How to make use of your mistakes to your own advantage.
Strategically admitting mistakes can sometimes be good for business.
This publication is a collection of essays on topics such as logical fallacies, mental models, and decision making. Here I try to combine ideas from disciplines such as economics, psychology, philosophy, and more. Subscribe to my monthly newsletter here. Thanks for reading.
When you make a mistake it is often suggested that the right thing to do is to admit it at once, apologise, and move on. Admitting means you are taking ownership of you mistake, and it puts you in a good light as well. It’s good from an ethical standpoint.
Does the same thing apply to businesses as well? If yes, why don’t you get to see examples or read articles where startups and public companies openly talk about the mistakes they’ve made which have hindered growth? If no, then what do you do when you really have made a mistake. Do you cover it up? Do you blame somebody else? What would be the best course of action from a business point of view?
You see most businesses blaming external factors for their failure — oh the market is too volatile; or the competitor poured all of their money into acquiring customers leaving us none; or consumers these days have no sense of loyalty and only go after discounts. It is always somebody else. It is always beyond their control. There’s nothing they could have done to prevent it.
If you are running a startup, I think you should understand that most people are not suckers. They can see right through your paper thin lies. If you have to tell a lie, at least make an attempt to decorate it nicely so that it feels authentic.
But if you gotta do the right thing, in terms of business, and ethics, sometimes it might be better to just accept that you goofed up.
In 2007, JetBlue Airways goofed up and frustrated thousands of passengers in the face of severe weather. All other airlines had cancelled their flights in anticipation of a storm. JetBlue however gave hope to its passengers that their planes would fly. But they remained out of service for many days due to extreme bad weather. Customers were let down due to JetBlue’s poor decision making.
After stranding thousands of passengers, JetBlue had a difficult PR decision to make: who or what to blame? Should they focus the blame on external factors, like the extreme weather, or should they focus the blame on internal factors like their operations, or poor decisions? JetBlue chose the latter, acknowledging the fault was theirs.
The JetBlue example has been thrown around in multiple leadership and ethics articles. It has become almost like a cliche now. But does this really work, or is it just an outlier? Is admitting mistakes always the right decision for a business? If so, can we back it up by research?
In an experiment, social scientists asked participants to read one of two annual reports of a fictitious company, both of which explained why the company had performed so poorly over the last year.
For half of the participants, the annual report (Report A) blamed internal but potentially controllable factors for the poor performance. For the other half of the participants, the annual report (Report B) blamed external and uncontrollable factors for the poor performance.
It was found that participants in the first condition (Report A) viewed the company more positively on a number of different dimensions than did participants in the second condition (Report B). Naturally they felt that it was courageous for the companies to have owned up to their faults.
To further test this finding, the researchers collected hundreds of these types of statements from the annual reports of fourteen companies over a twenty-one-year period. They discovered that when these companies explained failures in their annual reports, those that pointed to internal and controllable factors had higher stock prices one year later than those that pointed to external and uncontrollable factors. Why so? What has the rise of company value got to do with who you blame for your mistakes?
Social scientist Fiona Lee and her colleagues suggest there’s a strong probability that organisations that attribute failures to internal causes will come out ahead not only in public perception, but also in terms of the profit line.
They argue that blaming internal, potentially controllable failures makes the organisation appear to have greater control over its own resources and future. They also suggest that the public response to an organisation’s internal focus to explain failures might be to assume that the organisation has a plan to modify the internal features of the organisation that may have led to the problems in the first place.
They also mention that this should hold true not only for companies, but for individuals, too. If you’ve made a mistake, an error in judgment, or a bad decision, you should admit the mistake, immediately followed by an action plan demonstrating that you can take control of the situation and rectify it. Through these actions, you’ll ultimately put yourself in a position of greater influence by being perceived as not only capable, but also honest — two indispensable qualities of any man with influence.
All fun so far. But this is an example with just a big dollop of correlation. It’s not a law that you can exploit. Also, there’s no causation. Admitting your faults doesn’t automatically create better future results. The research conducted simply looked at past data and came to a conclusion they were looking for. There’s a good chance it suffers heavily from confirmation bias.
It would be wise to wait for an opportune moment before owning up your mistakes. Most probably it won’t be the very first time you goof up. Go for it only when the stakes are high, and the expected return is good as well. Do it when you think your brand value or retention would significantly increase after this. You also would have to have a definite game plan ahead in time to take certain measures to make up for your errors. You will be judged by that.
When GitLab goofed up and deleted six hours of database data consisting of issues, merge requests, users, comments, snippets, etc. they went live and broadcasted their entire data recovery process on YouTube. They didn’t just own up, they kicked ass after that as well. People were impressed by this feat. But you can’t simply hope they’ll forgive if GitLab goes on goofing up every now and then.
This is a card that can be played only a couple of times. So play it well. If you go on making poor decisions every quarter and simply go on saying you are sorry, people would soon lose faith, and your business would go bust, kaput.