The Art of Failure
Monterey Institute of International Studies
Eli Zelkha
eli.zelkha@gmail.com
The Art of Failure
Adminstrative
E-mail:
eli.zelkha@gmail.com
Tel:
650-218-6789
Address:
573 Patrol Road
Woodside, CA 94062
The Art of Failure
Agenda - Saturday
Introduction
Failure & Customer Discovery & Development – Steve Blank
Class Exercise
Building India’s First Coffee Shop Chain - Sashi Chimala
Frameworks of Failure
Student Self-Diagnostics
Samasource – Claire Hunsicker
The Art of Failure
Agenda - Sunday
Introduction
Starting a Y Combinator Company - Matthew Brezina
Student Discussion: Y Combinator & Failure
Failure & Entrpreneurship – Ariel Poler
Psychology of Failure
Lessons of Failure & the Concepto Venture Model Eli Zelkha & Simon Birrell
Global Failure & Success in Technology & Social Ventures - Kamran Elahian
Closing
The Art of Failure
Steve Blank
•Serial entrepreneur - 30 years of experience in high tech
•Professor at UC Berkeley School of Business, and a Lecturer at Stanford
Graduate School of Engineering.
•Founder or participant in eight Silicon Valley startups since 1978.
E.piphany; two semiconductor companies (Zilog and MIPS Computers); a
workstation company (Convergent Technologies); a supercomputer firm (Ardent); a
computer peripheral supplier (SuperMac); a military intelligence systems supplier
(ESL) and a video game company (Rocket Science Games).
• Boardmember of CafePress.com, an on-line marketplace, and IMVU, a 3D
IM social network.
•"Four Steps to the Epiphany" is the definitive work on Customer Development
and is one of the foundations of Lean Startups.
Silicon Valley & Failure
• “We are special because we embrace failure”
• “” “” ‘’ ‘’ “” “””
Silicon Valley & Failure
Not True
The Art Of Failure
Class Exercise & Discussion
1. Describe your closest encounter(s) with Failure. (Objectively
what happened? How did it feel? Consequences?
The Art Of Failure
Class Exercise & Discussion
1. Describe your closest encounter(s) with Failure. (Objectively
what happened? How did it feel? Consequences?
2. Reflecting on this and other experiences, do you notice any
patterns in your past "failures"?
The Art Of Failure
Class Exercise & Discussion
1. Describe your closest encounter(s) with Failure. (Objectively
what happened? How did it feel? Consequences?
2. Reflecting on this and other experiences, do you notice any
patterns in your past "failures"?
3. How did you recover from this experience?
The Art Of Failure
Class Exercise & Discussion
1. Describe your closest encounter(s) with Failure. (Objectively
what happened? How did it feel? Consequences?
2. Reflecting on this and other experiences, do you notice any
patterns in your past "failures"?
3. How did you recover from this experience?
4. What if anything did you learn from the experience?
Failure
Inspiring Quotations
•
“Failure is the foundation of Success, and the means by which it is
achieved.”
- Lau
•
Tzu
“I have not Failed, I have learnt 9,999 ways that won’t work.”
- Thomas Edison
•
“People don’t Fail, it is the Plan, Strategies and Tactics that Fail.”
- Paul Mc.Kenna
Failure
Inspiring Quotations
But how severe is the
Downside?!
Can I recover from a
Failure?
Failure
Fear of Failure
• One of the greatest fears people have
• Related to Fear of Criticism or Rejection
• Incapacitates unsuccessful people
• Unable to take action
• Leads to ‘failure of omission”
Failure
Fear of Failure – Another View
“There Is No Failure, Only Feedback”
• Successful people look at mistakes as
outcomes or results, not failure
• Unsuccessful people look at mistakes as
permanent and personal
• FoF is self-limiting – fear even trying for
fear of failure
Failure
Fear of Failure – Overcoming
1.
2.
3.
4.
5.
6.
7.
