What Can We Learn from Failure?
Google’s Banks Baker, Chicago Booth’s Harry L. Davis, David Hill of TIL Gaming, and Eunhee Sumner of Starbucks discuss the insights we can gain when we don’t succeed.
- November 21, 2018
- CBR - Strategy
Hal Weitzman: Embracing failure is one of the mantras of modern business. If we’re not making mistakes, we’re not trying hard enough, says James Quincey, the CEO of Coco-Cola. Amazon chief Jeff Bezos says the retailer’s growth comes from innovating and often failing. And Reed Hastings, head of Netflix, says he’s worried that the streaming service may have too many hit shows.
So why is failure so instructive? And how, in practical terms, do business leaders learn from their mistakes?
Welcome to The Big Question, the monthly video series from Chicago Booth Review.I’m Hal Weitzman, and with me to discuss the issue is an expert panel.
Harry Davis is Roger L. and Rachel M. Goetz Distinguished Service Professor of Creative Management at Chicago Booth. Banks Baker is head of global product partnerships–search content at Google in San Francisco. Eunhee Sumner is vice president of marketing operations at Starbucks Corporation in Seattle. And David Hill is CEO of TIL Gaming in Seattle.
Panel, welcome to The Big Question. And for those of you—for our guests who are all Booth MBAs—welcome back to Chicago Booth.
So I wanna start by asking each of you to tell us briefly about an episode, an incident where you made a mistake, you failed in your career, and what you learned from it. Banks Baker, let me start with you.
Banks Banker: Sure, so I started my career in Silicon Valley in the mid-’90s, and I was fortunate enough to get involved with a fairly high-flying dot-com. And then a small group of us broke off and decided to do a small startup in the late 1990s. And for us, it ended miserably.
Hal Weitzman: This is at the height of the boom—
Banks Baker: The dot-com crash happened, and it was a failing—not just of what happened in the market, but it was a failing of the business model itself and, I think, it was a failing of our skills. And I think, for me, the thing that I took away, it was really two.
One, I hadn’t really analyzed the opportunity and understood and internalized the risk well. Secondly, I blamed myself a lot for that failure and I think I carried that baggage for quite awhile. And I learned over time that I needed to spend more time analyzing the actions and the decisions and less time judging myself for what I did.
Hal Weitzman: And if I can press you, why was it that you didn’t research enough? Was it just inexperience or . . .?
Banks Baker: I think I was inexperienced. I think, as I’ve mentioned to some of the students here and mentioned to others, there was a— as the market became more challenged, it really did create a point where you were able to differentiate between luck and skill. And I’d been very lucky and I’d been fortunate, and there were some good things that had occurred in the business that I was in. But I was not, and the team that I was with, we didn’t have the skills that we needed to really go after the issue that we were trying to solve.
Hal Weitzman: Right, and at the time, did it feel devastating?
Banks Baker: It did. It was really devastating. And I think that’s why I took it so personally. And I think as I’ve matured, I’ve learned that really blaming the person and making it a personal thing is not useful. Because it doesn’t allow you to dust yourself off, pick yourself up, and keep moving.
Hal Weitzman: Right, thanks. Eunhee Sumner?
Eunhee Sumner: I probably have a list of failures that I can share with you, and I think in my career, very early on, I think it might have been, like, the smaller type of failures. Like: you failed to do the right presentation and pull it together. You didn’t do the right analysis. And through those, I’ve learned each to make sure that I don’t repeat the same mistake twice.
But later on in my career, as I started taking on different roles, in particular the one largest failure that I reflect on quite a bit is the largest savings-and-loan bank failure, with Washington Mutual, and being on the front lines of that.
Hal Weitzman: What was your involvement there?
Eunhee Sumner: So I lead the mergers and acquisition team. We raised about $7 billion dollars in funding from private-equity firms, and we did that in like May, June. And then subsequently, on September 25—10 years ago—we were seized by the FDIC, and then the bank was sold. The bank assets were sold to Chase—JPMorgan Chase at that time.
And so, when I look back, there’s a lot of lessons that I can learn. So one is just the business, from like a business point of view: What were the risks that we were taking at Washington Mutual and why were we overexposed? Another lesson is: How did we manage our business in terms of operations and making sure that we had visibility and those risk-mitigation tools in place? And I think there’s also other things about leadership. Were the right leaders in place to get us through this change? Were we being quick enough to make those decisions and call it where we had to change out executives?
