When you as a leader possesses the kind of humility that enables your awareness of true circumstances, you can face all kinds of stimuli, from negative personal feedback to challenging market fluctuations to employees' or customers' emotional reactions, without experiencing personal disruption. This utter absence of shame around your miscalculations or outright failures is the critical differentiator of someone acutely in touch with actual circumstances and someone who is not.
Deepak Malhotra (co-author of "Negotiation Genius," one of 2007's top 5 books) and colleagues have once again dived into the psychology of negotiators and dealmakers in May's Harvard Business Review ("When Winning is Everything").
They find that certain factors present in many deals can drive irrational thinking and, ultimately, overpaying for acquisitions. The factors are:
Rivalry - animosity toward a competitive rival for an acquisition, say, can create a "win at all costs" mentality.
Time Pressure - racing to meet a stated or internal deadline can lead to accepting a poor deal
The Spotlight - if people are watching--coworkers or the public--a dealmaker may act less rationally than if the spotlight were off.
Malhotra et al write: "Rivalry, time pressure and a bright spotlight can each fuel competitive arousal. Collectively, they can lead to decision disasters." They point to the Boston Scientific acquisition of Guidant and Viacom's purchase of Paramount as two costly examples of this type.
What to do? As in "Negotiation Genius," Malhotra urges dealmakers, first of all, to be aware that these factors exist. Mere awareness of a feeling of time pressure is a tool to prompt reflection: "Is there a reason this has to be done this week?" Almost always, the answer is no. The world won't end if the deal is delayed.
As for rivalry and the spotlight, companies can put approaches in place to manage them. Often, it means spreading the responsibility among teams of dealmakers rather than allowing individuals to shoulder the entire burden. [Microsoft might have managed 2008's Yahoo engagement better if it had not allowed it to become Steve Ballmer's deal. The jury will be out for a while, of course, on the Skype acquisition.]
Malhotra and his colleagues are probing into new and important territory in business research. By bringing behavioral economics and psychology into the forefront of dealmaking and negotiation, they are providing a valuable service to businesspeople everywhere.
Most refreshingly, their focus on the costs of dealmakers' irrationality and aggression is a welcome antidote to the lionizing of ultracompetitive CEOs and moguls elsewhere in the business press.
(Photo: a still from the infamous Steve Ballmer monkey dance)
We watched "Megamind" last night and I was delightfully surprised by an exchange between Megamind, the villain-turned-hero, and Titan, the hero-turned-villain (you'll have to see the movie to make sense of that, I think):
[Titan has just thrown Megamind into a wall and is about to finish him off.]
TITAN: No matter what side you're on, you're always the loser.
MEGAMIND: There's a benefit to losing. You get to learn from your mistakes.
[MM proceeds to wriggle out of the tight spot and turn the tables on Titan, save the city, and get the girl.]
Makers of animated films seem to have this learning from mistakes thing down pat - see the quote from "Meet the Robinsons" at the margin to the right.
And here's the Megamind trailer if you're curious:
Brown is discussing a quote from his wife imagining what the world would be like without people like Walker, when Teri Gross interrupts:
Brown:
What sort of a world would it be without Walkers? A world where there are only sort of Masters of the Universe...would be like Sparta.
Teri Gross:
Could we just stop here? I'm not a Master of the Universe. You know, I'm not broken, physiologically broken, like your boy. But I'm hardly a Master of the Universe. I think most of us are not Masters of the Universe. We're all broken in our own special ways. So it's not like we're perfected people and we need constant reminders of imperfection. I'm not arguing for abortion here, I'm just saying...we're not a population of perfection.