Take Action
Perist
Don’t take failure personally
Do things differently
Don’t be so hard on yourself
Treat the experience as opportunity to learn
Look for possible opportunities that result
from the experience
8. Fail forward, fast
Failure as a Balancing Act
• Two Conflicting Risks:
1. Taking risks beyond our ability to recover
•
Russian roulette
2. Avoiding any risk (fear of failure)
•
Home bound paranoid
Is it possible to create life transforming ventures while
limiting oneself to “manageable risks”
Failure as a Balancing Act
The Comfort Zone
Too Little Risk
Too Much Risk
(Homebound)
(Russian Roulette)
Models of Failure
• The Innovator’s Dilemma
– Ignore disruptive technologies at your peril
• Engineering model:
– FMEA (Failure Modes & Effects Analysis)
• Disease model:
– Collins “How the Mighty Fall”
• Scenario model:
– Scenario based planning
• Venture incubator model:
– YCombinators “18 Mistakes that Kill”
Innovator’s Dilemma
• Technology sometimes outpaces the market
Resulting in so-called "disruptive" technologies
• Disruptive technologies are often the standards of
the future
Ignore disruptive technologies at your peril
• Traditional thinking misallocates resources
Managers must be extreme advocates of new
technologies in order to allocate sufficient resources
to their development
Innovator’s Dilemma
“Sustaining” vs. “Disruptive” innovation
• “Sustaining”
–
–
–
–
Makes products more appealing to existing customers
Faster, cheaper, more capable
Functionally equivalent, but fills same customer needs
Manager’s trained to focus on “sustaining” R&D
• “Disruptive”
•
•
•
•
•
Established customers have no use for it (yet)
Usually simpler, based on breakthrough or repurposed technology
Must find new customers to sell
Doesn’t make sense – until it’s too late
Look for them in emerging markets
Innovator’s Dilemma
Disruptive Technology – Example
8-Inch Disk Drives vs. 5.25-Inch Drives
• 1980’s 8-inch drives – industry standard
• Seagate developed 5.25-inch drive
•
Less efficient, slower, and more $ / megabyte
• Existing (minicomputer) customers did not want
5.25-inch
• Emerging desktop computer makers needed smaller,
lower-cost drive
• Didn’t mind less efficient and slower
• 8-inch drive makers “held captive” by customers
• Seagate won the day
Innovator’s Dilemma
Addressing Disruptive Technologies:
• Develop a strategy to address disruptive
technologies
Either learn to retreat up-market, build your own, or imitate
competitors with disruptive technologies
• Separate disruptive technology development from
the rest of the firm
Separate these groups in order to focus their work and create
proper incentives for success
• Recognize the value of disruptive technologies
Conservative initial marketing practices and product
redevelopment will eventually yield value
FMEA
Failure Modes and Effects Analysis
Engineering View of Failure
Design
Plan for
Failure
Learn From Failure
Iterate
Test It Break
It
Goal:
Zero
Failures
FMEA
Failure Modes and Effects Analysis
DEFINITION
A methodology to analyze and discover:
(1) All potential failure modes of a system,
(2) The effects these failures have on the
system and
(3) How to correct and or mitigate the failures
or effects on the system. [The correction and
mitigation is usually based on a ranking of
the severity and probability of the failure]
Source: NASA Lewis Research Center
FMEA
Failure Modes and Effects Analysis
Benefits of FMEA
• FMEA is one of the most important tools of reliability
analysis. If undertaken early enoughin the design
process by senior level personnel it can have a
tremendous impacton removing causes for failures or of
developing systems that can mitigate the effects of
failures.
• It provides detailed insight into the systems
interrelationships and potentials for failure.
• FMEA and CIL (Critical Items List) evaluations also
cross check safety hazard analyses for completeness.
Source: NASA Lewis Research Center
FMEA
Failure Modes and Effects Analysis
Procedure Flowchart
Design
Get
System
Overview
Revise Design
Perform
FMEA, ID
Failure
Modes
Source: NASA Lewis Research Center
Establish Failure
Effect
Determine
Criticality
Jim Collins
“How the Mighty Fall: and Why Some
Companies Never Give In”
How the Mighty Fall
Stage 2:
Undisciplined
pursuit of more
Building from
stage one is
people chasing
goals that take
them away from
their core, their
competitive
advantage all in
the name of
growth, or the
grand strategy.
