Lessons I Learned From A Failed Business Idea

We all have our ups and downs; part of the entrepreneurial spirit is that we try our ideas, if they fail, we move on. That’s what happened to me recently with a business idea that started with great potential but finally flopped.

The ‘ah-ha!’ moment

At my work, we have little LED lights we give away just as an extra thank you. They’re really great in terms of business because they’re branded and people go absolutely crazy for them.

One weekend my friends and I planned to head out to a music festival so I had the bright idea to bring some of these LED lights. The lights are an almost exact replica of Photon LED’s which run about $8 a pop.

We get there and start getting into the party; I bust out my LEDs and start flailing like a madman. During a break I had a guy come over to me asking about the lights – he wanted to buy them.

Now, I have ethics when it comes to the things I love – especially electronic music and the party scene. So I refused to sell them to him and gave them up instead.

But it hit me, that ah-ha moment. If people are going crazy for these things, I bet I could start a little side business selling them online!

Hunting down suppliers

I know it gets a lot of bad wrap but I began checking out Alibaba for Chinese suppliers. Alibaba gets the thumbs down overall because you’re still dealing with wholesalers instead of manufacturers – either way, I don’t have those connects yet so it was great to be able to talk to people over there.

The first few quotes I had were around $0.50 a unit. I knew that I would only be able to get about $1 – $1.50 for each light I sold, minus shipping and work, I wouldn’t be at a very high profit.

One thing that finally hit me was this: haggle the shit out of every person you talk to.

I realized that I’m doing business with them, not the other way around – I had the power because I was the one expected to buy. So I began bogarting the pricing, I’d tell one person I was quoted for $0.45 per unit, they’d go lower. I kept doing this until I landed at roughly $0.32 a unit – down 18 cents but that adds up when you’re selling hundreds or thousands.

Eventually, I kept searching and finally went with DealExtreme – their prices were lower but because their shipping was free and I could place a bulk rate code.

I ordered up around 400 lights and my business was game.

The rise and fall of business

Although I had plans to start my own LED light store website (which I may still do in the future), I threw them all up on Amazon. I didn’t want to constantly have to keep up to date with them through eBay because I wasn’t worried about pushing them hard – it was a little passive income business.

For the first few months, profits were good – I had a handful of sales each week. At the top of the game I think I was earning about $150 extra each month just by throwing some lights into a bag and shipping them out. It wasn’t much but I’m not going to complain.

However, the tipping point hit not too long ago. A competitor came in and under bid everyone by $3. Three bucks doesn’t sound like a lot but the profit margins on each set of 10 weren’t much to begin with so I was screwed…dammit, dammit, dammit.

With about 150 LED flashlights still on me I decided to close up shop instead of wrestling with meager profits (quite literally $1.50 after that point before shipping and handling).

Funny enough, I took those lights and handed them out to people at the last music festival – they were thrilled. So I guess the business kind of came full circle in a lot of ways.

What I learned from this project

It’s not all doom and gloom from the business, I actually learned quite a few things (which I think you can take away as well):

  • Never settle for list price; haggle and bogart your price
  • Do your research, find a niche market that few were playing
  • I found ways to find manufacturers for future business ideas
  • Find something you’re passionate about; so it doesn’t feel like a job
  • Don’t play the price war – you’ll just eat at your profits to the point that the business goes under.

I’m still a little burned that the business went under because it did have a lot of potential but ya know, we live, we learn, we get better.

Do you have any business ideas that’s flopped? Share your story below and maybe we can learn from it!

26 Responses to “Lessons I Learned From A Failed Business Idea”

  1. September 25, 2010 at 5:14 pm #

    Hi Murray,

    Excellent advice on not playing the price war. Enter a niche which you’re passionate about. After a while you can name a price because customers will be happy to buy from you if it’s a strict niche.

    Thanks for sharing your business story. Remember that without failure, you won’t find success.


    • Murray Lunn
      September 27, 2010 at 3:25 am #

      Exactly Ryan,

      Too many businesses get caught up trying to play based on price – just look how many mom and pop stores go under because they try to keep up with Walmart (not many).

      It’s all about your USP – what you have to offer – that’s going to let you do those premiums. Hell, just look at Apple!

      I figured, for my business, it would be better to get out now than to watch profits dwindle and time invested increase. I learned and bailed before I got burned :)

  2. September 25, 2010 at 6:29 pm #

    It seems to me that something like that is an impulse buy. That could be something you could make a killing on if you set up a table and sold them at music festivals. (or paid someone to sell them) Not sure how high booth costs might be for something like that but I bet they would fly out at 5$ a pop. Have some cool ass t-shirts made to go along with it at the booth and you have a real life $ making biz.