Those types of things I think I really carry forward, and I learned a lot from it because I think any time you make these delays—and we were talking about when you can’t make those tough decisions fast enough—it really impacts the way that you’re running your business. And unfortunately with Washington Mutual, we didn’t change out the guard. It was too late to get back to Washington and be able to save the bank.
And I think the other part of the learning that I had is really how business is done. I think when I went to business school and even before business school, getting great training programs, learning the fundamental skills of doing analytics, and doing good work was part of, really true to me, especially being an Asian, like, you just work really hard and try to get your numbers right.
But I think when you develop further on in your career, there are different ways of doing business, a lot of relationships, politics come into play. And so as I have developed through my career, I have learned a lot about what other components of business are also important besides just doing great work.
Hal Weitzman: OK, thank you. And David Hill.
David Hill: You know, mine’s kind of, I guess, a two-stage thing. So years ago, before I came to Booth, I was actually a professional gambler. I did statistical arbitrage on sports betting in Las Vegas, and luckily the stakes were fairly small when I started, and I literally lost everything a couple times. And one time, I sold my beloved motorcycle, and we restarted. And the second time, my friend pulled all of, my business partner pulled all of his money out of his 401(k). And so I think early on, a lot of my failures were really in risk management and understanding: even though I have an edge, that doesn’t really matter. I think a lot of people have learned that, like long-term capital as well.
Recently, or since I’ve started my business post-Booth, I think that I understand much better the risk analysis, both through my own work and from learning here. And I also worked briefly at Lehman and then at Barclays. But I think the biggest failures I’ve had as an entrepreneur in my current business is more on the personnel side. And when I’ve been enamored with someone and brought somebody on board, the biggest mistake I made was letting them stay there too long when things didn’t work out.
There was one particular manager, who I very much liked personally, but there were things going on in his life, and as a result, he wasn’t doing a good job, and I started losing other staff, and they stopped respecting me and they stopped respecting the company because I didn’t make the move quick enough. And I’ve done that many times because you know, you feel for someone, but you’ve also gotta look at: What does it mean to the rest of your staff? I have about 475 people. One guy affects that entire group, and it’s not worth it. And so over time, I’ve learned to, you know, pull the trigger earlier, be a little bit more cognizant of what’s going on with my staff and how any one kind of poison person within the staff can really destroy the morale.
Hal Weitzman: Harry Davis, this is one of your favorite topics, I know. So tell us a story.
Harry L. Davis: Hey, my life, you know. (All laughing) I’ll tell you a story that comes to mind in my role as a teacher. I came here not being an economist and not being particularly quantitative. And when I was teaching marketing at the time, I thought I had to be really very rigorous. And one idea I had was a really tough multiple-choice exam—which, now I think about it, a multiple-choice exam in marketing sounds bizarre, but I would come up with these incredibly difficult multiple-choice exams, looking at footnotes and so forth. And I felt very proud about giving something that was really tough.
Eunhee Sumner: That’s why I didn’t take your class. (All laughing)
Harry L. Davis: Yeah. And I always remember there was a student in the very first row who would just ask the best questions. He was obviously engaged and really smart. And I really admired him a great deal. And I gave the exam and I was walking to the train, and he was living in the International House and he walked down the stairs. So with my chest puffed out I said, so what did you think of that exam? And there was a long pause and he said, “I expected more of you than that exam.” And it was like somebody had stabbed me.
And I realized it was a failure to give that exam for somebody like this that was so talented. And I realized—it was an incredible learning experience, because I realized—this had more to do with me. Why was I doing this? And I should just be doing the kinds of things that were more who I was, rather than trying to pretend that I was an analytic, mathematical person. So it was an incredibly painful initial experience, but it really changed the way I thought about myself as a teacher.
And I’ve lost touch with this man and I’ve always wanted to go back and say thank you.
Eunhee Sumner: I can help you do a search. Or he’s at Google, so he can help you do the search later.
Harry L. Davis: You can you help me on that?
Banks Baker: Nods.
Eunhee Sumner: Yeah.
Harry L. Davis: Good.
Hal Weitzman: He’s making someone else’s life a misery now. (All laughing.) So I wanted to ask you, Harry, because you also teach students how to do this: What are the mechanics of learning from failure? How do you actually do it?
