Innovation "Catalysts" view making mistakes as an essential part of the process

In 2009, I read a book called "The Catalyst," which describes the mindsets of people who've successfully built new businesses inside established companies. Renewing organic growth is a difficult task, and "The Catalyst" is a very useful book for anyone working in new business development.

One point that comes out quickly in the book is the necessity to experiment, "fail fast," learn and iterate. These points were also brought out in another excellent new book, "Discovery-Driven Growth." I see these two books as companion volumes. Both address growing new businesses within companies. "The Catalyst" focuses on mindset, "Discovery-Driven Growth" describes the methodology.

Here is one of the "Catalysts" profiled in the book discussing mistakes. John Haugh was hired by Mars Inc. and put in charge of growing its specialty chocolate line, Ethel M.

Haugh decided to focus on creating retail "lounges" where customers could buy and enjoy the chocolates, rather than relying on the fiercely-competitive grocery channel. Haugh also carefully listened to lots of voices--customers, suppliers and partners--to learn as much as he could, fast.


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[Haugh] elected to launch with four different kinds of lounges: "We're not going to go out and have one perfected prototype," he explained, "because we don't even know what that would look like." The team checked in with consumers throughout the design process to determine the best color palettes, types of furniture, and overall ambience for the stores. They also asked suppliers, partners, and the vendors of their chocolate-making equipment for input. Their intent was to refine the new business as they went along:

We'd know within three days if a store was working. Are people coming in, are they sitting where you think they will, are they ordering what you think they will? You know very soon. And we'd test a slightly different design and layout for the next one to open. We did make errors--we knew we would. But we were prepared to react quickly and to fix them.

Indeed, Haugh viewed making mistakes as part of the process:

You know what? You're going to make a bunch of mistakes. What you want to do is to try and correct them. When you're younger, you don't like to make mistakes. You think that's the thing that is going to knock you off the track. You get a little bit older and get some gray in your hair, and then you realize it's OK to make mistakes. It's how you learn the most.

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From The Catalyst: How YOU Can Become an Extraordinary Growth Leader, by Jeanne Liedtka, Robert Rosen, and Robert Wiltbank, published by Crown Business. Reprinted by permission. (c) 2009. All Rights Reserved

Monica Gould audio story - the importance of focus

Monica Gould is the president of Strategic Consulting Partners. In this story, she talks about her early days in consulting, when she fell prey to a common mistake of consultants (I can tell you from experience): the temptation to say you can solve any problem.

Download the story here (1min 57sec).

Transcript:

When I first started my business, I was dabbling, I was trying to make an income and keep abreast of what was going on in the business community. I really didn't think of it as, I was going to grow this consulting firm and make a million dollars a year. It wasn't my intent. So I don't think I had the focus of what services I could provide, why I could provide them, how I'm positioned in the market and why people need to hire me rather than someone else. I didn't really think through that.

Oh, you need some work? I can do that for you. I pretty much did anything anyone wanted me to do. Whether it was my key strength or not.

When you splinter yourself, because you're so hungry and you want the work, and you want to just move forward, you can dilute the quality of your service and dilute what you offer the market.

So what I've really learned to do, especially honing in on this in the last few years, is picking and choosing the opportunities that I go after. Making sure that it is part of the core strategic strength of the firm. That we can do the work. Not necessarily that I could do it, but our firm would have the right people in place. And that I can do the work. Not that I won't stretch, and look for opportunities that would stretch our skillset, but really trying to be strategically focused and not splintered all over the place, not confuse the market in terms of what we do.

"We didn't slow down enough to research and review"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Nick Martello, president of ZymeAway, a small cleaning products company in Westlake, Ohio.

My company enhanced and marketed a cleaning product, and the first major test was Hurricane Katrina. We never failed a FEMA re-occupancy inspection. But people started using the floodwater and mold cleaning detergent for other purposes, and we made the mistake of marketing it.

We were expanding extremely fast, on track to hit $1.2 million in sales by our third year. Unfortunately, we didn't slow down long enough to research and review if our all-natural organic, nontoxic product had crossed over into regulatory compliance issues. The Environmental Protection Agency shut us down for nine months last year because suddenly our product was considered a non-registered pesticide.

Labeling concerns costs us over a half-million in lost revenue, legal fees and fines, virtually bankrupting our company....

We changed the product's name, label, literature and website in order to comply with the EPA.

It was a tough battle, but we're now in a position to grow in other areas, specifically targeting the hospitality industry with two new products: Bug-E-Spray and Bug-E-Dust, EPA-accepted, minimum-risk pesticides.

We learned the hard way that if you find a product has greater application than you originally intended, and it falls within regulatory agency control, stop, research and validate your product's qualification before marketing.

