3 Ways to Fail Cheap

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Right now I'm getting ready to join a startup incubator as a speaker with the topic: "TOP mistakes most often made by startups at the early stages".

I believe that failure is not a dirty word in startups. But only if it does not cost a lot of money and time.

A few days ago, I found a useful article in Harvard Business Review, by Scott D. Anthony (clinical professor at Dartmouth College’s Tuck School of Business, a senior partner at Innosight, and the lead author of Eat, Sleep, Innovate (2020) and Dual Transformation (2017).)?

I actively apply this approach, so I decided to share it with you here. ??

I had an interesting dialogue with an innovation practitioner in a large corporation the other day. We were talking about how the high rate of innovation failure can hamstring innovation.

“The failure rate is actually irrelevant,” he said. “It’s the risk associated with those failures that gets you into trouble.”

In other words, failure would be fine, if it wasn’t so darn expensive. Because failures cost money (and time), high failure rates can cause corporations to become very gun shy about innovation.

Of course, one way out of this problem is to increase the innovation success rate. A noble aspiration for sure. But be careful. Following that seemingly sensible path can lead to some perverse behavior.

For example, a company can almost always “succeed” by introducing “new and improved” products that cannibalize what they already sell. A company can confidently state that all of its revenue comes from products launched within the past two years, feel good about its innovation efforts, and actually be falling further behind competitors.

The real answer is to dramatically decrease the cost of failure. A leadership team seeking to achieve this aim has three levers at its disposal:

1. Lower the costs of experiments. Running experiments need not be expensive. There are tons of low cost ways to test critical assumptions.
2. Change the order of experiments. Many companies spend a lot of money answering the wrong questions. They’ll seek to perfect a technology without understanding whether there’s a market need. Assess strategic risks first, because they are often what sink an idea.
3. Increase the pace of decision making. Entrepreneurs with clearly bad ideas typically don’t have the luxury of spending money on those ideas for too long. Companies, however, can let bad ideas linger for inordinate amounts of time because of slow decision-making processes. Shutting down flawed projects early avoids needless spending — and focuses resources on the best ideas.

Pulling these levers requires embracing the notion of “good enough.” Experiments are often expensive because companies seek perfection in their own eyes before they run any sort of test. Remember, the less you’ve spent, the more freedom you have to change your approach.

And finally, remember that failure is not a dirty word. The odds are pretty high that your first idea is wrong along some meaningful dimension. If you fail fast and fail cheap, you can accelerate discovering a winning idea. Successful innovation and fast-cycle iteration go hand in glove.

Of course, it’s one thing for companies to say they embrace the right kind of failure. It’s quite another thing to create a culture that rewards low-risk failures and savors surprises. Maybe companies could set up a failure target as part of each employee’s annual review. Or create a repository of “failure case studies.”

I believe that failure is not a dirty word in startups. But only if it does not cost a lot of money and time.