That advice should come with a bright yellow warning sticker: your dream may end in disaster.
Take the fashion editor Michelle Dalton Tyree and her sister, Jacqueline Dalton. They opened a Los Angeles boutique, Iconology, in 2006. The interior was custom-made chic — white walls, black trim and refurbished hot pink Louis XVI bergères. And then there were the clothes.
“We were the only ones carrying Karl Lagerfeld’s collection — us and Fred Segal,” Ms. Tyree recalled proudly. “We would have studio stylists for TV shows come in and drop 10 grand in 30 minutes.”
“It was a unique store and there was a lot of love put into it,” she added.
All that love — and some great press — didn’t stop the store from failing. The sisters closed Iconology two years later. And what came next was what Ms. Tyree described as a “financial blood bath” from which she just emerged in December after four years of struggle.
Ms. Tyree acknowledges that she made rookie mistakes. The location wasn’t great, and she didn’t have enough of a financial cushion to withstand the ups-and-downs in the market. High-end fashion isn’t cheap to stock, and a three-month Hollywood writers’ strike, plus the looming financial crisis of 2008, helped drive away customers.
But even when the future looked grim, Ms. Tyree hung on. In fact, she dug in. She bought more inventory for the racks and threw celebrity-fueled parties at the store to generate buzz.
“Your gut says this could be a problem, but your head overrides it because you have just put in this huge investment,” she said. “You are hanging on to not just the dream, but you are hanging on to the sweat equity and what you put into it financially.”
Human beings, by nature, don’t like to turn their backs on what are called “sunk costs,” said Craig Fox, who teaches decision-making at the University of California, Los Angeles. When a lot of money is put into something — the dream of a small business, stocks or even an education — and it can’t be recovered or is otherwise “sunk,” few of us can just walk away.
Basically, no one likes to lose face.
Michael Dearing can relate. Today, he runs his own venture capital firm in Silicon Valley, Harrison Metal, which makes small seed investments in technology companies. He also teaches product development to aspiring entrepreneurs at Stanford University. But back in the ’90s, when he was fresh out of Harvard Business School, he, too, sank a lot of money into his dream of owning his own store.
The Industrial Shoe Warehouse had five outlets in Los Angeles that sold work boots (think back to the Dr. Martens craze). “It had a vibe of, like, Urban Outfitters — concrete floor, high beam ceilings, all the stock was on the floor,” said Mr. Dearing. “We had a really good business for awhile.”
But, in the end, he said, “It was what you would call a splat-against-the-wall failure.”
Mr. Dearing said the economics of running a shoe store were tougher than expected. Plus, the business grew too fast. Then Mr. Dearing’s business partner wanted out.
He struggled to keep the business afloat because, he said, it felt dishonorable to let it go. “I personalized the outcome to a degree that it was unhealthy,” he said. “I thought failure was total and permanent — and success stamped me as a worthwhile business person.”
That’s a normal reaction, says Dr. Richard Peterson, a psychiatrist and managing director for the New York-based financial consultancy MarketPsych. “There is a part of the brain called the anterior insula, and that is where we process losses,” he said. “It creates a physical sensation of pain, and it also creates a sensation of disgust.”
That area of the brain sets off pain if you get shocked with electricity, for example. But, Dr. Peterson noted, “You see the same response in people who are losing money.”
So to avoid the pain, Dr. Peterson said, we hope.
Kai Ryssdal is host and senior editor of the public radio program “Marketplace.” Megan Larson is a producer for the program.
Devin Maverick Robins contributed reporting.
Article source: http://www.nytimes.com/2013/03/26/your-money/the-painful-but-liberating-lessons-of-a-career-failure.html?partner=rss&emc=rss