In 2006, Schuster joined System One, a semantic research tool founded a year earlier as an enterprise SaaS solution. The collaborative enterprise had collected more than two million euros in investment from its founders and AWS. What first looked like a promising project turned out to become a drastic failure where the founders lost 400,000 euros, Michael losing 200,000 euros of his own money, and gaining an unhealthy amount of weight, which took years to lose again (16kg). Yet Schuster is adamant about the importance of standing up after you have fallen, whether on a personal level or in professional life. After some very challenging years, the final moments came through a failed merger.
I remember that moment very clearly: it was a meeting with my team where we pondered what might happen and what options we might have. When the whole team said “Let’s continue alone, we are sure we are better off alone,” it was clear to me that the merger had failed. We invested so much and still people felt that we were better off alone. That clarified all.
Today, is it easy for you to talk about it?
Yes. Because it turned out to be the best experience I ever had. But it [didn’t feel that way] then.
Did you listen to people around you giving you advice and what led you to believe that you had failed?
Yes, I did listen to people around me but it’s hard because advice is not conclusive, full of simplifications and different people advised [me] to do mutually exclusive things. You need to [compartmentalise] advice carefully. In the end I understood that we couldn’t reach our goals, didn’t manage to keep the company up and running.
In general, when do you know that you have failed?
Being an entrepreneur is a lifestyle decision, not a job.
That’s a difficult question to start with. In my experience, when it comes to business and companies, there is no “knowing”. There is a slight feeling at first, and then a sudden moment when it is obvious for you and everyone else. Reality is unfortunately not always crystal clear but blurry. Your main KPIs might go sideways, but still be up every week. Your progress is not as fast as you would wish for, but still you are making progress. When do you acknowledge that you failed? Even though one of the problems a [great number] of startups have is that they don’t try long enough, not every startup [is] an overnight success.
What kind of experiences have you had with failure?
Plenty. I failed to deliver products that people needed, not to mention that [these products] were [exceedingly] behind schedule. I failed to live up to promises [made] to colleagues and employees because they were impossible to keep. But the experience that [allowed] me to grow the most was [when] the company I was running tried a merger, failed and almost went out of business.
Looking back, when did it start to fall apart?
It all started to fall apart when internal conflicts became more important than the business itself. When the direction of the company became unclear and we then agreed to merge with another company that was in a similar situation.
What happened exactly?
We entered this merger, spent lots of time on organisational development, instead of sales, the pipeline was empty and the final negotiations were dragging out. Then came the day when we were supposed to merge legally, then the other partner withdrew from the deal, threw us out of the office, changed the locks on the doors, turned off our servers, and did everything possible to get us out of business.
What happened as a consequence? On a professional and personal level?
I also lost a lot of false expectations I had, which was good.
We filed for Chapter 11 and had three months to find an investor that would help us continue. Those were awful months, but the last day we found someone who would at least help to keep the service running and let us continue on a basic level.
I never lost motivation or sleep, but some weight. I had to tell all our clients that we are most likely going out of business, and found some unexpected and positive reactions. I lost a bit of my self-esteem throughout the process. But I also lost a lot of false expectations I had, which was good. And it finally opened up a number of new options, that I wouldn’t have taken otherwise.
Did it change your day-to-day life?
Dramatically. I went from a daily routine to an empty schedule. And I suddenly had the Finanzamt and Krankenkasse chasing me, plus some debt with other people.
Was there a special person you felt you disappointed?
Photo credit: Michael Schuster
Lots. All of the people that worked with me, that showed full support, even in hard times. All employees that believed in us until the very end.
Did you have someone who gave you mental, emotional and financial support?
My wife and my friends were very supportive, both on a mental and emotional level.
How has this experience changed you as a businessman, and also, as a private person?
It made me a little more risk averse probably. It definitely showed me the importance of being on top of your financials [at all times]. And I learned that it is never too late to make decisions. Just because something seemed to be right a year ago, you can always go back and change your mind. More people are going to follow than you think. It changed me on a personal level. I know that I can handle those situations and life will go on.
What lessons did you learn from this experience?
I think all that the ‘learning from failure’ thing is overrated. After all, failure was due to very special circumstances and the [lessons] are limited. It is more growth than learning that makes failure interesting. Our brains are hardwired for progress, that’s in [all of] us. Failure is just part of progressing. After all, you don’t learn that much from falling, but from standing up and trying again.