Thursday, March 31, 2011

"I was so wrapped up that I lost sight of the financials"

This story was presented in the New York Times excellent "You're The Boss" small business blog, and concerns SolTec Electronics and its founder, Dawn Gluskin, who ran into that problem so familiar to startup businesspeople - growing too fast. Here's what happened:

Success came quickly for SolTec Electronics. The company, which Dawn Gluskin founded from her living room and financed with her savings and retirement accounts in 2008, sells hard-to-find electronic circuit board components, such as semi-conductors and integrated circuits to companies operating in the electronic manufacturing and aerospace industries.

By 2009, SolTec had annual revenue of $700,000. In 2010, it moved into office space in Rockledge, Fla., hit $2.7 million in revenue, and secured a $150,000 line of credit. SolTec, according to Ms. Gluskin, helps clients when traditional distributor relationships break down. Given the rapid pace of technological advance, critical components in a supply chain can suddenly become obsolete. Many manufacturers also have trouble keeping up with demand, which can result in long lead times as they wait for parts. In addition, counterfeit parts have flooded the global market, which is why SolTec tests all components in its lab before sending them to customers.

Last year Ms. Gluskin, a first-time entrepreneur, devoted much of her attention to sales, marketing, and business development — her areas of expertise — while simultaneously running her 11-employee company. Her efforts were rewarded with explosive growth, but she learned she couldn’t do it all. “I was so wrapped up in other activities,” she said, “that I lost sight of our financials.”

In the fourth quarter of 2010, SolTec recorded its first quarterly loss. Ms. Gluskin was unaware of the problem until the first quarter of 2011, when the $40,000 loss was revealed at an end-of-quarter management meeting. The loss, Ms Gluskin said, resulted from a “perfect storm” of low sales and high spending. “In 2010,” she said, “we tripled our staff size, moved from the home office, added a lab, and were spending, spending, spending on equipment.”

What happened next? You'll have to read it over at the Times.

Wednesday, March 30, 2011

"Thank you for pointing out my mistake"

Kelley Robertson is a sales trainer and the author of the "Fearless Selling" blog. This story of his discusses making a mistake... and how to deal with the results.

A little while ago I wrote a blog post and referred to the decision maker as a male and the executive assistant as female. Of course, this mistake stereotyped the positions. Big blunder!
Needless to say, I received several comments and emails from people pointing out that this “assumption” was grossly outdated.
I REALLY dislike making mistakes like that especially since I’ve been writing regularly for the better part of fifteen years and I usually take care to avoid fundamental gaffes like this. But stuff like this comes with the territory.
Here’s the lesson.
You’re going to make mistakes with your customers. You will screw up. You may misquote a project. You may under-estimate delivery times. You might suggest the wrong product. But that doesn’t matter.
What matters is how you handle the problem.
The worst thing you can do is to make excuses, try to justify it, or redirect the blame. Suck it up, take responsibility and thank the other person for pointing out your mistake. This can actually help you stand out from your competition and help you increase your sales because companies like to do business with people who are willing to admit mistakes.

Tuesday, March 29, 2011

Amy Edmondson on learning from failure

Amy Edmondson, Novartis Professor of Leadership and Management at Harvard Business School, discusses her research into learning from failure. This video was posted as part of the Harvard Business Review "Failure Issue."


2:48 - The skills of learning from failure
3:50 - Lessons from the Columbia shuttle tragedy
8:40 - Getting workers to speak up about errors and concerns
11:10 - Raising issues with the intent to make things better

Monday, March 28, 2011

"I came to see micromanaging as a failure to let others shine"

This story by Doug Rauch, former President of Trader Joe's, is part of "Failure Chronicles," a section of the April 2011 "Failure Issue" of Harvard Business Review.

I’m a recovering controlaholic, as I suspect a lot of C-suite people are. My failure to recognize this problem nearly prevented Trader Joe’s from successfully expanding.

Bringing Trader Joe’s from the West Coast to the East meant we had to hire an entirely new staff. We had to teach everyone the Trader Joe’s buying philosophy, the organizational culture, the details that made us successful. In my mind, no one could do that better than I could, because no one else had the knowledge I did. I happily micromanaged the expansion.

A year or so in, they’d gotten my message just fine. The culture was instilled, the philosophy bought into. Only I didn’t see it. In my zeal to control everything, I failed to notice that it was time to take off the training wheels and let the new staff members grow into their roles. I kept micromanaging. The effect was stifling, especially on our buyers, the heart of our organization. I had always said that a buying team that doesn’t make mistakes isn’t worth a damn, yet I wasn’t letting them make their own mistakes. They started to be afraid to take chances. It was beginning to affect the business.

Luckily for me, one intrepid senior buyer helped put a stop to all this. She approached me and said, “You’re driving us crazy. You’ve got to back off. We’ll make mistakes, but you’ve got to let us go.”

It was a turning point. I went back to the buying team and admitted my problem. I told them I was “on the wagon” and that I needed them to give me regular feedback or I might fall off. We laughed about it—and the company flourished.

As I worked on letting go, I came to see micromanaging as a failure to let others shine or grow. So instead of fixing problems, I focused on nurturing problem solvers. I turned “Try this” into “What do you think we should try?”

Note the similarities between this story and Stella Moga's.

Friday, March 25, 2011

"The first thing I did was take full responsibility for my predicament"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Tony Kleem, owner of Tony K's Bar & Grille in Berea, Ohio.