Brown:
No, no, absolutely not... although, you know, the imperative to know what to do, to have the answer, to...have the solution. I think that's a very strong imperative. And Walker is...he's more than a reminder of imperfection. Gradually, I've begun to realize, he is a way of...not the only way of being, but he's an alternate way of being. Because you can't be successful with Walker. You can't "get it done." You can't "just do it," as the ad says. You have to actually just be with him
I remember precisely where I was when I heard this: on Forster St., heading over the Harvey Taylor Bridge taking my son home from school. As I listened, I was reminded of something very current and yet age-old. An obsession with "winning." What Brown is saying means this to me: Walker is important and his life is meaningful because he presents us a situation that is not winnable. It just is. The work involved with raising and caring for Walker will not end in triumph. It will persist, day by day, for as long as it lasts. That is its limitation and, in the end, its beauty.
In this story, he recalls a mistake he made involving his investment company, Narragansett Capital.
AQUARIUS CORPORATION
Aquarius was a company that a group of investors financed in Albuquerque, New Mexico. They...had a wonderful-sounding plan to convert the job shop printing plant that they had taken over into a highly sophisticated operation that would do quality color work for large industrial users throughout the Soluthwest.
In addition, the states of New Mexico and Arizona, which had to go as far as San Francisco or Chicago to get good color reproduction work for all their tourist folders and other promotional materials, were excellent prospects. This type of business ran into very substantial volume and we were told that once the plant was equipped with new machinery bought with our money, there would be no question about their getting continuing orders from the contacts they had made in the area.
The principal investor, who was president of the company, was really a spellbinder in his presentation. I personally went out to New Mexico to see the plant, which had excellent floor space and was well located, and met the group of key personnel that had been assembled, some of whom had experience in this type of operation, in other parts of the country. I remember saying to the promoted, "How in the world do you get a group of people who have had wide experience to work for you for lower salaries than they were getting in Chicago or New York?" He said, "Roy, this is a wonderful part of the world to live in. These people will work out here for two-thirds of the pay they were getting in other parts of the country. We have a great opportunity to build a most important printing business here and all of this group have put up some money to show their confidence in the venture. I can assure you, Roy, that this could be one of the finest investments that Narragansett ever made."
When this investment was brought to the board for consideration, my son, who had met the principal and thought he was too much of a promoter, tried to persuade me to take it easy and not rush the board into approving this transaction. In my usual manner (once I was sold on something, I insisted on getting the board to act on it that day), without having any consultant like Arthur D. Little, Inc., investigate the situation and check with the states of Arizona and New Mexico to see if, in fact, they were prepared to give millions of dollars in printing business to this new company, I rushed ahead. Believe it or not, without further investigation we made a total investment of $830,000....
Within one year, the venture went broke and Narragansett took a complete loss.
ADVICE: don't let a super salesman con you into making an investment. This company was formed and named at the height of popularity of the musical "Hair." Just the fact that someone would name his company after the principal musical hit of that show should have been warning enough.
First of all, it establishes journaling as a daily ritual, as opposed to something you do when it seems appropriate to. As such, there's a better chance that you'll do it regularly, and maintain it. In a busy work life, there's just not much opportunity to catch yourself and say, "this is important, let's note this down." A journaling habit based on answering a simple question, "What was the most interesting thing that happened today?" will catch all the really important stuff (and some less important stuff, but that's OK too).
Also, given that one's work diary isn't limited to mistakes, it avoids the risks of being too depressing or of creating the feeling that the only noteworthy things in a work life are errors. Such a negative focus would be a reason to stop keeping the journal, as well as being a distortion. In fact, Amabile & Kramer assert that one very positive outcome of journaling is a heightened appreciation for the progress (small or large) that we make every day in our jobs.
Nonetheless, I wouldn't banish mistakes from the diary. If that's the most interesting thing that happened that day, by all means journal it, and tag it as a mistake.
Then, you could periodically search for all the entries tagged "mistake" and do the same assessment I recommended for the mistake logs.
In a profile of real estate investor Richard Baker, the New York Times inserted a brief but instructive mistake story. Baker is now the CEO of Lord & Taylor, and his NRDC Equity Partners focuses on retailing investments.
