This article is a compilation of my own thoughts about corporate failure and the writings of several other authors and experts on this topic. I am presenting in this paper excerpts from three books including “The Other F Word” by John Danner and Mark Coopersmith, “The Innovator’s Method” by Nathan Furr and Jeff Dyer, and “Innovation Thinking Methods” by Osama Hashmi. I highly encourage the readers of this writing to read these informative texts.
Years ago as an undergraduate student at Marquette University in Milwaukee Wisconsin I jumped to into an electrical engineering curriculum with keen interest in advancing myself in this field. I had little background information about this field of study, but I hade a high aptitude at both math and science courses in high school. With a great deal of enthusiasm I jumped in to learn as much as I could.
After graduation I went to work for a large telecommunications company where I had a chance to put some of my knowledge to work. I actually found that working in the laboratory environment with sophisticated engineers on an interesting project taught me a lot more about the practical aspects of engineering that I ever learned in school. I was pretty excited about the fact that I could move forward in hardware engineering and got to the point where I was a pretty good circuit designer. An opportunity opened up to move into software work which I jumped on and had a chance to work on an intrapreneurial new program designing a small system with a small group of 10 engineers. It was truly an adventure and I learned even more about the engineering world.
After seven years of work in this environment I came to the realization that after couple of kids and future path of more engineering design lying before me that perhaps my interests in the highly technical aspects of engineering were not exactly what I was looking for. I decided that I wanted to move toward a direction of marketing and sales. I began to learn how to communicate on a system basis with other interested technical people and saw this skill as an essential in the business world. I went back to school at night picked up my MBA from Loyola University in Chicago, and changed jobs to work for another telecommunications company but this time in a marketing role.
I was extremely excited about the fact that I had a chance now to expose myself to real people and real customers and worked closely with the sales organization within this new company. I quickly learned that I had a flare for speaking in front of audiences and my technical knowledge blended with practical examples allowed me to truly interest many of the customers I spoke with. My goal was to find an opportunity to move past the marketing into sales. So once again I jumped after two years two with this company into my first real adventure in sales going to work for Silicon Valley Startup Company also in the same telecommunications area. After five years and several advancements with this new company I got the itch to move forward with an entrepreneurial idea and so I jumped off the cliff with a partner to start a new adventure.
Up till this point I hadn’t found failure to be something I had truly run into in a big way. Now however putting my career on the line in an entrepreneurial program I began to get the sense of how difficult starting your own business could be. My partner and I struggled to get our small consulting business off the ground. This was a truly anxious time in my life as we tried to find a way to build a business. We quickly learned also how difficult the consulting business could be without a client base and without a team of mentors and advisors giving us sage insight. We approached customers with our ideas many of which found that our lack of experience was a big risk for them. I’m not sure I would call this failure but we certainly weren’t making much progress. We had the typical entrepreneurial issues of not enough money to survive. But we never gave up and we kept wiggling around looking for an opening.
As I think about the concept of failure I look at one of the definitions of failure presented by John Danner and Mark Coopersmith in their book the other F word when they said that successful leaders know how to turn a bad experience from a regret into a resource. They also pointed out that it was important to put failure to work, driving innovation, strengthening genuine collaboration, and accelerating growth in a company. As our company grew we ran into many different episodes where setbacks had to be worked through. The more small successes that we had, the more we applied our knowledge to every next assignment.
I found that these two authors provided effective insights when it comes to using failure as a path to new learning and success. They point out failure is today’s lesson for tomorrow and it needs to be put to work. They put together a list of bulleted ideas that help them walk through this whole concept of failure and why it is important and why this matters. This list contains:
- Failure matters because we spend so much time working our way through it and trying to learn from it.
- Failure is like gravity, it’s everywhere.
- Failure is often a taboo topic that needs to be taken out of the shadows.
- Since you’ve already paid for failure you might as well get some mileage out of it.
- Fear of failure is probably the biggest concern as it multiplies the impact of failure.
- Although we regret failure, it doesn’t necessarily mean that we tolerate it.
- Failure is not an excuse for incompetence, negligence, or indifference.
- How you deal with failure is key. Trust is an essential component of your relationships and is a huge component of how to address failure.
- If you’re truly going to be an entrepreneur and you’re serious about innovation be prepared that you will fail often because you are focused on experimentation.
The authors talk about several different approaches to dealing with failure and speak to the fact that there are many times that overcoming failure is critical in your career. They point out that the knowledge from failure that you move forward with will be a big help to your future success whether you are:
- In charge of your organization
- Whether you’re in marketing and sales
- Whether you manage a small or large team
- Whether you use scary technology
- Whether you work and finance and accounting
- Whether you are involved in strategic planning
- Whether you are involved as an operations worker
- Or whether you are an entrepreneur,
In any event, you need to understand and take advantage of failure.