The Mistake: My biggest mistake was opening a restaurant without doing enough research or surrounding myself with experienced employees. I had owned a small bar for several years, but running a restaurant with 160 seats is a whole different world.
I knew I needed to get into the food business in order to survive. But I spent more time planning menus then I did learning about operations. It doesn't matter how good the food is if your service is off.

In the nine months it took to build, I was focusing more on construction, furniture, equipment and hiring. The problem was I should have selected a manager with significant experience, including a restaurant opening. Except for learning the computerized ordering system, I didn't even offer training.

Looking back 12 years ago, I just closed my eyes and went through the wall. I didn't know basics, like having a soft opening on a Monday to work out the kinks. I opened on a Friday, and everything that could go wrong went wrong. Saturday was worse.

I comped a lot of meals that first weekend. You don't go into business to give away food and drinks. I did both, just trying to get customers to give my business a second chance. In the restaurant business, it's hard to get over bad first impressions.

The Fix: The first thing I did was take full responsibility for my predicament. Then I vowed to succeed, by doing whatever I could within reason to please customers.

Customers have to know that they're valued, and it's up to managers and the owner to make sure employees know that's the top priority. Sometimes it just means acknowledging an issue, then working to rectify it.

Communication is key. People don't mind waiting when you explain what's going on. I tell the staff that the customer is always right, even when they're not. If it's a situation that they can't handle, call in a manager to deal with it the proper way.

Soon after I opened, I spent the first two months cleaning house, making sure we had the right people in all sorts of positions.

To me, Tony's acknowledgement is key. "Taking responsibility for his predicament" allowed him to quickly see and understand his mistake. Rather than panicking, or blaming others, he owns up and figures out how to solve the situation. It is painful, and expensive, but he does it.

Contrast this with Tom Chaney of "True Grit." Despite being an outlaw and a killer, Chaney is the weakest person in the entire movie. He always moans about his predicament. "Everything is against me," he says, over and over again. All I can say is, I'm glad he never tried to open a restaurant.

Thursday, March 24, 2011

Fall Down 7 Times, Get Up 8

Garr Reynolds has been teaching people how to present better with his Presentation Zen blog and book. His latest book is, "The Naked Presenter: Delivering Powerful Presentations With or Without Slides."

This week, though, in the wake of Japan's earthquake/tsunami/nuclear crisis three-peat, he has veered away from his presentation focus to instead discuss what he has learned of the Japanese culture in living there for many years. And today's post has special resonance for those of us who wish to learn from mistakes better. It's called "Fall Down 7 Times, Get Up 8." Here's an excerpt:

Fall down seven times,
get up eight 七転び八起き

Japanese culture and ways of thinking can not be adequately addressed in a short space, but this Japanese proverb reflects an important and shared ideal: "Nana korobi ya oki" (literally: seven falls, eight getting up) means fall down seven times and get up eight. This speaks to the Japanese concept of resilience. No matter how many times you get knocked down, you get up again. Even if you should fall one thousand times, you just keep getting up and trying again. You can see this ethic reinforced in all facets of Japanese culture including education, business, sports, the martial arts the Zen arts, etc. It is especially important to remember the sentiment expressed in this proverb when times are dark. There are no quick fixes in life and anything of real worth will necessarily take much struggle and perseverance. Success does not have to be fast—what’s more important is that one simply does their absolute best and remains persistent. 

Never give up!
Gambarou.082A concept related to the saying "Nana korobi ya oki" is the spirit of gambaru (頑張る). The concept of gambaru is deeply rooted in the Japanese culture and approach to life. The literal meaning of gambaru expresses the idea of sticking with a task with tenacity until it is completed—of making a persistent effort until success is achieved. The imperative form, “gambette,” is used very often in daily language to encourage others to “do your best” in work, to “fight on!” and “never give up!” during a sporting event or studying for an exam. You do not always have to win, but you must never give up. While others may encourage you to "gambatte kudasai!" — the real spirit of gambaru comes from within. The best kind of motivation is intrinsic motivation. For the benefit of oneself — and for the benefit of others as well — one must bear down and do their best. Even in good times, behaving uncooperatively or in a rude manner is deeply frowned upon. In a crisis, the idea of complaining or acting selfishly to the detriment of those around you is the absolute worst thing a person can do. There is no sense in complaining about how things are or crying over what might have been. These feelings may be natural to some degree, but they are not productive for yourself or for others.

A lot of our discussion of mistake learning is around self-awareness and lack of denial, of people taking accountability for their actions, diagnosing how they contributed to the outcome and what they could do differently. But this other facet is perhaps as important--the facet of not giving up, of being resilient and persevering in spite of setbacks and errors. Thanks, Garr, for reinforcing this important lesson.

John Bliss audio story - the downside of going downmarket in tough times

John Bliss is the founding principal of BlissPR. This story is part of a longer interview from 2010. John talks about the risks of going downmarket to get clients when the economy turns bad.

You can listen to the story here (1:48).


I will have been in business 35 years on June 1. I've seen a number of economic cycles. There's good times and there's bad times. One lesson that keeps coming back and was proven again in 2009, which was not an easy year: there is always a tendency to go downmarket in bad times, so you have revenue coming in the door, so you don't have to lay off people.

It hurts, because even unsophisticated clients who don't pay as much, they're still going to require an enormous amount of time. And, in down times, you're still going to run the risk of them not paying you. And we ran into that in 2009. It didn't hurt us badly, but it hurt.

If we took 5 clients that we wouldn't normally have taken, I wish we'd only taken, say, 2 of those. Because that we could have absorbed that more easily. So that's another lesson.

