Placing Financial Value on Lessons & Why It Matters
Lessons are the byproduct of failure. How quickly people arrive at lessons usually separates those who wallow in defeat from those who extract knowledge and keep moving.
I make the same number of mistakes as most founders each day and failure can hurt. Sometimes it’s important to feel sorry for yourself to process and make sense of mistakes or failure. However, the name of the game, especially in the face of chaotic uncertainty, is to increase your rate of learning.
Until recently, I hadn’t articulated the basic math I do in my mind each time I fail. And on reflection, I’ve been running this algorithm in the back of my mind for years. I hope you find it useful too.
I respect founders who have developed a habit for ‘clocking failure’. In other words, they have found a way to pause and reflect when failure strikes. It’s much harder said than done. The high volume of decision-making and firefighting that founders do each day can easily result in a mindset of ‘moving to the next thing’ without diagnosing why failures happen.
As much as I tried to create the conditions to stop and reflect, it didn’t work. That was me in my two ventures. That changed when I started thinking about how much a lesson had cost and began comparing the cost of different lessons.
While it seems obvious in hindsight, I was mapping each unexpected (or unwanted) result against a four-step chain of events.
Context > Decision > Failure > Lesson
Lessons that come from failure start with (often misunderstood) context that leads to a decision or decisions. But here’s the thing. Learning a lesson might only result in the acknowledgment of the context or decision. It might not actually change behavior. And when you’re a founder, and you and your team just don’t seem to be changing behavior quickly enough, even though a lesson has been acknowledged, you might want to think about adding one additional step.
Context > Decision > Failure > Lesson > Cost
Financial cost often helps focus founders. And placing a monetary value on lessons delivers two critical benefits, one of which can have a significant impact on scaling a ‘high rate of learning’ culture.
Calculating lesson cost
Take the total cost of an activity and divide it by the number of lessons learned. The result of this math is the cost per lesson.
Thinking about a $100 marketing campaign. If I invested a total of $100 buying a product I want to sell, designing social media ads and paying for advertising only to have sold nothing but I have 10 lessons that come from that experience, then I have achieved $10 cost per lesson or a $10 lesson cost.
$10 per lesson is cheap!
If I wanted to make this $100 marketing campaign scenario more realistic, I would also add a cost for the person’s time who was running this campaign.
In any case, the lesson cost is a relatively quick-to-calculate guide that can help you and your team understand the value of time invested. One of the benefits of measuring cost per lesson (and not only a marketing-specific metric like the cost of acquisition) is that lesson costs can be compared side by side between different projects and campaigns.
The second benefit that I hinted at before that relates to scaling a ‘high rate of learning’ culture relates to the denominator of the lesson cost calculation.
The higher the number of lessons, the lower the cost per lesson.
When you start introducing this metric into your psyche, you will find yourself and your team becoming more deliberate about identifying lessons because you will want the lesson cost to be as low as possible.
One last thing
This method of calculating lesson cost works for when things don’t go to plan as well as when they do. And the math to achieve lesson cost is straightforward so it can be done quickly and intuitively.
But the main point I would like to leave you with is that calculating lesson cost has forced me to stop and look for lessons in failure (and success).
When done consistently, lesson cost becomes a source of pride and an acceptable range of lesson cost emerges to become a part of everyday thinking and conversation.
And for founders who are trying to accelerate their teams’ rate of learning to combat ever shortening runways, that is a good thing.
Originally published at https://philhsc.com on May 25, 2019.