Stage 3
Denial of risk
and peril
chasing things
that are not part
of your core,
fail to see the
problems..
Stage 4: Grasping
for salvation
The silver bullet,
abandoning the
flywheel and chase
things outside the
core.
Adapted from: Jim Collins, “Hoe the Mighty Fall and Why Some Companies Never Give In”
Stage 4: Grasping
for salvation
The silver bullet,
abandoning the
flywheel and chase
things outside the
core.
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
•Arrogance
•Entitlement
•Lose sight of
what made
success
•Role of luck
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
Stage 1
Stage 5
Hubris Born of
Success
Capitulation to
Irrelevance or
Death
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
Stage 1
Stage 5
Hubris Born of
Success
Capitulation to
Irrelevance or
Death
•Overreaching
•Stray from
disciplined creativity
•Leaps into unknown
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
Stage 1
Stage 5
Hubris Born of
Success
Capitulation to
Irrelevance or
Death
•Ignore negative
data
•Spin
•Outsized risks
•Risk denial
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
Stage 1
Stage 5
Hubris Born of
Success
Capitulation to
Irrelevance or
Death
•Previous risks
become apparent
•“Radical
transformation”
•“Cultural
revolution”
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
•Accumulated
setbacks
•Eroded
financial
strength
•Abandon hope
Stage 1
Stage 5
Hubris Born of
Success
Capitulation to
Irrelevance or
Death
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
How the Mighty Fall
Stage 3
Denial of Risk
and Peril
Stage 2
Undisciplined
Pursuit of More
Stage 4
Grasping for
Salvation
Stage 1
Hubris Born of
Success
Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”
Recovery
and
Renewal
Scenario Planning
Eli Zelkha & Simon Birrell
Managing Partners, Concepto Ventures
Stanford School of Engineering
3rd Novermber 2010
The Background: Deal at Philips
• Corporate venture capital and strategy for a
major global consumer electronics player
Background: Deal at Philips
• Corporate venture capital and strategy for a
major global consumer electronics player
Deliverables
•
•
•
•
•
Strategic plan unifying disparate units
High impact strategic venture capital investments
Forge strategic alliances
Develop transformative vision of industry future
Visionary “projects on the edge”
Background: Deal at Philips
• How can we do deals or strategy if we know
nothing about the space?
About Scenario Planning
Scenario Planning: An Overview
Forecast Based Planning
Knowns and trends
-10%+10%
Knowns
TODAY
Scenario Planning: An Overview
Forecast Based Planning
Scenario Based Planning
Knowns and trends
Unknowns and uncertainties
-10%+10%
Unknowns
Knowns
Unknowns
Knowns and
trends
TODAY
TODAY
Unknowns
Scenario Planning: An Overview
Scenario Based Planning
• Scenarios are alternative
visions of the future
• Scenarios are generated
by analysis of what we
don’t know, not just
what we do
• Scenarios are used to
envision and “try out”
multiple futures
• Scenarios are used to
work backwards in time
to today
Unknowns and uncertainties
Unknowns
Unknowns
Knowns and
trends
TODAY
Unknowns
Rethinking Industry Dynamics
Embryonic
Growth
Mature
Aging
• Philips has a sophisticated way of planning for the future when operating in a
mature industry environment
• But there are emerging forces that threaten to disrupt--and recycle-- the entire
industry, and the current view of dynamics
• Forecast-planning is sufficient for a mature industry. But it’s
inadequate when industry transformation is taking place
CONFIDENTIAL - 45
Breaking Out of our Preconceptions
• They are stories that help suspend disbelief in
possible futures
• We have a tendency to fixate on one future, or
at most, two
• Scenarios are a powerful tool for forcing us to
abandon previously fixed ideas
• Scenario-based planning allows managers to
deliberately try to break the rules of their
business
• Scenarios are about the world, not about us
How they help us
• They enable us to “practise” for different
futures
• They are a tool for envisioning, not predicting
• They suggest the strategies, deals and alliances
that we would need to prosper in different
worlds
• The process of creating scenarios makes you
smart about a space
Scenarios
• Tool for embracing uncertainty
• Tool for play & provocation
• Tool for envisioning value creation & migration
Tool for upsetting the world
(within our minds & outside)
& strategic transformation
Redefining Failure
Seth Godin
Common Types of Failure
Seth Godin
• Design Failure. If your product or service is misdesigned,
then people don’t understand it, don’t purchase it, or may even
harm themselves when they use it, and you have failed.