    • Murray Lunn
      September 27, 2010 at 3:28 am #

      I certainly thought about something along those lines Steve – in fact, I was going to bundle them with 3D glasses because they create amazing visuals (or maybe an upsell :P ). Unfortunately, music is too dear to me and I really don’t want to profit off others when I’m in the environment – I get too happy and just give them away haha – that’s networking! People remember when you give them lights; they come back with great conversations, beers, etc etc.

      However, I was thinking a boot would be amazing at street fairs :)

  3. September 25, 2010 at 9:04 pm #

    Its a good idea to avoid playing who can sell it for cheaper. This route never works and you almost always end up losing money. Glad to hear you learned from your experience.

    • Murray Lunn
      September 27, 2010 at 3:30 am #

      Right on Dustin,

      You can only play with pricing so long before someone else that doesn’t mind taking the hit comes in and sweeps up a large portion of your customers. Of course, at the end of the day, do you really want those that only go after the cheapest product? Idk, maybe sometimes letting customers go to the cheaper competitor is a good thing because you get to keep those that are actually passionate about your business :)

  4. September 27, 2010 at 1:34 pm #

    Hey Murray,

    So you really did try to create a business through selling these LEDs. It’s not great to fail but at least you learn something along the way. At least that’s how I see it.

    • Murray Lunn
      September 27, 2010 at 10:46 pm #

      Definitely Julius – I think the biggest thing I learned was being able to negotiate with suppliers; that skill can really go a long way whenever I want to try another business idea in the future – don’t have to settle for regular price :)

  5. September 27, 2010 at 6:40 pm #

    Murray, it was nice to read about your experience with your ‘failed idea’. Obviously you learned a lot from it and realized that ‘dropping price’ wasn’t the way to go.

    Keep your mind open to ideas… and you never expanded on what you were going to contact me about…?

    • Murray Lunn
      September 27, 2010 at 10:48 pm #

      Thanks for the support Moon – fail quick and rebuild, I much rather have experienced this instead of trying to push it for a year or two and have it fail then, ya know? Now I don’t have to focus my time with that so I can move onto new projects :)

      As for the other thing, it was in relation to backlinks – I’ll send you an email sometime in the near future; got a pretty cool idea hehe.

  6. September 28, 2010 at 11:06 am #

    This is a really awesome post Murray – and shows a little insight into the business mind that is Murlu :)
    Really cool what you did man – and I love not only the story (so well written, captivated til the end I was :) ) but you also brought some great lessons to be learned’ to the table.

    Respect Murray.

    • Murray Lunn
      September 28, 2010 at 12:08 pm #

      Thanks for the props Alex.

      I think another thing to take away from this story is that you do have a lot of opportunity in what seems to be the smallest niche. I mean, look at the business model: selling led flashlights aimed at ravers haha. How more niche can you be?

      Of course, it also brought on lessons learned from competition within a niche but another thing I learned was that I approached the business wrong in many ways – I should have been setting up a unique selling point but alas, hindsight is 20/20 so now I’ll know next time :)

  7. Matthew Needham
    September 28, 2010 at 7:35 pm #

    Great post Murray. I think you’re missing a key learning point. Sell stuff at a higher margin, with a higher sales price. Then you’re not messing about for a few $’s on each sale. Leave low margin stuff to others. It’s as much work dealing with higher margin items as it is low ones.

    • Murray Lunn
      September 29, 2010 at 12:19 pm #

      Oh definitely, definitely.

      Price wars are no fun at all because besides the two people going at it being burned by dropping the prices, the entire market pretty much falls out. I guess that’s just a lesson in economics because if you think about it, if both of us were competing and selling at $5 a pop it would come down to our individual services – unfortunately there’s always going to be that person that will sell products for 1/2 of what you’re offering despite (basically) shooting themselves in the foot.

      I think I’m a little screwed when it comes to Amazon but I did snag the domain LEDFlashlightKeychains.com which is dead-on and still has potential; still not sure if I want to pursue it, perhaps I could just outsource the development.

  8. September 29, 2010 at 5:06 pm #

    Funny thing Murray. I start businesses all the time. Some are successful, some are a total bunk. But you never know unless you get your butt out there and try! So congrats on the attempt.

    • Murray Lunn
      September 30, 2010 at 2:13 am #

      Thanks Brandon,

      Yup, another business down, experiences learned and some new ideas to bring to the table. Like they say, if you’re going to fail, fail quickly.

