"in a large company “fear of failure” inhibits speed and risk taking while in a startup “fear of failure” drives speed and urgency."
I thought the conclusion from that was so obvious that Steve Blank was surely going to talk about it later in the article, but he didn't...
In a startup, the "default" state - if you do nothing - is that you run out of money and starve. That's why fear of failure drives speed and urgency.
In a big company, the "default" state - if you do nothing - is that you collect a paycheck and live a relatively comfortable life. That's why fear of failure inhibits speed and risk-taking.
I recall a comment or an essay of PG's where he said that poverty seems to be a necessary condition for startup success, and without that incentive, startups frequently die. (There are counterexamples like Evan Williams or Travis Kalanick, but in both those cases they picked up their habits while fighting for their previous companies' lives.)
I read that and thought "It isn't so!", and then got a job at Google hoping to do the intrapreneur thing, but with the risk/reward balance slanted toward the big company. I found that there were managers willing to give me nearly carte blanche for finding & fixing new problems, but that didn't mean that I could actually launch or grow anything new or revolutionary. The problem wasn't actually with me or with management or with any corporate structure, it's that for a new idea to take root, you need many peoples' help, and each one of them needs their incentives biased against the status quo. That's why Silicon Valley works: there is a critical mass of people here who get nothing if the startup(s) they back don't take off.
I think it can be even worse than that. What I've often seen is that "failure" isn't even real business failure, but merely your boss having your idea shot down by the boss above him. The risk is mainly emotional. People train themselves to play an elaborate political game to advance their ideas.
When designing any system that involves people, it's vital to see what behaviours optimise your rewards. Usually there is some general process / overall plan you're supposed to follow:
Follow the plan | Don't follow the plan
Things go well | reward | unknown
Things go badly | no punishment | punishment
That is a setup which encourages people to follow the plan even if they think it's not the best one.
Something else which makes this quite difficult is that you never know what would have happened if you'd jumped columns.
Big companies are only prepared to give you X% of your annual salary as a bonus if you're good (with X < 15%). So the bigger the upside of your "innovation", the more you will find the company and its reward model unfair and leave.
So big companies lose the best employees and so have to buy back innovation by buying start-ups.
Firstly I think humans work on much shorter timescales such that even the imminent collapse of a startup is mid-range planning. But what makes your boss happy today is a much more important concern in your decision making.
And secondly I think I get to see much worse startups and enterprises than Mr Blank.
Most of my day today was re-writing some project mgmt automation to save me from nagging. It's similar code I have written in small startups and large organisations - everyone seems to think project mgmt is a Good Thing despite all evidence. Everyone will, if asked, say I should have spent the time today on those important innovations. But they all want their bug trackers filled out correctly each morning, but analyse the projects every few weeks or months.
The feedback loop needs a tight time cycle for it to have a good effect on human beings.
Even in startups, the time horizon for death of company has been months away. I rarely have come across projects in large or small companies that have a deadline more than a year out and usually six months. Most startups can plan on a runway that long.
I think it is something else, a dedication to engineering quality perhaps, to open and transparent discussion, but somehow innovation happens in both startups and large companies. It's just in large companies it's harder to find amount at all the rest.
All of which suggests one other consideration - the people lamenting the golden age of startups are suffering from a survivorship bias - the startup that grew was successful (else they could not pay Steve blank) but that means it was unusual. It is possible that most startups are also lacking in innovation, it's just the people who can lament this to Mr Blank do not see those startups in action and so think the incidence of innovative culture is more prevalent globally than it really is.
Poverty may be a necessary condition for "startup" success in the somewhat narrow definition of a startup common in our industry, but the idea that it's necessary for BUSINESS success is total nonsense, which is a useful thing to remember when you're feeling artificially burdened by being over 30 and middle class(!) The bulk of new wealth in human history has been created by people who already have some modicum of existing wealth, or access to it.
I keep thinking about why I am not taking as much risks as I should and PG's poverty factor could be the issue.
I am not poor and have a family with a bit of savings cushion. So does that mean I need to freaking blow my savings before I start giving approval to myself to start taking some big bets..
