaranteed. They can only be paid to shareholders if there’s enough cash in the company. In bad months (speaking with experience), the MD of a single-person limited company may take home little or nothing. So, the “tax advantages” of trading as a limited company aren’t a clear-cut as some on Twitter imagine. Moreover, many incorporate a limited company to shelter themselves from personal financial liability or for many other reasons not linked to tax liability. The tax admin costs of a limited company can be significantly higher than for a sole trader business.

Would it not be fair to reconsider and offer greater support to single-person limited companies?

Time to think again Mr Chancellor?

Up until last week, it wasn’t clear whether the government would support the self-employed, but now, it will. The government has already acted to support businesses in the hospitality and retails sectors, as well as employers and their staff, to ensure that they have enough money to live on. Would it not be fair to reconsider and offer greater support to single-person limited companies?

There are two million limited companies in the UK, making up 34% of the total business population. About 890,000 UK companies have no employees – these are the one-man and one-woman band businesses that also make a vital contribution to the UK economy. If not supported through these dark days, many will go to the wall, which will have a major impact on the UK economy and its ability to recover.

The Chancellor, Rishi Sunak, is on record as saying he will do whatever it takes to support UK businesses through COVID-19. It remains to be seen whether this applies to some 890,000 limited companies – a sixth of the nation’s total business population – that together pay a colossal amount of tax to the Exchequer. Hopefully, he’ll do the right thing and think again.