What failed restaurants teach our risk-averse companies

There's a reason I'm such a fan of the restaurant scene in cities like London, Amsterdam or Berlin. The buzz of pop-ups, ever-changing menus and the creative chaos is exhilarating.

And yet, for exactly that reason, I have no desire to open or invest in a restaurant in these cities.

Is that a contradiction?

The problem is that individual restaurants in these dynamic cities are inherently fragile. You have to deal with annoying things like high fixed costs, unpredictable changes in customer preferences and savage competition.

Customer loyalty can grow, grow, grow and then suddenly evaporate. Your unique South African poke bowl concept might attract a barrage of imitators, or customers might go off it overnight.

And yet it’s precisely this fragility, this relentless competition through innovation and variety, that gives each city’s restaurant scene such vibrancy.

To me, this inverse correlation –fragile parts contributing towards a vibrant system– serves as fantastic inspiration for a large organisation trying to manage a portfolio of highly uncertain innovation initiatives.

This is antifragility in action.

So in this week’s article, let's explore how a vibrant restaurant scene can teach us to build organisations that grow stronger through embracing risk, failure and learning – but also transparency and accountability.

1. What’s Antifragility?

Many of us are familiar with the term ‘antifragile’ since Nassim Taleb’s 2012 book of the same name. (Link here, no affiliation.)

Given the praise this book has received from readers and critics ever since its release, I’m surprised at how poorly its lessons have been adopted by companies hoping to not just deal with, but also benefit from, uncertain outcomes.

Part of this failure might come from a persistent misunderstanding: that antifragility is broadly the same as resilience or robustness.

To understand the difference, picture a cup made of porcelain. Porcelain is fragile: If you knock the cup off a table, it’ll break.

Now picture a cup made of hard plastic. Plastic is robust: If you knock it, you’ll spill your San Pellegrino, but the cup will escape undamaged.

But what if we could design a cup made of a material that’s beyond robust? A cup that somehow gets stronger each time it hits the floor. Such a material would be antifragile.

A less theoretical example of antifragility in the physical world is the way a muscle gets stronger the more it’s used. By incurring small amounts of damage with each training session, the muscle bounces back stronger than it was.

To be honest, I haven’t come across many other simple examples of antifragility.

But the concept is at its most insightful when we consider complex systems – groups of animals, people, machines that interact with each other.

One thing that I’ve learnt from financial markets and from the field of innovation is that when we’re dealing with both uncertainty and complexity together, the experience and acquired knowledge of a senior businessperson is often useless, even damaging.

Let’s take the common example of a big company deciding which customers to target with an innovative new product.

Rather than resorting to deep analysis and a back-and-forth of strong opinions, the only way to find the ‘correct’ answer (or at least a correct answer) is through agile experimentation. The highest-paid person’s opinion (HiPPO) is almost certainly wrong. (As is everyone else’s opinion.)

Whether you’re a huge company or a small company, you need to test things out –quickly and cheaply– to figure out what works.

Likewise, in a restaurant scene that doesn’t rest on its Michelin stars but seeks to reinvent itself constantly, small individual failures (e.g. a pop-up restaurant that doesn't succeed) reveal what works and what doesn’t.

So it’s through these small failures that the whole of the restaurant scene continues to improve itself.

In a complex system where each element is allowed –even expected– to be fragile, the whole becomes more adaptive and innovative.?

Now that we’re clear on what antifragility means, let’s see how it benefits a city’s restaurant scene.

2. Restaurant scenes are a model of antifragile success

The vibrant restaurant scenes we see in cities like London, Amsterdam and Berlin don’t come from their Michelin stars (even though they each boast plenty) but for their dynamic, experimental nature.

A relatively high share of restaurants (or food venues more broadly) in these cities are pop-ups or temporary/experimental concepts. Their probability of failure is high.

But their cost of failure is low. Considerably lower than if a grand, Michelin-starred establishment were to go bankrupt.

Each time a fusion food truck or a dine-with-art concept closes down, it’s sad for the owners. But on a systems level, these “failures” are not wasted: They drive learning, they spark even better ideas, and they contribute to refreshing the culinary scene.

(This is also why avoiding a stigma around failure is important. Entrepreneurs who tried a small-scale food concept but didn’t succeed should be applauded and encouraged to try something different again in future.)

The more a city and its residents encourage individual restaurants to experiment (which includes failing), the richer and more diverse their overall restaurant ecosystem becomes.

Experimentation can take many forms of course: temporary installations, seasonal menus, underground dining experiences, new technologies, new experiences, absurd plate sizes…?