Harry L. Davis: Well, one of the ways . . . I look at failure perhaps differently than some people. I see failure as an outcome that’s unexpected of an action that we take. And those outcomes can sometimes be better than we thought and sometimes they can be worse than we thought. And I would argue that in some ways, both are failures. If something turns out to be much “better” in some ways, why was our forecast so flawed? We ought to look at that as much as we look at the other side of the ledger.
And my sense is that every day we have opportunities to experiment, and try things, and to learn. And my guess is we have, I don’t know, 15, 20 opportunities to have experiences during the day where we can experiment. Some will have outcomes that are negative to what we expected, and some may be positive.
And I’m trying to get people to think about the work place as an environment for ongoing experimentation. And we all know from experimentation that what makes an experiment really valuable is often something that doesn’t work out as we thought.
Eunhee Sumner: Um-hm, you’re learning, continuously learning.
David Hill: When we were on a panel just now, I referred to it as “business as a series of hypothesis testing.” Just, if you’re constantly testing, you never know what works and what doesn’t, and that’s how you learn.
Harry L. Davis: And again, the question I would ask you is: Why do you think people resist the notio nof experimenting and trying things?
David Hill: I think it’s somewhat ingrained in us. I think that people are afraid of failure because they don’t wanna look bad to other people. You know, from children, we’re trying to impress our parents. When we get older, we’re trying to impress our friends. And I think that that’s something that’s hard to get away from. You know I was actually telling her, telling Eunhee, that I was working a lot of hours when I first took over my business. 80 to 100 hours a week. And I’ve cut back over time and now I work 20, 25 hours, and I was apologizing to my regional manager. And he said, “Are you kidding? This is the best thing ever.” I said, “What do you mean? You know. “You don’t want me around.” He said, “No. When you were working that much, you were doing everyone’s job.” He said, “And nobody knew what to do because you were the only one making decisions. Now you spend that little time you have with us, with the managers, and we’re able to actually manage the way you want us to.” You know. And so that was my failure in thinking that I had to do everything. I was doing nothing to ever make myself replicable.
Banks Baker: As leaders, we have to be able to create a culture that is a safe place to experiment, a safe place to push or stretch boundaries, and because I think, like you said, naturally we try to avoid that risk. And how do you create a culture and an environment, like you were saying, is really judging the actions and the decisions and not judging the people. And looking at the collective knowledge that comes from analyzing failure to share best practices and bring the overall group higher and move with a greater velocity. And it’s important for leaders to instill that. You have to be proactive.
Hal Weitzman: But if we dig in, so Eunhee, for example, when you were at Washington Mutual and then suddenly there was no Washington Mutual to be at, how did you kind of—what were the mechanics of you learning from that? Or was it just over time you just kind of drew the lessons?
Eunhee Sumner: Well, we were actually talking about our kids, and I think some of these skill sets you learn from very early on, and even if it comes to, you know, letting your kids fail and having them pick themselves up, I think the way that I was raised it was: you didn’t have a choice except to get up, grow up, and move on. And I think through that, I’m blessed that I’ve had the resilience. And I think that also it’s like: What do I have to lose? So someone’s gonna say no.
I also had all these odd jobs, where at times I was doing telemarketing. I did sales. And I think that’s, like, the epitome of rejection and failure all the time. And I think every single job I’ve had, I’ve learned and built some of these skill sets or resilience. Even when I went to Booth, I remember going, I was trying to get a job in sales and trading and I went through the interview panel, and the guy was a recruiter, and he said, “No, you didn’t get this.” I went to New York. I went to a different desk, and he’s like, “I told you no, what are you doing here?” And I was like, “Well, she doesn’t know that.” You know, and so I just went to network with her ’cause maybe she’ll give me a job. But it was all that: Well, what do I have to lose? So someone will say no, or I might be embarrassed, or . . . but to me it’s like: there’s so much more opportunity out there that I have to figure it out.
In terms of Washington Mutual, it was a very severe time also in Seattle, where a lot of people lost their jobs, livelihood. It was—I don’t take it as much as a personal failure because I think that overall we tried our best. I think it was just a systematic failure, but I took it very deeply. I think, you know, at that time it was also like the survival mode because my husband at that time worked at a newspaper, the Seattle Post-Intelligencer. And as we know with, like, newspapers, they weren’t really surviving as well. So we had a newborn, we were in a condo that was upside down at the same time that Washington Mutual went through the largest bank failure, and then my husband’s company announced they were for sale. I didn’t have the luxury of thinking about woe is me. But it was really about, like, how do we move and start hustling because it was the survival mode. And I think that pretty much triggered for me.
