A CEO recently asked me to explain how I think about failure. I fumbled with my answer that how failure works in business depends on framing. Here’s the answer I wish I’d given her at the time: in some situations failure definitely needs to be avoided and in other situations failure needs to be reframed.
Failure is a charged topic. Startups and the innovation community berate established companies for not embracing failure. Meanwhile, executives and experienced professionals know that businesses don’t thrive on failure. Failures mean missed results, stress and additional costs. At their worst failures can be career destroying or business destroying.
Both perspectives – failure is great or necessary versus failure is bad and to be avoided – are useful. You just need to know when the different perspectives apply. This is why the conversation around failure needs to be reframed.
First, I want to address why failure is bad and needs to be avoided. Then I’ll address why, in the right situations with the right strategy, failure needs to be embraced but it won’t look like failure.
I’ve chosen this order specifically because I don’t think you can come to embrace failure in the framing I’ll put forward if you haven’t accepted where failure needs to be avoided.
Failure is Bad and Needs to be Avoided
I’ve been involved in multiple businesses, products and features that failed. It’s not fun. As a founder you can’t buy food if customers aren’t paying you money. As a business, you’re distracted and can’t invest in the future while you’re busy nursing a failure.
As an individual, success is better than failure. As a business, success is better than failure.
Before Google Maps I had the great idea of creating a directory of businesses and listing their menus and services. I plugged away at it for a year. We made something like $75.80. Meanwhile the costs of running the business and the time I was putting into it far exceeded the incoming cash.
At the big end of town, I worked tirelessly with team mates on a process improvement tool that just couldn’t break out. The business funding the tool continued to invest despite the lack of progress, this meant people elsewhere in the business missed pay rises and bonuses. The executive team expended energy on the failing business that could have been invested in another, rapidly growing and profitable portion of the business.
In another situation, on a smaller scale, a failure by a product team to properly test a financial calculation within the product led to hundreds of thousands in lost revenue. Given this represented a material portion of the businesses overall revenue it wasn’t a great situation.
Contrast these situations with successful products and initiatives, everyone is happier. The business is more profitable. Customers are happier. People get promotions. Shareholders win.
Additionally, failure as a result of neglect or required action is less than ideal for a business. If a business misses an outcome because it didn’t take action it could have or neglected something it could have dealt with then you’ve missed out on a success that could have been had. You need to avoid failure that has resulted from poor performance.
I realise it can be difficult sometimes to distinguish between poor performance and a learning curve. But, one perspective that always needs to be considered in this dilemma is that the outcome (e.g. revenue, cost savings, balance sheet improvement) doesn’t distinguish and that’s the practical reality.
Failure is Great and Necessary
Proponents of the perspective that failure is great and necessary draw links between failure, risk taking and innovation. It has strong support. There are even conferences dedicated to celebrating failure.
You sometimes get the sense that big companies feel peer pressured to play along with this view.
The proponents of failure being great and necessary have a point. Allowing the cultural shift and change in processes to enable risk-taking will drive innovation;
Given that innovation involves the exploration of uncertain and unknown terrain, it is not surprising that a tolerance for failure is an important characteristic of innovative cultures. Some of the most highly touted innovators have had their share of failures. Remember Apple’s MobileMe, Google Glass, and the Amazon Fire Phone?Gary P. Pisano, HBR
The issue is that it’s not failure that needs to be embraced. As I’ve outlined above, failure needs to be avoided. We need to reframe the push to embrace failure as a push for embracing a culture, strategy and process that enables calculated bets and experiments.
When you approach risky situations or opportunities, taking a calculated approach to the risk means you don’t need the language of “embrace failure” any more. You shift to a mindset of learning. You shift to a mindset of taking risks that won’t break the bank (emotionally, metaphorically or literally).
If you’re looking for an approach and mindset then Thinking in Bets by Annie Duke provides solid foundations to reframe failure from.
Taking this approach removes the pressure and emotion. People will see what is learnt and what kind of progress can be made instead of counting on the activity resulting in a successful outcome.
It also encourages iteration towards a bigger vision. Where small missteps or mistakes along the way are still progress towards the end goal, instead of being real or perceived failures.
CEO & Founder
Scott is the CEO and founder of Terem, Australia’s leading tech product development firm. Terem has featured on the Financial Review’s Fast 100 for two years running. Scott has been involved in the launch and growth of 61+ products.