Surprised by a large customer defection

The following story is excerpted from "The Knack: How Street-Smart Entrepreneurs Learn To Handle Whatever Comes Up," by Norm Brodsky and Bo Burlingham. This is a terrific book with great storytelling throughout. Brodsky uses so many examples from his storage company, CitiStorage, that by the end of the book you feel like you know that industry. To learn more about the book, visit the web site. I highly recommend it.

I still remember the moment, many years ago, when I found out we’d lost one of our biggest customers…. One of my salesmen called me in my car and told me we’d just received a fax from the customer, a major law firm, announcing its intention to move its boxes out of our facility when the contract expired three months later.

Now you have to understand that, in this business, moving your boxes is a big deal.... So it’s a real loud message when a customer leaves, and this one came completely out of the blue. I was stunned. “What are you talking about?” I said. “Man, how could we lose this account? What happened?”

The salesman didn’t have an answer, and we couldn’t get one from the customer. The people in charge at the law firm wouldn’t see us or talk to us on the telephone. Our urgent messages brought perfunctory replies: “The decision has been made, and it is final.”

Obviously, we had screwed up. The guy who had closed the account had left us five years before, and we hadn’t stayed as close to the customer as we should have been. A week or so after receiving the fax, I came up with a proposal that finally got us a meeting with the firm’s managing partner—to no avail. The situation was too far gone. We could offer good financial terms, but we couldn’t fix problems that had been festering for years. Our competitor matched the terms and got the account.

So I called my managers and salespeople together and said, “What did we learn from this? What do we have to do differently in the future?” The real lesson, I knew, was not that we had made mistakes. You always make mistakes. We failed because we’d waited too long to find out about them. We decided that, from then on, we’d go to each customer eighteen months before the end of the contract and offer to negotiate a new one. If the customer hesitated, we’d know right away that we had a problem—while there was still time to fix it.

As soon as we began implementing the new policy, we made a very important discovery. We had unhappy customers and didn’t know it. One customer was upset about our system for providing information; we fixed it. Another customer felt it deserved a lower rate because its volume had increased dramatically; the customer was right, and we made amends. A third customer didn’t like a particular aspect of our inventory system; we changed it. A fourth customer was miffed that we hadn’t been sending regular monthly reports; we started sending them.

So, in four months with the new policy, we made four improvements, pleased four customers, and locked up four accounts, and all these benefits came from one failure. In the long run, that failure proved to be one of the best things that ever happened to the company.

(c) 2008 Norm Brodsky and Bo Burlingham. Used by permission.

Sue Pera video story: the perils of opening a second store

Sue Pera is the owner of the Cornerstone Coffeehouse in Camp Hill, PA. Visit them on the web at http://thecornerstonecoffeehouse.com. (Disclosure: I've been a customer there for over 10 years. It's a great place; if you happen to find yourself in Camp Hill, you must stop by.)

Transcript:

I've owned my own business for almost 20 years, and I've made several mistakes along the way. The one that truly affected us more than anything was when we decided to open up another coffeehouse. Instead of one Cornerstone Coffeehouse, my husband and I, who is my business partner with me, he and I decided that we would open up a second coffeehouse, about 15 minutes away from here. It's in a different area, and we were hoping that it would attract different people.

What I discovered, on the upside, is that I am much better at running one place. That's my strength in running a business - getting to know people personally. Making them feel welcome as though they're here in my home. I'm here to entertain them. To have the best food, the best service, the best baristas. What I found out when I opened the second coffeehouse, I was now dividing my time between two. And instead of making both of them do fantastically well, I was making both of them pretty mediocre.

Because I didn't have enough time during the day. Nor did I have the, maybe, business savvy that many people have, who can open up multiple locations. And so it wasn't really something that I took to heart, so much as I took financially to heart. It was a very large financial investment that we made in the new business. And I'll probably be paying that off for the next 5 or 6 years. It certainly was something, that knowing myself better, running my business now... It's something I'll never be able to do again.

I'm back to running one shop. Running one business is my forte.

VC Ed Sim reflects on investments he passed over

This post on logging and reflecting on mistakes was originally posted nearly two years ago, but, by coincidence, today VC and blogger Ed Sim published a similar idea - "Reflecting on Passed Investments" - looking back, after the fact, on investments that weren't made. How had they turned out?

Every 3 months I dig through my "passed company" folder to look at what investment opportunities we passed on and why. Inevitably, there are a few companies that are near-misses, but we end up passing on for whatever reason. Did we pass because we didn't think the team was great or because we didn't believe that they could get a product launched? Did we pass because of lack of traction in the beta release or because of concerns on valuation? Looking at my "passed company" folder gives me an opportunity to test our reasons on passing and to see 3 months later if the entrepreneurs could actually execute or prove our concerns wrong.