And then one other comment if I could just interject is: I think the other thing that I had experience in was doing the venture capital and I went into the venture-capital industry expecting all this big bang, and it was 1999 and 2000. And I was like, wow, we’re always gonna be successful. And I think one of the things that I learned is that venture capitalists, you invest everything with your full heart and analysis, and try your best, but you don’t expect to have a batting average of what is it, a 1,000? So like yeah, so you’re not batting a 1.000. You shoot for a 1.000 but you expect disappointment along the way. And I think through that work experience that I was able to be able to understand how things can look bad and make those quick calls because that was one of the critical things is making the quick calls before things and businesses start unraveling. And then react quickly.
And the other thing is a lot of people were depending on me when I was at Washington Mutual, and I didn’t have the luxury of feeling bad for myself. So many people at the company were looking for my leadership in order to figure out how to move forward and because of that, I felt such a great deal of responsibility to make sure that I was thorough in everything I was doing and made sure to bring everyone along.
Harry L. Davis: You know, it’s interesting. In the story you’re telling—there’s a professor at the University of Edinburgh that talks about having two résumés. And she’s a neurobiologist. And, you know, on the résumé we all put all the awards we’ve received and all the papers we’ve had published and all the grants that we’ve received. And she has another résumé, which is literally three times as long, of all the things that she requested that got turned down. And she uses this in working with young scientists to say: Which résumé do you think is gonna be more meaningful for your life? And a lot of it has to do with: You’ve gotta keep at it. You’ve gotta be persistent. You’re gonna be told no many times. It’s not a failure; it’s another reason to keep going.
Eunhee Sumner: It’s an expectation.
Harry L. Davis: Yeah.
Banks Baker: Or a fuel.
David Hill: Or a fuel to keep going.
Banks Baker: I think that was something that struck me. I’ve had a similar, like, I grew up with a single mom. We didn’t have a lot. You had to fight for everything. You had to go, go, go. And I had dinner with an alum last night who was in a very similar position. We were debating, like: What drives us to try to do well? But I think it’s important to recognize that not everybody comes from that background. And that depending upon their background, the culture they grew up in, their socioeconomic position, they’ll have a very different relationship with risk.
But as a leader telling those stories, because it’s really easy for someone to just look at someone in a position and take a snapshot and make an assumption about how they got there and the skills that got them there. And it’s, from a starting spot, it’s an intimidating place to look up to. Where, if you get more of this narrative, I think you create a psychologically safe environment for the people that are on your team to say: it’s not an innate skill that I can’t have. It is a long fight. It is an expectation.
David Hill: You know, and it may sound funny, but in a sense I was lucky enough to be unlucky. I mean, if I hadn’t had challenges as a child and I hadn’t, you know, my nephew said, “Oh you’re so lucky, you’ve done this,” and my mom laughed and she said, “Do you know how many times he’s failed at stuff? Do you know how many times he’s gotten back up and tried again.” And I said, “Well, hold on, not that many!” But it is, you know, and everyone’s gonna fail. And if you don’t learn that as a child, that you can fail and get right back up, then sometimes that’s out of just sheer need.
Hal Weitzman: But I wanted to ask, I mean, to come back to your question, Banks, not everyone has had the luck of being unlucky, in your terms, David, and Harry Davis, you and I have talked several times about institutional memory and how corporations often have poor institutional memory.
Eunhee Sumner: Um-hm, yes.
Hal Weitzman: That the people who are making decisions at one time were not there in the previous crisis or downturn or whatever, and so they often make the same mistakes. How do you—
Eunhee Sumner: Pattern recognition, we call it.
Hal Weitzman: Yeah, how do you as business leaders, you know, make sure that in Google, which has had huge success, or in Starbucks, that you institutionalize, you know, this idea that we have failed in the past and we need to learn from them, not just keep making mistakes.
Banks Baker: Right, and we’ve had a lot of failures too. And so I think there are a lot of bets on the table at any given point in time.
Hal Weitzman: But for example with Google, do you talk about, you know, all the times that you failed as much as you talk about your successes?
Banks Baker: We do. So I think, like, if you look at mechanics or tactical, and again speaking from teams that I’ve been in. I think a lot of organizations, they obviously do a postmortem: if something’s failed, then what was the cause? I think it’s also really helpful to almost do, almost a premortem, right, where you get the stakeholders in a room—
David Hill: What could go wrong?
