the art of failure monterey institute of international studies eli zelkha [email protected]

The Art of FailureMonterey Institute of International Studies

Eli [email protected]

The Art of FailureAdminstrative

E-mail: [email protected]

Tel: 650-218-6789

Address: 573 Patrol RoadWoodside, CA 94062

The Art of FailureAgenda - Saturday

Introduction Failure & Customer Discovery & Development – Steve Blank

Class Exercise

Building India’s First Coffee Shop Chain - Sashi Chimala

Frameworks of Failure

Student Self-Diagnostics

Samasource – Claire Hunsicker

The Art of FailureAgenda - Sunday

Introduction

Starting a Y Combinator Company - Matthew Brezina

Student Discussion: Y Combinator & Failure

Failure & Entrpreneurship – Ariel Poler Psychology of Failure

Lessons of Failure & the Concepto Venture Model Eli Zelkha & Simon Birrell Global Failure & Success in Technology & Social Ventures - Kamran Elahian

Closing

The Art of FailureSteve Blank

• Serial entrepreneur - 30 years of experience in high tech

• Professor at UC Berkeley School of Business, and a Lecturer at Stanford Graduate School of Engineering.

• Founder or participant in eight Silicon Valley startups since 1978.

E.piphany; two semiconductor companies (Zilog and MIPS Computers); a workstation company (Convergent Technologies); a supercomputer firm (Ardent); a computer peripheral supplier (SuperMac); a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games).

• Boardmember of CafePress.com, an on-line marketplace, and IMVU, a 3D IM social network.

• "Four Steps to the Epiphany" is the definitive work on Customer Development and is one of the foundations of Lean Startups.

Silicon Valley & Failure

• “We are special because we embrace failure”• “” “” ‘’ ‘’ “” “””

Silicon Valley & Failure

Not True

The Art Of Failure

1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

Class Exercise & Discussion

The Art Of Failure


2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"?


The Art Of Failure



3. How did you recover from this experience?


The Art Of Failure



3. How did you recover from this experience?

4. What if anything did you learn from the experience?


FailureInspiring Quotations

• “Failure is the foundation of Success, and the means by which it is achieved.”

- Lau Tzu

• “I have not Failed, I have learnt 9,999 ways that won’t work.”- Thomas Edison

• “People don’t Fail, it is the Plan, Strategies and Tactics that Fail.”- Paul Mc.Kenna

FailureInspiring Quotations

But how severe is the Downside?!

Can I recover from a Failure?

FailureFear of Failure

• One of the greatest fears people have

• Related to Fear of Criticism or Rejection

• Incapacitates unsuccessful people

• Unable to take action

• Leads to ‘failure of omission”

FailureFear of Failure – Another View

• Successful people look at mistakes as outcomes or results, not failure

• Unsuccessful people look at mistakes as permanent and personal

• FoF is self-limiting – fear even trying for fear of failure

“There Is No Failure, Only Feedback”

FailureFear of Failure – Overcoming

1. Take Action2. Perist3. Don’t take failure personally4. Do things differently5. Don’t be so hard on yourself6. Treat the experience as opportunity to learn7. Look for possible opportunities that result

from the experience8. Fail forward, fast

Failure as a Balancing Act

• Two Conflicting Risks:

1. Taking risks beyond our ability to recover• Russian roulette

2. Avoiding any risk (fear of failure)• Home bound paranoid

Is it possible to create life transforming ventures while limiting oneself to “manageable risks”

Failure as a Balancing Act

Too Much Risk(Russian Roulette)

Too Little Risk(Homebound)

The Comfort Zone

Models of Failure• The Innovator’s Dilemma

– Ignore disruptive technologies at your peril

• Engineering model: – FMEA (Failure Modes & Effects Analysis)

• Disease model:– Collins “How the Mighty Fall”

• Scenario model: – Scenario based planning

• Venture incubator model:

–YCombinators “18 Mistakes that Kill”

Innovator’s Dilemma• Technology sometimes outpaces the market

Resulting in so-called "disruptive" technologies

• Disruptive technologies are often the standards of

the futureIgnore disruptive technologies at your peril

• Traditional thinking misallocates resources

Managers must be extreme advocates of new technologies in order to allocate sufficient resources to their development

Innovator’s Dilemma“Sustaining” vs. “Disruptive” innovation

• “Sustaining” – Makes products more appealing to existing customers– Faster, cheaper, more capable– Functionally equivalent, but fills same customer needs– Manager’s trained to focus on “sustaining” R&D

• “Disruptive”• Established customers have no use for it (yet)• Usually simpler, based on breakthrough or repurposed technology• Must find new customers to sell • Doesn’t make sense – until it’s too late• Look for them in emerging markets

