SchumpeterFailoften,fai l wellCompanieshaveagreatdealtolearnfromfai lure—providedtheymanageitsuccessfully Apr14th2011|fromtheprintedition

BUSINESSwritershavealwaysworshippedatthealtarofsuccess.TomPetersturnedhimselfintoasuperstarwith“InSearchofExcellence”.StephenCoveyhassoldmorethan15mcopiesof“The7HabitsofHighlyEffectivePeople”.MalcolmGladwellcleverlysubtitledhisthirdbook,

“Outliers”,“TheStoryofSuccess”.Thissuccess-fetishmakesthelatestmanagementfashionallthemoreremarkable.TheAprilissueoftheHarvardBusinessReviewisdevotedtofailure,featuringamongothercontributorsA.G.Lafley,asuccessfulex-bossofProcter&Gamble(P&G),proclaimingthat“welearnmuchmorefromfailurethanwedofromsuccess.”ThecurrentBritisheditionofWiredmagazinehas“Fail!Fast.Thensucceed.WhatEuropeanbusinessneedstolearnfromSiliconValley”onitscover.IDEO,aconsultancy,hascoinedtheslogan“Failofteninordertosucceedsooner”.Therearegoodreasonsforthefailurefashion.Successandfailurearenotpolaropposites:youoftenneedtoendurethesecondtoenjoythefirst.Failurecanindeedbeabetterteacherthansuccess.Itcanalsobeasignofcreativity.Thebestwaytoavoidshort-termfailureistokeepchurningoutthesameoldproducts,thoughinthelongtermthismayspellyourdoom.Businessescannotinventthefuture—theirownfuture—withouttakingrisks.Entrepreneurshavealwaysunderstoodthis.ThomasEdisonperformed9,000experimentsbeforecomingupwithasuccessfulversionofthelightbulb.StudentsofentrepreneurshiptalkabouttheJ-curveofreturns:thefailurescomeearlyandoftenandthesuccessestaketime.AmericahasprovedtobemoreentrepreneurialthanEuropeinlargepartbecauseithasembracedacultureof“failingforward”asacommontech-industryphraseputsit:inGermanybankruptcycanendyourbusinesscareerwhereasinSiliconValleyitisalmostabadgeofhonour.Relatedtopics

• MalcolmGladwell• HenryFord• SiliconValley

Amoretolerantattitudetofailurecanalsohelpcompaniestoavoiddestruction.WhenAlanMulallybecamebossofanailingFordMotorCompanyin2006oneofthefirstthingshedidwasdemandthathisexecutivesownuptotheirfailures.Heaskedmanagerstocolour-codetheirprogressreports—rangingfromgreenforgoodtoredfortrouble.Atoneearlymeetingheexpressedastonishmentatbeingconfrontedbyaseaofgreen,eventhoughthecompanyhadlostseveralbilliondollarsinthepreviousyear.Ford’srecoverybeganonlywhenhegothismanagerstoadmitthatthingsweren’tentirelygreen.Failureisalsobecomingmorecommon.JohnHagel,ofDeloitte’sCentrefortheEdge(whichadvisesbossesontechnology),calculatesthattheaveragetimeacompanyspendsintheS&P500indexhasdeclinedfrom75yearsin1937toabout15yearstoday.Upto90%ofnewbusinessesfailshortlyafterbeingfounded.Venture-capitalfirmsareluckyif20%oftheirinvestmentspayoff.Pharmaceuticalcompaniesresearchhundredsofmoleculargroupsbeforecomingupwithamarketabledrug.Lessthan2%offilmsaccountfor80%ofbox-officereturns.Butsimply“embracing”failurewouldbeassillyasignoringit.Companiesneedtolearnhowtomanageit.AmyEdmondsonofHarvardBusinessSchoolarguesthatthefirstthingtheymustdoisdistinguishbetweenproductiveandunproductivefailures.Thereisnothingtobegainedfromtoleratingdefectsontheproductionlineormistakesintheoperatingtheatre.Thismightsoundlikeanobviousdistinction.Butitisonethatsomeofthebestmindsinbusinesshavefailedtomake.JamesMcNerney,aformerbossof3M,amanufacturer,damagedthecompany’sinnovationenginebytryingtoapplysix-sigmaprinciples(whichareintendedtoreduce

errorsonproductionlines)totheentirecompany,includingtheresearchlaboratories.Itisonlyamatteroftimebeforeaboss,hypnotisedbyallthecurrenttalkof“rampantexperimentation”,makestheoppositemistake.Companiesmustalsorecognisethevirtuesoffailingsmallandfailingfast.PeterSimslikensthistoplacing“LittleBets”,inanewbookofthattitle.ChrisRock,oneoftheworld’smostsuccessfulcomedians,triesouthisideasinsmallvenues,oftenbombingandalwaysjunkingmorematerialthanhesaves.JeffBezos,thebossofAmazon,compareshiscompany’sstrategytoplantingseeds,or“goingdownblindalleys”.Oneofthoseblindalleys,lettingsmallshopssellbooksonthecompany’swebsite,nowaccountsforathirdofitssales.Damagel imitat ionPlacingsmallbetsisoneofseveralwaysthatcompaniescanlimitthedownsideoffailure.MrSimsemphasisestheimportanceoftestingideasonconsumersusingrough-and-readyprototypes:theywillbemorewillingtogivehonestopinionsonsomethingthatisclearlyanearly-stagemock-upthanonsomethingthatlookslikethefinishedproduct.ChrisZook,ofBain&Company,aconsultancy,urgescompaniestokeeppotentialfailuresclosetotheircorebusiness—perhapsbyintroducingexistingproductsintonewmarketsornewproductsintofamiliarmarkets.RitaGuntherMcGrathofColumbiaBusinessSchoolsuggeststhatcompaniesshouldguardagainst“confirmationbias”bygivingoneteammemberthejoboflookingforflaws.Butthereisnopointinfailingfastifyoufailtolearnfromyourmistakes.Companiesaretryinghardtogetbetteratthis.India’sTatagroupawardsanannualprizeforthebestfailedidea.Intuit,insoftware,andEliLilly,inpharmaceuticals,havebothtakentoholding“failureparties”.P&Gencouragesemployeestotalkabouttheirfailuresaswellastheirsuccessesduringperformancereviews.Butthehigherupinthecompany,thebiggertheegosandthegreaterthereluctancetoadmittoreallybigfailingsratherthanminorones.Bossesshouldrememberhowoftenfailurepavesthewayforsuccess:HenryFordgotnowherewithhisfirsttwoattemptstostartacarcompany,butthatdidnotstophim.