Banks Baker: What, yeah, and you almost role-play. Right, where you say, “It’s a year from now, and our project has failed miserably. What was the reason?” And you start to brainstorm and you take advantage of that collective knowledge. Because, again, you might not have continuity of leadership. You might not have continuity of a team lead or an engineering lead or a product lead. But with the collective knowledge of all the stakeholders, you kind of crowdsource your ability to mitigate risk. And I don’t know that we do that quite enough. I know we don’t do that quite enough in the team that I’m in and I haven’t seen it in other businesses.
But when we’ve done it, I’ve found it really valuable as a way to try to uncover those obvious mistakes. ’Cause frequently when something fails, it’s not a massive market-driven issue. In some cases, it’s fairly obvious in hindsight. You know, someone—it was a failure of design, or someone forgot to flip a switch, or something.
Hal Weitzman: So when you’ve done the premortem, you’ve found that it actually leads to more success or—?
Banks Baker: It leads to more success, or at least, it mitigates more risk because you can start to really collectively think about your own failure and the causality of that. And I think that’s very healthy as opposed to just individually assuming that you have it right and marching forward. You don’t want it to pause the project too much, but I think it’s an important gut check as you head in.
Eunhee Sumner: I think along with what you’re talking about is, like, building this culture. So I think failure, one, isn’t a bad word. I think it just has to just as important as “What did we learn from our successes?” In celebrating more and being comfortable with talking about it openly. When I’ve done the integration part of mergers and acquisition, we had to flip switches on a minute and make sure that it lands completely. We can’t plan for everything, because there’s going be fallout, like on the nth degree, that you didn’t think through or didn’t catch. But I think, for what I’ve done in the past is premortem, planning for 110 percent but expect, you know, when you start operationalizing and running through the whole plan, that something’s gonna go wrong.
Its kind of like a wedding. There’s always gonna be something wrong in a wedding, right?
Harry L. Davis: Hopefully not the choice of partner.
Eunhee Sumner: (laughing) Right? Sometimes that does happen. But you know, but like—
Banks Baker: (laughing) Opportunity for reflection.
Eunhee Sumner: Yeah, Runaway Bride was the movie that was based on that. But I think you plan for as much as you can, but you’re building that muscle for the team to start figuring out, how do you work better together. How do you increase communication? How do you think things through so you can do the problem solving on the fly? So when you’re running through it, for us it’s like, boom, something goes wrong, you do a quick huddle. I’ll meet you all here at 8 a.m. in the morning so everyone gets together and you start just hammering things through. Do you have everything? All mission control?
And it’s that type of, I think, experience that you start bringing to the team so you can help mitigate some of those issues.
Banks Baker: And there was something I think I heard you say, which is: failure as an event, I’m not sure is that useful. But recognizing the event of failure in a larger ecosystem of learning and being able to pivot and move and having the cultural, sort of, safety to be able to operate in that environment is super important.
Eunhee Sumner: Yeah.
Harry L. Davis: You know, I think it’s not irrelevant to begin to think about an organization as being an experimenting organization. And experimenting is really a part of our core competency. We experiment. We’re constantly experimenting. And hopefully you’re experimenting in ways that are gonna avoid large downsides. I think the more we do incremental kinds of experiments along the way, the more likely are we to avoid the large disasters.
David Hill: Yeah, I think that one of the reasons that we’ve been relatively successful in my current business is that there’s a man that I know. He’s been in the gaming industry for 35 years, and quite frankly, he brags about how he drove the previous casino he ran into complete bankruptcy, and they shut the doors. But he brags in a sense that, he says: “I was that guy that couldn’t change.” And so, he always tempers . . . he helps me realize failures that he’s had, and it saves me from myself, but he also talks about how he’s got his limitations. He’s like, “Look, I already did this once.” But what impressed me so much is when I talked to different people that I’ve interviewed for senior positions, and they’re like, “Well, I’ve done this and I’ve done this, and I’ve done this.” And they’re talking about their accomplishments. The first thing he talked to me about when I interviewed him was his failure and what he had learned from it, and that’s why he’s got the job. I mean, he’s my right-hand guy and he’s amazing. So it’s, yeah, and you were talking about institutional memory. Thirty-five years is a long time in that industry, so.