[NRDC's] first deal was a dud. After losing out to a consortium of real estate and private equity investors on Toys “R” Us in 2005, Mr. Baker and his partners invested $25 million alongside Apollo Global Management, the private equity firm, in its $5.1 billion purchase of Linens ’n Things. They lost their entire investment when the company, a housewares retailer, collapsed three years later.
Richard Baker says the fiasco taught him a lesson. “Where I failed was that if I’m going to invest in a transaction, I need to control it,” he says.
Of course, it's only been a few years since that experience. Perhaps as time passes Mr. Baker will learn that investments that you control can also fail. If that happens (or doesn't happen), it'll be a great story. Stay tuned.
This story is from William Johnson, the CEO of H.J. Heinz.
It was a mistake in this company that got me my first major promotion. We had a hot cocoa line called Alba. We had an underutilized factory in Iowa. I was a young general manager in the company, and I had been challenged with how to use this factory. What should we do rather than close the factory? Although [closing] it was the simple thing to do, long-term it wouldn’t create a lot of value.
We were actually in New York one time and looked up at Warner Brothers and saw Superman flying – I guess this was the time of the first Superman movie in the early to mid-eighties – and Superman had just been put on Superman Peanut Butter, which was selling like crazy. So, we literally walked in unannounced, went upstairs, walked in to the licensing department, met with the merchandising guy – the guy who had the licensing for Warner Communications – and asked if we could have the Superman license to launch hot cocoa, therefore going after kids. I got it granted right there; we only had to work out the details.
I went back to my boss at the time and said, “We have an idea. Give us six weeks, and let’s go play with it.” So we researched it – research said it would be a good idea – tested it with kids, developed the product, and were ready to go. I walked into my boss and said, “I want to launch this thing nationally.” He looked at me like I had two heads and said that we didn’t have enough research, that it was a big risk, and so forth. [He said,] “How about if we do it regionally?” I said, “Okay, we’ll do it regionally.” It failed miserably. We underestimated how the competitors would react.
Two months later I was promoted to vice president from my general manager position, and I asked my boss at the time why. He said, “Because in order to get ahead, innovate, and move the business forward, you have to be prepared to take risks and suffer the consequences. The fact that you took the chance, came up with the idea, moved it ahead, and tried to solve a problem did not create a problem because we cleaned it up without substantial costs. That says to me that you’re prepared to take risks, many of which are judgment calls. And sometimes you’re right and sometimes you’re wrong.”
I’ve read that people consider you almost incapable of admitting a mistake. What do you consider to be the biggest of your career?
You know, I’ve done pretty well. I don’t spend a lot of time dwelling on the past that way.
You can’t think of just one?
I’m certain I can find many. It’s just not a very fruitful exercise.
This is a very smart, accomplished, experienced person saying out loud, in print, that "dwelling on the past" isn't useful. This makes me think about what it must be like at the highest levels of public office, where every decision is second-, third- and fourth-guessed, where 35-40% of the people reflexively disagree with any action you take. It's a place, even years after leaving, where reflection and self-criticism is difficult even for the best and brightest.
Consider Robert S. McNamara. Widely vilified for his role in Vietnam, it took him thirty years before he wrote "In Retrospect," in which he finally came to terms with the consequences of his decisions while Secretary of Defense.
For those outside the Americas, Rivera is perhaps the greatest closer (pitcher who finishes the game to preserve a win) in the history of baseball. He very rarely blows a save - meaning losing the lead while he is pitching - which of course makes the headline very funny from the get-go. The article reads:
Following Mariano Rivera's second consecutive blown save Sunday, coaches and executives led the11-time All Star and World Series MVP into an office, slammed the door shut, and reamed him out for several minutes, team sources reported. "I heard coach [Joe Girardi] scream, 'You have one responsibility out there, and you screwed it up, goddammit!'" said outfielder Curtis Granderson, adding that he also heard several voices shout "Take your head out of your ass," "You're the worst closer in the world!" and "I am so mad at you right now." I am so mad at you right now!" "Mariano had tears running down his cheeks when he walked back into the locker room, but that didn't stop Derek [Jeter] or Robinson [Cano] from telling him to stop acting like a fucking baby." Though Rivera later apologized for his actions, Yankees pitching coach Larry Rothschild told him to sit down, shut up, and think about what he did.
