Struggling with Uncertainty and Embracing Failure

The following is adapted from my new book, The Startup Way, on sale now.

One day during my work with GE, I had a meeting with a Six Sigma black belt in one of the company’s industrial businesses. (Six Sigma is the management structure based on achieving 99.9966% perfection in product quality through process, famously introduced to GE by Jack Welch in the 1990s.)

As we talked about our differing management ideas, I found myself distracted by the mug on his desk, which read: FAILURE IS NOT AN OPTION. Nobody in the startup world could have such a mug, I mused; it would be ridiculous. My own experience, to give just one example, is full of situations where reality proved too unpredictable to avoid failure.

I thought of the best, most successful entrepreneurs I know. What would their mugs say? I settled on: I EAT FAILURE FOR BREAKFAST.

The tension between those two slogans is a great starting point for understanding not only why startups have had such a hard time adopting traditional management methods, and vice versa — but also what connects them. There was a time when producing high-quality products on time, on budget, and at scale was one of the preeminent problems of the age. Understanding how to build quality into products from the inside out required mastering the new statistical science of variation, and then devising tools, methodologies, and training programs that could make doing so practical. Standardization, mass production, lean manufacturing, and Six Sigma are all fruits of this hard-won conceptual victory.

Baked into these methods is a presupposition that failure can be prevented through diligent preparation, planning, and execution. In today’s circumstances of extreme uncertainty, though, a number of forces both external and internal make total avoidance of failure implausible:

1. Globalization and the rise of new global competitors.
2. “Software eating the world” and the way automation and IT seem to destroy the competitive “moats” companies have been able to set up around their products and services in the past.
3. The increasing speed of technological change and consumer preference.
4. The ridiculous number of new potential high-growth startups that are entering every industry — even if most of them eventually flame out.
5. Increased pressure on today’s managers to create more uncertainty themselves by launching new, innovative products, seeking new sources of growth, or entering new markets.

In these circumstances, we have to assume that some projects won’t survive. And that’s okay. Embracing failure is part of what it takes to make progress not just in a startup trying to come up with something brand new, but in a large corporation that wants to adapt and grow as circumstances change.

The Amazon Fire phone is perhaps one of the most famous--or infamous--examples of a company embracing failure. Over the course of four years, the project went from an exciting new idea to almost universal disappointment after its launch in the summer of 2014. Ultimately, it led to a $170 million write-down based mostly on unsold phones. Where a more traditional company might have fired people and destroyed morale, Amazon used this opportunity to learn and reorganize. It moved the team that had been working on the phone to other projects (among them the hugely successful voice-activated Echo) and continued experimenting with everything from original television to food delivery.

At the time, Jeff Bezos explained his perspective this way:

"I’ve made billions of dollars of failures at Amazon.com. Literally. None of these things are fun, but they also don’t matter. What matters is that companies that don’t continue to experiment or embrace failure eventually get in the position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence. I don’t believe in bet-the-company bets."

As he further explained later that same year:

“There are many ways of thinking about this, but the reality is that Amazon is a collection of several businesses and initiatives. It’s kind of like we built this lemonade stand twenty years ago, and the lemonade stand has become very profitable over time, but we also decided to use our skills and the assets we’ve acquired to open a hamburger stand, a hot dog stand — we’re investing in new initiatives.”

Even in situations where you can’t forecast, you can still plan. Whatever the Fire’s original business plan was, it surely didn’t predict what happened. But the phone was built with an assumption of risk that created space for the company’s reaction when it didn’t play out as expected. It’s that long-term vision — the understanding that the lemonade itself might end up not being a long-term bestseller, but instead some other bet might be— that allows the creation of a portfolio of experiments that maximizes the chance for hitting on success. Paired with an accountability structure of the systems, rewards and incentives that drive employees behavior and focus their attention, that’s aligned with the company’s short term and long term goals and takes failure into account, it’s a powerful force.

My new book, The Startup Way, has just been released. You can find more information here.