Experience is the name we give to our mistakes.
—Oscar Wilde 55
In this chapter, I encourage you to make more, better, faster mistakes, all in the spirit of accelerating your learning. I propose models and examples from worlds as divergent as venture capital and dating, and show you how the principles applied by bold entrepreneurs and successful serial dates can pay dividends in other areas. I then introduce some principles from the philosophy of science, such as disconfirmation strategies. My aim, overall, is to teach you a strategic approach to mistakes.
This chapter is also a practical how-to guide. Using an actual business case, I introduce a three-stage screening process that demonstrates how useful it can be to purposefully violate particular assumptions. This is a concrete methodology rooted in psychological as well as decision theoretic principles. It will help you sort through the numerous beliefs you hold dear and identify those most worthy of testing. Throughout, I will help you recognize the manner in which intuition and meta-strategies, as well as optimization models, can help you to accelerate your learning via purposeful mistakes.
A successful entrepreneur was interviewed by a reporter about his many accomplishments. The interchange went as follows:
Reporter: Sir, what was the key to your success?
Entrepreneur: Good decisions.
Reporter: And what was the key to those good decisions?
Entrepreneur: Experience.
Reporter: And where, sir, did that experience come from?
Entrepreneur: Bad decisions.
Most entrepreneurs, and the venture capitalists who invest in them, live by a bold mantra: fail fast, often, and cheaply. Just like Thomas Edison and Sir James Dyson, inventors we looked at in chapter 2, you should view multiple errors as the path to success. Remember that early-stage inventors, like entrepreneurs, usually don’t even use the term mistakes for these early and necessary missteps, preferring “experiments,” “protocols,” or “tests” instead. Google’s IPO prospectus, a serious financial document for investors heavily vetted by lawyers, contains a startling statement: “We would fund projects that have a 10% chance of earning a billion dollars. . . . Do not be surprised if we place smaller bets in areas that seem very speculative or even strange.” Google is warning investors not to be taken aback if the company takes actions that may seem odd or wrong. The art of making mistakes is to separate costly, foolish mistakes that teach you little from those clever, cheap mistakes that can offer you the world.
The question then becomes, what qualities must entrepreneurs have to succeed—other than, of course, a high tolerance for risk? Surely even the boldest venture capital firm does not select at random. What criteria do they apply for upping the ante of mistakes that will lead to brilliant insights (and payoffs)?
Jesse Treu is a senior partner with Domain Associates, a venture capital firm based in Princeton, New Jersey, specializing in pharmaceuticals, devices, and diagnostics. Domain has been very successful over many decades. When Treu, who has a PhD in physics from Princeton University, examined Domain’s past successes and failures, he noticed that most of the successful ventures had changed their business plan and even their business model. The unsuccessful ones, in contrast, were hesitant to change their plans. Instead, according to Treu, they remained stuck with the wrong strategy for too long, hampering their chances of success.56 This finding might seem counterintuitive: remember the mantra “stick to your knitting”? Nevertheless, it highlights an important truism. In the venture capital game, leaders and management teams who know how to adapt are far more valuable than the best-laid plans.
As Prussian general Helmuth von Moltke observed, “No plan survives contact with the enemy.”57 The same is true in business: few plans survive contact with reality. The key in entrepreneurship and innovation is to speed up the learning process and separate false beliefs from sound ones at a faster pace. This leaves us with the need for broad strategies that guide us with such questions as: How many mistakes should we make in a given year, and of which kind? What is and should be our personal or organizational tolerance for mistakes? Are we really ready and willing to make deliberate mistakes to learn faster? How should we follow the advice of IBM founder Thomas J. Watson Sr., who famously said, “If you want to succeed faster, make more mistakes”?58
Let’s start with a task most of us have personal experience with: the dating game. Most dating is tremendously inefficient. People can go on many, many dates, enduring countless glasses of wine and hours of late-night talks, before they locate that compatible someone—if they ever do! Tried-and-true approaches include traditional networking, introductions via family and friends, and even arranged marriage. In recent years, social media networking and techniques like speed dating and matchmaking websites, with their near-endless multiplicity of available partners, have provided alternative vistas, allowing those searching for love to experience a higher degree of “deal flow” (to borrow a term from venture capital). The benefit of these new approaches, of course, is that they allow you to filter quickly and save time; the risk is that the wide net of options and pressure to decide quickly cause you to throw out the baby with the bathwater.
Maria Dahvana Headley, a 20-year-old New York University drama student, took a daring approach. After many fruitless forays into the New York City dating scene, she decided to try a bold and outrageous experiment: letting go of her selection criteria. She resolved to say yes to anyone who asked her out on a date (with the exception of murderers and rapists). As she writes in her memoir, The Year of Yes, this policy led to dates with her building’s maintenance head, a homeless man, a Microsoft millionaire who still lived with his mother, and a career woman.59 She finally accepted a date with a divorced playwright. Although she would not have given him a second chance before the experiment—he was many years her senior and had children from a previous relationship—she fell in love and is now happily married. By permitting many mistakes in dating, Headley was able to learn faster about what she truly wanted in a partner. She then found her special partner more quickly. Headley’s epiphany was that our typical way of experimenting—developing a preconceived idea of Mr. or Ms. Right and finding someone to fit the part—does not always lead to the best decisions. Making more mistakes, as Headley did in her year of yes, can speed the process of learning.
