ESSAY: The Failure Paradox
Ingenuism’s Winners (w/ Yaron Brook) - Silicon Valley Examined 10
On the Silicon Valley Explored podcast, Robert Hendershott, Don Watkins, and special guest Yaron Brook discuss Ingenuism’s winners. Which countries, industries, and companies have embraced Ingenuist principles—and won?
The Failure Paradox
By Don Watkins and Robert Hendershott
“I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.” —Michael Jordan
In a 2015 letter to shareholders, Amazon’s Jeff Bezos wrote that he wanted Amazon to be “an invention machine.” But to be an invention machine required embracing failure.
I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.
One of the most crucial and distinctive features of innovative environments is their attitude toward failure.
In Europe, failure is generally regarded as a blackmark. Your company went bankrupt? Then why would you be entrusted with investment funds ever again? This perspective is often embedded in Europe’s bankruptcy laws. In her book on failure, The Up Side of Down, journalist Megan McArdle notes that “the process most people think of as ‘bankruptcy,’ doesn’t even exist in most of the rest of the world.” She goes on:
European bankruptcy laws treat failure as if it were a simple function of effort and personal virtue. As a result, they end up punishing people whose only sin was to take a chance on starting a business. And they inadvertently punish themselves, when potential innovators decide it’s not worth the risk. Compare the United States to France: we have twice the rate of new business ownership, twice the rate of early-stage entrepreneurship activity—and consequently, three times the rate of established business ownership.
America’s “lax” bankruptcy rules have made space for failure. This reflects an overall attitude in U.S. culture that there’s no shame in failing if you try something new. After all, success isn’t fully in your hands, and history is rich with stories about game-changing entrepreneurs and inventors who failed one or more times before succeeding. Henry Ford, for instance, famously started two failed auto companies before his third company revolutionized transportation. Thomas Edison reportedly said of his struggle to invent a reliable lightbulb, “I have not failed. I've just found 10,000 ways that won't work.”
Nowhere is failure more vaunted than in Silicon Valley. There the virtues of failing are so widely celebrated that the Valley’s most notorious contrarian, Peter Thiel, has argued that “failure is massively overrated.” (Tools of Titans)
There is something odd about the celebration of failure. Failure, after all, is something we try to avoid. It means not achieving our goal, not getting what we want, something not working the way it should. Failure, yes, can lead to bankruptcy, but it can also lead to far worse outcomes. Would you want your local hospital to be “the best place in the world to fail”?
To understand the role of failure in innovation we have to go beyond platitudes about the virtues of failure. We have to think more carefully about what failure is, how it can contribute to success, and how it can lead to nothing more than…well, failure.
The value of failure
The safest way to travel is by air—and air travel has never been safer. MIT researchers found that from 1988 to 1997 there was one fatality per 1.3 million passenger boardings globally. From 2008 to 2017 that number had plummeted to one fatality per 7.9 million boardings.
"The worldwide risk of being killed had been dropping by a factor of two every decade,” says Arnold Barnett, an MIT scholar who has published a new paper summarizing the study's results. “Not only has that continued in the last decade, the [latest] improvement is closer to a factor of three. The pace of improvement has not slackened at all even as flying has gotten ever safer and further gains become harder to achieve. That is really quite impressive and is important for people to bear in mind.”
In the U.S., the news is even better. There hasn’t been a single fatality from an airline crash in 12 years.
How is that possible? It’s certainly not that the human beings in the airline industry are infallible, or that their task is an easy one. Instead, the answer comes down to how they’ve dealt with failure: namely, they’ve actively created an environment that allows them, even requires them, to learn from it.