Probably not. I think panicky entrepreneurs aren't particularly good either.
The worst case for most SV entrepreneurs is "have to go get a job" or "have to move in with family or friends for a while". When you're young and single, that's an ok outcome, especially since you have a level of control that matches your level of risk.
It's a very different calculus with a spouse and kids. There if you blow up, you don't want your family to end up homeless. And you don't want your spouse worrying about ending up homeless, either. Since your spouse doesn't have control over the business outcomes, it can be much more stressful.
I'd encourage you to jointly split your cushion into "can gamble with" and "won't gamble with". Then if you want to do a startup (or join something early enough that they can't pay you properly) the deal you make is that once you've burned through the ok-to-gamble money, you go back and get a real job.
I promise you that watching your bank balance tick down is going to create significant motivation, especially if your #1 investor (that is, your spouse) is getting weekly status reports on the business progress.
I assume your last sentence is facetious, but in case it isn't: Do Not Do This. Bad idea. People suggest it will light a fire under you and be a motivator - but it can also paralyze you with anxiety so that you end up getting nothing done, like the deer frozen with fear in the headlights. It's a horrible place to be, and there's many business problems that can be rapidly solved with cash. (eg Don't waste hours and hours of labour if you can just buy an off-the-shelf software package to do the job faster & more cost-effectively.) Don't take risks, manage risk.
[Malcom McLean's] net worth in 1955 was $25 million -- the equivalent
of $180 million in 2004 dollars. Asked later whether he had considered
ways to shelter some of his wealth from the risks of entering the
maritime business, his answer was an unequivocal "No." McLean explained:
"You've got to be totally committed."
The Manual (How to Have a Number One the Easy Way), the KLF's step by step guide to achieving a No. 1 single with no money or musical skills, advises:
“Firstly, you must be skint and on the dole. Anybody with a proper job or tied
up with full time education will not have the time to devote to see it
through... Being on the dole gives you a clearer perspective on how much of
society is run... having no money sharpens the wits. Forces you never to make
the wrong decision. There is no safety net to catch you when you fall.“
For example, local to me there was some controversy when people refused a zero-salary 'job' working for a chain of discount stores. Their JSA was stopped as punishment, so they had no income.
Not much of a safety net, it's actually now a policy tool to coerce people into menial and undesirable jobs, and to keep them there ( being fired makes resuming JSA difficult ).
I was hired in a large corporation to 'bring an entrepreneurial spirit' to the organization. After a year and a half of being pounded on for trying innovative things and attempting to move fast I left. On my way out one of the people on the hiring team said "I think I know why we do not have any entrepreneurial spirit; you get punished for it"
It's unfortunately an all too common story. I was part of a small, young team that coalesced around an ambitious project. After being leveraged for a few large initiatives we were split up to "spread the culture", after a year plus of nonstop power struggles I put in my resignation.
We tried the 'startup in a corporate' experiment, boy did it crash and burn. We did great things, quickly and beautifully. Sadly when it came to get the new things into Production, we crashed and burned. Exec sponsor got whacked for 'failure to execute'. More to the point, he pissed a load of people off because his attitude was 'move over grandad this is the new way'.
The article describes the antipattern very nicely.
At one point in my career, I took a job as a hedge fund analyst. It was interesting because the metrics of success were so radically different from normal corporations. In a hedge fund, if you succeed, say, 55% of the time, you're a rock star - like Ted Williams batting 400.
Psychologically, this was hard to take - and I realized it was because in most corporate environments, success is expected.
Inside most companies, there is an assumption of 100% success. You can see it everywhere - but particularly in goal setting. The idea is simple: you ask people to set goals, often about areas they don't know much about, then you measure them on their ability to hit those goals.
So one way to solve the problem, in my experience, is to make it clear that goals are not expected to be 100% achieved - otherwise they wouldn't be goals. If you make 100% of your goals, then you likely sandbagged the goals.
But to do this, you need to remove the connection between goal and financial outcome. Not easy to do. The way I've been doing it is for well known/understood areas (aka "mature"), goals should be aggressive and you should be measured on them. However, if the project or product is very nascent, you should shift goals to focus on iterations - namely that you do your best estimate, but recognize that you don't know much, and therefore you are more than likely to be wrong.