If we were perfectly rational, we would have no need to make mistakes or engage in random behaviors in order to learn. But human beings are far from rational, and therefore need to allow random error into their lives in order to succeed. As Francis Bacon wrote, “A wise man will make more opportunities than he finds.”60 Deliberately creating portals of discovery requires being open to experiments and mistakes.
From the standpoint of cognitive psychology, here is why we need to make mistakes on purpose—why doing so can help us transcend our own bounded rationality:
Philosophers of science have argued that falsification is the fastest way to the truth.64 Falsification entails trying to disprove your hypotheses and when they prove wrong, testing new ones. Similarly, making mistakes can be the quickest way to discover a problem’s solution. Using a classic decision-making problem, I ask managers to find the underlying pattern in a sequence of three numbers, such as 2, 4, 6. The participants are allowed to propose alternative sets of three numbers and will be told whether they fit the pattern.65 Most people formulate a preliminary hypothesis—in the case of 2, 4, 6, they might guess that the pattern is even, ascending, sequential numbers. Of course, other hypotheses are plausible, such as the last number being the sum of the previous two or the last number being three times the first number, and so on. Forming some kind of hypothesis is generally a good idea, especially if there are many hypotheses than can be empirically tested, as in this example. But an insidious confirmation bias may creep in when people actually devise strategies to test their hypothesis. Should they test a set of numbers that fits their initial guess or one that violates it? Most people gravitate toward testing sequences that fit their rule, as illustrated in the “Testing a Hypothesis” column of the table (which includes the yes-or-no answers to whether each test sequence fits the hidden pattern underlying 2, 4, 6).
After three successful tests, participants usually state with great confidence that the “even, ascending, sequential numbers” hypothesis is correct. But they are wrong.
Consider the alternative approach of testing sequences that violate the hypothesis (shown in the fourth column)—in other words, making deliberate mistakes. Participants who choose numbers that don’t fit their current hypothesis are usually faster to discover that the real pattern is any ascending sequence. The pattern is rarely uncovered unless subjects are willing to make mistakes—that is, to test numbers that violate their belief. Instead, most people get stuck in a narrow and wrong hypothesis, as often happens in real life, such that their only way out is to make a mistake that turns out not to be a mistake after all.
Sometimes, committing errors is not just the fastest way to the correct answer, it’s the only way. College students presented with this experiment were allowed to test as many sets of three numbers as they wished. Fewer than 10% discovered the pattern. The vast majority became locked into a narrow hypothesis, such as even sequential numbers, and they tested only combinations of numbers that would fit that pattern. In the short run, they were correct to use this approach. But in the long run, they were wrong, because they didn’t experiment widely enough to discover the underlying pattern.66 Whenever you have little hard evidence to go on, the chances are low that you’ll be correct in your initial guess about how the pieces fit together. The fastest way to find the pattern is to try many disconfirming tests.
There is, of course, no shortage of mistakes to be made. How, then, do you distinguish smart ones from foolish ones? In some cases, it’s obvious: no wise person would jump from a bridge just to see if it was dangerous to fall. But most real-life scenarios aren’t so black and white. For example: should you hire a person you think won’t work out to test your core assumptions about what it takes to succeed in your organization? Should you send your team down a path you aren’t sure will yield results, just for the benefit of broadening your collective wisdom?
At the management consulting firm I founded, Decision Strategies International (DSI), I decided to implement a disciplined process of deliberate mistake-making. I used a five-step process to identify and then execute a few “smart” mistakes—tests that we were willing to pursue in full knowledge that they would probably fail. My colleagues and I were willing to challenge our thinking because we sought to obtain new insights about how to run our business. Also, we committed collectively to making sure that the cost of failure of any mistakes we made would be manageable.
I convened the management team of our company and asked them to identify key assumptions underlying our approach to running the business. We then scored the assumptions to see which would be the best candidates for testing in the spirit of a deliberate mistake. I describe the process we followed and some of the conclusions we drew—which led us to alter how we approach our business.
Step 1. Identify assumptions. DSI’s leaders began by identifying the most cherished assumptions we have about how best to run our consulting business. In so doing, we generated the raw material with which to make mistakes that might reveal flaws in our reasoning. The following are ten of the assumptions we identified:
Because a company’s leadership may not be aware of all of the assumptions it makes, executives should ask colleagues throughout the organization to help construct the list. For example, in addition to senior executives you can ask the head of IT or even a trusted partner or loyal customer. The key is to focus on assumptions that lie at the core of the business in such areas as strategy, operations, marketing, finance, legal, IT, human resources, and so on.
