Learn & Profit From Failures

“Mistakes are an inevitable consequence of doing something new and should be seen as valuable.” – Ed Catmull, President of Pixar

A couple of months ago, I saw an interview with Steaua football club owner Gigi Becali after a game. The match ended 1:1, but in a way his team just lost two points after conceding the equalizer shortly before the final whistle – partially due to a mistake made by Steaua’s goalkeeper.

Asked about his views, Becali answered in his typical wordy manner, but basically defined the ‘portar’ as a major flaw in the team and said he intends to ‘buy a new goalkeeper‘.

The reporter argued that if the Steaua strikers had used only one more of their many chances to score during the 90 minutes, the goal received in the last minutes wouldn’t be half as bad. Again, Becali explained his view in a lengthy statement but basically blamed his forwards for not bringing home the victory and stated he will therefore ‘buy a new striker’.

Well, in a country like Romania, where according to a survey published this week, 42% of 15-year-olds are functionally illiterate – meaning they go to school and can reproduce a text, but cannot understand the ideas it contains – it may be generally accepted to tackle failure in a simple Becali-style black & white manner.

Yet – in sports or in business – it wouldn’t hurt, if managers and leaders in this country take a more sophisticated approach to failure. This would have a positive effect to their businesses, since one of the most important reasons why established companies struggle to grow is fear of failure. In a Boston Consulting Group survey, 31% of respondents identified a risk-averse culture as a key obstacle to innovation.

But there is more. The current issue of the ‘Harvard Business Review’ shows, how companies can even extract value and thereby profit from failure. There are 3 steps to rise the organization’s return:

Step 1: Learn from every failure

An example comes from an elite consulting firm that lost a juicy new government contract to a much less prestigious competitor. This was a big and unexpected blow. But through a painstaking review, including an hour-long discussion in an executive committee meeting, the team members involved increased their return on this failure. They realized that the government’s selection criteria were subtly different from what they had expected and that their competitor had been far more savvy in understanding what was needed and working with officials to position its bid. As the discussion progressed, deeper insights began to surface. The team had misjudged the criteria because they’d been complacent, making assumptions instead of investing time in finding out what the government wanted. And the firm hadn’t even put its best people on the job, assuming its brand would be enough. “The truth is, we didn’t take the whole process nearly as seriously as our competitor did, and we got burnt,” one executive commented. In other words, the real value of the failure was learning that the firm needed to dramatically change how it responded to opportunities.

Step 2: Share the lessons

While it’s useful to reflect on individual failures, the real payoff comes when you spread the lessons across the organization. As one executive commented, “You need to build a review cycle where this is fed into a broader conversation.” When the information, ideas, and opportunities for improvement gained from an unsuccessful project in one business area are passed on to another, their benefits are magnified. Shared learning also increases the likelihood of future initiatives. “The biggest mistake you can make as a leader is to shoot the messenger and bury the bad news,” one executive noted. By reflecting on the positives, you build trust and goodwill and clear the pathway for others to take action on riskier ideas.

Step 3: Review your pattern of failure

The third step is to take a bird’s-eye view of the organization and ask whether your overall approach to failure is working. Are you learning from every unsuccessful endeavor? Are you sharing those lessons across the organization? And are they helping you improve your strategy and execution?

Venture capital firms are very disciplined about examining their review process in this way. At Hoxton Ventures, for instance, partners sit down for half a day every quarter and go over the businesses they’ve invested in, asking if they’ve gotten something fundamentally wrong and looking for patterns. Silicon Valley investor Steve Jurvetson observed, “You have to strive for a process of decision making that over a large number of decisions gives good outcomes. It’s not ‘Are we making good decisions?’ but ‘Do we have a process for making decisions that is statistically working?’

Conclusion for managers & leaders: don’t think Becali-style and switch staff after a fail, instead think of ‘FAIL’ as First Attempt In Learning and nudge your people toward greater openness to failure. Then follow step 1 to 3 to profit from. How about an incentive? But forget an ’employee of the month’ kind of award, think more like New York based advertising agency Grey, who has a ‘Heroic Failure’-award or NASA with its ‘Lean Forward, Fail Smart’– award.

To pave the way towards greater openness to failure, just think of these people who failed first:

• He was fired by a newspaper editor because, ‘he lacked imagination and had no good ideas’. After that, he started a number of businesses that didn’t last too long and ended with bankruptcy and failure. He kept plugging along, however, and eventually found a recipe for success that worked. His name? Walt Disney.

• The first product was a rice cooker that unfortunately didn’t cook rice so much as burn it, selling less than 100 units. This first setback didn’t stop Akiro Morita to create a multi-billion dollar company called Sony.

• You probably never heard of Harland David Sanders, but you most likely know KFC, the company he founded. Before that, Sanders had a hard time selling his chicken. In fact, his famous secret chicken recipe was rejected over 1’000 times before a restaurant accepted it.

• At school, teachers told him he was “too stupid to learn anything”. Work was no better, as he was fired from his first two jobs for not being productive enough. He failed also big time with countless unsuccessful attempts at inventing – until Thomas Edison created the light bulb.

• Dropping out of Harvard and starting business life with a failed first enterprise named Traf-O-Data didn’t stop Bill Gates to create a global empire called Microsoft.

• In his first film, he was told by the movie execs that he simply didn’t have what it takes to be a star. Meanwhile Harrison Ford has officially grossed more at the U.S. box office than any other actor in history. 

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Silicon Valley investor Steve Jurvetson: “You have to strive for a process of decision making that over a large number of decisions gives good outcomes.”