• Failure of Opportunity. If your assets are poorly
deployed, ignored, or decaying, it’s as if you are destroying them,
and you have failed.
• Failure of Trust. If you waste stakeholders’ goodwill and
respect by taking shortcuts in exchange for short-term profits, you
have failed.
• Failure of Will. If your organization prematurely abandons
important work because of internal resistance or a temporary delay
in market adoption, you have failed.
Common Types of Failure
Seth Godin
• Failure of Priorities. If your management team chooses
•
•
•
to focus on work that doesn’t create value, that’s like sending
cash directly to your competitors, and you have failed.
Failure to Quit. If your organization sticks with a
mediocre idea, facility, or team too long because it lacks the
guts to create something better, you have failed.
Failure of Respect. If you succeed without treating your
people, your customers, and your resources with respect and
honesty, you have failed.
Failure to See. And, of course, the most self-referential
form of failure is the failure to see when you’re failing
Learning From Failure
“Fast Failure”
Learning From Failure
The Traditional Way
Idea
Inception
Learning From Failure
The Traditional Way
Idea
Inception
Learning From Failure
The Traditional Way
Idea
Inception
Choose
Alternative
Learning From Failure
The Traditional Way
Idea
Inception
Choose
Alternative
Learning From Failure
The Traditional Way
Range Of
Outcomes
Idea
Inception
Choose
Alternative
Learning From Failure
The Traditional Way
Range Of
Outcomes
Idea
Inception
Choose
Alternative
Feedback Too Late
No Resources left
No Fallback Position
No Useful Learning
“Fast Failure”
The “New” Way
•
•
•
•
•
•
Failure = Normal = Good.
Reward excellent failure.
Punish mediocre success.
Fail faster. Succeed sooner.
Fail. Forward. Fast.
Educate for Risk-taking, Creativity,
Independence.
• The Great Comeback
• Video Link
Source: Tom Peters
“Fail Early and Often”
The “New” Way
• Theory of Small Failures
• Test components, not the whole thing
• Control the environment – don’t risk everything,
e.g. small test markets
• Expect failure
• Gain feedback
• Redesign component
• Embrace market reality by testing assumptions
against realities
• Save resources for fallback position!
Intelligent, Fast Failure
The “New” Way
I
n
c
e
p
t
i
o
n
Intelligent, Fast Failure
The “New” Way
I
n
c
e
p
t
i
o
n
Intelligent, Fast Failure
The “New” Way
Choose
I
n
c
e
p
t
i
o
n
CustomerF
eedbackc
Customer
Feedback
Customer
Feedback
Intelligent, Fast Failure
The “New” Way
Choose/
Test
I
n
c
e
p
t
i
o
n
Customer
Feedbackc
Choose/
Re-Design/
Re-Test
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Intelligent, Fast Failure
The “New” Way
Choose/
Test
I
n
c
e
p
t
i
o
n
Customer
Feedbackc
Choose/
Re-Design/
Re-Test
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Range Of
Outcomes
Intelligent, Fast Failure
The “New” Way
Choose/
Test
I
n
c
e
p
t
i
o
n
Customer
Feedbackc
Choose/
Re-Design/
Re-Test
Range Of
Outcomes
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Customer
Feedback
Fallback Strategy
Agile Software Development
Agile Software Development
Traditional Development Process
•Customers only
involved at beginning
and end of process
•No Iterations
•Takes a long time.
•“Make-or-break”
•Rarely deliver
according to plan
Agile Software Development
Guiding Principles
• Our highest priority is to satisfy the customer
through early and Involvement
• Welcome changing requirements.
• Deliver working software frequently.
• Business people and developers must work
together .
• Build projects around motivated individuals.
• Face-to-face conversation.
• Working software is the primary measure of progress.
• Agile processes promote sustainable development.
