Failure must be one of the most under-appreciated experiences in business today, and probably life in general. For some reason, Australian culture is particularly intolerant of failure. The media glee that accompanies each big corporate failure is quite astounding. Some commentators have said we celebrate failure, evidenced in our reverie of Gallipoli and the black box we invented and failed to capitalise on.
However, I think we fear failure. We hide failure and we humiliate those who fail. Worse, we often expect to fail. We even want to punish those that fail, after the fact, as if failure was not punishment enough. Our bankruptcy system focuses on spending the remaining assets of a company on persecuting those who got it in such bad shape.
The US Chapter 11 system focuses on preserving jobs and the upside of a viable economic engine for the benefit of ongoing suppliers, creditors, employees and shareholders. Because of our cultural bias against failure, we prolong the agony of dying companies and our entrepreneurs are often tempted to resort to fraud and stupidity to postpone inevitable doom. We fail to see the upside of failure, so we miss all its benefits.
Unfortunately, it is very hard to learn from success. If you ask most successful people what made them successful they will often give fluffy answers about vision and hard work, but the honest ones always tell you about their big and humiliating mistakes from which they were forced to evaluate their behaviour and learn. I always say you don’t know anything about people in a business until you see how they behave when cash dries up. Under the fire of cash pressure, true business greats are created and technocrats wither and flee back to corporate safety.
If failure is our most effective learning experience, shouldn’t we covet it? Shouldn’t we promote and invest in those who have the most experience at failure? Certainly, we have to be careful not to give up on things when determination and perseverance will carry us through. But we must learn to embrace the concept of ‘fast fail’. If you are quick enough to recognise that a product, technology, business model, partnership, investment, market position, etc., is failing; you can stop with some resources still at your disposal, cut the opportunity cost, learn from the mistakes and move tothe next opportunity (or re-jig the current one) with all that great failure-driven data to work from. We have recognised the driving force of competition in business behaviour for a long time and actively seek to maximise it. We need to similarly promote the status of its twin: failure. Failure is only bad if you don’t recognise it fast and contain it. Fast-failis good.
In practical terms, it is hard to change a cultural bias except over a very long time. We could, however, start by having bankruptcy laws that don’t focus on witch hunts but on giving people a chance to learn from their mistakes. The US Chapter11 is still the most successful example of this.
At an investor and board level, a great deal more attention needs to be paid to recruiting people who have failed and learned. When we don’t invest in and hire people with these experiences, we end up promoting to the heads of our industries people who don’t know how to take a calculated risk, or worse, people who have simply learnt how to cover up failure rather than learn from it. There is no doubt to me that this issue is at the core of Australia’s inability to form winning management teams in the way the US does.
Michael Gale is co-founder and CEO of Gramercy Venture Advisors, a boutique advisory firm predominantly servicing young companies in high-growth sectors and professional investors in this space. Prior to Gramercy, Michael spent the previous eight years as CEO of San Francisco and New York-based Double Impact, a leading venture catalyst.