At the time, it's tough to remember that, when you see your base clients reducing their fees. And you're reading scary economic headlines. You feel, any business almost is good business.

Wednesday, March 23, 2011

Amy Edmondson on mistakes in the workplace

In the January 19, 2009 issue, the New York Times business section covered one of our favorite subjects, as part of its "Career Couch" series: "Making the Most of Your Workplace Mistakes." Even better, they interviewed an important researcher on this subject: Amy Edmondson of Harvard Business School (discussed many times on my blog, including here and here).

Here's my favorite quote from the article:

In any job that requires continuing thought and judgment, we need to be “aware of the huge potential of things to go wrong,” Professor Edmondson said, because “we all can handle only so much cognitively at a time.”

Tuesday, March 22, 2011

"Never love the business - love doing business"

Great post by Maurice Ewing on, "How to Manage the Loss of Your First Million." Here are a couple of key paragraphs from the post:

Never love the business — love doing business. If you become attached to the business or to the money it initially brings then you will not be thinking clearly when it comes time to move on. Rather than irrevocably commit yourself to something (or to some lifestyle) that may one day turn sour beyond your control, commit yourself instead to a lifetime of doing business to the highest standard you can muster. That will create a perspective that will often help you see today's failures as necessary stepping stones to tomorrow's successes.


Losses do not make you a loser but how you handle them might. I have to be careful here. I am not saying that you are not responsible for what happens: you are. But how you respond to your business's troubles is what shapes your leadership. You must comfort your employees; you must satisfy your customers; you must assuage the blow to your investors. All of this you must do with style and professionalism that leaves everyone satisfied and in admiration of how you handled the situation — even if you shed a few tears by yourself in the back room.

There's a lot more that's relevant to Mistake Bank fans. Check it out.

Ignoring near misses can lead to catastrophe

There are many different types of mistakes, and many different types of failures. Most are discussed or demonstrated somewhere on this site. But it's instructive to think of a particular class of mistake, one which authors Catherine H. Tinsley, Robin L. Dillon, and Peter M. Madsen discuss in the April 2011 Harvard Business Review.

They call it the "near miss." It is the kind of mistake or set of mistakes that occur but don't lead to a total catastrophe (the near miss's close relative). Tinsley et al argue that managers overlook near misses and thereby fail to correct the mistakes that lead, on occasion, to terrible, preventable catastrophes. The Deepwater Horizon spill is merely one of the latest of these examples.

The typical reaction of a manager to a near miss is (and I paraphrase), "Whew! That was close. Let's move on." That last statement is endemic of almost every company I've worked with - the desire to press ahead even (or especially) if the result wasn't perfect. But in ignoring the lessons of the near miss, they set the table for a subsequent, more terrible, occurrence.

Because, as the authors point out, the difference between the near miss and the catastrophe is one of circumstance and luck, not good planning or execution. A flawed process or sloppy execution repeated under less favorable conditions will eventually blow up.

Here's an important paragraph:

For the past seven years, we have studied near misses in dozens of companies across industries from telecommunications to automobiles, at NASA, and in lab simulations. Our research reveals a pattern: Multiple near misses preceded (and foreshadowed) every disaster and business crisis we studied, and most of the misses were ignored or misread. Our work also shows that cognitive biases conspire to blind managers to the near misses. Two in particular cloud our judgment. The first is “normalization of deviance,” the tendency over time to accept anomalies—particularly risky ones—as normal. Think of the growing comfort a worker might feel with using a ladder with a broken rung; the more times he climbs the dangerous ladder without incident, the safer he feels it is. For an organization, such normalization can be catastrophic. Columbia University sociologist Diane Vaughan coined the phrase in her book The Challenger Launch Decision to describe the organizational behaviors that allowed a glaring mechanical anomaly on the space shuttle to gradually be viewed as a normal flight risk—dooming its crew. The second cognitive error is the so-called outcome bias. When people observe successful outcomes, they tend to focus on the results more than on the (often unseen) complex processes that led to them.

This work reminds me of the research of Amy Edmondson, who studied the work of nurses and found that psychologically-safe working environments enabled sharing mistakes, which then allowed them to be correct, while unsafe environments covered up mistakes, with the result we can all well imagine.

Monday, March 21, 2011

Fred Wilson: passing up the opportunity to invest in super founders

This story is from Fred Wilson, partner at Union Square Ventures, a tech VC firm based in New York City. I'd encourage you to read the post on Fred's site as well, if only to have access to the hundreds of comments people have left there.

When you walk into our conference room at Union Square Ventures, you see the box of cereal on the right on our conference room credenza next to a wifi router and a jar of Jolly Ranchers. It is there because we are big Obama fans? Nope. The cereal box is a reminder to back great entrepreneurs whenever they walk into our office regardless of what they pitch us on (as long as it's in our investment universe).

Let me explain. Cliff Elam made a suggestion for a blog post in the "bloggers block" comment thread. He said:

Tell us about something you saw that was intensely interesting but was not something you'd invest in. And why.

So here's the story of how we missed Airbnb, one of the best startups to come our way in the past few years.

The Airbnb founders came out of the winter 2009 Y Combinator class. They came to see us during their time at YC. They told us about a great stunt they pulled at the Democratic Convention in Denver (in which Obama was nominated). They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here's how one of the founders Joe Gebbia describes it:

We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep Airbnb alive. The Cap'n McCains... they didn't sell quite as well, and we ended up eating them to save money on food.

I asked them if they'd leave a box of the cereal for us and it has been sitting in our conference room ever since. Whenever someone tells me that they can't figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.