While many times I find doing this reflection further confirms our reasons for passing, I also find myself from time-to-time sending up a follow up note to check in on these near-misses or doing a quick Google search to see how the company has progressed since our last communication. Inevitably, there will be a few that "got away" and seem to be doing quite well. No one is perfect and looking back every quarter gives me an opportunity to better hone my investing acumen and further refine my understanding on what separates a potential winner from a loser.

Related Post: To learn better, keep and review a mistake log

To learn better, keep & review a mistake log

Working for the last two years on The Mistake Bank, I've become a bit of a connoisseur of mistake stories and literature on learning from mistakes. This has meant scrutinizing my own mistakes and trying to learn better from them.

I've made one significant realization: Sometimes errors are one-off oversights, other times they reflect weaknesses we need to work on (at still other times they are serendipitous events, but that's another story). How does one tell the difference?

Here's an example. Last year, I noticed that I lost track of several conference calls over a period of months. This was unthinkable to me, since I'd always prided myself on discipline and organization :). But the pattern was worrisome. In my business, if you miss a client conference call, or worse, two or three, you may have an ex-client on your hands. What I realized was, I was getting busier, and therefore my mind was not able to manage all the data I was asking it to. This realization drew me to David Allen's book "Getting Things Done" and adopting many of its suggestions.

To learn most from your mistakes, I'd suggest this approach. When an "unplanned event" happens, jot yourself a note. What happened? What did you expect, and how did the outcome differ from your expectations? Put it in a file.

At the end of the year, or at another time when you have space and a clear mind to reflect, pull out the file. Review the notes. See if patterns emerge. Are there variations of errors happening over and over? Why? Can you make any changes to try to reduce their occurrence in the future? With hard-to-correct mistakes, the changes will be difficult. You may need tools or external help to improve--but ignore those patterns at your peril.

Another story: When I was a salesperson and sales leader, I continually undershot my forecasts. Of course, I had reasons why--the product had problems, the customers weren't ready, the macro environment had changed for the worse.

Some years after the fact, I finally realized that I was a lousy forecaster. I was too optimistic--I saw huge potential where it was limited, predicted easy wins where there was competition, trusted in the rationality of buyers. This is a hard-to-correct mistake. After a lot of thought, I came to the decision not to do sales forecasts--and if I had to do one, rely on the thinking of others to help me.

I only wish I had been tracking my forecasting mistakes and reflecting on them at that time. I would have saved myself and my companies a lot of problems.

(Photo by koalazymoney via Flickr Creative Commons)

"They basically sent us a message"

This story is from AG Lafley, the former CEO of Procter & Gamble, from Harvard Business Review's "Failure Issue."

In the 1980s P&G tried to get into the bleach business. We had a differentiated and superior product—a color-safe low-temperature bleach. We created a brand called Vibrant. We went to test-market in Portland, Maine.

We thought the test market was so far from Oakland, California, where Clorox was headquartered, that maybe we could fly under the radar there. So we went in with what we thought was a winning launch plan: full retail distribution, heavy sampling and couponing, and major TV advertising. All designed to drive high consumer awareness and trial of a new bleach brand and a better bleach product.

Do you know what Clorox did? They gave every household in Portland, Maine, a free gallon of Clorox bleach—delivered to the front door. Game, set, match to Clorox. We’d already bought all the advertising. We’d spent most of the launch money on sampling and couponing. And nobody in Portland, Maine, was going to need bleach for several months. I think they even gave consumers a $1 off coupon for the next gallon. They basically sent us a message that said, “Don’t ever think about entering the bleach category.”

We certainly learned how to defend leading brand franchises. When Clorox tried to enter the laundry detergent business a few years later, we sent them a similarly clear and direct message—and they ultimately withdrew their entry.

A CEO learns from other CEO's mistakes

A very Mistake-Banky snippet of the outstanding "CEO psychology" post from Venture Capitalist and one-time CEO Ben Horowitz:

Although it’s nearly impossible to get high quality advice on the tough decisions that you make, it is extremely useful from a psychological perspective to talk to people who have been through similarly challenging decisions. My friend Bill Campbell was a huge help to me as CEO, but interestingly it wasn’t his great success running Intuit that I found most useful; it was his disastrous experience running Go. Through that experience and his most traumatic days at Intuit (like laying off 1/3 of the company), Bill learned a tremendous amount about how to think about excruciatingly difficult decisions from a psychological perspective.

"It never occurred to me that you can't control some variables"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Carole Richards, president of North Coast Education Services in Solon, Ohio.

You have to have passion about your product or service if you want to be successful. But I made the mistake of spending way too much emotional energy and time on one deal only.

When my company was five years old, I spent an entire year trying to close a deal that didn't happen. At the time, I was too naive to understand that politics plays a role in business. It never even occurred to me that you just can't control some variables.

At the time, revenues for my company were about $100,000. The deal would have easily tripled sales overnight. I really believed it was going to happen, and I ignored the nuances of politics because I wanted it so desperately. Funding would have come from a foundation and the school board. One person who controlled the purse strings had other plans for the money and killed the deal.