You’ve probably heard about black boxes, which record data from airplanes so that in the event of a crash, analysts can piece together what went wrong, understand why things went wrong, and develop procedures to avoid repeating the mistakes. But that is only part of the story. According to the Wall Street Journal:
The achievements [in fatality reductions] stem from a sweeping safety reassessment—a virtual revolution in thinking—sparked by a small band of senior federal regulators, top industry executives and pilots-union leaders after a series of high-profile fatal crashes in the mid-1990s. To combat common industry hazards, they teamed up to launch voluntary incident reporting programs with carriers sharing data and no punishment for airlines or aviators when mistakes were uncovered. . . .
Over time, the efforts turned into ever more sophisticated data-collection and dissemination programs. The focus continued to be the pinpointing of accident precursors—such as inappropriate pilot responses to engine problems, or loss of control caused by unusual maneuvers.
The aviation industry connected the important players to create a supportive environment that fosters sharing information, maximizing learning, and consistently using best practices. The result is astonishingly safe air travel where past failure sowed the seeds for the current success.
When we celebrate failure, what we are actually celebrating is its role in the learning process. But why should learning require failure? In school, after all, failure isn’t celebrated. The valedictorian isn’t the person who failed the most or even learned the most from failure—she’s the one who failed the least. Failure is treated as something we can avoid and, if we fail, it’s because we didn’t study hard enough, or pay attention enough, or aren’t smart enough. But is it?
Interestingly, one of the most successful approaches to education, the method pioneered by Maria Montessori, takes a completely different approach to failure. Believing that “Every great cause is born from repeated failures and from imperfect achievements,” Montessori created self-correcting classroom materials that let the child know when he’s made an error. Using these materials, a child doesn’t experience failure as a punishment, but as feedback that promotes learning.
But even when education encourages a healthier attitude toward failure, the school environment is unique. Its goal is to impart already discovered knowledge. In the real world, we’re seeking to apply discovered knowledge to new situations and to discover new knowledge. And it’s here that failure is most obviously inescapable.
You cannot fly billions of people through the sky without mistakes. You cannot create new products or launch new business ventures knowing they’ll work. Human beings aren’t omniscient or infallible. We acquire knowledge over time, and certain facts only reveal themselves in the midst of a journey into unexplored territory.
And so the question is not, to fail or not to fail? The question is: how to respond to inevitable failures?
The varieties of failure
One of the striking things about failure is the paucity of our vocabulary. Take a phenomenon like anger. We have dozens of words to capture different shades of meaning: we can be vexed, annoyed, exasperated, enraged, indignant, furious, irritated, displeased, and much more besides. But failure? We have no concepts to distinguish radically different phenomena.
Above all, there are at least three types of failure that we need to separate out in order to assess how to evaluate and productively deal with failure:
Avoidance failure is the attempt to avoid failure by not trying. In a real sense it is the most profound form of failure. We mock the people at Pets.com when their company goes out of business during the dot-com bust, ignoring the fact that we have also failed to start a successful company. The only difference is the people at Pets.com had a chance of success because they entered the arena—and they were able to learn vital lessons from their failure. Notably, Pets.com’s founders all went on to have successful careers; Carolyn Everson, for instance, went on to be an executive at Facebook and president of Instacart, saying lessons she learned at Pets.com contributed to her later success.
Avoidance failure, by contrast, is self-defeating because it guarantees you won’t succeed and, just as important, it guarantees that you won’t learn from your failures. If our goal is to create a process that maximizes learning, we have to be careful not to encourage avoidance failure.
This is the problem with Europe’s anti-failure culture. Perhaps fewer companies will fail and fewer Europeans will go bankrupt. But if the costs of failure are draconian, then there will be less learning. Fewer new businesses will be tried, fewer experimental products will get launched, and over time the cost compounds. You cannot have trial and error learning if you effectively prohibit errors.
Once you enter the arena, then, you face avoidable errors. These are errors where the knowledge to succeed is available to you, but you don’t act on it. It’s the mistakes you make when you knew better or should have known better.
When a construction company resorts to shoddy practices in building a bridge and the bridge collapses, they can’t shrug and say, “Hey, failure is inevitable.” They could—and should—have followed industry best practices.
