Companies need to embrace productive failure or die, Silicon Valley entrepreneur and author Eric Ries explains in an interview with McKinsey and Company. He says creating a safe environment where failure is acceptable helps foster innovation within an organisation. It also minimises the risk of losing market control to disruptive entrepreneurs.
Individual “disruptive” entrepreneurs with minimal funding can challenge existing companies, increasing the imperative for these companies to maintain their edge. “Anyone with a credit card can rent the means of production and compete with you on a first class basis in their market,” Ries says. A kid with a $1000 budget can build a product that, from the consumer’s point of view, is indistinguishable from your highly polished existing product.
Most companies’ initial response is to believe they can buy-out the disruptive entrepreneur if their product is a success. However, because anyone can rent the means of production, established companies are not dealing with one potential competitor but thousands. Rather than assuming they can acquire the competitor, companies need to embrace productive failure to innovate in their own right.
Productive failure means throwing off a conservative and flawed ideal of perfection and accepting that in order to grow and learn, we must fail. In technology, products are built in iterations and the diagrams that accompany them are circular not linear. Rather than thinking in terms of steps leading from A to B, technology innovators think in terms of proving or disproving hypotheses. They sometimes discover their assumptions were right. They sometimes prove their assumptions were wrong in which case they move back around the circle and work on a new hypothesis. By doing this they potentially save money by conclusively proving there is no opportunity taking one path or by establishing that another path is the most efficient route.
Companies can learn a lot from this approach. Rather than measuring and rewarding the wrong performance, like getting things right, they can focus on rewarding learning and growth. Accepting that your teams have to fail to succeed might be confronting at first. It might also be the difference between maintaining a competitive advantage and going the way of Kodak and Blackberry.
Disruptive Entrepreneurs An interview with Eric Ries