Now what makes this funny, besides the incongruity of Rivera's failure, is of course the feeling of familiarity that it has. Who hasn't been reamed out by a manager at one time or another? And does the harsh tone of voice, word choice, etc., improve your performance? No. All it does is show the fear and vulnerability on behalf of the manager.
When a boss threatens, "You better do better next time," is the unsaid rest of the phrase "or you'll be fired"? Or is it "or I'll be fired"?
Marcia Pledger's "My Biggest Mistake" feature from The Cleveland Plain Dealer remains one of the best resources of mistake learning you will find. This story is from Rachel Friedman, founder of A Better Pet.
My biggest mistake was not trusting my gut instinct in hiring someone for an area of running a business that was not my area of expertise....
I hired someone to help market my product based on a referral from someone whose opinion I respected. The problem was, it didn't occur to me at the time, the degree to which familiarity of my industry was key to marketing.
When I hired the marketer, I brought up my concern. Their response was, you don't need to be an expert in an industry to market a product. It didn't feel right. Even though the person was a qualified and experienced marketer, I ignored my gut instinct....
I ended up spending about a third of my entire budget on marketing but got what I felt to be very little return on the investment. For instance, a big chunk of money went toward preparing for and participating in a tradeshow at a dog training conference.
The product has evolved to include companion and working dogs, ranging from urban strollers on leashes to off-leash hikers. But early on, the first people who embraced it were people using service dogs, who knew what else was out there - less versatile and less functional vests.
You never know how any marketing campaign is going to go, or even who will be your end-user for sure. But I firmly believe it's best to aim for your target market when you're starting out. Even though my product fits any dog, I invented it for the working dog industry. My work in training service dogs was the inspiration for the product. Service and therapy dog organizations were first to embrace the product, not pet dog trainers.
If I had hired someone familiar with my industry, I would have been able to communicate with them in shorthand and not have to reinvent the wheel. It costs time and money to educate people about your industry. We weren't on the same wavelength.
I learned from the experience. Even though I don't mind hurting a pet owner's feelings to help them get their desired results from training, I used to be a wimp in dealing with professionals I hired to help build my business. I didn't insist on being heard.
It's notable whenever a high-profile CEO, confronted with a public-relations issue, comes out and takes accountability for mistakes.
When I read through the article, and the AllThingsD interview Q+A that inspired it, I was hard-pressed to find a real expression of remorse or even of admitting mistakes. Here's the closest thing I read:
[Interviewer:] Is there anything that you guys have learned over the last week or so and take away from this?
[Apple SVP Scott] Forstall: One thing I think we have learned is that the cache we had on the system–the point of that cache, is we do all the location calculations on the phone itself so no location calculations are done separately. You can imagine in an ideal world the entire crowdsourced database is on the phone and it just never has to talk to a server to do these calculations (or) to even get the cache.
What we do is we cache a subset of that. We picked a size, around 2MB, which is less than half a song. It turns out it was fairly large and could hold items for a long time.
We had that protected on the system. It had root protection and was sandboxed from any other application. But if someone hacks their phone and jailbreaks it, they can get to this and misunderstand the point of that.
It’s all anonymous and cannot be traced back to any individual phone or person. But we need to be even more careful about what files are on the phone, even if they are protected.
Also, there was a hell of a lot of pushback. For example:
[Interviewer]: A bunch of folks on the regulatory side, both in the U.S. and elsewhere, said they are going to look into this. Do you guys plan on testifying before Congress? How active do you personally and does Apple want to be?
Jobs: I think Apple will be testifying. They have asked us to come and we will honor their request, of course. I think it is great that they are investigating this and I think it will be interesting to see how agressive or lazy the press is on this in terms of investigating the rest of the participants in the industry and finding out what they do. Some of them don’t do what we do. That’s for sure.