Unlike avoidance failure, avoidable failure can produce learning. Often in life, we “learn the hard way.” We ignore good advice, often knowing it’s good advice—diving blindly into a relationship we know isn’t good for us, cutting corners on an important project, telling a lie to avoid embarrassment—and when reality kicks us in the teeth we say, “Okay, I’ll never make that mistake again.”
But we also recognize that this kind of learning is subpar. “It’s good to learn from your mistakes,” notes Warren Buffett. “It’s better to learn from other people’s mistakes.”
This is where the kinds of processes developed by the airlines—gathering information, analyzing mistakes (including near-misses), improving best practices, and sharing lessons learned—can lead to massive improvement. The more that we spot and address avoidable failure, the better our track record at success becomes.
But this has its own risks, particularly when the downside of failure is not life-and-death and where the goal is not to improve an existing process but to innovate. Responding to avoidable failure with bureaucratic rule-making can actually strangle innovation.
In No Rules Rules, Netflix co-founder Reed Hastings tells the story of how his first company was ruined by its response to avoidable failure.
As we hired new employees, a few did stupid stuff, leading to errors that cost the company money. Each time this happened, I put a process in place to prevent that mistake from occurring again. For example, one day our sales person at Pure, Matthew, traveled to Washington, DC, to meet with a prospective client. This client was staying at the five-star Willard InterContinental Hotel, so Matthew did too . . . at $700 a night. When I found out, I was frustrated. I had our HR person write a travel policy outlining how much employees could spend on airplanes, meals, and hotels, and requiring management approval beyond a specified spending limit.
But with the growth of these rules came a side-effect Hastings hadn’t anticipated. “Policies and processes became so foundational to our work that those who were great at coloring within the lines were promoted, while many creative mavericks felt stifled and went to work elsewhere.” This helped paralyze and destroy the company. So when Hastings went on to found Netflix he “hoped to promote flexibility, employee freedom, and innovation, instead of error prevention and rule adherence.”
So, an attempt to avoid avoidable failure created unintended consequences that led to different unexpected failure. And the lessons learned from the problems created by error prevention ended up being to the benefit to Netflix.
This leads us to the final kind of failure: unavoidable failure. Unavoidable failure arises whenever we encounter or pursue the new. It’s here that failure has to be embraced as a necessary part of the learning process.
Learning from unavoidable failure
Consider Henry Ford. The traditional lesson of Ford’s early failures was the importance of tenacity and the refusal to not give up. But that misses the deeper, far more interesting lesson.
Recounting Ford’s rise, Robert Greene notes that “Ford himself seemed blithely unconcerned” after his first two failures.
He told everyone that these were all invaluable lessons to him—he had paid attention to every glitch along the way, and like a watch or an engine, he had taken apart these failures in his mind and had identified the root cause: [his investors weren’t] giving him enough time to work out the bugs.
Ford didn’t just try, try again: he learned from his failures. And one lesson he learned? He needed more time to fail.
When we set out to innovate, there are two kinds of learning we have to engage in, both involving failure.
In iterative learning, we have a clear-cut goal and a limited universe of solutions. We want to create a reusable rocket or an autonomous vehicle. We test out different approaches. Nothing works immediately, but each failure teaches us something about which approaches are promising. We focus on the most promising approach, tweaking elements over time as we get closer and closer to our goal. Greene puts it this way:
When a machine malfunctions, you do not take it personally or grow despondent. It is in fact a blessing in disguise. Such malfunctions generally show you inherent flaws and means of improvement. You simply keep tinkering until you get it right. The same should apply to an entrepreneurial venture. Mistakes and failures are precisely your means of education.
SpaceX crashing a series of Starship rockets is the epitome of iterative learning based on failure. While the company hopes each launch will be entirely successful, it expects early launches to end with a boom not a quiet thump. But the boom is a different kind of success if it contains important lessons.
