Failure is Underrated and Overburdened. Don’t Fear it – Use it!

Failure is Underrated and Overburdened. Don’t Fear it – Use it!
May 31, 2016 Michael Skok

This is an expanded version of an article published in the Wall Street Journal.

Introduction

Most advice you’re going to hear on failure will be trite. Statements like “fail fast” or “learn from it.” That’s obvious and useless without a framework for learning. And, if you fear failure, chances are it’s because of the unknown. So I’ll tackle both head on in this article and give you 7 ways to utilize it to your advantage.

Let’s start by exposing failure for the masquerade it is: Remove its mask, name it, know it.

The top 4 reasons for startup failure are:

  1. Team
  2. Market
  3. Value Proposition
  4. Business Model

If you’re a tech startup, no, I did not miss technology. Technology is very rarely the reason for failure. Good teams rarely fail to build their product. But if they miss the market need with a valueless proposition, a well-built product is just, well, useless. As an example, in 12 years, across 4 funds, with many, many companies across our all technology portfolio, less than 5% failed just because of the technology. If you broaden this to look at as many studies as you want, you’ll still find most startups fail because the team fell apart, failed to assess the market, didn’t deliver a compelling valuable proposition that met the market need, or couldn’t find a sustainable business model.

Done. No more unknown. No more fear! Great, so now you know that, can you avoid failure? And should you even try? I’d say ‘no’ and ‘yes’!

No

When was the last time you heard of innovation without experimentation? Or experimentation without failure? As it turns out, without failure we wouldn’t have Post-It notes, pacemakers or penicillin. Failure is not just an inevitable part of innovation. It’s an essential part of the breakage we need to make breakthroughs in the many problems, big and small, that challenge our increasingly overpopulated, resource-constrained, socio-economically challenged world.

All these problems are actually HUGE opportunities for budding entrepreneurs, but we’ll never address them without taking risk and unburdening ourselves from the fear of failure. Instead, we need to learn to use failure intelligently so it doesn’t become absolute.

“The fastest way to succeed is to double your failure rate.”

— Thomas Watson, Sr. of IBM

Just ask Adam Melonas of Chew Labs. He requires a 98% failure rate to discover the secret sauce to his products.

So, whether it’s solving world hunger or just inventing great new products, we need to appreciate and utilize failure as critical part of the entrepreneurial learning process rather than overburden it with stigma and dogma.

“Failure is simply the opportunity to begin again, this time more intelligently.”

— Henry Ford

Yes

Forewarned is forearmed. Now that you know the top 4 reasons for failure, why wouldn’t you learn from other people’s mistakes? Not by rote, but by judging what is relevant to you. That is at the essence of my whole Startup Secrets series, where we look to extract frameworks for success and include case examples of failure to learn from, so you can be mindful as you build your business.

With that in mind, here are 7 simple ways failure can be utilized as a mindful learning experience, and ultimately teach success:

  1. Separate what you can and can’t control – starting with the market.
  2. Fail measurably, not miserably.
  3. Change the game of success & failure – compete unfairly
  4. Don’t just fail fast – act fast: fast enough to keep your options open!
  5. Don’t just Pivot, Persist, Pause or Fast-Forward!
  6. Acknowledge the difference between luck and timing.
  7. Build a team and culture to turn problems into opportunities.

Separate what you can and can’t control.

Not all failure is created equal. Distinguish between failure that could have been avoided from that which is beyond your control.

failure has a small ‘f’ when it’s out of your control.

For example, differentiate carefully between Market failure vs. Execution Failure.

Markets

Startups rarely control markets. They may predict them, discover them, pioneer them, come to lead them or later dominate them, but they rarely control them.

Instead, listen to Markets, acknowledge their power, and learn to separate your execution from market forces. Otherwise, you won’t understand the failure of your execution vs. the timing of the market, its evolution, acceptance or regulation.

Execution

Execution is under your control. If you don’t listen to market needs, study your competition, or understand your customers’ pain points or aspirations intimately, expect to pay with Failure, with a capital ‘F’.

When it comes to execution, it’s not all just big issues. Sweat the small stuff – like the details of design to delight your users with a great product experience. Expect to fail if instead, you overload your offering with un-researched, unnecessary and untested features that result in avoidable complexity and bugs.

TWITTER’s simplicity and success was born from Odeo’s failure as a feature-laden podcasting product.

