Sunday, May 15, 2011

Failure is the stepping stone to success: What my first three steps taught me

As you approach any endeavor, there are three likely outcomes. One, you are successful; two, you achieve partial success; three, you are unsuccessful. The outcome is not as important as what you learn from your experience. You don’t learn as much from your success as you do from failures. Success and failure, however both have their benefits. Success gives you the fruits of your efforts and failure gives you the seeds that you can then later transform into success in another form. If you look at success and failure in this manner, one can ask, which is more valuable, a seed or a fruit? A fruit once eaten is done and gone. A seed on the other hand has the potential for turning into a tree that can bear countless fruits.

When I look back on my life over the course of the last decade or so, just as the average person out there, I have had my share of successes and failures. Based on lessons learnt from past failures, I came up with seeds for my future success. These seed are universally applicable to anyone, anywhere. Here are the three stepping stones that helped me find the seeds of success.

My first stepping stone:

Near dawn of the new millennium, the stock market was in a frenzy. There were paper millionaires popping up everywhere. Seeing so many people with the Midas touch, I told myself that it cannot really be true. As was the case with a lot of people back then, I was faced with a choice. Do I join the bandwagon of potential wealth or do I watch from the sidelines? In hindsight, I was very fortunate in that I did not have much money to spare. Looking back, based on my limited resources, it did not matter much which side of the fence I was on, the investor or the bystander. However, I did invest a little bit, mostly with the intention of testing a theory. It had little to do with making myself wealthy. The best possible outcome would have meant that I could trade in my used car and upgrade to a new one.

The theory that I wanted to test was comparing my stock picks with the what the best experts out there had recommended. A Princeton Professor, Burton Malkiel theorized in his book, “A Random Walk Down Wall Street” that "a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.". There have been contests based on this and the experts have not fared significantly better that random picks based on throwing darts. My rudimentary knowledge of the stock market was not much better than my skills at throwing darts on a dartboard.

So, I divided my investment in a stock market that was super heating into my picks vs what the experts had recommended. When the market finally crashed, I must admit it was painful. I was however, pleasantly surprised that my stock picks did not lose more than the ones that the experts had suggested. This taught me a valuable lesson.

Lesson one: Do not invest your time, effort and energy in something that you do not have direct control over and where the outcome is based on the play of chance and not your individual effort.  

My second stepping stone:
A few years later, I was able to accumulate a little more money, enough to start thinking about owning one of the pillars of the American dream, a house with a two car garage. Again I found myself in the middle of a housing boom and back then, most of the houses I was potentially interested in were selling on the day they went on the market. Several people tried to convince me that I could buy a lot more house than I could realistically afford based on my income. I finally bought a house just as the housing market was peaking. My decision for what I could afford as a house was based on historical information on the gross earnings to house price ratio and not the current trend in the housing market at that time. Just like the stock market, I went through the pain of living through a housing bust that most Americans homeowners have experienced. When I finally sold the house that also happened to represent my first foray into home-ownership, I lost a little money which was luckily not enough to break my financial backbone. The lesson I learnt was far more valuable than the money I lost.

Lesson two: Just because something worked in the past, it does not necessarily work in the future. Do not invest your time, effort and energy into something that has historically worked for others, especially if you don’t have personal experience based on your individual effort.

My third stepping stone:

So, with my failures in the stock market (no direct control over outcome), the housing market (historical success does not necessarily translate into future success), I did not give up my concept of investing. Only this time, I decided to invest in myself. If you invest in yourself, you have more direct control over the outcome as it depends on a large extent on your individual efforts and your hard work. I opened my own business and put in long hours and treated everyday including weekends as a Monday. The more people told me I would not succeed, the harder I worked. With a little help from Lady Luck, I was able to overcome several bumps in the road and soon found myself speeding past one personal milestone after another. I then had an idea. If this worked for me, I could probably use it as a template for others thereby creating a team that would potentially be more successful than what an individual could achieve. This is where I hit the third stepping stone.

Lesson three: In order to be successful, only depend on yourself and your hard work and you cannot necessarily depend on others. Furthermore, blaming others for your failure costs you valuable time and distracts you from learning lessons that the school of life is ever ready to teach you.  

When they say failure is the stepping stone to success, it is not necessarily the failure that leads to success but applying the lessons that one learns from each failure that leads to future success. Failures can sometimes be a blessing in disguise. If you make small mistakes and learn from them, you will have the experience to avoid big mistakes in the future. Also, you get a chance to test you mettle when you face life’s little challenges. Passing these test strengthens you for the future. You don’t have the ability to predict the future. Life’s big test may be just around the corner. Just as when a traffic light turns red warning you to stop, you should use the lessons you learn from your failures as a warning not to make bigger mistakes in the future.

My three stepping stones taught me that the seeds of success contain hard work, strong self belief and not depending on others to help you succeed. Every failure is a potential seed for future success and remember that success is only a fruit that once eaten, is gone forever. A string of failures gives you more than one big isolated success.