Last week I read an article at fastcompany.com about failure portfolios. This is another interesting idea that takes a well-known concept one step further. We all know that our failures and mistakes are a great chance to learn something. Contemplations about ‘lessons learned’ are a frequent component of processes like projects or planning cycles. Such an analysis of failures is mostly an internal issue that does not leave the company â€“ or even the department.
The failure resume goes beyond that in several ways:
- It puts all failures in relation instead of looking at each one individually
- It includes missed opportunities, whereas traditional lessons-learned exercises often the focus on things that went wrong
- It encourages making failures public by taking full ownership, thus enhancing ones brand through honesty
The fastcompany article is a reprint from the new BookÂ Creative Confidence: Unleashing the Creative Potential Within Us All by Tom Kelley and David Kelley. It focuses on financial services professionals that are normally promoting their track record of success stories. The article highlights Bessemer Venture Partners as one exception of this pattern:
‘Their website predictably features their “Top Exits”. What’s refreshing and not so predictable is that one click away from these mega-successes is a catalog of miscues and failed foresight Bessemer calls their “Anti-Portfolio”.’
In this Anti-Portfolio they list missed investment opportunities that would have been a great success:
‘However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.’
Their list of missed opportunities includes some of Americaâ€™s most successful companies, such as ebay, FedEx, Apple. It also reminds us that ‘Prediction is very difficult, especially if it’s about the future’, as Nils Bohr, Nobel laureate in Physics, had once said.
“As for Compaq, I told him there was no real future in transportable computers since IBM could do it.”
What I really like about failure portfolios is that they put individual and seemingly unrelated mistakes into a common context. Thus, they provide the opportunity to identify patterns, correlations, or commonalities. This in turn may be the basis for discovering hidden causes of failure. Failure portfolios allow shifting focus to internal causes. In contrast, individual lessons learned exercises tend to attribute failure to external factors like market corrections.
The next advantage is that Kelley and Kelley explicitly give missed opportunities as an example for failure portfolios. Traditional failure analysis looks at failed projects or strategic initiatives â€“ things that the company had decided to do. Their implications are obvious and they are much closer to our attention than project proposals we had declined long ago. It is easy to calculate the costs of a project that went over time and budget. It is less obvious to look at lost opportunities, revenues, or cost savings from an initiative that was turned down.
The fastcompany article lists one more point:
You may also find that you enhance your own brand through your honesty, candor, and humility.
Well, this is something to think about very seriously. It is one thing to write your personal or your companies failure resume. It is another thing to make it public. I think it depends on the context and the industry youâ€™re in. As for venture capital, it is easy. Everybody knows that a number of missed opportunities and failed investments is part of their business model. Thus it may add credibility when they openly speak about those failures.
Now letâ€™s think about other industries. The following examples are completely fictitious and do not refer to any particular existing company.
- We did not take alternative drive systems and hybrid systems seriously and now we do not have competitive offers
- We hesitated far too long to close down our overcapacities
- We entered an alliance with a partner with which we did not have any cultural fit
- We gave a top rating to a complex RMBS-structure that turned out to be a complete loss
A failure resume of that sort would not be very helpful. Their main weakness is that they do not reveal anything new that is not already publicly known or at least suspected. In order to have any value, failure resumes should provide information that is not so obvious. Missed opportunities are a good point again. How about if the car manufacturers failure resume would say
- We had the chance to hire Mr. X who is now the successful turnaround manager of company Y. We rejected him because we lacked confidence in his leadership abilities
- One of our engineers mad a project proposal to develop a more efficient component. We turned down his project because it did not meet our investment criteria. He quit and set up his own company that today is worth millions.