But again, this is does not mean you should not experiment, or that you should lapse into fearing failure. Just be discerning. For example, if you are experiencing failure through experimenting with innovative ways to reduce a customer’s learning curve or difficulty of implementation to achieve a compelling user experience, that is to be encouraged. By contrast, failure to acknowledge a minimum threshold for quality is clearly not.

Speaking of quality, quality of execution is a value and it’s part of a startup’s culture. Set your standards and values as part of your culture early and live by them and reward them.

Fail measurably, not miserably.

I was lucky to experience failure very early in my career. One of the biggest lessons I learned led me to create this simple anecdote:

An experiment without measurement is like a race without a finish line: pointless and endless.

As a startup, you’re going to want to measure everything. This is an outside-in and an inside-out imperative.

Outside in.

Get outside the building and measure everything from the customer viewpoint. I like to change the old adage “you can’t manage what you can’t measure” to a more specifically customer oriented:

You can’t sell what you can’t prove, and you can’t improve what you don’t measure.

Expect to prove value to customers quickly. In B2C ventures, measure the time to WOW! In B2B settings, model payback periods and ROI for customers. For improvement, nearly everything can be measured, particularly for online products and services with great tools like Evergage, Optimizely, etc.

Tony Fadell, who created the iPod and NEST, is famous for measuring the customer time to value. So much so he obsessed over the NEST installation and created a custom screw just to ensure a fast and reliable installation.

Inside out.

As I mentioned earlier, many startups fail because they can’t define a profitable business model. Prove to yourself you can get profitable acquisition of customers that converts to cash to reinvest and improve the internal rate of return of that cycle.

Change the game of success & failure – compete unfairly

Business models needn’t be a threat – they actually provide an opportunity to create disruption and competitive advantage by changing the game altogether and writing your own rules.  See Game Changing Business Models for more on creating a unique business model.

However you play the game, as a startup you’ll never have more resources than the larger players you’ll need to compete with. (Oh, and yes, you DO have competitors, even if you think you’re unique, because everyone competes for the customers’ share of mind and wallet.)

But you have three advantages: Agility, Speed and no Legacy to slow you down. (Legacy might be your installed base, old code, or even a business model. Think Microsoft vs. Google) The startup unfair advantage equation is simple.

The startup’s unfair advantage: AGILITY = SPEED – LEGACY 

To stay agile:

  • Create focused, manageable cycles of action.
  • Establish discrete, measurable investments/experiments.
  • Learn to build on and celebrate small successes, rather than having to cut back on big failures (e.g., big company rollouts or product launches are so 1999! Build rolling thunder by delivering more than you promise).
  • Don’t be afraid to say NO! Distraction leads to bloat and it’s a luxury you can’t afford. Leave that and the politics to the big guys 😉
  • Tackle a big problem, but define it as clearly as it is big, and break it down as little as it is large
  • Keep your options open. Binary bets may sound bold but they’re the ultimate risk, just like one way streets are tough places to change direction.

But agility and speed aren’t enough if you don’t think about your direction. Just because you’re picking up speed doesn’t mean you’re not going downhill fast…

Don’t just fail fast – act fast: fast enough to keep your options open.

Always fess up to failure faster than you celebrate success. Act fast enough to keep your options open. Cash is king for a reason. Without it you have no option but to be out of business. Don’t be afraid to cut back your expenses, reduce cash burn and de-risk fast enough to live another day.

If you’re not seeing a market turn from you pushing to customers pulling, or you’re not getting cycles of return on your investment, cut fast and deep enough to open up your options. The death of one cut is so much better than the death of a thousand cuts. Once you learn what’s working, you can always build back, but if you’re out of cash, you’re out of options. Learning from failure is great, but sadly, I rarely hear entrepreneurs say they acted fast enough when they were failing.

 

Glitch started out as a failed multiplayer online game. But Stewart Butterfield conserved $6m of cash through fast action. Out of that, SLACK, a corporate messaging app, was born. After just over a year it boasted 750,000 daily active users, making it one of the fastest growing business apps of all time. Investors just invested $160m at a $2.8B valuation.

Pivot is usually the default action I hear…

Don’t just Pivot, Persist, Pause, or Fast Forward!

As much as I love the lean methodology, Pivot should be no more a default answer than every problem’s solution is a nail because you have a hammer.

Knowing when to persist because you’ve simply not executed well is fundamental.

“Never confuse a single defeat with a final defeat.”

  1. — Scott Fitzgerald

Learning to “pause” because your data is inconclusive or inconsistent shows good leadership, as does “fast forwarding” when you’re proving success. All these are critical skills of good entrepreneurs.