This has worked (thought there are always exceptions) - but it is challenging for managing inside a corporation, mainly because some senior exec will sh*t all over a failed project not understanding the difference between mature and developing projects.
The VP of Innovation Steve Blank was impressing with his insights has a remit and obligation to be innovative. Most of the other folks at that big company I'll wager don't give a crap about innovation, they have their antennae out the whole time making sure their job is secure around repeatable processes that are a profit center for the firm they work for, and working hard to appear to be indispensably at the center of that repeatable process. That is the reality of large companies in the ranks...
"A startup is a temporary organization designed to search for a repeatable and scalable business model"
"A company is a permanent organization designed to execute a repeatable and scalable business model"
With modern rates of change, I would argue there are very few repeatable and scalable business models (over long time periods, especially in technology driven businesses).
Meaning many "companies" would be better off acting as a "startup" (scared not to innovate), constantly seeking to replace themselves...before another startup does.
This is true, but possibly irrelevant to the problem. If you ask people in large companies about the need to innovate and the risks of competition, I'm sure you'll get most people to agree verbally.
But the practical matter is that any company (and most of the individuals within those companies) will do better in the short term if they invest in more efficient execution of the existing model.
This is compounded by modern American business culture, which is very focused on short-term numbers and local efficiency. And those are probably economically rational behaviors given that CEO tenure is dropping while compensation has gotten more tied to stock market performance. Trading short-term profits for long-term investment only makes financial sense if you'll be around to reap the rewards.
Does this imply that the Intel-style Tick-Tock model is most effective - where you divide your time on a calendar between doing the current thing better, and building the next thing?
> Innovation processes and metrics need to be different from those of the execution organizations
At one particular organization I did a short consulting engagement for we were brought in to help streamline their project delivery process. It turns out that they really needed to have a corporate overhaul of their people incentives. The idea generators were doing end-arounds on their current process and went straight to the implementors so that they could put on their year-end review that "I built relationships and influenced others so that I could spam X projects". Because of this style of thinking this type of activity was breaking their system because they couldn't implement the best project for the company. Only the projects whose owners who were the best at breaking the system.
I had actually been an FTE at this company before and definitely could see what this article was talking about in regards to fear of failure. Who wants to put on their year-end review that they failed half their projects? Especially in a GE-style performance management model.
From the article: "A startup is a temporary organization designed to search for a repeatable and scalable business model."
YCombinator explicitly rejected that model in their cutback in initial funding amount. The decision was made that the startup should not have enough financing to "pivot" and try something new, but should die a cheap death if (usually when) the initial idea fails.
From the article, referring to big companies: "And when we do make bets, they’re small bets on incremental products or acquisitions that simply add to the bottom line."
That's what YCombinator, as an initial funder, is doing. YCombinator is a big company making many small bets.
It seems that YC is the startup in these terms, and bringing in a new batch is the pivot. They simply discard the employees who did not find the right fit (well discard is a strong word but you get the idea)
The idea is not explicitly rejected, the organsiation is wider than it looks.
An interesting model for innovation inside an organisation though
Very often the founders of the failed startups get recycled into new ones too, eg. Infogami => Reddit, Kiko => Justin.tv => SocialCam/Twitch/Cruise, Gamador => Parse, Auctomatic => Stripe (after acquisition), 3 startups => Scribd, TipJoy => YesGraph (with stints at Facebook & Dropbox in between).
That's interesting if true. The faster YC companies fail, the faster YC can bring in new startups. The odds of success for a fresh company are probably better than the odds of success for a failing company, and if so then they have an incentive prune failing startups as quickly as possible. An easy way to do that is to limit funding to the bare minimum required for success.
an elephant's curiosity, feeding and exploration behavior is different from the same of a mouse. Trying to make the elephant to do the mousy things would be strange at least. I don't think the lean elephant would be result, more like exhausted to the death with significantly diminished capacity for survival. Or may be a better illustration would be trying to explore the Delta using 100K ton container ship instead of 28ft Bayliner.