In exploratory learning, our goal is more open-ended, and we face a virtually unlimited universe of potential solutions (and potential obstacles). To create an autonomous transportation company involves far more than the engineering challenge of getting a car from point A to point B. We have to conceive of a business model that will excite customers, that will yield a profit, that will be enduringly superior to competitors.
In exploratory learning, the ability to learn from failure is daunting, because the factors keeping us from success are not always obvious. Did we pick the wrong team members? The wrong suppliers? The wrong business model? The wrong marketing plan? Did you launch our product too early or too late? Was our price point too high or too low?
This is what Peter Thiel had in mind when denounced the celebration of failure. “Most businesses,” says Thiel, “fail for more than one reason. So when a business fails, you often don’t learn anything at all.” (Tools of Titans)
But this misses the point. It’s not that failure is desirable—it’s that, if you pursue goals worth pursuing, failure is inevitable. Not necessarily at the organizational level—Bill Gates’s first company did okay. But even successful organizations will regularly fail at the project level.
Jeff Bezos, as we’ve seen, has celebrated Amazon’s long list of failures.
Many years ago we decided to develop a third-party selling business to add selection to the store. We started Amazon Auctions. Nobody came. Then we opened zShops, which was fixed-price auctions. Again nobody came. Each one of these failures was like a year or a year and a half long. We finally came across this idea of putting the third-party selection on the same product-detail pages as our own retail inventory. We called this Marketplace, and it started working right away. That resourcefulness of trying new things to figure out what customers really want? It pays off and it is core to everything we do.
At the individual and organizational level, ingenuity requires risking failure. Or, put positively, it requires continual experimentation: trying things that probably won’t work.
Thiel’s right that extracting the right lessons from failure can be challenging. And while obviously you should learn what you can from failure, the more salient point is that the innovation process is incompatible with avoidance failure.
Even if we ourselves cannot identify why our business failed, failure is a learning mechanism—particularly at the level of the system. When everyone is free to test out his or her ideas, the good ideas are allowed to succeed, the bad ideas are allowed to fail, and we all learn important lessons about what works. The good ideas can be mimicked, built upon, and become models for further exploration.
A four-year-old startup says it has built an inexpensive battery that can discharge power for days using one of the most common elements on Earth: iron.
Form Energy Inc.’s batteries are far too heavy for electric cars. But it says they will be capable of solving one of the most elusive problems facing renewable energy: cheaply storing large amounts of electricity to power grids when the sun isn’t shining and wind isn’t blowing.
What made Form’s success possible? Failure. The founders describe themselves as “the alumni of a generation of failed battery companies who all came back for more.” They were able to use a collective 100 years of battery experience at failed companies to inform their new technology.
What’s more, their breakthrough idea wasn’t developed in-house, but at a failed battery company.
In 2020, as work was moving quickly, Form caught a break. It needed a critical battery component called a cathode that was impermeable to water but breathed oxygen, like a Gore-Tex jacket. An Arizona battery company, NantEnergy Inc., had spent a decade building such a membrane for a zinc-air battery. Owner Patrick Soon-Shiong, a billionaire biotechnology entrepreneur who owns the Los Angeles Times, wound down operations last year to focus on other investments.
Form bought its patents as well as its inventory of thousands of cathodes, which sit in cardboard boxes in a corner of the company’s building. “Having this piece nailed down allowed us to hit the accelerator,” said [CEO Mateo] Jaramillo.
Start-ups fail but the entrepreneurs, ideas, and insights live on to recombine into something better.
Here, then, is the challenge. When we try to do something new, failure is often inevitable. Trying to avoid failure will hold us back from achieving our goals. And yet, failure is costly and often painful. How should we incorporate failure into a learning process?
One place to look is at Venture Capital.
Venture capitalists perform magic—they give startups money, many if not most of which fail, but still create massive value. What can we learn from this?
