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In my most-recent post, I detailed the reasons why Amazon is one of today’s tech powerhouses: Its leadership prioritizes innovation, at all costs, even at the cost of making mistakes. I argued that if your employees are too afraid to fail, it will cost your company the chance to innovate. This, at its heart, is a culture problem, not an employee problem.

I ended the post with an appeal to analyze your own culture, and with a promise that my next post would provide some guidance on what to do if you find your organization has an unhealthy attitude toward failure.

This blog post is broken down into three parts:

• Part 1 explains why a strong culture that fosters innovation is crucial for business success;
• Part 2 analyzes what creates a healthy approach toward the meaning of “failure”; and
• Part 3 lists four habits you can create if you don’t currently have a failure-healthy culture.

Recap: Why You Shouldn’t Wait to Empower Employees

Today’s market environment is constantly changing, so much so that many tech companies proudly call themselves “disruptors.” Company transformations are increasingly necessary, and traditional sources of competitive advantage (branding, long histories, scale, etc.) are disappearing as agile, digital-based companies flood the economy.

According to a report from Boston Consulting Group (BCG), public companies traded in the U.S. now have a one-in-three chance of failing within the next five years—up from one in 20 just 50 years ago. A leading company that misses one market shift loses three to five years in development time, which is enough to cede the leading position. A miss of two turns and the company risks bankruptcy.

In response, companies are increasingly taking the lead at transforming themselves and the markets around them as a way to stay ahead. In the past decade, fewer than half of the BCG clients that underwent a transformation had been market laggards when they launched their change initiative. In fact, more than half of them were market leaders. This is according to a separate report released by the consulting company.

Innovation is necessary for this type of transformation. But innovation cannot happen if employees are afraid to try new things, out of fear of failure.

If you feel as if your company is falling behind, it may be worth asking yourself and your leadership: Do we hamper R&D efforts because we strive to avoid failure? Or do we promote these efforts by encouraging employees to take risks (while also taking steps to mitigate potential fallout from those risks) in effort to achieve a pre-defined goal?

Look to Amazon. After the company released the Kindle Fire to dismal reviews and sales, CEO Jeff Bezos not only said he was okay with the outcome, he actually bragged about it, citing it as proof that his employees were striving to innovate.

Would you do the same? If not, you may want to examine the reasons why Bezos refuses to criticize failed efforts.

Why Failure Should Not Be Criticized:

Put simply, businesses that successfully innovate understand that failure is not only unavoidable, it’s actually necessary to the process.

In a 2012 Forbes article, Edward Hess, a professor of Business Administration at the Darden Graduate School of Business wrote:

“My colleague Professor Jeanne Liedtka and I have spent combined over 17 years studying innovation leaders, systems and processes. What we found is that innovation requires a mindset that rejects the fear of failure and replaces that fear of failure with the joy of exploration and experimental learning. We also found that innovation organizations understand that failures are a necessity (in as much as 90% of the time) so long as the learning comes from small risk experiments.”

A separate article in the Harvard Business Review backs up Hess’ claim by delineating between two managerial mindsets: promotion-focused and prevention-focused.

Promotion-focused managers define a goal and do whatever it takes to achieve that goal. They realize that there will be hiccups along the way, but they remain undeterred when encountering setbacks, realizing these are part of the process.

Conversely, prevention-focused managers merely seek to avoid failure by maintain the status-quo. That’s not to say they are without goals; merely, it means that in getting to these goals, they take extra precautions to avoid any missteps.

On the surface, it may seem that a promotion-focused manager might experience more failure throughout their careers, due to a greater willingness to try new things. However, some research indicates the opposite may be true.

In a 2008 article published in the scientific journal Motivation and Emotion, researchers found that people who used a prevention-focused mindset actually prolonged failure versus those with a promotion-mindset. The authors found that by attempting to avoid failure, people were less likely to admit something was wrong and move on, which only made failure worse.

Attempting to avoid failure can produce the exact opposite outcome: making failure worse.

Put another way, in the words of Winston Churchill, “Success is stumbling from failure to failure with no loss of enthusiasm.” Indeed, everyone from Abraham Lincoln to Oprah Winfrey has commented on the lessons they’ve learned from failure at some point in their lives.

Of course, you could be thinking: “What does it mean to praise failure? I thought the end goal was success, so are we running the risk of idolizing failure? If so, how is that better?”

