A certain kind of awe is due to the turnaround artist who can turn bad into good—lemons into lemonade, straw into gold. Such accomplishments are especially impressive when the bad is some form of failure that gets transformed into consequent success. Note that the operative term here is consequent. We’re not referring to the subsequent success occasionally brought about by perseverance, belligerence, or an attitude of “try, try, and try again.” Rather we are talking about faults that become game-winners precisely because they were faulty.
There are a number of ways to make previous errors bear fruit. Some, such as reengineering a business model, eliminating system bugs, and finding new ways to navigate around unforeseen barriers, will require a substantial investment in time and resources. This is big stuff and often it will be crucial. But small things are important too. Surprisingly one of the easier ways to snatch victory from the jaws of defeat doesn’t even require you to think about your past mistakes. Instead the advice is to make a small shift and think about the mistakes that others have made instead.
Charlie Munger is both brilliant and wise—attributes that yield big payouts. It is because of those conjoined traits that he is Warren Buffett’s business partner and most trusted adviser within the investment firm of Berkshire Hathaway, which, since its inception in 1964, has been successful at levels never before seen in that industry. Mr. Munger was once asked to describe the steps he takes to ensure that any choice he makes is likely to be a sound one.
He replied simply, “I review my inanities list.”
Mr. Munger keeps a file of foolishness…filled with the flops and the fatal fumbles that brought them forth. Rather than following the conventional wisdom of identifying and imitating the shrewd decisions that have led to business successes, as chronicled in such bestsellers as Good to Great, In Search of Excellence, and Made to Last, he chooses to spend his time identifying and avoiding the inane decisions that have led to others’ business blunders.
So why might an activity that on the surface appears relatively small make for a potentially big difference—not just for Mr. Munger’s and Berkshire Hathaway’s decisions, but for yours as well?
One reason is that large-scale achievements can rarely be attributed to any lone factor. The foundation of great success is normally constructed of numerous well-crafted and interlaced components. So, it would be difficult indeed to duplicate them all in your business efforts or to specify the decisive one. But that’s not the case with mistakes. A single mistake—whether caused by a lack of essential knowledge, an overblown belief in one’s abilities, or a naïve set of economic expectations—can bring everything crumbling down. Therefore it makes sense to not only develop your own “inanities list,” stocked with the business missteps and mishaps of others, but you should consult that list whenever important choices and decisions arise. Of course it goes without saying that listing the struts of business triumphs will be potentially helpful too, but any entry on the list won’t have nearly the potential game-changing impact.
There is a second reason that supports the construction of your own inanities list. Even though we have been brainwashed to believe that positive information is always better than negative information, that’s simply not true. In fact, after an extensive review of relevant research, respected scholar Roy Baumeister and his colleagues concluded that people “attend to, learn from, and use negative information far more than positive information.”
But that’s not all: Downside information is also more memorable and is typically given more weight in decision making. Accordingly, if you want to create an inventory of items that is likely to grab you and your team’s attention, be easy to learn from, linger longer in memory, and offer instructive advice that spurs you to real action, you would be advised to construct a list that looks more like Charlie Munger’s and less like the best practices you are most proud of.
There is a third benefit to listing and then learning from others’ worst practices. Because your list will be comprised of the gaffes that someone else has made, it will be much easier to recognize them for the clunkers that they are. If they were your own mistakes, you would have to fight—often unsuccessfully—the inclination to convince yourself that they weren’t mistakes at all, but instead simply instances of bad luck or unfortunate timing outside of your control. But the outward-directed character of others’ prior lapses in judgment avoids that ego-defending bias and offers up a highly effective teaching tool for your own benefit. It’s a benefit that can be extended to team members, too. That is, the astute leader can point to the mistakes of others rather than of teammates to steer their future behavior and sidestep the resentment that sometimes comes from direct criticism of one’s colleagues.
By the way, the potential upsides of listing others’ previous downsides aren’t limited to the business environment. Educators need not be shy in highlighting errors made by former students when constructing a “things to avoid” list for current students. A doctor, keen to ensure that a patient avoids situations in which a current medical condition could be exacerbated, would be advised to allude to a previous patient or two who made such a mistake and regretted it. A personal trainer could point a new client to prior mistakes made by others when using exercise equipment as a way of ensuring that they avoid the same errors and get the best out of their training regimen.
Jim Collins is the impressively gifted author of bestselling business books such as Good to Great and Built to Last that describe what others have done right to achieve significant commercial success. He’s convinced that access to this kind of information will help you achieve success as well. Charlie Munger is at least as renowned for his own intellectual gifts and financial savvy. Yet he recommends creating, and regularly consulting, a list populated not by instances of what others have done right but by instances of what they’ve done wrong.
Is there a way to reconcile these seemingly opposing recommendations from two great business minds? There may well be. It’s noteworthy that one of Collins’s more recent pieces of advice, contained in his book How the Mighty Fall, spotlights the major reasons that businesses fail—for example, denial of risk, unwarranted haste, and lack of intellectual discipline. We’d wager that vivid occurrences of each of those reasons exist on Charlie Munger’s inanities list. It appears, then, that both men are saying something similar after all—one small thing that leads to right moves in business is to have ready access to a catalog of others’ wrong moves. The first key step is to create one, refer to it frequently, and use it systematically when making important choices. It’s a small thing that could make a big difference.
Of course failure to adopt this SMALL BIG would be to ignore consistent research findings and sage advice regarding the value of documented errors…that in itself could be a mistake worthy of your list.