In fact, the closest thing to a mistake discussed was iPhone users' mistakes:
[Jobs]: We build a crowdsourced database of Wi-Fi and cell tower hot spots, but those can be over 100 miles away from where you are. Those are not telling you anything abut your location. That’s what people saw on the phone and mistook it for location.
So, in summary: Jobs didn't concede any mistakes, and his lieutenant made the hedgiest-possible admission that the location cache stored far more data than was needed.
This is more a lesson in good PR than in CEO candor and learning from mistakes. Jobs and his team admitted 5-10% culpability and defended the remainder, blaming users, competitors and the press for the issue. And they did it so smoothly that they convinced the NYT headline writer that Jobs himself had "conceded" location mistakes--in fact, getting credit for candor and remorse while not showing any.
Camcar Screw and Manufacturing Corporation was privately owned by Bob Campbell, Ray Carlson, and Bob's brother, who was head of sales. Their principal operations were in Rockford, Illinois, and the company had been very successful in supplying small metal fasteners of various types to the automobile and aircraft industries and to other users of such parts. They showed me their balance sheet whith a complete disclosure of net worth as they had computed it in the past, and, of course, we had their sales and earnings for many years to determine the steadiness of their past earnings record. We bought Camcar on October 1, 1955.
The contract was drawn by the lawyers, without our auditors being present, on the basis of determining the net worth under sound accounting principles, but when the joint audit was made at closing both their auditors and ours added $1 million to the net worth figures that had been shown to me. They claimed that the company had been incorrect in the past in writing off over $1 million worth of dies and tools, which both auditors claimed should have been capitalized. While we had assumed the net worth would be as shown to us during negotiations, Textron had to put up $1 million more than we had anticipated.
In spite of this mistake on my part, Camcar has been an excellent acquisition for Textron.
ADVICE: Never let your lawyers prepare a purchase and sales agreement for an acquisition without having auditors representing both sides present to prevent a misunderstanding of this sort.
If you've been enjoying the stories on this site, you might be interested in helping grow the site's contents. I am looking for folks to spend thirty minutes on the phone being interviewed about their business mistakes for posting right here. Believe me, it doesn't hurt a bit!
Please email me at mistakebank@caddellinsightgroup.com if you'd like to be part of this project.
Monica Gould is the president of Strategic Consulting Partners. She discusses bringing on a subcontractor to help with a big project, and how she felt when she saw the sub doing things much differently from how she would have done them herself. This story came from our longer interview with Monica from 2010.
Marcia Pledger's "My Biggest Mistake" feature from The Cleveland Plain Dealer remains one of the best resources of mistake learning you will find. This story is from Aaron Grossman of Alliance Staffing Solutions.
[A year after we opened] we picked up what we thought was a monster client. It was a famous restaurant chain opening a location in Michigan. We were so excited that we didn't pay attention to important details, like making sure we had a plan to manage accounts receivable.
My biggest mistake was not caring when or how I got paid. I cared only about closing the deal.
We were fortunate to have a strong credit line, which allowed us to concentrate more on growing our business and less on cash flow to operate our business. But our systems were not tight.
An accountant checked our books once a month, and that was it. Manage our receivables? Who needed to do that, right? Our business was growing and our investor significantly expanded our credit line, so we didn't spend time worrying whether people were going to pay us. We were so wrong.
The deal with the Michigan restaurant started out small, handling payroll for just three managers. We eventually persuaded the company to let us handle the payroll for all the staff. Part of our pitch was that we would be responsible for outsourcing all payroll services, including payroll taxes and workers' compensation, for all 160 employees.
Landing this deal meant doubling our business overnight to nearly $5 million in sales that year. Again, our focus was on sales. What we didn't know then is that most new businesses fail within the first five years. Restaurants fail at a higher rate.