More than 20 years later, I periodically think about that experience when I'm planning new projects. Now, I put in all the energy needed to make it a worthwhile project, but I never invest emotionally until it's a reality.

"I was so wrapped up that I lost sight of the financials"

This story was presented in the New York Times excellent "You're The Boss" small business blog, and concerns SolTec Electronics and its founder, Dawn Gluskin, who ran into that problem so familiar to startup businesspeople - growing too fast. Here's what happened:

Success came quickly for SolTec Electronics. The company, which Dawn Gluskin founded from her living room and financed with her savings and retirement accounts in 2008, sells hard-to-find electronic circuit board components, such as semi-conductors and integrated circuits to companies operating in the electronic manufacturing and aerospace industries.

By 2009, SolTec had annual revenue of $700,000. In 2010, it moved into office space in Rockledge, Fla., hit $2.7 million in revenue, and secured a $150,000 line of credit. SolTec, according to Ms. Gluskin, helps clients when traditional distributor relationships break down. Given the rapid pace of technological advance, critical components in a supply chain can suddenly become obsolete. Many manufacturers also have trouble keeping up with demand, which can result in long lead times as they wait for parts. In addition, counterfeit parts have flooded the global market, which is why SolTec tests all components in its lab before sending them to customers.

Last year Ms. Gluskin, a first-time entrepreneur, devoted much of her attention to sales, marketing, and business development — her areas of expertise — while simultaneously running her 11-employee company. Her efforts were rewarded with explosive growth, but she learned she couldn’t do it all. “I was so wrapped up in other activities,” she said, “that I lost sight of our financials.”

In the fourth quarter of 2010, SolTec recorded its first quarterly loss. Ms. Gluskin was unaware of the problem until the first quarter of 2011, when the $40,000 loss was revealed at an end-of-quarter management meeting. The loss, Ms Gluskin said, resulted from a “perfect storm” of low sales and high spending. “In 2010,” she said, “we tripled our staff size, moved from the home office, added a lab, and were spending, spending, spending on equipment.”

What happened next? You'll have to read it over at the Times.

"Thank you for pointing out my mistake"

Kelley Robertson is a sales trainer and the author of the "Fearless Selling" blog. This story of his discusses making a mistake... and how to deal with the results.

A little while ago I wrote a blog post and referred to the decision maker as a male and the executive assistant as female. Of course, this mistake stereotyped the positions. Big blunder!

Needless to say, I received several comments and emails from people pointing out that this “assumption” was grossly outdated.

I REALLY dislike making mistakes like that especially since I’ve been writing regularly for the better part of fifteen years and I usually take care to avoid fundamental gaffes like this. But stuff like this comes with the territory.

Here’s the lesson.

You’re going to make mistakes with your customers. You will screw up. You may misquote a project. You may under-estimate delivery times. You might suggest the wrong product. But that doesn’t matter.

What matters is how you handle the problem.

The worst thing you can do is to make excuses, try to justify it, or redirect the blame. Suck it up, take responsibility and thank the other person for pointing out your mistake. This can actually help you stand out from your competition and help you increase your sales because companies like to do business with people who are willing to admit mistakes.

Amy Edmondson on learning from failure

Amy Edmondson, Novartis Professor of Leadership and Management at Harvard Business School, discusses her research into learning from failure. This video was posted as part of the Harvard Business Review "Failure Issue."



Highlights:

2:48 - The skills of learning from failure
3:50 - Lessons from the Columbia shuttle tragedy
8:40 - Getting workers to speak up about errors and concerns
11:10 - Raising issues with the intent to make things better

"I came to see micromanaging as a failure to let others shine"

This story by Doug Rauch, former President of Trader Joe's, is part of "Failure Chronicles," a section of the April 2011 "Failure Issue" of Harvard Business Review.

I’m a recovering controlaholic, as I suspect a lot of C-suite people are. My failure to recognize this problem nearly prevented Trader Joe’s from successfully expanding.

Bringing Trader Joe’s from the West Coast to the East meant we had to hire an entirely new staff. We had to teach everyone the Trader Joe’s buying philosophy, the organizational culture, the details that made us successful. In my mind, no one could do that better than I could, because no one else had the knowledge I did. I happily micromanaged the expansion.

A year or so in, they’d gotten my message just fine. The culture was instilled, the philosophy bought into. Only I didn’t see it. In my zeal to control everything, I failed to notice that it was time to take off the training wheels and let the new staff members grow into their roles. I kept micromanaging. The effect was stifling, especially on our buyers, the heart of our organization. I had always said that a buying team that doesn’t make mistakes isn’t worth a damn, yet I wasn’t letting them make their own mistakes. They started to be afraid to take chances. It was beginning to affect the business.