• Continuous attention to technical excellence
and good design enhances agility.
• Simplicity is essential.
• Self-organizing teams.
• Constantly tuning of processes.
Agile Software Development
Customer Involvement and Rapid Iterations
Plan out 1-4
weeks work
Create
product
needs
Strategic
planning
Improve
process
Meet
daily
Review
product
Agile Software Development
Customer Involvement and Rapid Iterations
Agile Software Development
Customer Involvement and Rapid Iterations
•Markets
•Customers
•Biz Models
•Strategy
•Portfolios
•Funding
•Customers
•Sales
•Marketing
•Support
•Upgrades
•EOL/EOS
The Gladwell Model
Venture Capital
Debunking The “Embracing Failure Myth”
Venture Capital
How It Works
Raise
a Fund
(Pension, Families,
Corporations)
Harvest
Invest
(IPO, mergers,
management buyout)
(Evaluate, due diligence,
close…)
Make $$$ via M&A or IPO
75
Raise pools of capital from
institutional and individual
investors
- Finance new and rapidly growing
companies;
- Purchase preferred equity securities
and take board positions;
- Add value to the company through
active participation
Venture Capital
How It Works
Management Fees (typically 2-2.5% of AUM)
Charge a management fee to cover the costs of managing the committed capital.
Carried Interest (typically 20-25%)
"Carried interest" is the term used to denote the profit split of proceeds to the
general partner.
Example $100m fund
4x return and 2 and 20%
$2m per year in management fee
(($100m x 4) - $100m) * 20% = $60m in carried interest
Venture Capital
How It Works
Venture Capital
The Real Story
Venture capitalists talk of accepting failure …
But they are financially motivated only for success – the
“Home Runs”
They get their large management fees come rain or shine
They get no compensation for “Failures, Living Dead.”
They get trivial compensation for “Base Hits.”
They make their big money from “Home Runs.”
They can’t risk the big pay day by “Embracing Failure.”
Silicon Valley Hype on Failure
• “We embrace failure” BUT
• “one failure is OK, serial failures are death”
• Just try failing and see where it gets you in the
valley
• You become a pariah
• The successful are rewarded and the failures
are shunned like the plague
The Concepto Venture Model
Simon Birrell, CEO
Eli Zelkha
Failure in Engineering
Speaker TBD
Cross-Cultural Perspectives on
Failure
Speaker TBD
Kamran Elahian
Trans-National Ventures
The End
Frameworks of Failure
Failure Modes & Effects Anlysis
Collins: How th Mighty Fail
Scenario Planning
Fast, Intelligent Failure
Agile Model
Gladwell Model
Venture Capital & Failure
Failure
What The Famous Have To Say ….
•
“Failure is the foundation of Success, and the means by which it is achieved.”
- Lau
•
Tzu
“I have not Failed, I have learnt 9,999 ways that won’t work.”
- Thomas Edison
•
“Failure is simply the opportunity to begin again, this time more intelligently.”
- Henry Ford
•
“Only those who dare to Fail Greatly can ever Achieve Greatly.”
- Robert F. Kennedy
•
“My Failures are as much a blessing from God as my Successes and I lay them
both at his feet.”
- Mahatma Gandhi
•
“People don’t Fail, it is the Plan, Strategies and Tactics that Fail.”
- Paul Mc.Kenna
Introduction
Failure
The Traditional View
•Avoided At All Costs
•Disaster
•Career-Ending
•Company-Ending
•Personal Catastrophe
•End-Of-the-Road
Introduction
Failure
Failure
The Traditional View
The Road To Success
•Avoided At All Costs
•Disaster
•Career-Ending
•Company-Ending
•Personal Catastrophe
•End-Of-the-Road
•Fact Of Life
•Use To Our Advantage
•Builds Knowledge
•Learn – Don’t Repeat
•Plan For It
•Start of Next Step
Introduction
My First Big Failure
In
Afganistan
Steve Blanc
Failure & Customer Discovery
Break
15 Minutes
Jessica livingston
Y Combinator
Lunch Break
One Hour
Carol Dwek
Professor of Psychology
Stanford University
Student Exercise
Examining Personal patterns of Failure