On April 7 2020, CB Insights published a list of 160 biggest product failures of all time. The list is a good illustration of what happens when corporate innovation goes wrong. I was not at all surprised that innovative ideas sometimes fail. This is after all a part of the game. What did surprise me was how expensive a majority of the failures were. While failure is an inevitable part of innovation, expensive failure is not a necessary part of the process. Understanding this distinction can help leaders manage innovation failure in times of uncertainty.
Why It Is Hard For Leaders To Accept Failure
One of the myths around innovation is that good returns require companies to make large investments. This myth is problematic because it requires large investments in innovation projects too early. The key defining feature of any breakthrough innovation project is uncertainty. There are several unknowns that innovation teams still need to address.
In most cases, innovation teams are still unsure whether customers have a strong need that can be served with a viable solution. In other cases, they know there is a customer need but they are not yet sure whether their solution will resonate with those customers. These are just two examples of questions that need answers. There are more questions around pricing, cost of production, channels and scalability of business model. As such, the goal of any innovation project is to search for answers to these key questions.
The problem with making large investments up-front is that leaders then need to make sure that they are making good bets. This is where the long business cases come from. Leaders feel that they need as much information as possible on day one before they can make decisions. The problem with the business case in the early stages of an innovation project is that the document will be filled with assumptions and very little knowledge. Leaders then have to decide whether they believe the story in the business case or not.
When they make a decision to invest, it is mostly a faith based decision. However, because they are making a large bet, failure is not an option. What most intrapreneurs fail to recognize is that when leaders make large investments, it is not only funding and resources they are giving you. They are also putting their reputation within the company on the line. This is why failure is not something they can really accept.
How Leaders Can Accept Failure
The first thing that leaders need to do is acknowledge that they cannot pick the winning ideas on day one. Asking for business plans does not improve their ability to pick winners. Business planning for innovation can sometimes increase the likelihood and magnitude of failure. Instead of trying to pick winners, leaders need to create the context in which the winning ideas emerge.
Rather than pinning all our hopes on the success of one huge bet, leaders need to view their investments in innovation from a portfolio perspective. To find a few great ideas, we need to invest in loads of ideas. These investments are not based on business planning. Instead, the investments are made to allow teams to test their ideas and so we can learn which ones have the potential to be successful.
If we are going to be making investments in a lot of ideas without business plans, it is only sensible that these investments are small. Those small bets can then increase over time, but only for those teams that are showing progress towards finding potentially successful business ideas. The basic criteria for innovation success is that teams need to find value propositions that resonate with customers and business models that are profitable and scalable.
At Pearson, the large global education company, I was part of a team that developed an award winning investment framework called the Lean Product Lifecycle. In this framework, leaders made incremental bets, starting with a maximum of $50,000 for early stage ideas that were still exploring customer needs. This investment then increased to $250,000 for those teams that showed evidence of customer jobs, pains and gains. These teams could then start working on developing and testing solutions. As teams showed more evidence of traction with customers and potentially profitable business models they got the larger investments of $1 million or more.
When leaders understand that their level of investment in business ideas increases only when teams bring evidence of progress and traction, their willingness to accept failure increases. This is because if the ideas they invest in fail, the failures will be cheap and fast. So the leaders will suffer no reputational damage within the company. Cheap and fast failure is also easier to accept when you add the benefit of the lessons that will be learned that can be taken into other projects. In these circumstances, we can celebrate failure as learning and allow our teams with failing ideas to move on and test other ideas.