Innovator’s DilemmaDisruptive Technology – Example

8-Inch Disk Drives vs. 5.25-Inch Drives• 1980’s 8-inch drives – industry standard• Seagate developed 5.25-inch drive

• Less efficient, slower, and more $ / megabyte

• Existing (minicomputer) customers did not want 5.25-inch

• Emerging desktop computer makers needed smaller, lower-cost drive • Didn’t mind less efficient and slower

• 8-inch drive makers “held captive” by customers• Seagate won the day

Innovator’s DilemmaAddressing Disruptive Technologies:

• Develop a strategy to address disruptive technologiesEither learn to retreat up-market, build your own, or imitate competitors with disruptive technologies

• Separate disruptive technology development from the rest of the firmSeparate these groups in order to focus their work and create proper incentives for success

• Recognize the value of disruptive technologiesConservative initial marketing practices and product redevelopment will eventually yield value

FMEAFailure Modes and Effects Analysis

Engineering View of Failure

Learn From Failure

Iterate


DEFINITIONA methodology to analyze and discover:(1) All potential failure modes of a system, (2) The effects these failures have on the

system and(3) How to correct and or mitigate the failuresor effects on the system. [The correction andmitigation is usually based on a ranking ofthe severity and probability of the failure]

Source: NASA Lewis Research Center


Benefits of FMEA• FMEA is one of the most important tools of reliability

analysis. If undertaken early enoughin the design process by senior level personnel it can have a tremendous impacton removing causes for failures or of developing systems that can mitigate the effects of failures.

• It provides detailed insight into the systems interrelationships and potentials for failure.

• FMEA and CIL (Critical Items List) evaluations also cross check safety hazard analyses for completeness.




Procedure Flowchart

Design

Get System

Overview

Perform FMEA, ID

Failure Modes

Establish Failure Effect

Determine Criticality

Revise Design

Jim Collins

“How the Mighty Fall: and Why Some Companies Never Give In”

How the Mighty Fall

Adapted from: Jim Collins, “Hoe the Mighty Fall and Why Some Companies Never Give In”

Stage 2: Undisciplined

pursuit of more Building from

stage one is people chasing goals that take

them away from their core, their

competitive advantage all in

the name of growth, or the grand strategy.

Stage 3Denial of risk

and peril chasing things

that are not part of your core, fail to see the

problems..

Stage 4: Grasping for salvation

The silver bullet, abandoning the

flywheel and chase things outside the

core. Stage 4: Grasping for salvation

The silver bullet, abandoning the

flywheel and chase things outside the

core.

How the Mighty Fall

Stage 1Hubris Born of

Success

Stage 2Undisciplined

Pursuit of More

Stage 3Denial of Risk

and Peril

Stage 4Grasping for

Salvation

Stage 5Capitulation to Irrelevance or

Death

Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

• Arrogance• Entitlement• Lose sight

of what made success

• Role of luck

How the Mighty Fall


Success


Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death


• Overreaching• Stray from

disciplined creativity

• Leaps into unknown

How the Mighty Fall


Success


Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death


• Ignore negative data

• Spin• Outsized risks• Risk denial

How the Mighty Fall


Success


Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death


• Previous risks become apparent

• “Radical transformation”

• “Cultural revolution”

How the Mighty Fall


Success


Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death


• Accumulated setbacks

• Eroded financial strength

• Abandon hope

How the Mighty Fall


Success


Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Recovery and

Renewal

Scenario Planning

Eli Zelkha & Simon Birrell

Managing Partners, Concepto Ventures

Stanford School of Engineering

3rd Novermber 2010

The Background: Deal at Philips• Corporate venture capital and strategy for a

major global consumer electronics player

Deliverables• Strategic plan unifying disparate units• High impact strategic venture capital investments• Forge strategic alliances• Develop transformative vision of industry future• Visionary “projects on the edge”

Background: Deal at Philips• Corporate venture capital and strategy for a

major global consumer electronics player

Background: Deal at Philips

• How can we do deals or strategy if we know nothing about the space?