Step 2. Select assumptions for testing. The management team then ranked the ten assumptions by two metrics: (1) significance to how we ran the business and (2) confidence in the accuracy or correctness of the assumption. To assess importance, we asked what we would do differently if we knew that a given assumption was false. The greater the impact on the organization of discovering that the assumption was false, the higher it would be scored in terms of importance. To assess accuracy, we asked how much we would be willing to bet that the assumption was correct (would we bet the company or our lives?). Figure 4-1 shows how the ten assumptions were plotted on our two scoring dimensions.
We then honed in on those assumptions that scored high on importance and less high on certainty in their correctness. This left us with assumptions 3, 7, and 10.
Step 3. Rank the assumptions. For the three assumptions thus identified, we asked company managers the five questions shown in table 4-1. The intent was to generate an overall score indicating the relative value of putting these assumptions to the test. To keep things simple, we gave each question equal weight. Based on this scoring process, assumption 10, which related to our company’s view about RFPs, was identified as having the highest potential of benefiting from a strategy of deliberate mistakes.
Step 4. Create strategies for making mistakes. Instead of never responding to RFPs, which was the firm’s policy, it was decided to act in earnest on the next RFP. This meant making the “mistake” of responding to an RFP that came over the transom. As it happened, we’d recently received an RFP from a regional electric utility. To keep our costs down, management assigned recent hires to develop an initial proposal, both to help them learn how to structure engagements and also to limit time spent on this by our senior partners. But the RFP was taken seriously and developed with customary care.
Step 5. Execute the mistake. Our firm produced a customized response to the RFP, listing the partners’ normal fees, resulting in a budget of about $200,000 for this relatively small consulting project. To our surprise, the electric utility invited our firm to visit with the CEO and the senior management team to explore not only the project in question but others as well. After learning more about our firm’s capabilities, the electric utility signed a separate project on short notice before awarding the original proposal. Additional work followed, amounting to more than $1 million of additional consulting in the pipeline from this client. Not a bad return for making a small mistake.
Step 6. Learn from the process. Mistakes cost time and money. Whether the mistake is a success or a failure, conduct a careful analysis after the exercise to understand what you have learned. How does the result reinforce or change your assumptions? What were the surprises? How might the results change your business? What other experiments or mistakes might be useful based on this experience? The key is to recognize that any surprising result, whether due to an action you took or did not take, is a learning opportunity. Whenever your expectation diverges from reality, you should try to figure out why.
The relatively low-cost deliberate mistake made by our firm has changed our thinking about RFPs and about mistake-making in general. We look at new RFPs in a different way and have responded to several that we would have ignored in the past. DSI is also, as a result of this experiment, testing some other cherished assumptions that surfaced, including the other two assumptions listed in table 4-1 (numbers 3 and 7). Hiring young MBAs (to test 3) is obviously easier than changing the CEO running the firm (to test 7), so the firm has hired some junior staff. And we are experimenting with a shift in the president’s balance between consulting and management as a low-cost approach to test assumption 7.
While you can often learn faster by making more mistakes, it’s also fair to acknowledge that learning is not always the most important goal. There are critical moments, and specifics tasks, where high performance should and will be your only concern. If you have your hands on the stick of a Boeing 747 airplane at 30,000 feet in the air, or if you are elbow-deep in a patient’s chest during open heart surgery—please, do not think about making mistakes! Focus on counting your surgical instruments and making sure it all returns to the table before you close up the patient. Make sure you perform the brain surgery on the correct side of the head and on the right patient. We’ll all thank you for not being focused on learning!
But when the surgery is over, when the plane is on the ground, perhaps it will make sense for you to reflect on what you’ve learned and explore ways to make deliberate mistakes. If you are a pilot, perhaps you can step into the flight simulator and try crashing the virtual plane in all kinds of challenging circumstances, from hurricane weather conditions to failing engines or land-based rocket attacks. You will be a better pilot for it. As passengers, we will be glad you did. When you walk out of the operating room, it might not be a bad idea to do simulations to prepare you for unusually complex challenges you could face or to try out new surgical procedures on human cadavers or animals.
Mistakes are often painful and embarrassing. We hate to lose. In Japan, some executives still commit seppuku, a ritualized suicide, when they fail. We often tend to deny our mistakes rather than learning from them. Few of us, deep down, want to make more mistakes. So we face a conundrum: we dislike mistakes, and yet this is often the only way to get ahead. This book shines a different light upon mistakes by helping you to understand what they are and how they can help you make better decisions in the future. If we know how to use them, mistakes create opportunities. They can be vital portals to discovery. Also, make sure to take a look at the mistakes of your colleagues and see what you can learn from them. The biggest error we can make is not to fully appreciate the power of mistakes to change our approach to business and life in general.