Learning from Failures

Posted February 25, 2015 by Dan Moore in Startups

At Vaporware, we celebrate our capacity to fail. Whether it is the creative nature of development or our constant drive to improve, failure is a key part of our entrepreneurial culture. Learning from failures is one of the underlying principles of the Lean Startup -- and a practice we perform with our clients through every phase of development. We’re so passionate about these principles that we also practice lean principles on our own business, including the importance of failure.

Sometimes these failures are simple mistakes, and other times they are quite large. It’s clear that without creativity and the common subsequent mistakes, we are not only losing to our competition, but doing ourselves and our clients a disservice. What separates our failure-based culture from devastation and defeat is our ability to learn from what we did wrong and continue forward with the experience and a professional mindset.

Recently, Vaporware finished our first relationship. Until now, we were incredibly proud of the fact that we continued to engage with all of our clients in some material form. We’ve located an underserved and mismanaged niche of low-funded startups, have developed services that provide immediate value and returns, and have built long-lasting relationships to create a thriving business. But as we strive to fill gaps creatively, we know that some experiments would fail. Unfortunately, the relationship did not end with our client taking large investment and building their own internal team, or a positive outcome. Fortunately, we can learn from this failed experiment and use the experience to improve all of our relationships and pass this knowledge onward to our clients and community.

Mutual Legal Contracts

Our first mistake was signing a non-mutual legal contract. While we heavily value new experiences, we downplayed the advice of our advisors and the industry’s standards, and entered into a relationship solely on equity and an open-ended “deferred fee” profit share -- without clear expectations of return schedules. After the first two deliverables were made, it was clear that the basic mutual legalities and expectations were not in place, and we quickly realized we did not share a common culture.

This taught us the importance of legalese and definitions within our contracts. Firstly, everything we sign provides mutual protections and rights. From our basic Non-Disclosure Agreement (NDA) to our Master Services Agreement (MSA), all clauses are written with the clear intent of equality between Vaporware and our client. Secondly, our contracts are now written with the ability for either party to cleanly end the relationship with as little impact and loss as possible. While this is due in part to non-legal reasons, our legal platform provides both parties the safety and assurances to end the relationship professionally.

Starting Relationships

At one point, we experimented with building a business with sweat equity. Our primary full-time jobs allowed us to have flexibility with the projects we took on. Unfortunately, even with this flexibility, there are up front legal costs to set terms in place, since this is a non-standard relationship between two organizations. At the start of this particular relationship, we ended up frequently consulting with a legal advisor which, combined with lengthy negotiations and a lack of respectful conduct, ultimately started the relationship off as an adversarial one.

After this experience, we’ve created several strategies to start a long lasting relationship properly. With all of our contracts, we first enter into an understood “dating” period that tests all of the soft-skills needed to have a healthy relationship. This trial is the ideal replacement for a contracting firm’s sales process or clients’ wildly varying interview processes. We also start all new relationships with definitive goals, providing both sides the assurance that they can walk away with something for their investment. While this idealism seems perfect for a short term (single project) relationship, we find that it also creates long-term professional relationships.

Communication and Expectations

Even after the rocky start, we remained flexible and tried to meet our client’s goals and preferences to communication. Unfortunately, there was a loss of trust and respect in the relationship that could not be repaired by any amount of meetings or communication.

Because of this experience, we have since developed and solidified our preferred communication methods, and have concluded that we are ultimately willing to lose a client if we don’t have the necessary abilities to provide a valuable return on investment. Vaporware’s singular service is the ability to provide a return on investment to our clients -- even if that means advising against our own profits and services.

In the compounded failures above, we ultimately were forced to fall back onto our misaligned legal contracts, the industry-standard vehicle that is all that remains for parties in a failing relationship.

The Dark Side of Contract Law

And this is where we truly lost the client. After a year and a half of a mutually beneficial relationship, our client decided to stop honoring our revenue share agreement. In a desire to avoid litigation procedures, we decided to suspend the client’s access from their application. However, and we want to be very clear on this, Vaporware did not steal any assets or information. In fact, despite numerous public accusations of criminal theft, Vaporware has had permitted access to the client’s servers and information since the start of the relationship, and that access remains active at the time of this blog post. We learned that our response was adversarial and pushed the client further away from reasonable settlement terms, instead of providing persuasion to uphold the contractual agreements.

Ultimately, this experience has led us to become more strict on our previous open and trusting nature. We can no longer provide payment flexibilities that gave us an advantage to our competitors. Instead, we take a play from our industry counterparts, and require our clients to meet stricter payment schedules. Additionally, we are now clear in all contracts that clients do not own the deliverables until they are fully paid. And while we may despise the very nature of contract law, we realize its importance in the business place and are striving to improve the mutual terms and protections of our contracts. Interested in helping? We're looking to open-source our legal contracts to provide the most open and transparent conversation. Have experience with this? Contact us on twitter to help out!

So what did we learn throughout these experiments and failures? First and foremost, investigate the consequences and consult experts and advisors before you take action. Secondly, we’ve learned to recognize failing relationships during a “dating” period and have developed techniques for ending a relationship after this trial. Lastly, even a legal failure won’t destroy you. Get out there, try new things, make new mistakes, continue to be creative, and disrupt markets!

Have failings of your own? Continue this conversation at Fail Fest, an event we’re helping bring to the Triangle that celebrates failures and the creative mindset. Stay on the lookout for more information.


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