At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.

We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.

[Fred's story is licensed under Creative Commons 3.0 - Attribution]

[Photo by Charmaine Cooper via Flickr]

Jill Konrath audio story - "Mr. Prospect"

As a young Xerox sales trainee, Jill Konrath learned her sales demonstration script perfectly... perhaps too perfectly.

"Mr. Prospect" - 2:56

You can learn more about Jill and her work at


When I first started my sales career, I was at Xerox Corporation and they had a wonderful training program. Every sales rep was expected, prior to having their own territory and making their own cold calls, to memorize a demonstration about a copy machine. And the demonstration was a multi-page script that included everything you needed to know about demonstrating a copier, from here's where you put paper in, to here's how you clear a jam, and here's how you do all these things.

And the script went, "Mr. Prospect, for years Xerox has designed copiers to satisfy the needs and requirements of all our customers. Our experience and success in the marketplace has shown that regardless of specific needs, four basic criteria that need to be met.” And then we listed the criteria and from there the demonstration flowed.

It took me a long time to memorize that script verbatim. But I did. I practiced and practiced. I drove in the car with the script in front of me on the steering wheel. I taped [my speech] as I was driving along. And finally I was able to pass the test with my boss. "Mr. Prospect, for years Xerox has designed...." And I went through it flawlessly. Which was great because I was finally released to go out to the real world and start cold-calling.

And very shortly after that I got my first prospect to come in and see my demonstration at the Xerox Demo Center. He came all the way in from across town. I was all set. I had practiced ahead of time religiously and I knew I had it nailed. When he came in, I gave perhaps the best demonstration of my life. I nailed that script. I took him from the very start to the very end.

At the end I asked if he had any questions or what he thought. And he turned to me and he said, "Jill, my name is not 'Mr. Prospect.'"

Now I don't remember if he ever bought that machine or not; all I know is that I was so embarrassed that I called him "Mr. Prospect" that I never made that mistake again.

Friday, March 18, 2011

"I checked on them like I was the FBI"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from Stella Moga Kennedy, founder of Le Chaperon Rouge, a chain of day-care centers.

I've always put my heart into building my business, but my passion turned me into a control freak.

Even though my schools have grown to include fifth grade and enrichment programs like instrumental music, foreign languages and karate, I remained involved in details as if I were still working at my first location, the sole employee in the basement of a church. Back then I did everything for my first three day-care students, from teaching to cooking homemade soup, pies and crepes.

Even though I had directors and assistant directors at every school, I checked on them like I was the FBI. Many times I was told it was insulting. Often I heard comments like, "Why don't you just relax?" or "We know what to do." I didn't mean any harm. It's my nature. As the business grew, I drove to at least three schools every day for years.

Everybody told me that what I was doing was absolutely crazy. I heard them. But I didn't really listen. I came to this country from Communist Romania with no money and worked so hard to achieve and expand. I was so involved because I wanted to keep up the quality. I was intimately involved in curriculum, administration and accounting.
I didn't trust my babies - meaning my schools - with anyone.

I finally promoted someone to become the company's first executive director five years ago, and gradually I learned to let go.

The truth is I only did it because I was becoming so tired that I wasn't as effective. Aside from running the schools, I started a real estate company about six years ago. I started to forget things and not deliver, which is not like me. I was exhausted and I realized that if I didn't start delegating, I would get sick.

Delegating allowed me to be more creative, work on enhancing and developing new curriculum and even write a book. It also allowed me to expand. In the last five years, the company has doubled with schools and employees.

Thursday, March 17, 2011

John Bliss audio story - a couple of hiring mistakes

John Bliss is the founding principal of BlissPR. This story is part of a longer interview from 2010. John states that hiring experienced people was much more risky than "growing your own," and provides two examples.

You can listen to the story here (3:30).


Your biggest mistakes are going to be your hires that don't work out. Because you invest a certain amount of time in .. And then once you've hired them, our philosophy always was, we'd rather wait too long to fire than fire too quickly. And I think that's the right posture. But it also means that when you make mistakes you pay a little bit more for it.

The area of biggest mistakes, and I would bet you could talk to a lot of entrepreneurs in a service business like mine, and they would have had the same experience. Lateral hires - in other words, people that you hire from other companies, instead of growing from your own entry level - lateral hires are an area rife with potential disaster.

And we had a number of potential - um - actual disasters. The thought is you hire somebody with experience and connections and maybe can even bring in a little business. And what we find is invariably almost complete disappointment. This is true for lateral hires from a number of areas.

One, we hired somebody who had experience working in PR departments of 3 or 4 major corporations. And he was a perfectly nice guy. But people that are corporate animals are absolutely unfit for the entrepreneurial environment. They're too political in what they do, because in big corporations there's too much politics. They're more concerned with appearances than with actualities. And we learned that through a couple of painful experiences - we didn't want to hire people from big corporate PR departments.

But we didn't extrapolate from that lesson #2, which is that we shouldn't hire people from big PR firms. Because we hired someone from a big PR firm, and we said, "We're an entrepreneurial organization, Sometimes you're going to have to take orders from people 20 years younger than you. Is that a problem?" "Oh, no, no."

"You're going to share an office. Is that a problem?" "Oh, no, no." So we hired her and of course both of those things were huge problems. She was stuck in the same kind of bureaucratic mindset as people from big corporations.

So, a couple of those hires we paid dearly for. We lost time and momentum because they were in house. The only saving grace is, talking to heads of other PR firms, I think we haven't made more mistakes than anybody else, and actually may have made a few less.

