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In praise of failure

Failing is among life’s least pleasant experiences, but nothing else is as essential to success.

Henry Ford

Photo: Wikipedia

Failure in business is, in fact, more common than success. More than half of all dot-coms that received venture-capital financing in 1999 didn’t make it past the first five years, according to a study by the University of Virginia’s business school and the University of Maryland. Capitalism, like evolution, is all about survival of the fittest. What’s different about the survivors is how they apply the knowledge gained from failure. To take a lesson from automaker Henry Ford, who went bankrupt multiple times before getting Ford Motor Company off the ground: “Failure is simply the opportunity to begin again, this time more intelligently.”

Failed companies tend to be ignored completely in business case studies. Instead, really successful companies are compared with mediocre ones. Michael Raynor, a professor at the Richard Ivey School of Business in London, Canada, and a distinguished fellow with Deloitte Research in Boston, Massachusetts, wondered why. “I don’t have any psychological data to back this up, but failure is depressing,” Raynor says. “We’re not interested in failure; we’re interested in success. I think it’s kind of telling when we use the word ‘dinosaur,’ that’s a metaphor for failure when, in fact, dinosaurs are one of the most successful life forms that ever evolved.” Raynor’s research shows businesses that succeed the most and businesses that fail the most tend to have identical strategies: They take big risks.

British satirist Max Beerbohm once quipped, “Only mediocrity can be trusted to be always at its best.” Raynor’s examination of business case studies confirms that observation. Companies that pursue modest, low-risk strategies typically achieve only modest levels of success. Companies that hit it big or go bust, on the other hand, both commit themselves to high-risk ventures that other companies can’t imitate. “What we’ve missed is that companies that have failed and those that have succeeded tend to have strategies that actually look more or less the same,” Raynor explains.

Sony's Betamax VCR

Photo: Wikipedia

In his book The Strategy Paradox, Raynor looks at the example of Japanese electronics company Sony and the spectacular flop of its Betamax video-cassette recorder (VCR). In the early 1970s, Sony developed the technology of the VHS machine, but co-operated with Matsushita—a much bigger company that had been developing its own technology—to avoid having to compete. Eventually, Sony went it alone with its Betamax system, focusing on making its machine high-quality rather than low-cost, and maintaining an iron grip on technology licensing. Matsushita developed its VHS using the opposite strategies and ended up dominating the video-rental market, eventually driving the Betamax into oblivion. Both companies pursued strategies that involved big commitments and big risks. Sony failed.

Fast-forward to the early 1990s, when Sony was rolling out its MiniDisc player. After its Betamax failure, the company stole a page from the Matsushita playbook: It made the machine affordable and took a looser approach to licensing. But because the MiniDisc launched just as the Internet was making the download market possible, the need for such a player ceased to exist. Sony failed again, even though it adopted the strategy of the company that had beaten it previously.

Few people would regard Sony as a failed business. For Raynor, the lesson is: The opposite of success is not failure, but mediocrity. To achieve big successes, you need to take big risks; if you take little or no risks, mediocrity is guaranteed. Raynor says the key is to have a number of higher-risk strategies up your sleeve in case one or more of them doesn’t pan out. “It’s an indictment of what we’ve come to think of as the prerequisites of success,” he says. “Failure can be beneficial, but you have to learn the right lessons from it.” In other words, you can’t be a game-changer in the business world unless you try something risky, which might well result in failure.

The same “success bias” is present in science. With scientific research often backed by big corporations or large university budgets, the pressure to produce findings that are positive or dramatic can be overwhelming. Scientific journals can therefore be reluctant to publish studies that don’t show a positive correlation or result—such as, say, the idea that eating carrots isn’t correlated with enhanced eyesight. The Journal of Negative Results in Biomedicine was founded as a way to promote the open discussion of negative or unexpected results, and, according to its website, “is ready to receive papers on all aspects of unexpected, controversial, provocative and/or negative results/conclusions … providing scientists and physicians with responsible and balanced information to support informed experimental and clinical decisions.”

Unreported scientific findings, whether positive or negative, can skew further research and hamper funding for important studies that may be prompted by negative results. “Publishing well-documented failures may reveal fundamental flaws and obstacles in commonly used methods … ultimately leading to improvements in experimental designs and clinical decisions,” the Journal’s editors write.

A number of significant scientific failures have, in fact, produced positive developments. In the 1830s, scientist Charles Goodyear had a vision of making rubber the material of the future. He spent more than a decade working on the vulcanization process, enlisting the help of family, friends and anyone else who would listen to him and contribute funds. Goodyear was laughed at by potential investors and even thrown into jail several times by creditors (he did some of his first experiments from his jail cell). It wasn’t until he accidentally spilled a concoction of rubber and other materials on a hot stove that he came up with a mixture that could stand up to extreme temperatures, which eventually became the basis for the tires sold by Goodyear, a company named in his honour even though Goodyear had no affiliation with it.

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