Great questions, all of them. Before talking about the steps you can take to encourage failure among your employees, it’s important to understand what a healthy approach to the meaning of “failure” looks like.

A Healthy Approach to Failure

If you’ve followed startup media for the past few years, you’ll remember that sometime around 2013, the phrase “fail fast, fail often” suddenly became in vogue among Silicon Valley’s lexicon.

Just as quickly as it appeared, it began to receive criticism for missing the point, especially among venture capitalists who didn’t appreciate the idea that their money was being wasted through intentional screw-ups.

A 2015 article in Entrepreneur sums it up perfectly. “Simply put, failure has become too much of a badge of honor in this country,” writes Jeffrey Hayzlett. “I’m never going into a situation thinking I’m going to fail no matter how risky or seemingly impossible it is.”

Hayzlett is correct in his criticism that a mistake should be seen as only part of the process toward the ultimate goal of success. Failure for the sake of learning is beneficial. Failure for the sake of failing is ludicrous.

What exactly does it mean to have a healthy approach? Simply that you don’t obsess over avoiding it, writes Edward Goldman, CTO of Intel, in Wired:

“Support of failure does not mean that you need to build out a new reward system that provides monetary compensation for each failure, ‘Congratulations Bob. That is your third failure this week, here is your bonus!’ It means that you recognize it, don’t spend time looking for who is at fault and penalize everyone, but focus on what was learned from the failure and how to overcome it.”

If it happens, see it, learn from it, move on.

If it doesn’t, great! Enjoy it, move on.

Notably, this approach should apply to successes just as much as failures, according to Harvard Business Review. When describing a healthy approach to failure, the magazine argues that leaders should be equally unfazed by success. In other words, it’s all part of the journey to get to you end goal. Then you can celebrate.

Now that we understand what a healthy approach to failure looks like, the next section details the steps you can take to create a culture that embodies this way of thinking.

Four Habits You Can Create to Build Up a Healthy Culture Toward Failure:

Most of these steps are related to strategy and leading by example. As a leader in your organization, it’s your job to communicate your vision to the rest of your employees. That starts at the top.

Step 1: Admit mistakes, publicly.

At Novareté, we believe that culture starts at the top, meaning that CEOs and C-suite-level employees are ultimately responsible for how an organization’s employees approach their work.

This means your employees will not take a healthy approach to failure unless you do first.

Read that again because it’s important. As a leader, your employees will look to you to set the example of how to handle a mistake, especially if that mistake cost the company money, reputation or market share.

If you think no CEO would ever respond positively to a massive setback, consider this story:

In the early 20th century, a New Jersey plant erupted into flames after a massive explosion took out ten buildings. Despite a quick response from firefighters, the buildings burned to the ground, with everything in them, which included years of research and experiments managed by the plant’s owner.

Instead of panicking or bemoaning the loss of his life’s work, the owner grabbed his son and asked him to “Get your mother and all her friends. They’ll never see fire like this again.” Forget the catasrophe. “We’ve just got rid of a lot of rubbish.”

At 67 years old, Thomas Edison seemed to have lost almost everything. Indeed, by that time, he had earned a reputation as one of society’s greatest inventors; however, the fire cost Edison years of his research and nearly $1 million (or about $23 million today).

And yet, Edison told a newspaper reporter the next day “I’ll start all over again tomorrow.” And start he did. After a loan from friend Henry Ford, Edison’s company earned $10 million the following year.

How’s that for moving on from mistakes?

Thomas Edison

Practically, this approach means that when you decide to take on a new initiative, you should keep your employees updated throughout the process, even if things don’t turn out the way you thought they would. You should also recount what you learned through the process – leading your employees by example.

“Far from revealing weakness, admitting mistakes shows a leader’s self-confidence. It helps forge closer ties with employees and colleague,” writes Harvard Business Review. ”A blunder admitted is empathy earned. Leaders who don’t cover up their errors reveal themselves as human—they become people whom others can admire and identify with.”

If you mess up, cop to it. Your employees will do the same.

Step 2: Build failure contingencies into your strategy plans.

If you successfully lead by example, you will change your employees’ attitudes so they are no longer afraid to try bigger things. If this happens, they will likely make mistakes more often.