But mistakes they were. And they're painful when they happen.

Wednesday, March 16, 2011

"Failure is just evidence that you haven't mastered the task yet"

Harvard Business School professor Amy Edmondson has an important article in the July 2008 HBR that says a lot of things about learning in the business world. The following excerpt has some particular relevancy to The Mistake Bank:

In her research on individual mind-set differences, Stanford psychologist Carol Dweck has shown that the way children view a task affects their persistence and performance over time. Some children think of human ability or intelligence as fixed and, consequently, think of school tasks as performance opportunities--moments of truth that prove whether they're smart [JC note: call it the Hermione Granger syndrome]. For these children, performing poorly on an assignment or a test would demonstrate that they lacked intelligence rather than indicating that they had more to learn. Believing that the point of execution is to demonstrate competence, they go out of their way to pick easier tasks. Of course, this means they lose out when it comes to learning. This same mind-set encourages managers to admire and expect to be rewarded for decisiveness, efficiency, and action rather than for reflection, inquiry, and collaboration, the uncertainty of which makes them uncomfortable. Like the children who have learned to shun new challenges, these managers avoid, and help others avoid, the risks of questions and experiments.

In psychologically safe environments, people are willing to offer up ideas, questions, concerns - they are even willing to fail - and when they do, they learn. In her studies, Dweck found that some children - those who early on were rewarded for effort and creativity more than for simply giving the right answer - see intelligence as something malleable that improves with attention and effort. Tasks are opportunities for learning; failure is just evidence that they haven't mastered the task yet. Driven by curiosity about what will and will not work, they experiment. When things don't pan out, the don't give up or see themselves as inadequate. They pay attention to what went wrong and try something different next time. In adults, such a mind-set allows managers to strike the right tone of openness, humility, curiosity, and humor in ways that encourage their teams to learn."

Dweck's research on "growth" vs. "fixed" mindsets has a lot to say about whether we can learn from our mistakes or be paralyzed by them.

Tuesday, March 15, 2011

Benefiting from "deliberate" mistakes

In the June 2006 Harvard Business Review, Paul Schoemaker and Robert Gunther write about ways companies get bound up in their own assumptions, and thereby miss important opportunities for growth or improvement.

Their proposal? Deliberately make a "mistake" by doing something that violates an assumption you hold, to test whether the assumption needs to be altered. (Their article can be found here. Note: you need to be a subscriber to access the full contents online.)

Schoemaker and Gunther cite an example where the Bell System decided to forgo security deposits from some customers their systems had identified as credit risks. This was done in a controlled way, with a small but significant sample size, in order to test their approach to dealing with credit-risky customers. They found that their rules for requiring deposits were too strict, and that many of the customers who otherwise would have not opened an account (because they couldn't afford the up-front deposit) turned out to be reliable payers. Adjusting the processes based on the test added, according to the article, $137 million per year to the Bell System's profits.

Here are some highlights from the article:

Although organizations need to make mistakes in order to improve, they go to great lengths to avoid anything resembling an error. That’s because most companies are designed for optimum performance rather than learning, and mistakes are seen as defects that need to be minimized. Executives, moreover, perceive that flawless execution is what makes them valuable to the organization. In business (with the possible exception of venture capital firms and entrepreneurial start-ups), an executive’s reputation and rewards are typically based on the height of his or her successes, not on the depth of learning from failures.


Many managers recognize the value of experimentation, but they usually design experiments to confirm their initial assumptions. An advertising company typically may try different approaches to see which tactics work best but won’t run an ad that it presumes will fail. Experiments of this type aren’t deliberate mistakes. True deliberate mistakes are expected, on the basis of current assumptions, to fail and not be worth the cost of the experiment. According to conventional wisdom, they have a negative expected value. But if such a mistake unexpectedly succeeds, then it has undermined at least one current assumption (and, often, more). That is what creates opportunities for profitable learning.

Have you upended any of your assumptions recently? Perhaps it's time you made a few more mistakes--on purpose.

More on mistakes from Alina Tugend

This New York Times article, which excerpts Alina Tugend's book "Better by Mistake: The Unexpected Benefits of Being Wrong," mentioned that Tugend was inspired to study mistakes by analyzing her reaction to two mistakes years earlier. Those two mistakes are discussed in this 2007 column by Tugend, "The Many Errors in Thinking About Mistakes." Here is Tugend's mistake story:

Of the many mistakes I have no doubt made over the last few weeks, two stand out: One cost me money and one cost me some pride.

I made an error in an article, and of the thousands who read it, a few gleefully e-mailed me about it.

I corrected it, although I sheepishly admit my first — though fleeting — instinct was to avoid owning up.

In the second case, in a flurry of zealous organization, I sent in a check to cover a bill for my husband’s monthly train pass. It turns out that he pays by direct debit. I canceled the check.

Then we got a notice that we were being charged $20 for a bounced check.

Neither mistake was on the scale, with, say, amputating the wrong leg or causing two planes to collide.

But they bothered me and made me consider how we are taught to think of mistakes in our society.

A nice story, and interesting to note how a significant project, such as a book, can arise out of a couple of seemingly insignificant events.

Monday, March 14, 2011

The costs of perfectionism

The following was excerpted from "Better by Mistake: The Unexpected Benefits of Being Wrong" by Alina Tugend, which will be published on March 17, 2011. A longer excerpt can be found in the New York Times.

Perfectionists often get caught in the endless cycle of regret and blame that makes it difficult, if not impossible, to move on from their mistakes.