According to Ingenuism, the core activities that create value—exploration and iterative learning—underpin venture capital success.
VCs exist to solve a crucial problem: how to make sure the best ideas get funding. Instead of depending on an accidental match between ingenuity and money (i.e., hoping that tomorrow’s innovators happen to be born rich), VCs create an intelligent match between ingenuity and money. They use their ingenuity to fund other people’s ingenuity.
To do this, VCs explore a variety of ambitious projects. This gives them a diversified set of asymmetric possible outcomes—they have a good chance of discovering a big winner and these successes will dwarf their failed investments. VCs are not in the business of investing in double or nothing. A VC is looking for something that is at least 10x or nothing.
But ambitious projects are generally risky and expensive to build. Unlike an entrepreneur who might, like Edison, fail one or two times before starting a successful company, failure is an inherent, ongoing part of VC investing. It is similar to baseball: arguably the best hitter of all time, Ted Williams, still failed to get on base more than half of the time. VCs embrace this risk for the upside but also manage the downside. Not by trying to avoid failure but by diversifying and mitigating the cost of the inevitable failures.
VCs stage their investments in a way that maximizes the benefit of learning along the way. Initial investments are small and used to gather evidence about the start-up’s likely future path. Start-ups that make rapid early progress are judged as likely winners while start-ups that make little early progress are judged as likely disappointments, and the VC shifts resources toward the former. This way over time an increasing fraction of the VC’s money and attention end up with the eventual winners. And the VC’s shutdowns are relatively small losses.
In other words, VC’s use their ingenuity to fund other people’s ingenuity in ways that minimize waste and maximize value creation.
The more general lesson: in place of failure avoidance, what we want is a process where trial and error can flourish.
Trial and error works best when (1) errors don’t take you out of the game—and when (2) the (rare) successful trials are so rewarding they more than make up for the failures.
High downside/low upside encourages failure avoidance. Low downside/high upside encourages creative experimentation.
This is what Amazon does. As former Amazon executives, Colin Bryar and Bill Carr, explain:
Many companies will give up on an initiative if it does not produce the kind of returns they are looking for in a handful of years. Amazon will stick with it for five, six, seven years—all the while keeping the investment manageable, constantly learning and improving—until it gains momentum and acceptance.
The other key factor [besides patience] is frugality. You can’t afford to pursue inventions for very long if you spend your money on things that don’t lead to a better customer experience, like trade show booths, big teams, and splashy marketing campaigns. Amazon Music and Prime video are examples of how we kept our investment manageable for many years by being frugal: keeping the team small, staying focused on improving the customer experience, limiting our marketing spend, and managing the P&L carefully. Once we had a clear product plan and vision for how these products could become billion-dollar businesses that would delight tens, even hundreds of millions of consumers, we invested big. Patience and carefully managed investment over many years can pay off greatly.
Even this discipline doesn’t guarantee success. As Bryar and Carr go on to note, despite having every reason to think it would succeed, Amazon’s Fire Phone was a massive flop.
Amazon’s response, however, was revealing. Only a year after the phone’s release, it was discontinued. The willingness to quickly drop a major new product and write off a large investment demonstrates a deep commitment to acknowledging the reality of a failure, minimizing its costs, and maximizing the lessons learned.
[T]he failure of the Fire Phone did not cause Jeff to question the process that created it. “We all know that if you swing for the fences,” he wrote, “you’re going to strike out a lot, but you’re also going to hit some home runs.” Unlike baseball, where a home run can bring in no more than four runs, a big business hit can score an almost infinite number of runs. What’s crucial to understand is that a small number of very big winners can pay for a large number of experiments that fail or succeed only modestly.
How, then, can we use this understanding of the role of failure in learning to develop a productive relationship with setbacks and accelerate progress?
Culturally, learning from failure requires that we remove any stigma from unavoidable failure. Here the model is Silicon Valley, where failure is often viewed as a positive signal: it means you’re willing to take on challenging tasks and have gone through a powerful learning experience.