These are all fragile undertakings. Most won’t work.

But the more willing we are to embrace this fragility, the more antifragile our local restaurant scene becomes.

(That's why I wouldn't invest my own savings into a restaurant. But if it were possible to invest in a whole restaurant 'scene', what a cool investment that could be!)

3. Corporates too should embrace fragility

In contrast to London, Amsterdam or Berlin, think of a town you know with a decidedly non-vibrant restaurant scene. Let’s call it Graytown.

Most likely your Graytown has a few well-established restaurants that are ok, but they probably haven’t changed much in recent years. Nothing interesting has “popped up”.

I imagine most visitors would describe the food scene as lacking inspiration. Local Graytonians probably feel they’re missing out on the exciting food trends that more vibrant cities enjoy.

And in terms of value-for-money, diners are likely to feel they’re getting a raw deal due to weaker competition. Which is bad for the town as a whole.

Crusty old companies who do their best to eliminate failure are just like your Graytown.

Their aversion to risk ultimately leads to stagnation and decline.

But if future prosperity is what they seek, corporations must strive to become antifragile systems, not fragile (nor robust) systems.

To do this, they need to get much better at allowing small, controlled innovation initiatives to be fragile.

In practice, this means pushing for a lot more experimentation.

It also means that “agile” needs to shift from being a buzzword to describing the way funding for innovation projects is allocated. Rather than squeeze projects through funnels and wave them through stage-gates, I recommend that companies take a Real Options approach to funding their innovation portfolio.

(I’ve described the Real Options approach in more detail in this previous article, but broadly, this means that we assign tangible, financial value to the flexibility offered by breaking each uncertain project down into a series of small bets. Learning isn’t just a matter of faith.)

Even if these small bets fail (as most will), they provide valuable learning opportunities and spur further waves of innovation.

We can think of these individual innovation projects as being like the individual restaurants: They’re fragile, so likely to fail.

But it’s thanks to this fragility that the overall portfolio becomes stronger, more diverse and of greater quality.

If you’re a logistics company, or a bank, or an insurance company, and you make a habit of funding small, experimental “pop-up” projects around applications of blockchain technology, you can be certain that most of them will flop.

But provided you design an internal system to learn from these experiments, each of these flops contribute to making your company (in aggregate) more adaptive and better able to capitalise on future use cases for blockchain.

That said, companies shouldn’t just launch anything and everything.

How can they ensure that this controlled fragility doesn't lead to chaos? Well, this is where a clear Innovation Mandate comes into play.

4. Craft an Innovation Mandate to benefit from Antifragility

The role of an Innovation Mandate is to provide an explicit delegation of authority –from the board to innovation professionals– over portfolio investments in innovation.

It’s not a long, detailed document, but it serves as a simple and powerful internal contract.

Because it includes the essential elements for driving innovation under uncertainty: a few clear strategic objectives, designated resources, a well-defined risk tolerance, decision-making autonomy and measurable outcomes.

(You can read more about the Innovation Mandate in this earlier article.)

A company’s Innovation Mandate doesn’t specify which projects need to be carried out, but it does provide boundaries that allow innovation projects to fail safely and contribute to overall learning.

Whereas a vibrant restaurant scene does this implicitly, a large company isn’t set up by default to favour risk-taking and experimentation.

This is why it’s so important, in a corporate setting, to make these things explicit.?

And we make them explicit by documenting them, and signing them off, in an Innovation Mandate.

Just as a restaurant scene thrives on a perpetual cycle of trial and error, we need to push companies embrace fragility in a controlled manner.

An Innovation Mandate shouldn’t be seen as a safety net to avoid failure.

Quite the opposite! It provides cover for intrapreneurs to experiment and fail – but in ways that are consistent with the strategy and guardrails defined by the organisation.

Conclusion

In a complex system, where failure is not only expected but valued, the whole becomes stronger and more innovative.

Just as a vibrant restaurant scene thrives on experimentation and reinvention, the same applies to a company seeking to not just survive, but thrive under uncertainty.

The same dynamic that makes London's, Amsterdam's, or Berlin's culinary scenes endlessly inventive has the power to transform your organisation into a industrial kitchen of innovation.

BUT this won’t happen by accident.

Most companies fail to produce the innovation they wish for, because, as systems, they’re designed to resist risk and experimentation with every fibre of their bureaucratic bodies.

The best way to institutionalise a desire for innovation and to make innovation a legitimate investment activity, is to craft a clear Innovation Mandate.

By delegating authority over the innovation portfolio to innovation professionals, you create a safe space for your small projects to fail, learn and ultimately help your organisation thrive.