When it comes to defining failure, most new businesses, acquisitions, products, projects, and new hires – all fail either totally or significantly on occasion. Mistakes are unwelcome predecessors of failure. Their unexpected but they happen and they and they are created and in some locations invited by ourselves. Failure is a personal, painful, and an emotional experience. Failure is loaded with intense involvement, strong memories, and conflicting interpretations.
Danner and Coopersmith point to one of the biggest challenges concerning failure is not the failure itself but rather the fear of being judged because of failure. It’s the judgment applied to those involved that presents the real challenge. Many times colleagues want to fix the blame on someone or some group. By assigning the blame to someone else they often avoid the harder task of looking at their own contributions in the failure situation. In some organizations failing with the black mark created on your record is something that’s difficult to avoid and hard to eliminate.
The authors point out that there’s a strong relationship between innovation and failure. There is also a strong relationship between leadership and failure. What needs to be clearly understood is whether or not the organization that you are involved with is truly ready to take on the risks of making failure.
Failure is all about us all the time. Failure is a universal force that we find associated with new products, new businesses, most mergers and acquisitions, new hires and promotions, ad campaigns that fizzle, strategies that falter, and a host of other common business activities. According to the authors, some statistics that demonstrate this encompassing aspect of experimentation and the added risk of failure would include:
- Between 50 and 70% of startups fail in the first 18 months.
- 75% of VC backed startups failed to return back the initial investments.
- Two out of five CEOs fail in the last 18 months of their tenure.
- 95% of new products introduced each year fail.
- Mergers and acquisitions fail between 70 and 90% of the time.
- More than 99% of US approved patents failed to earn anything for their inventor’s time and energy.
The authors point out that although we don’t celebrate failure, we need to understand that accepting failure without learning and leveraging from it is a recipe for mediocrity. What’s key is that the very human effort of thinking of things that may lie well beyond our reach, can be the precursors in the preconditions for failure. And that’s a good thing, because it’s what drives innovation, progress, and growth.
We pay a heavy price for the fear of failure, which is the single biggest challenge for leaders striving to make their organizations more innovative and resilient. Danner and Coopersmith point out that fear of failure multiplies the impact of failure. Fear of failure is the best predictor of failure also. We likely spend more time dreading failure than we actually spend dealing with it. The fear of being judged, isolation, guilt, emotion, retaliation, losing face, or even losing a job are the traumatic characteristics of fear of failure. Fear of failure is the hidden killer of initiative. Entrepreneurs who don’t have any fear of failure are dreamers; in my experience dreamers don’t usually succeed. Those who aren’t afraid to try but face fear of failure are often the best entrepreneurs. Fear kills more dreams than failure ever will.
What are the odds of a successful entrepreneurial event? The authors point to:
- Almost 7 million US businesses are launched every year and roughly an equal number
- Startups raise on average $73,406 from various sources with almost half coming from personal savings, or credit, or family, or friends.
- Venture capitalists invest in fewer than one out of every 2000 American startups, and commit an average of $2.6 million to those that they do support.
- Angel investors invest an average of $75,000 in slightly less than 1% of all domestic startups, roughly 70,000 companies.
- Between 75 and 90% of all startups fundamentally fail.
- Of failed startups, 25% of new ventures fail in year one, 34% by year two, and 41% by year three.
These failure rates exist because startups by their very nature are new and fragile. Very few entrepreneurs are successful on their initial launch. Startup failures are more visible. Entrepreneurs can’t hide failure nearly as well as some established organizations. Startups are continually experimenting with new ideas, new products, and features. Entrepreneurs who are successful accomplish success by figuring things out as they go along. And startups are often one or two mistakes away from closing down.
Startups tend to fall into several areas that create problems. The authors comment that startups tend to pick the wrong people for their teams. They don’t raise sufficient capital for product development and operations. And they spend too much money and noncritical activities. They stay in love with their products too long and devote too much money two features of little value. They make bad assumptions about their business plan. They overestimate the value of the markets and how much money they will make. And, they misread customer information about interest and usage. Ultimately the startup exhausts its financial runway before being able to apply the lessons learned.
Danner and Coopersmith comment that three general rules will help startups to position themselves to move forward. The best failure to learn from is someone else’s failure. Be observant, learned by watching. Learn from simulated reality, games. Unfortunately these two rules involve learning from others, which is estimated to be only 10% effective. Learn by doing, test first and prepare to be wrong.
