Risky Business - Why innovators can’t be afraid to fail

by Peter Merrill

Norm Larsen celebrated 39 previous failures when he named his breakthrough new product WD-40, which is short for "Water Deterrent—Attempt Number 40." He invented the product in 1953, and nearly 60 years later it is still regarded as one of the most useful products on the planet.

Larsen’s example proves that innovators can’t be afraid to fail. As Thomas Edison said, "Genius is 1% inspiration and 99% perspiration." But the biggest fear people have when trying something new is the fear of failure and the fear to take a risk. More than anything else, innovation is a risky business.

Risk is the four-letter word that stops businesses from innovating. In large part, we are averse to risk because we understand it more than we did a decade ago. We are able to calculate, prioritize and mitigate risk. Because of these abilities, we have developed a mindset that risk should never enter our lives.

And yet risk is necessary. Without taking risks, Columbus would not have sailed the ocean, the Wright brothers would not have flown, and Armstrong and Aldrin would not have reached the moon.

What drove Larsen to create WD-40 was a need. WD-40 was not a solution looking for a problem; it was the answer to a need at that time. More often than any other single cause, auto-ignition systems failed due to damp plugs and cables short-circuiting. Larsen asked, "How can we drive away damp?" He answered that question, and his product went commercial in 1958. After that, nobody left home without WD-40.

Create, execute

Innovators risk their reputation when they develop "crazy" new solutions. They risk ridicule from their colleagues, and they are often accused of being mad scientists. The media also make much of "accidental" breakthroughs such as Alexander Fleming’s discovery of penicillin. Yet these "accidents" and "crazy" solutions are only a small part of the innovation process.

The creative phase of the innovation process is the point at which we find opportunity and potential solutions. This creative phase is, in truth, relatively low risk and certainly low budget when compared with the execution phase of innovation, at which point the risk increases significantly. Before entering the execution phase, we must select our preferred solution, focus on making it user friendly and deliver the solution to the market.

If your offering is not user friendly when it reaches the market, it will not succeed. Historically, this was the great strength of Kodak. Founder George Eastman said, "You press the button, we’ll do the rest." More recently, the first digital cameras were slow to be accepted because they were not user friendly.

Daniel Kahneman was awarded a Nobel Prize for economics in 2002, in part because he showed that for a new product to be accepted by the user, it needed to achieve a tenfold increase in perceived value. If you say your offering is twice as nice, you’re not even close. What the late Steve Jobs did so well was understand the user. He created user interfaces that worked for real people.

Partner problems

The innovator’s real risk is not whether the product will work; that’s dealt with in the development stage. The risk is whether the new offering will be accepted and whether new business partners will deliver. Larsen, for example, needed five years before WD-40 became a commercial product.

In addition to taking risks and being willing to fail during product development, innovators have even more risk involved in product delivery—upstream risk with new business partners and downstream risk with customer acceptance.

As part of risk measurement, Intel measures its failures against successes. It is said that unless it gets 10 failures for every success, it doesn’t think it’s taking enough risk.

A new product portfolio should contain a mix of potential new products that will come to fruition in one, five and even 10 years—the longer the time, the higher the risk. The portfolio should range from improvements driven by immediate customer need to radical new offerings customers don’t even realize they need—the more radical the offering, the higher the risk.

If you have a new offering, it’s almost guaranteed you have new suppliers. The classic calculation is that with four new suppliers, three will have a 90% probability of delivering, and one will be at 40%. That means the overall probability of your offering coming together is 0.9 x 0.9 x 0.9 x 0.4 = 0.29—29%.

That’s a serious case for risk mitigation. That does not mean you walk away from your great new idea; it means you manage that 40% supplier very carefully. And, if necessary, you buy and manage the supplier yourself.

We identify risk with a new supplier, not just by evaluating its product, but by evaluating its quality management system—or the quality of its management. A potential new supplier will always show you the shiny new component that works or the delighted customer they service well. You must evaluate how its leadership works. Use the management and measurement clauses of ISO 9001 to audit the supplier. Use the HR clause to evaluate how it develops its people as well as its product.

Stand and deliver

Supplier risk is the risk attached to bringing the product together. Then, there’s the risk of being able to deliver.

Delivery risk also revolves around business partners. If you are going to use a distributor or a marketing partner, you need to fully understand their decision cycles on new offerings. If it’s an annual cycle, you may be at serious risk of missing the boat on your new product launch. You might need alternative distributors or agents built into your business strategy to mitigate this risk.

As you can see, true innovators have many areas to consider as they calculate, prioritize and mitigate risk. In the end, however, they still must take risks.