The Power of Failing Well

Amazon’s Fire Phone was a failure. It’s the kind of thing most managers hope people soon forget about.

But Amazon embraced it. Jeff Bezos said in an interview not long after the phone was pulled:

If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.

Netflix just announced the cancellation of several expensive original shows. This is also the kind of thing most media CEOs get mad at and demand a strategy shift. Which is what Reed Hastings did. Except his demand was that more Netflix shows should fail:

Our hit ratio is way too high right now. I’m always pushing the content team. We have to take more risk. You have to try more crazy things, because we should have a higher cancel rate overall.

Amazon and Netflix owe a lot of their success to their ability to fail well.

It’s a unique trait. It’s just failing. And it’s not just accepting failure in order to learn something. Failing well is a special, difficult, thing.

I’ve been asked what the biggest difference is between VC and the focus of my former job, public equities.

What sticks out is that many startups and venture investors embrace risk with both hands, while many public investors view their job as taming and avoiding risk.

Both can learn from each other. Because either can be a disaster.

Anything competitive requires trying something new, and a lot of new things don’t work as planned. But risk has to be taken in manageable doses, avoiding catastrophic errors that could put you out of business.

This sounds simple but it’s so rare and difficult to execute on. Risk is easiest in two speeds: All in, or none at all. It’s the balance between the two that lets you survive long enough to reap the rewards of things with big returns, since big returns come from things with low odds of success.

Something I’ve learned from both investors and entrepreneurs is that no one makes good decisions all the time. The most impressive people are packed full of horrendous ideas that they often act on.

But those who stick out can absorb the damage of their bad ideas. They fail at lot, but they’re really good at it. They consciously take big enough risks to move the needle but not so big that they can’t live another day to fail at something else. Compounded over time this can add up to something extraordinary.

The Chris Rock I see on TV is hilarious, flawless. The Chris Rock that performs dozens of small clubs each year is just pretty good.

This is by design.

No comedic genius is smart enough to know what jokes are sure to land well. Every big comedian tests their material in small clubs before using it in big venues. The stakes are lower in small clubs – you may disappoint 30 drunk people, but you won’t hurt your reputation with HBO. It’s manageable damage. Rock was once asked if he missed small clubs. He responded:

When I start a tour, it’s not like I start out in arenas. Before this last tour, I performed in this place in New Brunswick called the Stress Factory. I did about 40 or 50 shows getting ready for the tour.

One newspaper profiled these small-club sessions. It described Rock thumbing through pages of material, not all of them landing. “I’m going to have to cut some of these jokes,” he says in the middle.

Everyone needs their own Stress Factory Comedy Club – a strategy to try something you don’t know will work and absorb the damage of its failure in a manageable way.