About Scenario Planning

Scenario Planning: An Overview

TODAY

+10%-10%

Forecast Based PlanningKnowns and trends

Knowns


TODAY

+10%-10%

Forecast Based PlanningKnowns and trends

Knowns

TODAY

Scenario Based PlanningUnknowns and uncertainties

Unknowns

Unknowns

UnknownsKnowns and trends

• Scenarios are alternative visions of the future

• Scenarios are generated by analysis of what we don’t know, not just what we do

• Scenarios are used to envision and “try out” multiple futures

• Scenarios are used to work backwards in time to today TODAY

Scenario Based PlanningUnknowns and uncertainties

Unknowns

Unknowns

UnknownsKnowns and trends


CONFIDENTIAL - 45

Rethinking Industry Dynamics

• Philips has a sophisticated way of planning for the future when operating in a mature industry environment

• But there are emerging forces that threaten to disrupt--and recycle-- the entire industry, and the current view of dynamics

• Forecast-planning is sufficient for a mature industry. But it’s inadequate when industry transformation is taking place

Embryonic Growth Mature Aging

Indu

stry

Sa l

es

Time

Breaking Out of our Preconceptions

• They are stories that help suspend disbelief in possible futures

• We have a tendency to fixate on one future, or at most, two

• Scenarios are a powerful tool for forcing us to abandon previously fixed ideas

• Scenario-based planning allows managers to deliberately try to break the rules of their business

• Scenarios are about the world, not about us

How they help us

• They enable us to “practise” for different futures

• They are a tool for envisioning, not predicting• They suggest the strategies, deals and alliances

that we would need to prosper in different worlds

• The process of creating scenarios makes you smart about a space

Scenarios• Tool for embracing uncertainty• Tool for play & provocation• Tool for envisioning value creation & migration

Tool for upsetting the world(within our minds & outside)

& strategic transformation

Redefining Failure

Seth Godin

Common Types of Failure

Seth Godin

• Design Failure. If your product or service is misdesigned, then people don’t understand it, don’t purchase it, or may even harm themselves when they use it, and you have failed.

• Failure of Opportunity. If your assets are poorly deployed, ignored, or decaying, it’s as if you are destroying them, and you have failed.

• Failure of Trust. If you waste stakeholders’ goodwill and respect by taking shortcuts in exchange for short-term profits, you have failed.

• Failure of Will. If your organization prematurely abandons important work because of internal resistance or a temporary delay in market adoption, you have failed.

Common Types of Failure

Seth Godin

• Failure of Priorities. If your management team chooses to focus on work that doesn’t create value, that’s like sending cash directly to your competitors, and you have failed.

• Failure to Quit. If your organization sticks with a mediocre idea, facility, or team too long because it lacks the guts to create something better, you have failed.

• Failure of Respect. If you succeed without treating your people, your customers, and your resources with respect and honesty, you have failed.

• Failure to See. And, of course, the most self-referential form of failure is the failure to see when you’re failing

Learning From Failure

“Fast Failure”


IdeaInception

The Traditional Way


IdeaInception

Create/Evaluate Alternative

Approaches

The Traditional Way


IdeaInception


Approaches

ChooseAlternative

The Traditional Way


IdeaInception


Approaches

ChooseAlternative

Build Full Product

and

Go To Market

The Traditional Way


IdeaInception


Approaches

ChooseAlternative

Build Full Product

and

Go To Market

The Traditional Way

Range OfOutcomes


IdeaInception


Approaches

ChooseAlternative

Build Full Product

and

Go To Market

The Traditional Way

Feedback Too LateNo Resources left

No Fallback PositionNo Useful Learning

Range OfOutcomes

“Fast Failure”

• Failure = Normal = Good. • Reward excellent failure. • Punish mediocre success.• Fail faster. Succeed sooner.• Fail. Forward. Fast.• Educate for Risk-taking, Creativity,

Independence.• The Great Comeback• Video Link

Source: Tom Peters

The “New” Way

http://www.youtube.com/watch?v=URyMmzp7-io

“Fail Early and Often”

• Theory of Small Failures• Test components, not the whole thing• Control the environment – don’t risk everything,

e.g. small test markets• Expect failure• Gain feedback• Redesign component• Embrace market reality by testing assumptions

against realities• Save resources for fallback position!

The “New” Way

Intelligent, Fast Failure

Inception

The “New” Way


Inception

Idea Genera

tion

Rapid Prototyping

The “New” Way


Inception

Idea Genera

tion

Rapid Prototyping

Choose

The “New” Way

CustomerFeedback

CustomerFeedbackc

CustomerFeedback


Inception

Idea Genera

tion

Rapitd Prototyping

Choose/Test

Choose/Re-Design/

Re-Test

CustomerFeedback

The “New” Way

CustomerFeedback

CustomerFeedback

CustomerFeedback

CustomerFeedbackc

CustomerFeedback


Inception

Idea Genera

tion

Rapid Prototyping

Choose/Test

Choose/Re-Design/

Re-Test

Go To Market

Range OfOutcomes

The “New” Way

CustomerFeedback

CustomerFeedback

CustomerFeedback

CustomerFeedback

CustomerFeedbackc

CustomerFeedback


Inception

Idea Genera

tion

Rapid Prototyping

Choose/Test

Choose/Re-Design/

Re-Test

Go To Market

Range OfOutcomes

Fallback Strategy

The “New” Way

CustomerFeedback

CustomerFeedback

CustomerFeedback

CustomerFeedback

CustomerFeedbackc

CustomerFeedback

Agile Software Development

Agile Software DevelopmentTraditional Development Process

• Customers only involved at beginning and end of process

• No Iterations

• Takes a long time.