We also didn't realize that sometimes companies use staffing agencies as if they were banks, to float their payroll costs. We pay our people every week. But that doesn't mean our customers pay us every week.
As we didn't have an in-house accountant, and no one was managing our receivables, by the time we realized what was happening, the restaurant owed us more than $400,000. The company's payroll costs were about $100,000 a month.
When we tried to collect on the money, we learned the restaurant was having problems and needed to make installment payments. They paid us $20,000, then filed for bankruptcy protection. We never saw another dime from them.
We were in trouble. Thankfully, our investor still believed in our potential and helped us work through this horrible mistake. The first thing we did was hire the best accountant we could find -- a former CFO of a $100 million company. Our receivables had to be managed appropriately if we wanted to be a growth company. It worked. Sales are a big part of building a business, but collecting is a close second.
Collections is a major learning area for every small businessperson; it should probably be the same for anyone involved in any business. I can tell you that from experience!
Kathryn Schulz, author of "Being Wrong: Adventures in the Margin of Error," discusses how our propensity to create explanations for things, most of which turn out to be incorrect, is not a disability, but rather the source of our human uniqueness.
My favorite line is when Schulz quotes from Ira Glass, describing the theme of his show, "This American Life": "I thought this one thing was going to happen, and something else happened instead."
I love this story, recorded during our longer interview with Monica from 2010. It felt to me, as she was relating it, that she was discovering and analyze this situation in the moment; as if, in fact, she was coming to terms with her feelings about it just as we were talking. She argues with herself a bit: "I'm not sure it was a mistake... [but] it's just not a fruitful use of time..." just like we do when we are evaluating something that isn't working out as we'd planned. Magic!
I don't know that it was a mistake, I just... strategically I've invested a significant amount of time in garnering state government contracts. And it's just not a fruitful use of time. I say it's a mistake because I should have realized how closed that market is and perhaps not invested as much time and energy in it.
Because it's an opportunity lost. I'm spending time marketing in this arena, and there's another whole business arena that's a whole lot more accepting of bringing in new people and networking and meeting people.
I guess the big lesson is, once you go into a marketing strategy, test the waters, give it some time to work, but don't waste too much time in it. I've retracted my time and resource from doing that. Not because I don't think there's business out there, but I don't think they're willing to bring new people in. They're entrenched with the contractors they have. It doesn't matter how good you are, unless you have worked for PennDOT for 15 years, they're not just going to take a new firm. I'm not the only person who's experienced that. It's really not worth my time and energy to bid on that stuff. I learned, don't waste too much time in one area. You're going to lose opportunities to get work elsewhere.
"Think Again" is a great book in which authors Sydney Finkelstein of Dartmouth University and Jo Whitehead and Andrew Campbell of Ashbridge Business School describe research in cognitive science and behavioral economics to explain how the decisionmaking process goes awry and, even more importantly, how our minds obscure the mistakes we make and keep us from understanding the weaknesses in our decision processes. [The authors also have a website for the book, including pointers to some of the underlying research and other goodies.]
The book is full of great storytelling, and this one in particular, about an executive named Marc, seemed very appropriate for this site:
Marc was the managing director of the French subsidiary of an international manufacturer of packaging machinery. He was considering whether or not to acquire a company that had a near-monopoly on manufacturing a specialized type of food packaging machine. While the company had a strong position in the market, there were several warning signs that it was a risky investment. The business was highly dependent on sales to one large meat processing company. Because the machinery was a form of capital investment, sales tended to be highly cyclical. The management team had recently lost some of its more talented designers and marketers, and performance was flagging. The current owners of the business were keen to sell.
These risks were particularly an issue because Marc had committed to his head office that he would deliver relatively stable performance. The previous year, Marc had personally persuaded the head office to provide additional investment to his subsidiary for low-risk acquisitions, and so his reputation was at stake.