This is not the end goal, but it is something you’ll want to account for.

Here are a few examples of strategies to help manage potential fallout:

Build an exit strategy: Clearly lay out how much money you’re willing to lose, how much time you’re willing to invest, and how much progress you hope to make before ending your new venture. Instead of taking a prevention-focused mindset, be aware of when you should cut your losses and move on.

Budget: Some companies willingly set aside budget specifically to learn from failed projects. For example, Capital One routinely conducts large market experiments knowing that they will result in a net financial loss. However, the company realizes it will learn more about its customers’ preferences, and thus views this loss as an investment.

Take advantage of A/B testing: Harvard Business Review also notes that you can divide your team into two groups and send them in opposite directions toward the same goal, seeing which path works better. This must be framed as an investment – both in terms of time and money – and you must know when to move on. But, the information you learn along the way could prove quite valuable.

Step 3: Build time for analysis, before and after program implementation.

Failure is not an end goal. Obtaining valuable insights is. Thus, you’ll want to account for the time you need to spend analyzing those insights and adapting future strategies based on the information you gather.

Harvard Business Review outlines the characteristics of a “failure-tolerant manager” as extremely analytical, and constantly questioning next steps and lessons learned:

“Failure-tolerant managers show interest, express support, and ask pertinent questions: What’s new with your project? What kinds of problems are you having? Taking the long view, what might the next steps be? Conversations are less about whether the project is succeeding or failing than about what can be learned from the experience. When a manager and employee are deeply engaged in that discussion, both of them enter the same kind of high-performance zone that athletes do when they’re operating at their very best. In this zone, evaluation is less relevant than the subject of where to go from here.”

When you take on a new initiative, you’ll want to plan time both before and after for analysis and interpretation.

Before beginning your project, ask questions such as:

• What failures are likely to result? What lessons will we learn in the process?
• What systems can we install so that we are learning from failures?
• What are we testing? What’s the clear measure of success?
• If things are not going well, at what point to we give up and move on?
• What is the maximum amount of money we are willing to spend? Are the possible insights worth this price?

After your project ends, follow up with questions such as:

• What did we learn about the market?
• What did we learn about logistics, including budgets, timelines, talent requirements, etc.?
• How can we change our processes to account for our weaknesses?
• What was the outcome that surprised us most?

Step 4: Promote a culture of collaboration, not competition.

Once you have gathered the various insights about your initiative, your market, your logistics, and any other data that results from taking on a new project, you’ll want to share that information with your entire company.

While these insights can (and certainly should) be shared in a formal setting, employees should also have a chance to talk about their projects informally. By fostering a culture of collaboration through the following techniques, you can help promote conversations about your company initiatives:

Create communities: From book clubs to running groups, encourage your employees to form communities within your company, based on common interests that have nothing to do with work.

“What’s really going on in these groups is courage enhancement,” writes Harvard Business Review. “By creating an atmosphere of safety and reducing the pressure to succeed, the groups give people the confidence to share their ideas. Employees who once felt inhibited suddenly feel free to express their thoughts, frequently contributing to the innovations that drive the company.”

Invest in communications platforms: Equally important, you’ll need to create ways for your employees to easily communicate with one another. These days, communications technologies can assist with everything from community organization to surveys to intranets to more.

As Robert Shapiro once said, many technological developments in communications “just rip through hierarchy.”

Notably, Novareté’s platform includes many of these aspects, including surveys, groups, and a point system feature, which helps employees measure their engagement with company activities. To learn more, check out our “How It Works” page.

Conclusion: It’s All About ‘Courage Enhancement.’

There’s a reason people often modify the word “innovation” with things like “bold” or “strong.” It takes courage to pursue new areas and technologies. Thus, most of your work as a CEO will be to promote a healthy innovative environment – not by encouraging failure for the sake of failure, but by encouraging it as a step in the process to something great.

As Harvard Business Review correctly points out, most of the advice in this blog post can be boiled down into this: Create a culture that builds employees’ courage to take risks in pursuit of innovation.

How? Admit your mistakes when they happen. Learn from them, and move on. Then, help your employees share the knowledge they gain with the rest of the company. Rinse and repeat.

Happy innovating.

If you’re struggling to understand your culture, or if you’re interested in learning more about how our communications platforms can help you share insights with your team, ask for a demo today.