Luckily for me, one intrepid senior buyer helped put a stop to all this. She approached me and said, “You’re driving us crazy. You’ve got to back off. We’ll make mistakes, but you’ve got to let us go.”

It was a turning point. I went back to the buying team and admitted my problem. I told them I was “on the wagon” and that I needed them to give me regular feedback or I might fall off. We laughed about it—and the company flourished.

As I worked on letting go, I came to see micromanaging as a failure to let others shine or grow. So instead of fixing problems, I focused on nurturing problem solvers. I turned “Try this” into “What do you think we should try?”

Note the similarities between this story and Stella Moga's.

"The first thing I did was take full responsibility for my predicament"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Tony Kleem, owner of Tony K's Bar & Grille in Berea, Ohio.

The Mistake: My biggest mistake was opening a restaurant without doing enough research or surrounding myself with experienced employees. I had owned a small bar for several years, but running a restaurant with 160 seats is a whole different world.
I knew I needed to get into the food business in order to survive. But I spent more time planning menus then I did learning about operations. It doesn't matter how good the food is if your service is off.

In the nine months it took to build, I was focusing more on construction, furniture, equipment and hiring. The problem was I should have selected a manager with significant experience, including a restaurant opening. Except for learning the computerized ordering system, I didn't even offer training.

Looking back 12 years ago, I just closed my eyes and went through the wall. I didn't know basics, like having a soft opening on a Monday to work out the kinks. I opened on a Friday, and everything that could go wrong went wrong. Saturday was worse.

I comped a lot of meals that first weekend. You don't go into business to give away food and drinks. I did both, just trying to get customers to give my business a second chance. In the restaurant business, it's hard to get over bad first impressions.

The Fix: The first thing I did was take full responsibility for my predicament. Then I vowed to succeed, by doing whatever I could within reason to please customers.

Customers have to know that they're valued, and it's up to managers and the owner to make sure employees know that's the top priority. Sometimes it just means acknowledging an issue, then working to rectify it.

Communication is key. People don't mind waiting when you explain what's going on. I tell the staff that the customer is always right, even when they're not. If it's a situation that they can't handle, call in a manager to deal with it the proper way.

Soon after I opened, I spent the first two months cleaning house, making sure we had the right people in all sorts of positions.

To me, Tony's acknowledgement is key. "Taking responsibility for his predicament" allowed him to quickly see and understand his mistake. Rather than panicking, or blaming others, he owns up and figures out how to solve the situation. It is painful, and expensive, but he does it.

Contrast this with Tom Chaney of "True Grit." Despite being an outlaw and a killer, Chaney is the weakest person in the entire movie. He always moans about his predicament. "Everything is against me," he says, over and over again. All I can say is, I'm glad he never tried to open a restaurant.

Fall Down 7 Times, Get Up 8

Garr Reynolds has been teaching people how to present better with his Presentation Zen blog and book. His latest book is, "The Naked Presenter: Delivering Powerful Presentations With or Without Slides."

This week, though, in the wake of Japan's earthquake/tsunami/nuclear crisis three-peat, he has veered away from his presentation focus to instead discuss what he has learned of the Japanese culture in living there for many years. And today's post has special resonance for those of us who wish to learn from mistakes better. It's called "Fall Down 7 Times, Get Up 8." Here's an excerpt:


Fall down seven times,
get up eight 七転び八起き
Japanese culture and ways of thinking can not be adequately addressed in a short space, but this Japanese proverb reflects an important and shared ideal: "Nana korobi ya oki" (literally: seven falls, eight getting up) means fall down seven times and get up eight. This speaks to the Japanese concept of resilience. No matter how many times you get knocked down, you get up again. Even if you should fall one thousand times, you just keep getting up and trying again. You can see this ethic reinforced in all facets of Japanese culture including education, business, sports, the martial arts the Zen arts, etc. It is especially important to remember the sentiment expressed in this proverb when times are dark. There are no quick fixes in life and anything of real worth will necessarily take much struggle and perseverance. Success does not have to be fast—what’s more important is that one simply does their absolute best and remains persistent.  

Never give up!
A concept related to the saying "Nana korobi ya oki" is the spirit of gambaru (頑張る). The concept of gambaru is deeply rooted in the Japanese culture and approach to life. The literal meaning of gambaru expresses the idea of sticking with a task with tenacity until it is completed—of making a persistent effort until success is achieved. The imperative form, “gambette,” is used very often in daily language to encourage others to “do your best” in work, to “fight on!” and “never give up!” during a sporting event or studying for an exam. You do not always have to win, but you must never give up. While others may encourage you to "gambatte kudasai!" — the real spirit of gambaru comes from within. The best kind of motivation is intrinsic motivation. For the benefit of oneself — and for the benefit of others as well — one must bear down and do their best. Even in good times, behaving uncooperatively or in a rude manner is deeply frowned upon. In a crisis, the idea of complaining or acting selfishly to the detriment of those around you is the absolute worst thing a person can do. There is no sense in complaining about how things are or crying over what might have been. These feelings may be natural to some degree, but they are not productive for yourself or for others.