• “Make-or-break”

• Rarely deliver according to plan

Agile Software DevelopmentGuiding Principles

• Our highest priority is to satisfy the customerthrough early and Involvement

• Welcome changing requirements.• Deliver working software frequently.• Business people and developers must work

together .• Build projects around motivated individuals. • Face-to-face conversation. • Working software is the primary measure of progress. • Agile processes promote sustainable development. • Continuous attention to technical excellence

and good design enhances agility. • Simplicity is essential. • Self-organizing teams. • Constantly tuning of processes.

Agile Software DevelopmentCustomer Involvement and Rapid Iterations

Plan out 1-4 weeks work

Improve process

Review product

Create product needs

Meet daily

Strategic planning


•Markets•Customers•Biz Models•Strategy•Portfolios•Funding

•Customers•Sales•Marketin

g•Support•Upgrades•EOL/

EOS

The Gladwell Model

Venture Capital

Debunking The “Embracing Failure Myth”

75

Venture CapitalHow It Works

Raise a Fund

(Pension, Families, Corporations)

Invest (Evaluate, due diligence,

close…)

Harvest(IPO, mergers,

management buyout)

Raise pools of capital from institutional and individual investors

- Finance new and rapidly growing companies; - Purchase preferred equity securities and take board positions; - Add value to the company through active participation

Make $$$ via M&A or IPO

Management Fees (typically 2-2.5% of AUM)Charge a management fee to cover the costs of managing the committed capital.

Carried Interest (typically 20-25%)"Carried interest" is the term used to denote the profit split of proceeds to the general partner.

Example $100m fund 4x return and 2 and 20%$2m per year in management fee(($100m x 4) - $100m) * 20% = $60m in carried interest


Venture CapitalThe Real Story

Venture capitalists talk of accepting failure …

But they are financially motivated only for success – the “Home Runs”

They get their large management fees come rain or shine

They get no compensation for “Failures, Living Dead.”

They get trivial compensation for “Base Hits.”

They make their big money from “Home Runs.”

They can’t risk the big pay day by “Embracing Failure.”

Silicon Valley Hype on Failure

• “We embrace failure” BUT• “one failure is OK, serial failures are death”• Just try failing and see where it gets you in the

valley• You become a pariah• The successful are rewarded and the failures

are shunned like the plague

The Concepto Venture Model

Simon Birrell, CEOEli Zelkha

Failure in Engineering

Speaker TBD

Cross-Cultural Perspectives on Failure

Speaker TBD

Kamran Elahian

Trans-National Ventures

The End

Frameworks of Failure

Failure Modes & Effects AnlysisCollins: How th Mighty Fail

Scenario PlanningFast, Intelligent Failure

Agile ModelGladwell Model

Venture Capital & Failure

FailureWhat The Famous Have To Say ….

• “Failure is the foundation of Success, and the means by which it is achieved.”- Lau Tzu

• “I have not Failed, I have learnt 9,999 ways that won’t work.”- Thomas Edison

• “Failure is simply the opportunity to begin again, this time more intelligently.” - Henry Ford

• “Only those who dare to Fail Greatly can ever Achieve Greatly.”- Robert F. Kennedy

• “My Failures are as much a blessing from God as my Successes and I lay them both at his feet.”

- Mahatma Gandhi

• “People don’t Fail, it is the Plan, Strategies and Tactics that Fail.”- Paul Mc.Kenna

Introduction

FailureThe Traditional View

• Avoided At All Costs• Disaster• Career-Ending• Company-Ending• Personal Catastrophe• End-Of-the-Road

Introduction

FailureThe Traditional View

• Avoided At All Costs• Disaster• Career-Ending• Company-Ending• Personal Catastrophe• End-Of-the-Road

FailureThe Road To Success

• Fact Of Life• Use To Our Advantage• Builds Knowledge• Learn – Don’t Repeat• Plan For It• Start of Next Step

Introduction

My First Big Failure In

Afganistan

Steve Blanc

Failure & Customer Discovery

Break15 Minutes

Jessica livingston

Y Combinator

Lunch Break

One Hour

Carol Dwek

Professor of PsychologyStanford University

Student Exercise

Examining Personal patterns of Failure

the art of failure monterey institute of international studies eli zelkha [email protected]

Documents

failure slide

failure fear of failure

art of failure agenda

silicon valley failure

true slide

kenna slide

closest encounters

past failures