How to master the art of being wrong

What do Walt Disney, Bill Gates and Abraham Lincoln have in common? They all failed in their first business venture, but they didn’t let that stop them.

When a business or project fails, it’s condemned for being a flop. But according to Kathryn Schultz, we all get it wrong from time to time, we all make mistakes. Everyone is fallible. The problem is when we cannot recognise the value of our mistakes.

A self-styled “wrongologist”, New York-based journalist Schultz has just published a book Being Wrong: Adventures in the Margin of Error, where she looks at why mistakes are so important, and what they can teach us.

“Almost every mistake and almost every failure is like a little packet of information,” Schultz says.

“If you are able to look at it and not run way from it and not blame it on someone else and study the mistake, it’s a piece of information. It’s like a science experiment.”

For entrepreneurs, she says there are three lessons to be learned from wrongness. The first is that everyone makes mistakes. The second is that they need to plan for failure and mistakes, so that there is some sort of back-up plan. And finally, they need to know that nothing lasts forever.

Being wrong, she says, gets too much bad press.

“One of the interesting things about wrongness is there are many ways to get things wrong and certainly there are mistakes and errors that arise from good reasoning,” Schultz says.

“It’s not that someone was idiotic or irresponsible or didn’t do their homework.”

“They extrapolated from very sound foundations and still ended up with the wrong answers. And that can happen for all kinds of reasons. The most basic one is the world is a very confusing place and it’s a noisy information environment and we don’t know every single thing about it. Even if our premises are quite solid and strong, we can still wind up being wrong.”

She says some of the best examples of that are economists who base their forecasts on solid data, and still get things wrong. Even the world’s most acclaimed financial experts can make mistakes.

“Alan Greenspan, for example, had a model of the world that worked really well for him for 40 years,” she says.

“He had every reason in the world to believe that markets would correct themselves. He believed markets would prevent a really drastic situation because they corrected themselves and were moved by self-interest.

“He operated under that idea very successfully for many decades and lo and behold, that turned out not to work. It turned out in the end to be catastrophic. But the point is that he had a picture that worked very well for a long time and the feedback he was getting was saying it was pretty good.”
In praise of imperfect

So how should entrepreneurs work with failure?

“We need companies and leaders and managers who understand two things,” Schultz says.

“The first is to understand that some measure of failure is inevitable, people are not perfect. You can’t get rid of people and replace them with a perfect new hire, that doesn’t exist.”

“And you need to understand that for the most part, mistakes and failures are not the outcome of being idiotic or not doing homework or not doing the job right.”

“It’s not useful to have this attitude from high on top of the company that says good people don’t make mistakes and if you make a mistake, there is something wrong with you. That’s going to be bad for your employees and bad also for the company and its bottom line.”

“We can create good systems and better systems and systems that protect us from errors or protect us from the most catastrophic consequences of errors, but we can’t create perfect human beings.”

Just what kind of systems you need depends entirely on the company and its sector.

On one level, there are the companies that run hospitals, manufacture parts for the automotive and aerospace industries or that build bridges, roads and towers. In those sorts of companies, the focus needs to be on curtailing any sort of error. But that means identifying the mistakes early on and getting them out into the open.

“You should focus on creating a culture where people can report those mistakes and talk about them and see why they happen so that you can do everything in your power to eliminate them because they are costly errors and catastrophic and you don’t want them to happen,” says Schultz.

“If you are responsible for any kind of high stakes industry where the potential consequences of a failure or an error are highly costly in terms of lives or livelihood or resources or public safety, your goal needs to be about creating a culture that accepts human beings as fallible and encourages people to talk about and report mistakes.”

“Otherwise, you are driving the problem underground. But if you identify the problem quickly, you can create systems and structures that keep them from happening.”

“Probably the single most important factor is that when things go wrong, do you look for a human being, or do you look for a structural problem?”

Fail quickly, fail cheaply

Schultz says that management at the Fukushima reactor in Japan, which has now admitted to faking repair records and pretended to make thorough inspections when in fact they were only cursory, was a prime example of a company that did not have proper failure management systems in place.

Then there are the companies that are the innovators, the ones at the cutting edge. Businesses in the tech space are a prime example. These companies, says Schultz, need to create cultures that tolerate and manage mistakes. In these sorts of places, it should be okay to make mistakes.

The trick is to make sure that the mistakes happen early on before they blow too much investment. There is a golden rule: fail quickly, fail cheaply. “You have to create a context where the resource impact of failing is not going to bring you down,” says Schultz.

“Every time you do something new, you have never done it before, you don’t even know what a mistake would look like.

“In companies like that, you don’t encourage failure but you create a climate where it is totally permissible to experiment and understand that most of these experiments won’t work out.”

“If you look at the history of innovation, it’s a numbers game. The more things you try, percentage wise, the more will work. But the vast majority will fail and you have to be tolerant of that.”

With small businesses, many will fail in their first year. That, she says, comes with the territory of being an entrepreneur.

“There are a lot of serial entrepreneurs out there and they all fail at something and the lessons from that failure make them more robust next time,” she says.

That means anyone setting up a business for the first time needs to acknowledge that there is a chance that they will make mistakes and get it wrong. She says ideally what they need to do is to canvass with as many people as possible, including the folk they do not agree with, all the possibilities of mistakes and failings. They need to identify first off where they could make errors.

“Anyone going into small business or starting a small business needs to look around exhaustively and ask what could go wrong here,” she says. “And you can’t do it yourself because you have blind spots.”

Schultz says this is especially critical in the early days of any business. Management, after all, is about identifying a successful process and repeating it over and over again. Many new businesses do not have that experience.

“That’s when people are afraid of failing but it’s also most likely when you are going to fail,” she says.

Why success breeds failure

At the same time, making mistakes is common in successful companies. Nothing breeds failure like success. Initial success can attract customers, employees, investors and, ultimately, imitators. But over time, managers stop considering alternatives to the formula. They take things for granted and become less flexible. Processes turn into routines, values ossify into dogma and once-successful strategic frames become blinkers.

Resources become millstones, with managers reluctant to reconfigure for fear of wrecking profits and previously successful processes. In the end, what started as a good idea turns into a mantra. Managers get trapped by success. It’s not that they don’t see the threats ahead. But when the world changes, they simply respond with more of what worked before.

For instance, when IBM launched its first PC, the view at Big Blue was that the desktop devices were just “bait” to lure customers for mainframes. Xerox labs developed tools such as the mouse and the graphical user interface but did not put them on the market because it saw itself as an office equipment maker, not a computer company.

Schultz agrees that it is like a car stuck in a rut: managers put the pedal to the metal and dig the rut deeper. Tried and true formulas work as long as the competitive, technical and regulatory contexts are stable. The gap opens when the contexts shift. Managers see the gap and respond aggressively, but repeated applications of a rigid formula make the chasm even bigger.

Failing to tolerate mistakes is one of the ways big companies go wrong, Schultz says. They forget that nothing lasts forever.

“The pace of change is so fast that nothing that works today is going to work 10 years out,” she says.

“It’s not going to be the cutting edge of anything and the larger your company is, the harder it is to be nimble. Many dinosaur themselves out of existence.”

“Unfortunately, your massive successes are your own worst enemy.”

She says the only way to stop this from happening is for companies to embrace mistakes, not encourage them but accept they will happen and set up systems to ensure there is little damage.

“You can use the failure tolerance and the error tolerance as a way to maintain experimentation within your company,” she says.