A lot of our discussion of mistake learning is around self-awareness and lack of denial, of people taking accountability for their actions, diagnosing how they contributed to the outcome and what they could do differently. But this other facet is perhaps as important--the facet of not giving up, of being resilient and persevering in spite of setbacks and errors. Thanks, Garr, for reinforcing this important lesson.

John Bliss audio story - the downside of going downmarket in tough times

John Bliss is the founding principal of BlissPR. This story is part of a longer interview from 2010. John talks about the risks of going downmarket to get clients when the economy turns bad.

You can listen to the story here (1:48).

Transcript:

I will have been in business 35 years on June 1. I've seen a number of economic cycles. There's good times and there's bad times. One lesson that keeps coming back and was proven again in 2009, which was not an easy year: there is always a tendency to go downmarket in bad times, so you have revenue coming in the door, so you don't have to lay off people.

It hurts, because even unsophisticated clients who don't pay as much, they're still going to require an enormous amount of time. And, in down times, you're still going to run the risk of them not paying you. And we ran into that in 2009. It didn't hurt us badly, but it hurt.

If we took 5 clients that we wouldn't normally have taken, I wish we'd only taken, say, 2 of those. Because that we could have absorbed that more easily. So that's another lesson.

At the time, it's tough to remember that, when you see your base clients reducing their fees. And you're reading scary economic headlines. You feel, any business almost is good business.

Amy Edmondson on mistakes in the workplace

In the January 19, 2009 issue, the New York Times business section covered one of our favorite subjects, as part of its "Career Couch" series: "Making the Most of Your Workplace Mistakes." Even better, they interviewed an important researcher on this subject: Amy Edmondson of Harvard Business School (discussed many times on my blog, including here and here).

Here's my favorite quote from the article:

In any job that requires continuing thought and judgment, we need to be “aware of the huge potential of things to go wrong,” Professor Edmondson said, because “we all can handle only so much cognitively at a time.”

"Never love the business - love doing business"

Great post by Maurice Ewing on HBR.org, "How to Manage the Loss of Your First Million." Here are a couple of key paragraphs from the post:

Never love the business — love doing business. If you become attached to the business or to the money it initially brings then you will not be thinking clearly when it comes time to move on. Rather than irrevocably commit yourself to something (or to some lifestyle) that may one day turn sour beyond your control, commit yourself instead to a lifetime of doing business to the highest standard you can muster. That will create a perspective that will often help you see today's failures as necessary stepping stones to tomorrow's successes.

and

Losses do not make you a loser but how you handle them might. I have to be careful here. I am not saying that you are not responsible for what happens: you are. But how you respond to your business's troubles is what shapes your leadership. You must comfort your employees; you must satisfy your customers; you must assuage the blow to your investors. All of this you must do with style and professionalism that leaves everyone satisfied and in admiration of how you handled the situation — even if you shed a few tears by yourself in the back room.

There's a lot more that's relevant to Mistake Bank fans. Check it out.

Ignoring near misses can lead to catastrophe

There are many different types of mistakes, and many different types of failures. Most are discussed or demonstrated somewhere on this site. But it's instructive to think of a particular class of mistake, one which authors Catherine H. Tinsley, Robin L. Dillon, and Peter M. Madsen discuss in the April 2011 Harvard Business Review.

They call it the "near miss." It is the kind of mistake or set of mistakes that occur but don't lead to a total catastrophe (the near miss's close relative). Tinsley et al argue that managers overlook near misses and thereby fail to correct the mistakes that lead, on occasion, to terrible, preventable catastrophes. The Deepwater Horizon spill is merely one of the latest of these examples.

The typical reaction of a manager to a near miss is (and I paraphrase), "Whew! That was close. Let's move on." That last statement is endemic of almost every company I've worked with - the desire to press ahead even (or especially) if the result wasn't perfect. But in ignoring the lessons of the near miss, they set the table for a subsequent, more terrible, occurrence.

Because, as the authors point out, the difference between the near miss and the catastrophe is one of circumstance and luck, not good planning or execution. A flawed process or sloppy execution repeated under less favorable conditions will eventually blow up.

