06/ 13/ 2006
by Scott Westcott
Failure is an option at PlumpJack Group, a San Francisco-based company that consists of several wineries, bars, restaurants and hotels. In fact, the best flops are rewarded with the company's "failure of the month" award.
Confused? You're probably not alone. The natural tendency of many small-business owners and managers is to avoid failure at all costs. Yet a growing number of companies large and small are recognizing that fostering an environment that encourages risk-taking is essential for innovation and staying a step ahead of the competition.
Concerned about a lack of innovative thinking, larger companies such as BMW have sponsored similar "creative error of the month" contests. Former GE legendary CEO Jack Welch often said "we reward failure" and IBM's Thomas Watson Sr. quipped, "The fastest way to succeed is to double your failure rate."
While doubling a failure rate could doom many small businesses, allowing for some strategic failures could end up boosting your business and employee morale. Consider PlumpJack. A few years back, the company developed a "magical moment'' award. The recognition was well received but had its limits. Good ideas that didn't quite lead to magical moments went unrecognized. Hence, the failure award was born. "The award recognizes an inspired failure," says PlumpJack CEO Rob Goldberg. "Something like 'I slept in and missed my shift' doesn't count, but we wanted to create a culture that encourages risk-taking and recognizes people who step out of the so-called box."
The case of the catfish is a good example. At one of PlumpJack's locations, swarms of mosquitoes buzzing around a small pond were bothering guests. An employee hit on an idea-he had heard of a type of catfish that feasted on mosquitoes. The fish were released in the pond one afternoon. The next morning-carnage. Raccoons had devoured the catfish, leaving a mess behind. While the idea flopped, the employee had shown initiative and creativity. That won him the failure award.
"We prefer errors of enthusiasm to the apathy of indifference," Goldberg says. "When you have a company that doesn't embrace failure, people are just paralyzed and afraid to do anything."
Other small-business experts agree. In her book, Nine Lives: Stories of Women Business Owners Landing on Their Feet, Mary Cantando profiled several women who bounced back from failure time and again to achieve remarkable success. The common thread? Persistence and an ability to learn from mistakes. When she ran her own small business, Cantando, who now works as a consultant for women entrepreneurs and business owners, encouraged employees to view failures as learning opportunities.
"I had a mantra that when something disastrous happens the challenge is to find three good things about it," Cantando says. "The idea was to get employees always asking, 'How can I make some good come out of this?'"
Leadership guru Luda Kopeikina learned the potential of failure in a decidedly big business environment-General Electric. As an executive during the Jack Welch era, Kopeikina saw the power of asking employees to stretch their thinking, even if it often resulted in failure.
While small businesses lack the cash and resources of a Fortune 500 company, Kopeikina, the author of The Right Decision Every Time: How to Reach Perfect Clarity on Tough Decisions, still thinks it's essential to create an environment that accepts, and even encourages, failures. To minimize the risks, she recommends identifying star players and asking them to take chances that could end in failure. And it's also a good idea to establish a bare minimum of what needs to be accomplished so the risk doesn't completely outweigh the potential payoff.
"A lot of times when you push people they start looking for new ways of doing things out of necessity," Kopeikina says. "In a small-business environment, just encouraging that kind of thinking can lead to incremental steps that make a big difference over time."
For a company that wants to start rewarding failure, PlumpJack's Goldberg suggests waiting for a spectacular failure and then pointing out its value in terms of taking risks. That's a better option than rolling out a stuffy initiative that employees might not buy into, he says.
And let your employees know that failure doesn't stop at the boss's door. Seeing leaders fail from time to time sends a message that taking risks is encouraged.
"When I fail, I nominate myself for the award," Goldberg says. "I fail all the time. People who don't fail on a daily basis are not innovating, and my guess is their businesses are not growing that fast."
Why Failure Happens
Albert Einstein. Thomas Edison. Babe Ruth. We've all heard the stories of famous people who failed at some point along the way. But their eventual successes are little consolation when you're struggling to hang onto your business. Failure happens-and it hurts.
When you're at a low point, the most important thing is to remember why you started your business in the first place.
"For small-business owners, the amount of passion you have for your business and your belief in its success are what carry you through those tough times," says Henry Reeves, director of the Shenandoah Valley Small Business Development Center in Harrisburg, Va.
Failure doesn't always mean closing your business. Small-business owners regularly face set-backs. Getting beyond those daily dilemmas is the biggest challenge of running a business. Whether you're considering a new product, service or business concept, Reeves recommends considering the main reasons most small businesses fail:
Inadequate planning upfront. "A lot of business owners assume their product is neat and that enough people out there are going to want it," says Reeves. That's why feasibility studies should be done early. "There's a need for almost anything you can dream up-but are enough people willing to pay a price often enough to make it worth it?"
Insufficient capital. "You have to be able to hang on long enough to break even or make a profit," Reeves says. "A lot of business owners ignore this aspect and fail miserably."
Inexperienced management. Venturing into an area where you have little experience is risky, warns Reeves. "There's no substitute for knowledge of an industry."
