Innovation + Failing =
This article explores three fundamental causes of failure for emerging tech projects and how to avoid them.
Failing has become an important and cherished part of our shared cultural tech heritage, like hoodies and all-male AWS re:invents. But plain failing may not be enough anymore. Almost anyone can put cocoon hammocks in a loft office and build an app nobody uses. To stand out, try failing creatively. One example is Watermelon Oreos.
Okay, I admit it is important to be willing to fail a certain amount to innovate. Yet what is an acceptable failure rate? An exec told me recently that a failure rate of 2–3% was acceptable for her company’s software “innovation initiatives.” The word innovation, from the Latin, innovatus, means to renew; as in “renew this project until something is working in production or you’re all fired.” This trusted process is repeated until the innovation success rate is above 97%.
Compare the exec’s 2–3% failure rate with data from CB Insights which shows that funded startups have a failure rate around 67%. Further, according to Fundable, startups hoping to raise funding have success rates of 0.91% and 0.05% with angel investors and VCs.
So there you have it. The consensus is that for innovation initiatives you should try to keep your failure rates between 2% and 99.95%. That way any project qualifies as innovation. To me, if your failure rate is 99.95%, then you are clearly trying to fail. If you are in this category or are a VC encouraging startups to be in this category, please stop. And if your failure rate is 3%, please stop calling whatever you’re doing “innovating.” It’s confusing.
All things being equal, avoiding known causes for failure will improve success rates no matter what your risk profile. The three most common reasons for startup failures according to CB Insights — lack of market need, running out of cash, and team problems — are basic issues common to many new initiatives. Corporate innovation efforts run into similar problems — product-market fit and Horizon 2 issues (Zone to Win, Geoffrey Moore). These are commonly understood reasons for failure.
Other reasons — sometimes the real underlying reasons for failure — can be far less obvious. Why did it take so long to discover there was no market? Why is the team not working out? Why didn’t the pivot work? In this article, I explore three fundamental causes of failure in emerging tech projects and how to avoid them.
1. Starting With Push
“ If you hold a cat by the tail, you learn things that cannot be learned in any other way.” — Mark Twain
One way to cultivate failure is to start as most people do — with a push approach. According to research, Technology-Push, where you start with the technical solution is not as successful as Demand-Pull where you start with customer problems and consider all possible solutions [2]. Push can work, but it’s riskier.
Push: What can we do with our solution?
Pull: How can we solve our customer’s problem?
A common Push scenario:
- Company X pays you to custom-build Solution A
- You turn Solution A into Product A and market it to other companies and in other verticals
- Uh-oh! A new solution, Product B, appears that solves these problems almost as well as Product A for a lot less money
Who suffers from Push problems?
- Startups
- Innovation Labs
- Corporate Venture Capital initiatives
- New product developments
Some recent Push examples:
- A generic IoT Platform
- A proprietary natural language processing engine for a media company
- AI-based vision product for reading industrial analog meters
Consider Dean Kaman. Dean spent years concocting the iBot. The original iBot was a wheelchair that used software, algorithms, sensors, wheels, gears, and gyroscopes to balance a human being in the air on two sets of wheels stacked on top of each other.
“If you ask Dean the time, he’ll first explain the theory of general relativity, then how to build an atomic clock, and then, maybe, he’ll tell you what time it is.” -Doerr, investor
The iBot technology, though not commercially feasible, was potentially a breakthrough for people confined to wheelchairs. Instead, Kaman developed an entirely new product — Code Name Ginger.
Not to be outdone by his own over-engineering efforts, Dean over-marketed Ginger until almost every inhabitant on earth had to know what Ginger was. It turned out to be a scooter.
“It won’t beam you to Mars or turn lead into gold. So sue me.” — Dean Kaman
If you haven’t already guessed, Ginger was Segway and Segway didn’t keep us in suspense long. It immediately failed. The company thrashed around to find a market and eventually settled on security scooters (see Mall Cop).
When competitors discovered there was a market for security scooters they simply built less expensive three-wheeled scooters that were easier to assemble and put Segway into financial trouble straightaway.
Threats from imitations and replications are common with push-based solutions like the Segway.
After struggling for several years, Segway was purchased by Jimi Heselden in 2010. In a surprising strategic move, Heselden, not to be outdone by Dean’s over-marketing and over-engineering, put ironic over-closure to both Segway and himself by driving his Segway off a cliff to his death.