Here's an important paragraph:

For the past seven years, we have studied near misses in dozens of companies across industries from telecommunications to automobiles, at NASA, and in lab simulations. Our research reveals a pattern: Multiple near misses preceded (and foreshadowed) every disaster and business crisis we studied, and most of the misses were ignored or misread. Our work also shows that cognitive biases conspire to blind managers to the near misses. Two in particular cloud our judgment. The first is “normalization of deviance,” the tendency over time to accept anomalies—particularly risky ones—as normal. Think of the growing comfort a worker might feel with using a ladder with a broken rung; the more times he climbs the dangerous ladder without incident, the safer he feels it is. For an organization, such normalization can be catastrophic. Columbia University sociologist Diane Vaughan coined the phrase in her book The Challenger Launch Decision to describe the organizational behaviors that allowed a glaring mechanical anomaly on the space shuttle to gradually be viewed as a normal flight risk—dooming its crew. The second cognitive error is the so-called outcome bias. When people observe successful outcomes, they tend to focus on the results more than on the (often unseen) complex processes that led to them.

This work reminds me of the research of Amy Edmondson, who studied the work of nurses and found that psychologically-safe working environments enabled sharing mistakes, which then allowed them to be correct, while unsafe environments covered up mistakes, with the result we can all well imagine.

Fred Wilson: passing up the opportunity to invest in super founders

This story is from Fred Wilson, partner at Union Square Ventures, a tech VC firm based in New York City. I'd encourage you to read the post on Fred's site as well, if only to have access to the hundreds of comments people have left there.

When you walk into our conference room at Union Square Ventures, you see the box of cereal on the right on our conference room credenza next to a wifi router and a jar of Jolly Ranchers. It is there because we are big Obama fans? Nope. The cereal box is a reminder to back great entrepreneurs whenever they walk into our office regardless of what they pitch us on (as long as it's in our investment universe).

Let me explain. Cliff Elam made a suggestion for a blog post in the "bloggers block" comment thread. He said:

Tell us about something you saw that was intensely interesting but was not something you'd invest in. And why.

So here's the story of how we missed Airbnb, one of the best startups to come our way in the past few years.

The Airbnb founders came out of the winter 2009 Y Combinator class. They came to see us during their time at YC. They told us about a great stunt they pulled at the Democratic Convention in Denver (in which Obama was nominated). They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here's how one of the founders Joe Gebbia describes it:

We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep Airbnb alive. The Cap'n McCains... they didn't sell quite as well, and we ended up eating them to save money on food.

I asked them if they'd leave a box of the cereal for us and it has been sitting in our conference room ever since. Whenever someone tells me that they can't figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.

At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.

We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.

[Fred's story is licensed under Creative Commons 3.0 - Attribution]

[Photo by Charmaine Cooper via Flickr]

Jill Konrath audio story - "Mr. Prospect"

As a young Xerox sales trainee, Jill Konrath learned her sales demonstration script perfectly... perhaps too perfectly.

"Mr. Prospect" - 2:56


You can learn more about Jill and her work at JillKonrath.com.

Transcript:


When I first started my sales career, I was at Xerox Corporation and they had a wonderful training program. Every sales rep was expected, prior to having their own territory and making their own cold calls, to memorize a demonstration about a copy machine. And the demonstration was a multi-page script that included everything you needed to know about demonstrating a copier, from here's where you put paper in, to here's how you clear a jam, and here's how you do all these things.

And the script went, "Mr. Prospect, for years Xerox has designed copiers to satisfy the needs and requirements of all our customers. Our experience and success in the marketplace has shown that regardless of specific needs, four basic criteria that need to be met.” And then we listed the criteria and from there the demonstration flowed.

It took me a long time to memorize that script verbatim. But I did. I practiced and practiced. I drove in the car with the script in front of me on the steering wheel. I taped [my speech] as I was driving along. And finally I was able to pass the test with my boss. "Mr. Prospect, for years Xerox has designed...." And I went through it flawlessly. Which was great because I was finally released to go out to the real world and start cold-calling.

And very shortly after that I got my first prospect to come in and see my demonstration at the Xerox Demo Center. He came all the way in from across town. I was all set. I had practiced ahead of time religiously and I knew I had it nailed. When he came in, I gave perhaps the best demonstration of my life. I nailed that script. I took him from the very start to the very end.

At the end I asked if he had any questions or what he thought. And he turned to me and he said, "Jill, my name is not 'Mr. Prospect.'"

Now I don't remember if he ever bought that machine or not; all I know is that I was so embarrassed that I called him "Mr. Prospect" that I never made that mistake again.

"I checked on them like I was the FBI"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Stella Moga Kennedy, founder of Le Chaperon Rouge, a chain of day-care centers.

I've always put my heart into building my business, but my passion turned me into a control freak.

Even though my schools have grown to include fifth grade and enrichment programs like instrumental music, foreign languages and karate, I remained involved in details as if I were still working at my first location, the sole employee in the basement of a church. Back then I did everything for my first three day-care students, from teaching to cooking homemade soup, pies and crepes.

Even though I had directors and assistant directors at every school, I checked on them like I was the FBI. Many times I was told it was insulting. Often I heard comments like, "Why don't you just relax?" or "We know what to do." I didn't mean any harm. It's my nature. As the business grew, I drove to at least three schools every day for years.