As the transaction progressed, some members of Marc's supervisory board voiced their concerns about the proposed acquisition. Despte this, Marc went ahead. A few months later, following the discovery of bovine spongiform encephalopathy (BSE), or mad cow disease, in French cattle, the meat-processing customer announced that it was putting discretionary capital expenditure, including the packaging machines manufactured by Marc's company, on hold. The management team was unable to deal with the dramatic drop-off in demand. Profits plunged into the red. Marc's superiors were shocked, and Marc's career received a large black mark.
Marc described why he thought he had made a flawed decision. "I was under pressure to do this deal for my own interest. If I went ahead, then the costs incurred in auditing and due diligence of the company would be capitalized and added to the cost of the investment. If I backed out, then they would all be charged to my office as an expense. Because we had been pursuing this company for a while, those costs were quite significant--and I guess I was influenced by that. I had an annual target to hit--and the charge-off would occur at the end of the financial year, leaving me no time to find a way to avoid a big loss. Of course, in the end, doing a bad deal was much worse for my position. I guess self-interest clouded my judgment."
Reprinted with permission from Harvard Business Press. Copyright 2008 Sydney Finkelstein, Jo Whitehead, and Andrew Campbell. All Rights Reserved.
Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Ratanjit Sondhe. He emigrated from India to the U.S. in 1968 with $8 in his pocket and two Master’s degrees to pursue post-graduate studies in Advanced Polymer Chemistry at the University of Akron. He soon became an American entrepreneur, founding Poly-Carb, Inc., where he served as CEO and Chairman for 34 years. Poly-Carb was sold to DOW Chemical in 2007.
I came to America in 1968 with several degrees and spent years studying chemical research before I started the former company with two friends.
When I started Poly-Carb, accountants, attorneys and bankers advised me to hire people with lots of experience.
My adviser said that because I didn’t know anything about business I should hire people who were knowledgeable about marketing and sales. It wasn’t bad advice. But it didn’t work for this company.
The people I hired wanted bigger cars, titles, offices and salaries. We had seven secretaries at that time and yet we still couldn’t get a letter typed. Suddenly, there were 55 people working at a company with less than a $1 million in sales.
The rude awakening came when my accountant told me that for all practical purposes I was broke. In that same meeting, my attorney advised me to file bankruptcy. He said, “We can file for Chapter 11, and I can settle your accounts for 10 cents on a dollar. We can do it very quickly without you losing your name or the business or accounts.”
For the fist time in my life I couldn’t sleep. I didn’t want to cheat people. Instead, I took a hard look at my business. I still had good orders, and realized that I was responsible for 90 percent of the company’s sales.
I decided I had to let go of my entire staff. I realized we didn’t need seven secretaries; just energetic, intelligent people who wanted to add value and work together as a team.
But even though I had good orders, I still needed raw material to fulfill them, and I did not have any money. I contacted my largest supplier and said I needed to visit them in New York. I owed them $500 million, and they told me there was no need to visit – just send a check. Somehow, I persuaded the senior vice president of finance to see me.
I told him that I had legitimate orders from contractors backed by the Department of Transportation. He said, “You didn’t make money before. How are you going to make money now?” He was right. But I showed him the cash flow that had been calculated for my company. I said that people were making those large salaries were no longer on my payroll. I have people who will work about one-fourth of what I was paying.
He said,” Your know, either you are the biggest con artist that I have ever met or you are a really honest person.”
I said, “It takes a con to recognize a con. But it also takes an honest person to recognize and honest person. You tell me who I am."
He game me the money, and we were able to pay off all of our debts within a year in 1980. We’ve been profitable every year since then and now have a second facility in Georgia.