“Perfectionism,” says Jeff Szymanski, executive director of the Obsessive Compulsive Foundation in Boston, is “a phobia of mistake-making. It’s the feeling that if I make a mistake, it will be catastrophic.”

Wait a minute here. Aren’t we always complaining that things are going to hell in a handbasket — that no one really cares about doing a good job? Why not strive to be the very best you can be?

And that is true up to a point.

Being a perfectionist is not a bad thing; in fact, it may mean you have very high standards and you often achieve those standards. Those who have perfectionist tendencies, but those tendencies do not rule — or ruin — their lives, are what psychiatrists call “adaptive” perfectionists.

They find it important to do certain things in the right way, but this need does not hinder their lives and can actually help them achieve great success. For instance, Dr. Szymanski told me, he likes all the glasses in his kitchen cupboard lined up a certain way. That does not mean he freaks out if someone changes them (as friends sometimes do for fun), or that everything else in his house is equally ordered. He also strives to be the best executive director and psychiatrist that he can be.

But he knows he is not a great tennis player, and that’s O.K. with him — it doesn’t mean he will give it up because he is not world class, or line up a pro to work with him seven days a week. He is O.K. being O.K. at some things.

On the other hand, what psychiatrists call “maladaptive” perfectionists need to be the best at everything, and if they make a mistake, it’s a crisis. It is also not just about how they perceive themselves, but how others perceive them: they believe they will lose the respect of friends and colleagues if they fail. They have to hit all their marks all the time.

Their need for perfection can also sabotage their own success. They do not turn in projects on time because they’re not yet perfect. They can’t prioritize what needs to be done quickly and what needs more time to complete. They want to rigidly follow rules to get things “right,” and this often means they’re terribly uncreative, because creativity involves making mistakes, Dr. Szymanski says.

Remember Hermione Granger from the "Harry Potter" books? She is the prototypical "maladaptive perfectionist."

Friday, March 11, 2011

"Verbal agreements don't hold up"

Another business mistake story reported by Marcia Pledger of The Cleveland Plain Dealer. This story is from MJ Lehman, founder of Nicky Nicole, a boutique for girls.

I worked for many years in merchandising before I decided to use my passion for developing new concepts in a business of my own. But when I finally took the leap, I got so caught up with finding new trendy items for young girls and tweens, that I failed to pay attention to contract details for a big purchase. Verbal agreements don't hold up.

I started Nicky Nicole because I knew I could offer an alternative to the chain store experience for girls 4 to 14. Soon after we opened our first location, a sales representative approached me about a brand new interactive toy. I told her I would take a chance on the stuffed animals that come with secret online codes, if I were the only store selling it in [my town].

We invested about $10,000 in inventory and spent a lot of time training employees how to sell the item. Sales exploded. It was insanely popular with people coming from all over Northeast Ohio.

Several months later, the toy started appearing in nearly every youthful business in town. When the salesperson denied our verbal agreement, I took it to corporate. I was told they would have never agreed to a deal like that.

One thing was certain: Trust should not have been part of my business arrangement. I lost my edge. We lost out on volume and had to lower our prices by $1.

From that point on I got details that mattered to me in writing.

Thursday, March 10, 2011

Royal Little: not going the last $500K to buy a great company

Another story from Textron founder Royal Little (1896-1989), author of "How to Lose $100,000,000 and Other Valuable Advice."

This is from a section called "Lost Opportunities":

In addition to losing money for Textron through mistakes, I lost millions for the shareholders by not paying the asking price on several most attractive acquisitions. There must have been at least a dozen cases where the seller and I were a few hundred thousand dollars apart, where I would not budge and refused to meet the seller's price....


The outstanding case of where I got stubborn and would not meet the offering price concerned Josten. Josten was a competitor of Balfour in making rings for students in schools and colleges. Balfour originally was the leader in this industry, but Josten [as of 1978] now far exceeds them in volume and profits. The offering price was $13,000,000, and I finally came up to $12,500,000 but wouldn't go the last half million dollars. As a result of this lost opportunity, this mistake on my part undoubtedly cost the Textron stockholders over $30,000,000 in lost values. Dan Gainey, who controlled the company and was at the time treasurer of the Republican Party, then made a public offering. In 1976, sales were $163,700,000, net profit after taxes $9,525,600, net worth was $43,000,000, and their 5,040,000 common shares at $25 had an aggregate market value of $126,000,000.

Josten would have been an ideal acquisition for Textron since it fitted our basic concept if being a leader in a relatively small industry. Today Josten is the undisputed leader in the school ring business, and their performance is so superb that their shares are selling at a price/earnings multiple of 12, whereas Textron stock has recently been selling at only 6 times. In retrospect, of the many situations that Textron missed by being too conservative in the price we were willing to pay, the outstanding examples would have to [include] Josten.

ADVICE: If you have an opportunity to purchase a company as outstanding as Josten, don't let a mere $500,000 stand in the way. If a business such as Josten's with its tremendous future potential is worth $12,500,000 it certainly is worth $13,000,000. Refusing to meet the firm offering price in this case was one of the worst mistakes I ever made at Textron.

[pp. 187-188]

Excerpted from How to Lose $100,000,000 and Other Valuable Advice, by Royal Little, (c) 1979 by Royal Little and the Harvard University Graduate School of Business Administration.

Jill Konrath - 5 minutes to engage a prospect, and nothing to say

A sales mistake story from "Selling to Big Companies" author Jill Konrath.