Harry L. Davis: It kind of reminds me of a story that I sometimes tell students, a story about, apparently from Turkish origins, that there was a wise man and a student. The student wants to figure out what’s the secret of happiness, and the wise man says: “Good judgment.” And the student says, “Well, how do you get good judgment?” “Well, you have to have experiences.” And so the student says, “Well, how do you get experiences?” “Bad judgments.”
Harry L. Davis: And I think that’s the sense of experimentation.
Eunhee Sumner: Yeah, and I think to be innovative is setting up an organization. So, for our company, it’s like you have to figure out how to stay current, how to be innovative, how to fail fast, and how to build this whole agile methodology. Because before, it used to be these big projects, big teams, build it, and huge infrastructures, huge investment. So then, it’s much—it feels much more catastrophic if that huge project fails, but as we are becoming more nimble, it is a requirement for us to become quicker to fail, learn from it, and how do you recoil and then go back to the next phase so you can keep doing those incremental moves. Because the pace of business these days, as you can imagine, is so fast that you can’t wait for these huge launches.
Banks Baker: Yeah, launch and iterate, launch and iterate. And I think one of the challenges as you get larger and larger is: How do you keep that culture? How do you keep that when you go from where Google was to where Google is. Or where Starbucks was to where Starbucks is, where your organization is, like keeping that culture and keeping that speed, I think, is a real leadership challenge.
David Hill: And I think that one of the biggest keys to learning from the failure is owning it. One of the things that I see that really concerns me is when someone fails they say, “Well, this happened, and I got unlucky. . . .” And everything’s external. You know, most of that was usually foreseeable, at least as a potential. And if you own your failures and look at what you’ve done, that’s where you learn, so.
Harry L. Davis: I’m just listening to this conversation, given that you’re all graduates of this institution: What do you think this suggests for us as educators with MBA students? How might this message that I’m hearing from all of us—I think I agree with it, but you’re in the day-to-day work in this: What should we be doing that we might not be doing? What were we not doing when you were here that might have been helpful?
Banks Baker: Yeah, I mean we’re here today in some part talking to students about their new path in getting their MBA. And I think that one of the messages that I try to communicate to students at Booth is that this is just the beginning of a very long career. And I think that the students here—and I remember when I was here, everything was next quarter, everything was incredibly important, and everything was earth shattering. You know, if I didn’t get Steve Kaplan’s class, my entire investment at Booth was tainted. And it’s just not true.
There’s a long career that you constantly build and learn from, and I think getting students to look longer, past the interviewing cycle, past the internship cycle, even past graduation. And it’s not to minimize the time here or diminish the importance of the time here, but it’s just one step in a very long career.
Harry L. Davis: That’s interesting.
Eunhee Sumner: I loved the private-equity class because there you talked about what worked, what didn’t, and we did case studies, so you did have to talk about what did end up going badly. I think what, you know, looking back and hearing your question, I think what I would do is probably infusing more of those “what could go wrong?” into other classes. So for instance, if you have that derivatives class, talk about, “OK, in reality, when something goes bad, what do you do operationally, like, as a business?” Not just say, “OK, the numbers were wrong, and this is the, you know, your negative $100 million.” But, “OK, what can we do?” You know, “If this is our team, what should we do?” And probably integrate some of that into our learnings, I think.
Harry L. Davis: [inaudible]
Eunhee Sumner: Yeah, and I think the other thing is—it’s interesting ’cause I think everyone has a bit of, a lot of people have successes and failures, but we just don’t talk about it as openly. And I think the more we can just share. This is just part of life, and we all have to learn from it, but we could do it in our safer environment. I think that would be better because I think it’s one of those things that even in life, where, like, my family, everyone always thinks, “Oh, that family’s so perfect. They have two cars, this great house.” You know, and then you’re always like, but everyone has a crazy uncle. You know, and I think it’s just the same thing that we have to be comfortable with saying, you know, this is just part of life and our learning.
Harry L. Davis: We’re human.
Eunhee Sumner: Yes! Exactly.
Hal Weitzman: OK well, on that note, unfortunately, we have spectacularly failed to keep to our time budget, so I’m gonna have to wind the conversation up.
Harry L. Davis: Is that a failure?
Eunhee Sumner: Or a success?
Hal Weitzman: We’ll have a postmortem, or premortem. I’m confused. But we’ll talk about it another time. Obviously, with this conversation, we could run on and on, but in the meantime, unfortunately our time is definitely up. And my thanks to our panel, Harry Davis, Banks Baker, Eunhee Sumner, and David Hill.