Everybody told me that what I was doing was absolutely crazy. I heard them. But I didn't really listen. I came to this country from Communist Romania with no money and worked so hard to achieve and expand. I was so involved because I wanted to keep up the quality. I was intimately involved in curriculum, administration and accounting.
I didn't trust my babies - meaning my schools - with anyone.

I finally promoted someone to become the company's first executive director five years ago, and gradually I learned to let go.

The truth is I only did it because I was becoming so tired that I wasn't as effective. Aside from running the schools, I started a real estate company about six years ago. I started to forget things and not deliver, which is not like me. I was exhausted and I realized that if I didn't start delegating, I would get sick.

Delegating allowed me to be more creative, work on enhancing and developing new curriculum and even write a book. It also allowed me to expand. In the last five years, the company has doubled with schools and employees.

John Bliss audio story - a couple of hiring mistakes

John Bliss is the founding principal of BlissPR. This story is part of a longer interview from 2010. John states that hiring experienced people was much more risky than "growing your own," and provides two examples.

You can listen to the story here (3:30).

Transcript:

Your biggest mistakes are going to be your hires that don't work out. Because you invest a certain amount of time in .. And then once you've hired them, our philosophy always was, we'd rather wait too long to fire than fire too quickly. And I think that's the right posture. But it also means that when you make mistakes you pay a little bit more for it.

The area of biggest mistakes, and I would bet you could talk to a lot of entrepreneurs in a service business like mine, and they would have had the same experience. Lateral hires - in other words, people that you hire from other companies, instead of growing from your own entry level - lateral hires are an area rife with potential disaster.

And we had a number of potential - um - actual disasters. The thought is you hire somebody with experience and connections and maybe can even bring in a little business. And what we find is invariably almost complete disappointment. This is true for lateral hires from a number of areas.

One, we hired somebody who had experience working in PR departments of 3 or 4 major corporations. And he was a perfectly nice guy. But people that are corporate animals are absolutely unfit for the entrepreneurial environment. They're too political in what they do, because in big corporations there's too much politics. They're more concerned with appearances than with actualities. And we learned that through a couple of painful experiences - we didn't want to hire people from big corporate PR departments.

But we didn't extrapolate from that lesson #2, which is that we shouldn't hire people from big PR firms. Because we hired someone from a big PR firm, and we said, "We're an entrepreneurial organization, Sometimes you're going to have to take orders from people 20 years younger than you. Is that a problem?" "Oh, no, no."

"You're going to share an office. Is that a problem?" "Oh, no, no." So we hired her and of course both of those things were huge problems. She was stuck in the same kind of bureaucratic mindset as people from big corporations.

So, a couple of those hires we paid dearly for. We lost time and momentum because they were in house. The only saving grace is, talking to heads of other PR firms, I think we haven't made more mistakes than anybody else, and actually may have made a few less.

But mistakes they were. And they're painful when they happen.

"Failure is just evidence that you haven't mastered the task yet"

Harvard Business School professor Amy Edmondson has an important article in the July 2008 HBR that says a lot of things about learning in the business world. The following excerpt has some particular relevancy to The Mistake Bank:

In her research on individual mind-set differences, Stanford psychologist Carol Dweck has shown that the way children view a task affects their persistence and performance over time. Some children think of human ability or intelligence as fixed and, consequently, think of school tasks as performance opportunities--moments of truth that prove whether they're smart [JC note: call it the Hermione Granger syndrome]. For these children, performing poorly on an assignment or a test would demonstrate that they lacked intelligence rather than indicating that they had more to learn. Believing that the point of execution is to demonstrate competence, they go out of their way to pick easier tasks. Of course, this means they lose out when it comes to learning. This same mind-set encourages managers to admire and expect to be rewarded for decisiveness, efficiency, and action rather than for reflection, inquiry, and collaboration, the uncertainty of which makes them uncomfortable. Like the children who have learned to shun new challenges, these managers avoid, and help others avoid, the risks of questions and experiments.

In psychologically safe environments, people are willing to offer up ideas, questions, concerns - they are even willing to fail - and when they do, they learn. In her studies, Dweck found that some children - those who early on were rewarded for effort and creativity more than for simply giving the right answer - see intelligence as something malleable that improves with attention and effort. Tasks are opportunities for learning; failure is just evidence that they haven't mastered the task yet. Driven by curiosity about what will and will not work, they experiment. When things don't pan out, the don't give up or see themselves as inadequate. They pay attention to what went wrong and try something different next time. In adults, such a mind-set allows managers to strike the right tone of openness, humility, curiosity, and humor in ways that encourage their teams to learn."

Dweck's research on "growth" vs. "fixed" mindsets has a lot to say about whether we can learn from our mistakes or be paralyzed by them.