“If enough people see the machine (the Segway) you won’t have to convince them to architect cities around it. It’ll just happen.” — Steve Jobs
As it turns out, metrosexually-named skateboard-style scooter companies, such as Bird, Lime, Skip, and Spin happened instead.
2. Pivot as a Strategy
“I have not failed. I’ve just found 10,000 ways that lose money.” — Blockchain
Planning to pivot is not a strategy. To the uninitiated, pivoting means you change your product, customer segments, channels, revenue models/pricing, resources, activities, costs, partners, customer acquisition strategy and/or executive team. In other words, you change basically anything because whatever you were doing wasn’t working.
This used to be called ‘trying new things.’ Now it’s called ‘pivoting.’ Go figure.
What is a strategy?
“Strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities.” Kenneth Andrews, The Concept of Corporate Strategy (1971)
Note the word “reveals.” A strategy can be implicit, but effective strategies begin with values. When leaders help define and align the company’s values with its capabilities and opportunities, great things are more likely to happen. Values stabilize the organization and help keep everyone working together. People are happier and more productive when they work within a strong set of principles. Stakeholders are better aligned. Pivoting into whatever new thing seems like it could make money betrays any good strategy.
Suppose you are a publicly traded beverage company that sells tea. A pivot into which of the following reveals the least cohesive strategy?
A) Canned, Fermented Tea
B) Iced Coffee
C) Packaged Crumpets
D) Blockchain
Answer D is correct. Blockchain is the most ridiculous possible pivot for a beverage company. No one would actually do anything this absurd, right? Wrong. Long Island Iced Tea Corp would:
Long Island Iced Tea Corp. (NasdaqCM: LTEA) (the “Company”), today announced that the parent company is shifting its primary corporate focus (beverages) towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology. In connection with the shift in strategic direction, the Company has approved changing its name from “Long Island Iced Tea Corp.” to “Long Blockchain Corp.” and has reserved the web domain www.longblockchain.com
My favorite part of this announcement is the word “approved” as if there was some sort of deliberate process with a panel weighing pros and cons. Maybe a gavel was involved. And periwigs.
You can see how value-based pivoting and expedient pivoting would yield totally different choices and results. You can tell a lot about a company or team by how they choose to pivot and react to inevitable setbacks. A strong team with a good strategy pivots sensibly and makes mostly good decisions, and pretty much everybody else does not.
By the way, Long Blockchain Corp was subpoenaed in July 2018.
3. Attempt Big Projects
“Ambition is like a frog sitting on a Venus Flytrap. The flytrap can bite and bite, but it won’t bother the frog because it only has little tiny plant teeth. But some other stuff could happen and it could be like ambition.” — Jack Handy
Sometimes people make failing harder than it needs to be. One of the simplest and most reliable ways to fail is to attempt large, expensive projects. Some points:
- The Standish Group, drawing from a database of 50,000 development projects, has found that for development projects that exceed $100 million in labor costs, only 2% are successful, meaning on-time and within budget.
- A McKinsey study revealed that 40% of IT projects budgeted at $15 million or higher fail and 17% fail so badly that they threaten the company’s existence
- There is actually a wiki page that lists large, failed projects
- Healthcare.gov happened
Note that most of these projects failed using staid, trusted technologies. Emerging tech projects must be much higher.
Why are failure rates so high in tech? Tech projects involve a lot of abstraction whereas building a shopping mall, for example, is concrete. Perhaps people tend to underestimate projects and efforts when the metrics are more complex. Estimating the cost and time to build a building by square feet is fairly accurate whereas estimating the number of lines of code and the cost per line for any software project would be highly difficult.
Something else to consider: The Planning Fallacy. In 1979, Daniel Kahneman and Amos Tversky proposed The Planning Fallacy which describes:
“a phenomenon in which predictions about how much time will be needed to complete a future task display an optimism bias and underestimate the time needed. This phenomenon occurs regardless of the individual’s knowledge that past tasks of a similar nature have taken longer to complete than generally planned.” — from Planning Fallacy, wikipedia
People tend to overestimate what they can deliver and underestimate the amount of time it will take.
In Summary
These things can lead to failure:
- Start with the question, “What can we do with our solution?”
- Depend on pivots in lieu of a strategy: How can we pivot to make money?
- Attempt big projects
Three things that lead to success:
- Start the process with a Pull Approach. Find the best possible solution to customer problems, then test Push solutions.
- Spend some time on strategy. A good strategy makes decisions, especially pivoting decisions, easier.
- Keep most emerging tech projects under $2–3 million and manage risk by setting a failure expectation rate — 50% failure rate for innovative projects is a good starting place.