The authors also point out that there are some important questions and issues that every startup needs to ask itself Why this solution for these customers? Customer discovery is a vitally important part of getting a new company off the ground. It provides valuable insights about what to do and what not to do in the go to market strategies. It is very important to iterate on the guesses and experiments and learn from customer to get things right. Steve Jobs was quoted as saying “a lot of times, people don’t know what they want until you show it to them.” Important also is to think lean, be scrappy, and pay close attention to how your potential customers react to your ideas.
Osama Hashmi speaks to the concept of innovation thinking, thinking boldly about products that are worth talking about. He promotes concept of creating radically better solutions with big ideas, going beyond just proving hypotheses of what customer’s may want. Nathan Furr and Jeff Dyer in their book, the Innovator’s Method promote the concept Design for Delight searching for the big unmet customer needs and applying three principles including understand the customer better than they understand themselves, generate lots of solutions before winnowing the list, and seek feedback early and often. This approach included creating prototypes, getting feedback, redesigning, using hands-on experience to help them see the value of design thinking as a tool to discover and deeply understand customer needs and create new value. These authors firmly believe in the “Ah-Ha” principle of customer delight turning customer eyes toward amazement and believing that your company is truly special.
Danner and Coopersmith point to two additional questions, why this product now? And, is the market ready for your solution? Rapid testing may not be able to fundamentally change the outcome of a poorly timed introduction, but it can provide early signs about market readiness. Entrepreneurs are always looking for the fast proof. The ultimate fast proof is when the customers are willing to part with their money for what you are selling.
They also ask, why is your company the right choice? Having a great team trumps many other factors in creating a successful startup. Having great teams and establishing a healthy, productive organizational culture are two of the most important tasks of the startup. The most important characteristic of a strong culture is one of execution. I my career, going above and beyond customer expectations in delivery of an idea or product caused many of them to proclaim significant excitement. “Who are you guys?” is a common statement when a product hits an emotional nerve.
In their book, Danner and Coopersmith created a methodology of using a Failure Value Cycle to advance the organization. They contend that you really want to leverage failure and use it as a strategically significant resource to help you better innovate and engage your colleagues. They seek to grow your organization. They point to a need for a practical framework in which to do that. They have created a Failure Value Cycle which acts as a guideline and report card that judges how well you extract significant value from failures that your organization faces – before, during, and after failure occurs.
There are seven stages in their model.
If you don’t give failure the respect it deserves, it will come back to bite you again and again. If you don’t talk about your failures neither will your people. It is important to try to move the concept of failure from the realm of taboo into an important topic at the table. Teams might be more credible with their key stakeholder communities if they were a bit more transparent, not to mention straightforward in discussing what happens. What needs to be discussed is what really matters in creating value for your customers, colleagues, and investors and what gets in the way of doing that better. Leaders who don’t respect the gravitational nature of failure miss the opportunity to leverage it to move their organization teams forward. They set themselves up for behind the back criticism and deprive themselves of the candid input and feedback effective leaders so desperately need.
The result you want for failure is insight that allows you and your company to improve next time around. You want to extract genuine value from the failures you created. It is important to create a culture where people take risks, because if you don’t take risks you won’t have breakthrough innovation. As a leader you want to highlight the distinctions between a failure savvy organization (one that takes smart risks knowing some will fail) and a failure soft one, where too many excuses are permitted and rationalization reigns. It is truly important to have genuine respect for the total encompassment of failure.
Stage 2 – Rehearse the protocols to appropriately handle your most important types of failure scenarios.
Failure many times is a repeat process that results in adverse outcomes that might otherwise be preventable. To limit adverse outcomes and provide the best possible responses, it’s important to create frequent rehearsals across a broad range of possible emergencies to instill values that encourage the right kinds of decisions and actions from every employee. One thing for sure, it is the key to planning for failure,
Experiments can be a productive antidote to not well thought out and overly confident enthusiasm about your company’s current strategy and positioning. Figure out your organizations failure horizon. Decide what are the most likely failure scenarios that you might face. Rehearse and take rehearsals seriously. Too many businesses die before their time because they don’t respond effectively to threats or opportunities fast enough.
Stage 3 – Recognize the signals of failure earlier to buy time and minimize its long-term impacts.
If there’s one thing worse than failure, it’s not recognizing failure or identifying it too late to do anything about it. Look for any signs of change, patterns that may be out of the ordinary. These signs could indicate some type of oncoming failure, whether as externally caused or internally generated. Failures are always just over the horizon. They will find you whether you are looking for them or not.
Companies that fail to recognize the early warning signs leave themselves vulnerable to short fuse surprises in addition to slow fuse threats. It is important to balance your focus on running today’s business while continually monitoring threats and opportunities that could shape tomorrow’s business. Graveyards of business are filled with companies who kept trying to improve their current businesses while ignoring the gathering forces of technological, demographic, and operational tsunamis that eventually overwhelm them.