For more research, analysis, and commentary, visit us online at review.chicagobooth.edu, and join us again next time for another The Big Question.
Tell us about an experience when you failed professionally, and what you learned from it.
Baker: I started my career in Silicon Valley in the mid-1990s, with a fairly high-flying dot-com. A small group of us broke off to do a start-up. It ended miserably in the dot-com bust. It was a failing, not just of the market but of our business model. It was a failing of our skills. I learned two things. First, because I was inexperienced, I hadn’t understood the risk well, and secondly, although I blamed myself a lot for quite a while, I learned over time that I needed to spend more time analyzing the actions and the decisions and less time judging myself.
Sumner: My biggest failure was being on the front lines when Washington Mutual failed. I led the mergers and acquisition team. We raised about $7 billion in funding from private-equity firms in May and June 2008. Then, on September 25, we were seized by the Federal Deposit Insurance Corporation and the bank was sold to JPMorgan Chase.
There are a lot of lessons. One, what were the risks that we were taking and why were we overexposed? Another is: How did we manage our business, in terms of operations and making sure that we had visibility and risk-mitigation tools in place? Also, leadership: Were the right leaders in place to get us through this change? Were we being quick enough to make those decisions and change out executives? When you can’t make those tough decisions fast enough, it really affects the way that you’re running your business.
Hill: Years ago, I was a professional gambler. I did statistical arbitrage on sports betting in Las Vegas. Luckily, the stakes were fairly small when I started, because I literally lost everything a couple times. One time, I sold my beloved motorcycle and we restarted. The second time, my business partner pulled all of his money out of his 401(k). Early on, a lot of my failures were really in risk management, and not understanding that having an edge didn’t really matter. Since then, I’ve learned about risk analysis.
The biggest failures I’ve had as an entrepreneur are more on the personnel side. When I’ve been enamored with people and brought them onboard, the biggest mistake I made was letting them stay there too long when things didn’t work out. There was one manager whom I very much liked personally but there were things going on in his life [that negatively affected his work, which I turned a blind eye to]. As a result, I wasn’t doing a good job and I started losing other staff. They stopped respecting me and the company because I didn’t make the move [to fire him] quickly enough. Over time, I’ve learned to pull the trigger earlier, be a little bit more cognizant of what’s going on with my staff and how any one poison person within the staff can really destroy the morale.
Davis: I came to Chicago Booth, not being an economist and not being particularly quantitative. I was teaching marketing at the time, and I thought I had to be really very rigorous. I gave a really tough multiple-choice exam. I felt very proud about giving something that was really tough. There was one student who was obviously engaged and really smart. I ran into him and asked, “What did you think of that exam?” He said, “I expected more of you.” It was like somebody had stabbed me. It was an incredible learning experience because I realized this had more to do with me. Why was I doing this? I should have just been doing the kinds of things that were more who I was, rather than trying to pretend that I was an analytic, mathematical person.
What are the mechanics of learning from failure?
Davis: I see failure as an unexpected outcome. Outcomes can sometimes be better than we expected and sometimes worse. In some ways, both are failures. If something turns out to be much better, why was our forecast so flawed? We ought to look at that as much as we look at the other side of the ledger. Every day we have opportunities to experiment, to try things, and to learn. I’m trying to get people to think about the workplace as an environment for ongoing experimentation. What makes an experiment really valuable is often something that doesn’t work out as we thought.
Hill: It’s business as a series of hypothesis testing. Take the time to really test an idea. When you test multiple ideas simultaneously, attribution becomes impossible, making it difficult to learn from the experience. I was working a lot of hours when I first took over my business, 80–100 hours a week. When I cut back to 22–25 hours, I apologized to my regional manager. He said, “Are you kidding? This is the best thing ever. You were doing everyone’s job. Nobody knew what to do because you were the only one making decisions. Now, you spend that little time you have with us, the managers, and we’re able to actually manage the way you want us to.” That was my failure in thinking that I had to do everything. I was doing nothing to make myself replicable.
Baker: As leaders, we have to create a culture that is a safe place to experiment and to push boundaries. We do that by looking at the collective knowledge that comes from analyzing failure, to share best practices and bring the overall group higher and move with greater velocity. It’s important for leaders to instill that. We have to be proactive.
