“Loss aversion grips many organisations. Far too often, new ideas are turned down because they will probably fail, without seriously asking whether the small chance of meaningful success might outweigh an inexpensive failure – even if that failure is highly likely.
Most resolutions are things we decide to do because we’re convinced they will be to our benefit. My aim is to do things that I suspect will fail.”
TIM HARFORD www.timharford.com (5 January, 2013)
Tim Harford is one of the best economists I know. Not because he’s a wonk with planet-sized brain matter; or because he’s in any danger of winning a Nobel Prize. No, Tim is one of the best for an altogether different reason: you can understand him.
His book, The Undercover Economist, ranks in my all-time favourites. It applied economic thinking to everyday matters, and made the scales fall from my eyes. I began to understand things like pricing, traffic congestion and economic development in altogether different ways.
Tim caught my eye again last week with a blog post. He made possibly the best New Year’s resolution I have seen: that he plans to fail this year.
That’s right, he wants to fail. Tim was discussing the economic concept of ‘loss aversion,’ which he summarized as “disproportionate anxiety about losses. When we pass up excellent opportunities to make larger gains, purely because we are desperate to avoid small losses, that is loss aversion at work.”
Our friendly economist intends to risk more small losses. Therefore, he will do the following: “Write a short story, organise an intellectual salon, hire a personal trainer, learn to program and bake chocolate cake.” The point is this: he expects to fail in most of those ventures. They are just stuff he’ll try out, learn from, cast aside. But he will try them, so that he can learn from them.
None of them will cause him major losses – small amounts of time or money is about all he has to worry about losing. But maybe, just maybe, one of them will pay off big in his life. One of those projects might just lead to enormous personal fulfilment. But he won’t know until he tries. (My money’s on the chocolate cake.)
As the excerpt from Tim’s blog entry shows, this thinking can applied to your organization as well as to your personal life. We mustn’t just begin every year with a plan for the things we intend to succeed in; let’s also have a plan for the things we don’t mind failing in.
As I have written here before, business strategy in turbulent and uncertain times boils down to your willingness to make many little bets. Amazon made dozens of such bets a few years ago; one of them, the Kindle, paid off hugely. The rest were confined to an early grave. But if Amazon had planned for just the Kindle experiment, we might not be talking about it today.
It is very important for CEOs in today’s fast-changing world to accommodate, plan for and accept failure. Many, many failures. A multitude of small failures builds resilience and creates a culture of innovation. As long as the whole organization does not fail with any one failure, failures are good. They don’t kill you, and they leave you stronger. Companies like Amazon, Google and Apple are running on this premise: many little experiments.
And so that is indeed your best resolution for 2013: make plans to fail. As a person, try new stuff out, away from your comfort zone. As a business leader, do the same. Get your company to explore interesting new directions and products. Spend time where you wouldn’t usually. Try new things out. Think like someone else for a change. Hang out with people who make you uncomfortable.
Try it and see. This could become the most important year of your life.