Stage 4 – React effectively to failure, whether unexpected or self initiated, when and as it happens.
Organizations may respect, recognize, and even rehearse adequately, but still flunk when it comes to actually coping with failure when it occurs. Confusion reigns, the organization is in upheaval and, in the meantime the situation is not getting any better. Critical to this challenge is the ability to rapidly diagnose the dimensions of the failure being encountered to determine the appropriate response. An appropriate reaction time is important. Information is uncertain, expectations and responsibilities are often unclear, and the window of opportunity to step in and respond effectively may be short.
Rehearsals can dramatically improve your ability to react to specific failures. Proper prior planning and preparations prevent poor performance. It’s important to resist the knee-jerk reaction to blame. Once failure happens, organizations and leaders can quickly lose control of the situation especially if it’s public and highly visible. What’s important is that management needs to investigate what they need right now from their customers, employees, investors, and the media. When failure occurs is important that the leaders be visible, available, and responsive. It is important to be honest about your experiences to communicate effectively, and apologize if appropriate.
Stage 5 – Reflect thoughtfully, quickly, thoroughly, and openly to clearly understand the factors that led to failure and develop a plan to rebound.
One of the most important things about facing failure is not to focus on the “who” was to blame. It is more important to figure out what, when, how, and why failure has occurred. It is important that we recognize that we have employees that might be stuck in the failure situation. The sooner you can attend to these people who are the most directly involved, the better it will be to acknowledge the emotional dimension of the team’s failure and the faster you can get back to business.
In the wake of failure, participants who have been dramatically affected and whose reputations may have taken a hit may find that their future job security may be compromised. The individuals involved need some time to recover before they can rebound.
Be reflective and keep in mind that failure has a rippling effect on those directly involved, outsiders including customers, suppliers and other stakeholders, investors, the media, regulators, and all other important individuals in the organization.
Stage 6 – Rebound from the aftereffects of the failure and apply its lessons to improve the post recovery performance.
Once the failure has occurred and you have reflected on the situation then you need to get back on track with the benefits of the lessons you’ve just learned. You can’t afford to dawdle or wallow in the failure. At this time the imperative is to rebound and overtake the opportunity.
The key now is to get back in the game and how do you apply the lessons learned from failure going forward. Five fundamental choices exist in this stage:
- Tenacity must be found. Sometimes you need to rivet rather than pivot. It’s important that management be committed to the product or project at hand.
- Make minor adjustments, tweak the situation by taking into account the insights you’ve gathered. Sometimes small changes are needed to get back on track.
- You need to turn a corner sometimes, which may take quite a bit of effort given the momentum of the situation. This will take more planning and communications than a simple tweak and more time.
- Sometimes the situation requires a fundamental reversal of direction based on what you just learned. A turnabout is needed to get things moving correctly.
- Sometimes the worst-case situation is to decide to surrender and leave the field. Sometimes this solution might be the most expedient.
Stage 7 – Remember – to embed your experience successfully leveraging the failure in the cultural memory of the organization.
If there’s one thing a leader is responsible for besides results, it’s important to imbed the trauma and stories about failures in the culture of the organization. Culture is what makes your company an organization. Culture is colored with stories but many leaders miss the opportunities to retell the stories and the lessons that they contain. If the stories are in fact presented this will help your company absorb the valuable insights and preserve them for future generations. It is important to have strong recall about the success of dealing with the failures as the company goes forward. There are four important ways to do this:
- Stories can provide the lessons of a failure and informally enter the most fundamental level of the organization’s cultural narrative. Through stories the lesson can become a part of memory.
- Rituals that result in repeated activities and ceremonies can highlight the most important elements and lessons from a failure episode.
- Physical artifacts, relics that remind the organization of its success in reacting to a failure situation are important.
- Filing the story itself can be documented in written reports.
Finally, there are capabilities that can be tapped to strengthen the leadership needed to weather the future storms of a failure. If you have strong sense of candor in your organization and honesty that is felt by all than the culture will create productive conversations about the projects and initiatives that failed. Cultivate the curiosity of your organization, which can bring different perspectives from collaboration and tap into an innate pool of insights and ideas. Leverage your conversations with customers and other stakeholders to bring exciting ideas to the table.
Cultivate the pride that your team will be able to present not just from their successes from the rebounding to an honest failure. Remember the stories of how the team reacted in a positive way and how they manage the adversity. Accept the fact that with some humility the foundation of trust can be built. Leaders have to demonstrate self-confidence and trust in the team especially in times of a crisis. Trust is the ultimate business component that brings the company together. And finally envision that your employees are willing to dedicate greater effort to the mission of the company.