This site is about business mistakes, not personal issues. Yet there were two important points in Dennis Quaid's story about kicking his cocaine addiction as told in Newsweek's "My Favorite Mistake" that are useful for all of us trying to learn from our mistakes. They are encapsulated in this brief excerpt:
By the time I was doing The Big Easy, in the late 1980s, I was a mess. I was getting an hour of sleep a night. I had a reputation for being a “bad boy,” which seemed like a good thing, but basically I just had my head stuck up my ass. I’d wake up, snort a line, and swear I wasn’t going to do it again that day. But then 4 o’clock rolled around, and I’d be right back down the same road like a little squirrel on one of those treadmills. The lack of sleep made it so my focus wasn’t really there, which affected my acting. Addiction just keeps you from living; you’re basically hiding from life. I had a band then, called the Eclectics. One night we played a show at the China Club in L.A., and the band broke up, just like in the movie The Commitments, because it all got too crazy. I had one of those white-light experiences that night where I kind of realized I was going to be dead in five years if I didn’t change my ways. The next day I was in rehab.
It was one of those times when you think, “Well, if I do the right thing and clean up my life, it’ll get better.” No, it got worse! In 1990 I did Wilder Napalm, which came out and went down the tubes. But that time in my life—those years in the ’90s recovering—actually chiseled me into a person. It gave me the resolve and a resilience to persevere in life. If I hadn’t gone through that period, I don’t know if I’d still be acting. In the end, it taught me humility. I really learned to appreciate what I have in this life.
Point #1 is that the recovery from an error or a failure is not guaranteed to be immediately better - the benefits may show up very slowly. Point #2 is the long-term impact of encountering and obstacle and surmounting it, developing, as Quaid writes, "the resolve and resilience to persevere in life." Fall down 7 times, get up 8, indeed!
I had a nice time in Bend (Oregon) last weekend, including a conversation after dinner with some friends, a nice summer night, staying light late; the subject of large companies screwing small companies came up. I had something to add — from experience. More of the "mistakes I’ve made" categories. They’re easier to talk about at the end of a good day, looking at the river, feeling at peace with things.
Before I get into this, I should point out that I’ve also had some very good deals and long-term relationships with large companies. For example, I consulted with Apple Computer almost steadily from 1982 until 1994; it was a large company, but I had no complaints. My company, Palo Alto Software, has had good long-term relationships with Inc Magazine, Prentice Hall, Entrepreneur, and several others. It’s not like all big companies are bad. But here’s a story, and maybe a lesson.
The Contract That Meant What it Said
We (two of us) sat in a conference room with eight managers of a very large company, wrapping up weeks of negotiations on a deal bundling a version of our software with a version of theirs. It was a tough negotiation. When we were very close, all the major points agreed, we flew to their location to do this final session. We had to go through things we thought had already been settled. Finally, at the end, with everything supposedly settled, we signed a contract with a couple clauses we didn’t like.
One of them seemed to give them far broader rights than what we’d agreed. The word "unlimited" was there on the page.
"Don’t worry," they said, "that paragraph on page two is just for the disk duplicators, we have to have those rights or they won’t manufacture the disks. And you’re covered with the paragraph on page three, that limits our rights to exactly what we’ve agreed."
So we signed. Dumb. This belongs in the mistake bank for sure. But we did.
Three years later, our software appeared in a completely different context, way outside of what was agreed upon. I called the guy we’d negotiated with: no longer with the company. I called his assistant: no longer with the company. I called two others who’d been there: not longer with the company
Finally we took it to their corporate counsel. Actually to a person who was one of their legion of corporate counsels. We told him they didn’t have the right to do that.
"What do you mean," he answered. "Can’t you see it right there on page two? It says unlimited rights."
When trying to change the culture of a venerable institution, you want to move slowly. That would be unsurprising advice unless it came from one of the most powerful media figures in the country, Katie Couric, who answered a question by Andrew Goldman in the New York Times magazine's "Talk" column like this:
When you started hosting the “CBS Evening News” in 2006, there was a lot of talk about mold-breaking. Now the show looks very much like the other network broadcasts.
In retrospect I would have given people what they were used to, a traditional newscast. And then as they got to know me and got more comfortable, then I would’ve started toying with the format and trying new things. I think we were overly ambitious. We probably would have been better off playing it a little safer.
So: culture, especially a media audience's culture, is stronger than personality.
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 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.
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.