Example Decision Potential actions
  • Market was a mirage
  • Product was in search of a market
Pivot
  • Skip the ideas, define the pain / need opportunity / problem first
  • Learn more here
  • Customer needs not met
  • Segment was not defined tightly
Persist
  • Data inconclusive
  • Inconsistent results
  • Instinct not proving out
Pause
  • Redefine your experiment
  • Refine test/measurement
  • Re-question assumptions
  • Repeated product market fit
  • Predictable business model
Fast Forward
  • Invest to capture market leadership. (It is disproportionately highly valued)

On this last point, Failure can actually be moving too slowly and missing the opportunity. If your market is responding and your business model is working, you’ve found the Fast Forward button. Use it! (See how to decide when it’s time to Scale your Startup)

Great entrepreneurs do the work, collect the data, pour over the numbers, analyze the results and check their assumptions and, of course, use their instinct and vision before they make the thoughtful choices between Pivoting, Persisting, Pausing or even Fast Forwarding. And, don’t forget the value of Patience!

Acknowledge the difference between Luck & Timing

Luck is a wonderful thing, and I hope you all find it. Whatever you do, learn to acknowledge it for what it is and separate it from judgement, execution, or anything else so you don’t fool yourself.

And equally when you have bad luck don’t take it personally, and don’t let it get you down either or bemoan others for their good fortune. Chance is not a fair thing by definition. Be a shark: keep moving to feed yourself or risk becoming bait.

Expect the unexpected!
Several years after assuming a key IP agreement, one of my investments faced an apparently insurmountable lawsuit. They were so nearly out of business at one point that one of my partners declared them to be “in the zone of insolvency”! They were smart enough to conserve cash burn to turn the corner, win the suit and emerge as a multi billion dollar public company recognized as a leader in their market today.

I have both featured in and seen this movie over and over again. Many great successes come through near bankruptcy, extinction, or apparent doom. Remember things are always darkest before the dawn.

Timing

Timing really can be everything in a startup. With typically several years to critical mass or exit, entrepreneurs need vision to be able to get ahead of a market, and time to innovate and build a solution to meet the market. Meet it too early and you’ll waste your precious resources but meet it too late and you’ll be an “also ran.” Miss a regulation and you could be out of business. As both an investor and entrepreneur I’ve seen all of these things happen, and they don’t signal failure – unless it was truly under your control.

“Our best success often come after our greatest disappointments”

  • — Henry Ward Beecher
  • Build a team and culture to isolate and turn problems into opportunities

    It’s hard to discern what is really failing when you’re working with a new team, building a new product, going after a new market, using new marketing campaigns, and working with new sales programs to reach new customers through new partners. And yet, that’s just what I have to sort through in many board meetings. Any ONE of those things is hard enough.

    Try to single out which of these things to focus on as you evaluate success, otherwise you can end up with a multi-dimensional, compounded problem to solve. Learn to isolate experimentation instead and build a culture to make problem solving a core competency that can open up opportunities and build billions of dollars of value as shared in the story of Amazon here.

    “It’s not that I’m so smart, it’s just that I stay with problems longer.”

  • — Albert Einstein
  • Cultures with room for failure breed success and give rise to happy accidents.

    The difference between success and failure is often cultural. Good cultures not only leave room for experimentation and problem-solving, they encourage both failure and the upside of accidents. 3M is famous for it. It’s also why Google has X, Adobe has KickStart and LinkedIN has an Incubator program.

    Last but definitely not least – in fact MOST importantly.

    If I’ve learned one thing it’s that all bets are off if you don’t learn to hire each person better than the last and bind them as a team with a strong culture. Time and again, the number one reason for success over failure is learning to hire and build an A+ team, that can snatch victory from the jaws of defeat.

    That’s so important, we split this into two workshops on culture and hiring.

    Conclusion

    Failure is underrated. Creatively channeled, it is a powerful tool to encourage experimentation, create breakthroughs, navigate problems and create options for success. But failure has been overburdened. There need be no fear of failure if we speak to the risk, and manage expectations, there is no absolute failure, only learning. So let’s appreciate it for the experience it builds and utilize it fully to empower our future entrepreneurs!

    Start now and celebrate the courage, resolve, and sacrifice it takes to be an innovator, an entrepreneur or join a startup to change our world.

    Case Examples

    Demandware – Business Model

    Demandware – Business Model

    Drupal

    Drupal

    Diagnostics For All

    Diagnostics For All

    Google

    Google

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