Leaders, Avoid These 3 Big Mistakes

In this excerpt, our experts describe how you can become a failure champion.

Published on May. 20, 2024
Leaders, Avoid These 3 Big Mistakes
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What does it take for a company to be set up for home runs and countless unavoidable failures? Often, when we speak to corporate leaders, we start with a few simple questions.

Does your organization regularly make aspirational and bold bets to deliver an outsized impact? Does it have a portfolio of ideas to diversify risks? And does the company have mechanisms to regularly defund and close initiatives that don’t work?

Each of these elements is crucial; leaving out any one of them may prevent a company from harnessing the power of failure. Here are three pitfalls to avoid.

3 Biggest Entrepreneurial Missteps

  1. Playing it too safe.
  2. Betting the farm.
  3. Chasing after every idea.

More on EntrepreneurshipDo You Have What It Takes to Be an Entrepreneur?

 

1. Take More Risks Than You Think You Should

What if you make bets, but only within your comfort zone? They are not risky and bold enough. Playing it too safe is one of the major flaws we observe.

Many executives, on hearing the words “bets” or “experiments,” immediately point to A/B tests or to a few test locations where they are introducing new technology or devices.

To be sure, A/B tests can be useful. When the New York Times A/B tests its headlines and discovers that one attracts three times as many readers for the same article as another, that’s a significant result editors can use going forward to optimize the delivery of the company’s product to its customers.

But although A/B tests do qualify as experiments, they’re nonetheless examples of incremental innovation, analogous to Proctor and Gamble focus-grouping a new blade or 3M testing a new color of Post-it notes in a handful of select markets. You need to be making bolder, riskier plays than you think.

 

2. Make Several Small Bets

What if you make a bold bet, but it’s the only one the company is making? A second flaw we regularly observe is all-or-nothing behavior among large companies, in striking contrast to the VC principle of diversification with many small bets.

In a typical scenario, a senior corporate leader searches for one big idea and finally, after long consideration, decides to go all in, placing all the chips on that idea and rolling the dice. But winning big does not always require betting big.

Business schools are full of case studies in which companies made a single big, bold bet that make it hard for them to pivot later. When Airbus committed itself to designing and building the world’s largest passenger airplane, the A380 superjumbo, its executives probably expected to win the jackpot. The A380 was supposed to become the eighth wonder of the world.

It’s easy for a startup founder with a bunch of recent grads in a garage to say, “Fail fast, fail often.” It’s not so easy if you lead a large, established organization.

Unfortunately, it instead became a textbook case of a company putting all its eggs in one basket, as well as a dramatic fiasco that cost the European consortium more than $25 billion (compared to the initial budget of less than €10 billion, or almost $11 billion!). The aircraft faced multiple delays and significant cost overruns, and by the time it was finally ready, nearly twenty years later, almost no airline wanted to buy it.

In the years since the project was undertaken, air travel had undergone a fundamental paradigm shift, as passengers preferred direct flights rather than going through large airport hubs.

The airlines that Airbus had expected to become the A380’s customers instead turned to Boeing’s much smaller, more fuel-efficient and budget-friendly 787 Dreamliner. Like at Airbus, quarter after quarter, executives often continue to throw good money after bad, driven by a “failure is not an option” mindset combined with an all-or-nothing mood.

In our daily lives, we subconsciously understand that making many small bets is a safer strategy than making a single big one. We can wait, see the results, then pick a potential winner and shift our chips toward a promising alternative.

However, applying the same approach in a corporate setting is challenging for many reasons. It is easier to focus on one initiative than to juggle multiple ones. It’s much easier to secure a budget for a single, shiny project than to allocate funding for a portfolio of smaller ideas. As a result, executives often bet their careers on a single idea. Companies do too, sometimes beyond the point of no return.

Compare this to the VC mindset, where you are not pretending that you know the future winner, but you always remain in a “see and learn” mode.

More on Venture CapitalismHere’s How to Thrive During the Shifting VC Funding Environment

 

3. Be Picky About Your Ideas

What if you built a stream of ideas and had myriads of them floating around? Sadly, this won’t work either. A common flaw is to let a thousand flowers bloom, or simply to keep too many bets in the portfolio without killing unsuccessful ones and therefore not committing sufficiently to any one of them.

This is almost the opposite of the all-or-nothing flaw, in which a single Manhattan Project sucks up all of a company’s resources and attention. In this case, innovative ideas get just enough funding to entertain their creators within a corporate environment, but not enough to have any impact.

Too many ideas may distract and disorient the management. Lego is now a well-studied example of a company which at some point had too much innovation going on. Ideas were launched one after another, from theme parks to digitalizing every single Lego element and a McDonald’s Happy Meals partnership, to TV shows and new characters and even a buildable action figure Galidor.

The Venture Mindset book cover
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One thing was missing though: the focus. By 2003 the company was in trouble, and the new leaders were brought in. Their first action was to establish a disciplined approach to innovation. Discipline was the first step that revitalized almost a century-old Lego that became known as the Apple of toys.

It’s easy for a startup founder with a bunch of recent grads in a garage to say, “Fail fast, fail often.” It’s not so easy if you lead a large, established organization.

This is why avoiding these three pitfalls is critical. It’s important to know how to fail without wrecking yourself. To become an innovation champion, you may have to become a failure champion first.

From THE VENTURE MINDSET: How to Make Smarter Bets and Achieve Extraordinary Growth, by Ilya Strebulaev and Alex Dang, in agreement with Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © Ilya Strebulaev and Alex Dang, 2024.

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