Sumner: Working in the VC business, I learned a critical lesson that has been helpful throughout my career: make the call when you see issues and red flags. Don’t be a bystander and wait for things to unravel. Get it back on the rails as quickly as possible.
Davis: There was a neurobiology professor at the University of Edinburgh who talked about having two academic résumés. A regular résumé mentions all the awards we’ve received, all the papers we’ve had published, and all the grants that we’ve secured. She has another résumé, three times as long, of all the things that she requested that she got turned down for. She uses this in working with young scientists to say, “Which résumé is going to be more meaningful for your life?” You’ve got to keep at it. You’ve got to be persistent. You’re going to be told “no” many times. It’s not a failure. It’s another reason to keep going.
Many organizations have high turnover of personnel and poor institutional memory. How do leaders institutionalize the learnings from past failures, so they don’t just keep making the same mistakes?
Baker: A lot of organizations do postmortems if something’s failed, to look at the causes. At Google, we sometimes do a premortem. We get the stakeholders in a room and role-play: “It’s a year from now and our project has failed miserably. What was the reason?” You start to brainstorm and you take advantage of that collective knowledge because, again, you might not have continuity of leadership. You might not have continuity of a team lead or an engineering lead or a product lead but, with the collective knowledge of all the stakeholders, you crowdsource your ability to mitigate risk. I don’t know that we do that quite enough. I haven’t seen it in other businesses. But when we’ve done it, I’ve found it really valuable as a way to try to uncover those obvious mistakes because, frequently, when something fails, it’s not a massive market-driven issue. In some cases, it’s fairly obvious in hindsight. It was a failure of design. Or someone forgot to flip a switch or something. Doing the premortem leads to more success, or at least it mitigates more risk, because you can start to really collectively think about your own failure and the causality of that. I think that’s very healthy, as opposed to just individually assuming that you have it right and marching forward. You don’t want it to pause the project too much, but I think it’s an important gut check as you head in.
Sumner: You’re talking about building a culture. Failure isn’t a bad word, and it has to be just as important as asking, “What did we learn from our successes?” Celebrating that more, and being comfortable with talking about it openly, is important. You can’t plan for everything, because there’s going to be fallout that you didn’t think through or didn’t catch. It’s like a wedding. There’s always going to be something that goes wrong. You plan for as much as you can, but you’re building that muscle for the team to start figuring out: How do you work better together? How do you increase communication? How do you think things through so you can do the problem-solving on the fly?
Baker: Thinking of failure as an event is not that useful. Recognizing the event of failure in a larger ecosystem of learning, and being able to pivot and move, and having the cultural safety to be able to operate in that environment is super important.
Davis: I think it’s not irrelevant to think about an organization as being an “experimenting organization.” Experimenting is really part of the core competency. We experiment. We’re constantly experimenting. Hopefully, we’re experimenting in ways that are going to avoid large downsides. The more we do incremental experiments along the way, the more likely we are to avoid large disasters.
Hill: There’s a man in my company who’s been in the gaming industry for 35 years and brags about how he drove the previous casino he ran into complete bankruptcy so that they shut the doors. He says, “I was that guy that couldn’t change.” He helps me realize failures that he’s had, and it saves me from myself. What impressed me so much—when I interview candidates for senior positions, they tend to talk about their accomplishments—is the first thing he talked to me about when I interviewed him was his failure and what he had learned from it. That’s why he got the job. He’s my right-hand guy and he’s amazing.
Sumner: For Starbucks, you have to figure out how to stay current, how to be innovative, how to fail fast, and how to build this whole agile methodology. Before, it used to be these big projects, big teams: build it. And huge infrastructures, huge investment. It feels much more catastrophic if that huge project fails. As we become more nimble, we need to become quicker to fail, to learn from it, and to recoil and go back to the next phase to keep doing those incremental moves. The pace of business these days is so fast that you can’t wait for these huge launches.
Baker: Launch and iterate, launch and iterate. One of the challenges as you get larger and larger is: How do you keep that culture? How do you keep that when you go from where Google was to where Google is, or where Starbucks was to where Starbucks is? Keeping that culture and keeping that speed is a real leadership challenge.
Hill: One of the biggest keys to learning from failure is owning it. One of the things that I see that really concerns me is when someone fails and they say, “This happened and I got unlucky”—everything’s external. Most of that was usually foreseeable, at least as a potential. If you own your failures and look at what you’ve done, that’s where you learn.
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