At the organization level, we’ve already seen how VCs and companies like SpaceX and Amazon recognize that failure is inevitable and instead of trying to avoid it, create “little bet” strategies that have limited downside and high upside—high upside both financially and in terms of learning.
One of the striking things about many Silicon Valley companies is that during their annual goal setting they only expect to achieve about 70% of their goals. Achieving 90% or more of their goals is seen as a problem: if they aren’t failing, it means they aren’t being ambitious enough.
What about at the individual level? How can each of us think productively about the role of failure in our own lives?
In the simplest terms, embrace it. Obviously, we don’t celebrate failure, but we can celebrate bold attempts even if they end in failure, particularly when accompanied by valuable lessons that help us learn and develop—and eventually succeed.
Failure is an inevitable part of doing anything worth doing. If we get hung up on failure, we’ll likely fall into precautionary principle-type thinking, where we want a guarantee of success before we’re willing to try anything. And we risk developing a toxic relationship with failure that leads us to deny and hide it rather than acknowledging the reality that we came up short and welcoming the valuable lessons that failure offers.
There are no guarantees. But accepting failure as a learning mechanism is the closest we can get to guaranteeing success.
Embracing failure is no simple thing, however. It can often mean completely changing how we judge ourselves.
An important idea to come out of psychology in the past twenty years is Carol Dweck’s work on mindset. She and her colleagues found that people tend be oriented to one of two mindsets: a fixed mindset or a growth mindset. A fixed mindset assumes that intelligence, ability, and creativity are static. A growth mindset assumes that you can acquire the knowledge and skills you need to achieve your goals. A growth mindset leads people to take on more ambitious challenges, to stick with their goals through difficulties and setbacks, and therefore to have a much higher chance of succeeding than people with fixed mindsets.
Notably, each mindset leads to a very different view of failure. When a fixed mindset encounters failure, this is seen as proof that “I don’t have what it takes.” Fixed mindsets gravitate toward the known and what is already mastered.
A growth mindset gravitates toward challenges, viewing failure as an inevitable part of achieving a goal and an opportunity to learn. Because mistakes are part of the process, they are viewed as neither tragic nor personal. A growth mindset thinks “the experiment failed” while the fixed mindset thinks “I failed.”
If we want to live in a world of rapid progress—and if we want to play a role in achieving that progress—we have to reframe how we think about failure. Certain kinds of failure are inherent in pursuing our goals—particularly creative, challenging goals. By thinking with more nuance about failure, we can improve our chances of reaching these goals.
Failure is a paradox: by definition, it is the wrong outcome and yet it often contains the seeds of what will produce our desired result. Avoiding failure is a recipe for failure. Embracing failure is a path to accomplish our objectives. If we can make failure part of a learning process that rapidly moves us forward, then we’ve performed magic: we’ve turned failure into success.
 The “life-and-death” caveat is important. Some forms of failure are truly catastrophic, and any learning they produce comes at an unacceptable cost. We don’t want fear of bankruptcy to stop someone from building a software company. But when lives are on the line, it’s vital to structure failure so that the learning happens with minimal human cost. See, for example, how Blue Origin didn’t run a manned rocket into space until perfecting their processes using unmanned spacecraft. For more on how to think about catastrophic failure see our essay, “Ingenuism and the Precautionary Principle.”
 Note, the line between avoidable and unavoidable isn’t always clear cut. For example, we may be learning a skill that’s long been discovered, such as driving a car. But for us as new drivers, failure is inevitable. In business, then, there’s often a question of whether an error is avoidable or not. Much is known about how to hire a team, but if you make mistakes hiring as a new CEO, is that avoidable or unavoidable? It depends. What’s most important however is that an organization know how to avoid catastrophic failure and to extract lessons from all failures, avoidable and unavoidable.