      Interested: What kind of business ideas and projects were you working on? Any stories such as this one or better yet – a successful one? :D

    • September 30, 2010 at 2:41 am #

      Hello Murray. The successful ones were web design and seo companies. I say “companies” as in more than one because as you may know that the service based industry is all about leads. If you create multiple brands and market each one separately, you can end up controlling a large portion of the market. Example: A potential lead is looking for quotes. They want quotes from different companies. They find 3 of your websites and submit a quote for each one. You have a better chance of landing that client rather than losing them to the competition.

      Other successful ones were consulting sites. Ones I failed on were more e-commerce based where I tried selling drop-shipping products. I have a business license with a FEIN # so I can get actual manufacturer direct products. Problem was that I had little experience at the time with the online world, hence the failure. I can probably be successful with it at this point though.

      • Murray Lunn
        September 30, 2010 at 12:12 pm #

        Brandon, thank you for sharing your business stories – I really like your views on leads because that’s what people look for at the end of the day – all the flashy graphics, campaigns and things people want to try – if you can just tell them “hey, I’m going to bring you more leads” you’re game.

        I like how you broke up your overall services into different websites (niche!) because of that fact of increasing your chance and then, if they do come on board, you could always offer those other services in an upsell.

        I was thinking of doing that recently because I wanted to offer this whole small business package but what I think I’ll do first is create essentially sub “companies” that specialize in each area and then still have a “big” business that combines them all. If a customer buys, say, my article writing service, I could later try to upsell them on video marketing as well because I know they’re interested and we’ve already made a connection.

        That’s cool that you tested out ecommerce, it always looks easy on paper but then there’s those little things like customer support, etc etc. Drop shipping would seem the way to go if its just you since you can just direct people to the drop shipping company or manufacturer if something pops up. I say it’s totally worth giving it a shot again if you’re feeling the drive about a particular product.

        Maybe we could talk about this in the future on things like finding drop shippers, setting up ecommerce sites and more.

  9. October 1, 2010 at 8:15 pm #

    I actually offered the SAME services on each biz site. Because I was targeting the same client that was seeking a specific service from multiple companies.

    • Murray Lunn
      October 4, 2010 at 11:47 am #

      That’s awesome :P

      It reminds me of setting up sub-companies where it’s the same services under a different brand; great for testing response on different copy – large scale A/B test in some ways.

      What’s great about that mentality too is that you can do that with other things such as a blog; take a subject that people really like and then make a spin off niche site around that.

  10. October 2, 2010 at 6:22 am #

    Well done Murray, at least you have the balls to go out and haggle in Alibaba then sell on Amazon, that is really great work

    Whether you failed or not doesn’t matter, you learnt a lot from it and makes you a smarter person!

    • Murray Lunn
      October 4, 2010 at 11:48 am #

      Thanks Dan,

      I know I probably wouldn’t be able to haggle if it were face-to-face but that’s the benefit of the net – you don’t have to. So, you get to avoid those awkward moments and then you could always just go find another supplier because there are so many out there :)

  11. October 7, 2010 at 6:21 pm #

    Hi Murray, that was sure a whirlwind experience! It reminds me a bit of being a coin dealer. I developed a few unique products and found some less common suppliers. However, I found my profit margin was constantly being eroded by being underbid as you point out. Rules changed, suppliers flaked, and even though I created a distinct brand based on service, many people only cared about the lowest price. One dealer outcompeted me through fraud (got in trouble with the Washington Attorney General). The hardest part was the price of my coins was set by the crazy futures market in NY and it could move anywhere.

    After that I promised that my next business would:
    a) have a price set by me only
    b) be unique so no one could sell the same thing for cheaper
    c) scale well so having 5,000 customers wouldn’t take that much more effort than 50
    d) not make me pack and ship things daily (hated that)

    Personally, I would only go back into retailing common items if I could lock in a 50% or higher profit margin.

    • Murray Lunn
      October 7, 2010 at 11:44 pm #

      Hey Jen

      Thanks for adding your own story. One thing that I picked out that really tickle my interest was what you said about scalability – that’s one thing that few of us actually look at when starting a business; I know I didn’t. At the hight of my little business I was running back and forth trying to get everything in envelopes, sent out and have to do it all over again – what happened if I suddenly doubled my business or ten-fold! There is a thing where businesses can expand too rapidly.

      You have great points that I’ll keep to heart for my next little venture; hope we were able to teach each other something for the future :)


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