When I walked in the front door of The Kaplan Company, there were at least 30 desks filled with women who were busy doing order entry and handling customer service issues.

I told the receptionist that I wanted to speak to the person who made copier decisions. After a quick check with the boss, she escorted me past all those working women into his office.
"Sit down," he said gruffly. "You've got 5 minutes. Talk."

"If you're busy, I'll come back later," I said, trying to be gracious.

"Nope," he stated. " 5 minutes. Tell me why I should buy your product. Your 5 minutes is starting now."

I mumbled. I stumbled. I tried to engage him in conversation. I tried to explain that I needed more time. He wasn't one bit interested. After 5 minutes, he arose and said, "Your time is up. You can leave now."

That ticked me off. I told him he was rude and obnoxious. Then I turned and stormed out of his office past all those women, shouting back at him, "I'll never sell you a Xerox machine. You don't deserve to work with Xerox."

I know it's hard to believe, but I really did lose my cool. And I'm also sure that guy never wanted to work with Xerox again. But he had a point. I couldn't concisely state why he should listen to me.

I wanted to build a relationship and warm up the call. That made me feel better. He was a busy man who chose to use his time judiciously. I didn't respect his needs. After that cold-calling disaster, I learned to net it out. That lesson is even more important today than it was years ago....

The hardest thing in the world is to look at your own complicity in the situation, yet that's where the maximum growth is for you and ultimately, the key to your long-term sales success.

Wednesday, March 9, 2011

John Bliss audio story - for entrepreneurs, the cost of losing focus

John Bliss is the founding principal of BlissPR. This story is part of a longer interview from 2010. John discusses getting more and more involved with a nonprofit side project, and the challenges that created in his main business.

You can listen to the story here (2:37).

Tuesday, March 8, 2011

JK Rowling on the benefits of failure

From the commencement address at Harvard University by Harry Potter creator JK Rowling on 5 June 2008.

On this wonderful day when we are gathered together to celebrate your academic success, I have decided to talk to you about the benefits of failure....

At your age, in spite of a distinct lack of motivation at university, where I had spent far too long in the coffee bar writing stories, and far too little time at lectures, I had a knack for passing examinations, and that, for years, had been the measure of success in my life and that of my peers.

I am not dull enough to suppose that because you are young, gifted and well-educated, you have never known hardship or heartbreak. Talent and intelligence never yet inoculated anyone against the caprice of the Fates, and I do not for a moment suppose that everyone here has enjoyed an existence of unruffled privilege and contentment.

However, the fact that you are graduating from Harvard suggests that you are not very well-acquainted with failure. You might be driven by a fear of failure quite as much as a desire for success. Indeed, your conception of failure might not be too far from the average person's idea of success, so high have you already flown academically.

Ultimately, we all have to decide for ourselves what constitutes failure, but the world is quite eager to give you a set of criteria if you let it. So I think it fair to say that by any conventional measure, a mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless. The fears my parents had had for me, and that I had had for myself, had both come to pass, and by every usual standard, I was the biggest failure I knew.

Now, I am not going to stand here and tell you that failure is fun. That period of my life was a dark one, and I had no idea that there was going to be what the press has since represented as a kind of fairy tale resolution. I had no idea how far the tunnel extended, and for a long time, any light at the end of it was a hope rather than a reality.

So why do I talk about the benefits of failure? Simply because failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me. Had I really succeeded at anything else, I might never have found the determination to succeed in the one arena I believed I truly belonged. I was set free, because my greatest fear had already been realised, and I was still alive, and I still had a daughter whom I adored, and I had an old typewriter and a big idea. And so rock bottom became the solid foundation on which I rebuilt my life.

You might never fail on the scale I did, but some failure in life is inevitable. It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all - in which case, you fail by default.

Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way. I discovered that I had a strong will, and more discipline than I had suspected; I also found out that I had friends whose value was truly above rubies.

The knowledge that you have emerged wiser and stronger from setbacks means that you are, ever after, secure in your ability to survive. You will never truly know yourself, or the strength of your relationships, until both have been tested by adversity. Such knowledge is a true gift, for all that it is painfully won, and it has been worth more to me than any qualification I ever earned.

Monday, March 7, 2011

Tina Brown's New Newsweek features "My Favorite Mistake"

OK, it's official. Mistake stories are the new black. Don't believe me? Celebrity editor Tina Brown (a hell of an editor, by the way - I think the New Yorker was much improved by her tenure there) just published her first version of Newsweek magazine. And on the back page is a new feature called "My Favorite Mistake." The first guest of honor, Harvey Weinstein. Here's a snippet of Harvey's story:

But my favorite mistake happened two years ago, when I had the opportunity to buy The Girl With the Dragon Tattoo. Two friends in London told me there was a book they loved. I read the book and thought it was great. Then I heard they were making a movie out of it. I got the people to show us the movie to see whether we’d want to distribute it in the United States, and everything about it in my gut said, “Do this—there’s a franchise here.” But my team said, ‘No, we should focus on bigger movies,’ and I let the committee overwhelm me. I didn’t listen to my very significant gut, and when I say significant, I mean size, geographically. And that was a big bloody mistake—an economic mistake, a company mistake. If you’re going to be in the business we are, it has to be because you want to champion movies that are different. This year, we got The King’s Speech, Blue Valentine, Company Men, and part of The Fighter. Small movies are intensive, but they’re so worth it. It’s what we have to do to be who we are.

