The Three Rules for Failing Successfully

By Pavan Muzumdar
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The importance I place on creating a learning organization is seen both in icube™ and in the work I do at Automation Alley, Michigan’s Industry 4.0 Knowledge Center. I believe when individuals learn from their mistakes, the learning is deeper, more insightful, and long-lasting. When organizations implement this mindset successfully, internal trust is elevated and the ability to face digital disruption is strengthened.

To be sure, making and accepting mistakes, often categorized as failures, isn’t easy. We are not socialized to celebrate failure; our society is firmly oriented towards seeking and sharing successes. That’s why when I recently listened to an episode of one of my favorite podcasts, “The Indicator” from NPR’s Planet Money, I was impressed by the analysis of failure by one of Amazon’s recent ventures: Amazon Restaurants.

The way the story was told, Amazon, which is a leader in e-commerce and home delivery for processed and manufactured goods, isn’t that strong in the last mile of delivery. Amazon is great at moving product out of warehouses into hubs close to homes. However, the deliveries of products from these hubs to homes, often referred to as “the last mile,” is accomplished by third parties. This doesn’t bode well for food delivery. After trying its hand at home delivery from local restaurants, Amazon decided to call it quits and instead of building the service, decided to buy into one instead. As of this writing, regulators were scrutinizing the deal, but that’s another story.

When you dig deeper into Amazon’s culture, it becomes clear that the company has a history of failing successfully, driven from the top. This has kept its innovation engine vibrant, and what started as an online bookseller has become an online retail, cloud-computing, and media-distribution giant. Even the technology developed for Amazon Restaurants is being repurposed for application elsewhere in the company.

As I observe what Amazon has institutionalized, three specific rules in how to do this well became apparent. Here they are:

  1. Reframe failures as learning
    There are two types of failures that can result in learning. Internal and external. The internal failures may be a process- or tool-related and aren’t often seen or felt externally. The external failures are business models, products, or services. In both cases, it is critical for leaders to ask the question, “What did we learn from this?” This question implies intent for learning. Asking “Why did we fail? What went wrong?” may come off as looking for attribution followed by retribution. It’s a subtle, yet important, distinction. And if you’re a brave leader, go one step further and celebrate and share the learning from these “failures.”
  2. Know and limit your downside
    Failures, even when they result in learning, aren’t fun when they are costly. That’s why it’s critical that leaders have a clarity of the true financial cost of initiatives. This is the concept of making an option-like bet. An option has a fixed and limited downside cost, but its upside return potential may be unlimited.
  3. Maintain liquidity to keep going
    Finally, the objective is to keep the process sustainable; for that you need money. While you keep the learning engine going, you need a source of continued cash flow and financial discipline to keep the process sustainable. That means learning without dropping the ball on the core, cash generation in the business. This is not easy, but critical for making the company resilient to disruption.

icube™ as described in the book Venture Perfect describes self-facilitated tools that can help leaders create the environment to put all these three rules in practice.

About Venture Perfect

Venture Perfect describes icube™ a business leadership system designed to maximize teamwork and profit in any company. icube™ teaches leaders how to create powerful systems and structures that foster an inspiring culture, an intelligent strategy, and intense execution for long-term sustainability.

Pavan Muzumdar Managing Director