Now I have to say that this is a particular type of mistake story that may not be the most instructive. As I read it, Harvey's mistake was listening to his committee. In his eyes, he would have been better served ignoring their advice and buying the movie anyway. I guess this is the deepest personal reflection you can expect from a Hollywood mogul.

I wonder if there wasn't a different mistake here: perhaps he wasn't able to articulate his love and passion for the project clearly enough to convince his committee to change its decision. I think of the neat arguments of John Kotter in his new book "Buy-In: Saving Your Good Idea from Getting Shot Down" (here's a summary of one of the arguments)- perhaps some of them would have been useful to Harvey in this situation.

Chief Learning Officer Magazine discusses learning from mistakes

A friend pointed out a nice article on learning from mistakes in Chief Learning Officer Magazine. Here's my favorite quote from the article:

Because mistakes are common — and we know that mistakes can prevent companies from reaching their goals — then companies should ask themselves, “How do we foster an environment where mistakes become a competitive advantage?” They can become advantageous when they’re expected, encouraged and unique, and when we learn from them, self-identify them and can laugh at them.

Self-identification is a critical point here. If an error or mistake or impending failure can be identified quickly, its damage can be limited. If, instead, an organization teaches its employees to paper over mistakes, not report them, or deny they exist - they can spin out of control, interact with other mistakes, and morph into disasters.

Think about that.

[Also, if you come across a helpful mistake story or perceptive analysis of mistake learning, please share it. Email me at mistakebank (at) caddellinsightgroup (dot) com or leave a comment right here.]

Josh Neufeld runs into cultural stumbles in Prague

Please click the picture to view in a larger size.

There are lots of ways to tell a story. One perhaps underappreciated way is via comics--a narrative combination of words and drawings.

Comics artist Josh Neufeld contributed the great story pictured above, "Past Perfect Progressive in Prague." Perhaps you'll identify with the awkwardness of adapting to a new place and culture.

Josh is the author/illustrator of "A.D.: New Orleans After the Deluge"--taking on perhaps the greatest mistake of our time, Hurricane Katrina and its aftermath. "A.D." follows the stories of six actual New Orleans residents from different neighborhoods and walks of life, through the calamity and thereafter. A powerful narrative containing real dialogue and settings, with hyperlinks to supporting documentation, it's truly an epic work.

He's also the illustrator of NPR commentator Brooke Gladstone's book, "The Influencing Machine."

Friday, March 4, 2011

"Use a trial period for new hires"

Reporter Marcia Pledger of The Cleveland Plain Dealer has been collecting and publishing great small-business mistake stories for several years. Beverly Harris, CEO of Heights Title Agency, discusses some lessons she learned when hiring new employees:

When you work in the title industry, you have to know the law and have high standards. My biggest mistake has been hiring people throughout the years who I believed were qualified based on their number of years in the industry.

I've worked in the title industry for 32 years and run my own business for nearly half of that time. For a long time, I wouldn't hire anyone who had less than 10 years of experience. Unfortunately, I have hired experienced people who sold themselves well in interviews, but their performance told a different story.

For instance, one person I hired with close to 20 years of experience actually closed a deal without collecting money from a client. You can't close any transaction without funds. I've hired experienced people who didn't know the laws that are critical to our industry. Either they didn't understand or they didn't care about the effect on a client. Bad fits have ranged from an attorney who required way too much handholding to someone who performed well but continually had personal issues that affected the company.

The biggest surprise and lesson has been that I've hired a couple of people with far less experience who were so highly qualified that they started their own businesses....

Now any new hire starts out on probation.

When you have a 30- to 60-day probation period, it puts both myself and a prospective new hire on probation. That way they get to see what kind of boss I am and what kind of culture we have, and I get to see how they perform.

Read the rest of the story at the Plain Dealer site here.

Thursday, March 3, 2011

A customer meeting takes a turn into the very unexpected

This happened to me some years ago, but the unpleasantness of the encounter still is fresh today. It was supposed to be a routine meeting with a client. I prepared with the account manager and thought I was ready for anything. Wasn't I surprised?

You can listen to the story here (5 minutes).

Wednesday, March 2, 2011

Mistake mini-story: Petite Palate

This story is excerpted from a NY Times article, "How Six Companies Failed to Survive 2010." It's about the demise of Petite Palate, a specialty baby-food company.

AT ITS PEAK In the spring of 2007, Petite Palate’s organic frozen baby food was sold on Amazon Grocery and in about 100 stores in the Northeast and Midwest. The founders, Lisa Beels, a personal chef, and Christine Naylor, a former cookbook publicist, were presenting their business plan to potential investors, hoping to raise $2.5 million to $5 million.

WHAT WENT WRONG In the fall of 2008, potential investors, skittish about the economy, pulled out. The company was struggling to get its products into the freezer section of grocery stores — yet Ms. Beels and Ms. Naylor stuck to their concept because they believed frozen food was healthier for children than food in jars or pouches.

LOOKING BACK Ms. Beels said she and Ms. Naylor should have been more open to producing shelf-stable formulations. “It took us a long time to acknowledge that and by then we were in debt and couldn’t support the company,” Ms. Beels said. Her new personal chef business is called Haute Palate.

[Hat tip Tim Berry]

Tuesday, March 1, 2011

John Bliss audio story - don't give away equity for nothing

John Bliss is the founding principal of BlissPR. He sat down for a lengthy interview in 2010, from which this story is excerpted. John talks about inviting a partner in when he started his PR business, since "50% of something is better than 100% of nothing." But when the business changed, the partner's role became less important, and John had to eventually buy him out.

You can listen to the story here (3:01).