There's a different mental model for employees in a corp vs startup. I fully agree with nonstrademons quote, "if you do nothing - is that you run out of money and starve".
Put it this way:
A startup is like the reality show Survivor. People scrambling around, focusing on the most important problem at hand - making fire. If you're not contributing, it's easy to see and you get voted off the island (or run out of money and starve).
A corporation is a much different setting. You're not alone in the dark on an island. You don't care about fire, you have electricity, some other guy figured out fire and electricity. You have your marching orders to focus on but they're abstract. Contributions are usually not as visible The big problem is too far away. The real problem is not understood anymore.
The real question is, how do you take away electricity and get the corporate group to focus on fire like a startup? One option is the corporation needs to borrow some of those fire making talents to spread the thought of flame. Acquisition could be one route.
When you have people starting to leave the safety of electricity it's because the primal thought of making fire is more appealing and exciting. You need to bring back the flame.
When I was looking for jobs my senior year in college, I noticed a pattern at the job fair. Large companies head hunt GPAs and small companies are much more interested in personality and hands-on experience.
I thought about why this would be the case and came to the conclusion that if a large company makes a bad hiring decision, then the slack created by one bad employee is distributed across several dozen other employees. If a small company makes a bad hiring decision, it could cause culture problems as well as bring the company/project to its knees.
I just got assigned to a project at my company that's underfunded. So, they put together a group of junior level engineers and put them in charge - with mentoring senior level engineers in the background. It's trying to simulate the start-up environment, but it doesn't quite get there. You have a limited amount of time/money, and junior engineers eager to show what they can do with the responsibility they've been given.
That lasts until half those startups fail, and someone asks why that department has a 50% failure rate. Or until a startup needs to pivot, and they're not allowed to pivot because it's not in the business plan. Et cetera.
Here in the Twin Cities startup scene, we talk a lot about enterprise-oriented startups (because what we have here is the richest concentration of Fortune 500 HQs in the world). On one hand, it'd be nice to get Target or 3M or someone to step up on investing and mentoring for our startups. But odds are the cure would be worse than the disease.
Another way to think of this: the likelihood of “new Y” being invented and succeeding is small, in any circumstance. The circumstances that lead to Y’s existence are very contingent. The default is for Y to fail, or not to exist in the first place.
The established company became so because they made X succeed, which itself was unlikely. So what are the chances that the same organization would also make Y succeed? Multiply the probabilities.
So yes, it’s politics and incentives, but we must also beg the question a bit further upstream.
It’s why I marvel at questions like, why didn’t Microsoft invent the iPhone. The better question is, why would it?
Research, breadth, trying many things, 95% of time spent trying and failing.
Development, depth, taking the most promising 5% of research and doubling down.
I want my research Chief Officer to continually try new things. I expect them to give me 19 bad ideas for every 1 good one. If anyone in this division is afraid of failure, they are in the wrong division.
I want my development Chief Officer to succeed, and the culture of fearing failure is perhaps more appropo in this tribe.
I wouldn't spend money on research if I didn't have a development budget ...
I thikn there is a startling amount of groupthink going on. If big corporations best way to be innovative is simply to copy the start-up model (probably badly) of small teams moving quickly then you lose all the benefits of a big company which is a massive balance sheet and the ability to throw huge resources behind a project.
focusing on cultural terms like 'fear of failure' is probably largely counter-productive, it sounds nice but it's hard to measure objectively. instead firms need to be actively restructured to be able to take on more risk. one way this could be done is when companies embark on r&d for a new technology they release a bond to the market to allow the capital markets to invest in the returns of a specific product line (e.g. the ipad) rather than the company (e.g. Apple)
Surprisingly my medium sized employer of ~1000 employees has had surprisingly good experiences with internal startups, during the last three years there's been three failures, one small success and one major success.
The startups were very cross-functional and very isolated, and the only external pressure was the time until the product becomes profitable. Being isolated from the main organization and a small size allowed the startups to try new things fast, but knowing when to stop allowed even the failures to be considered as successful experiments for scrapping the very different products early enough.
Before these the company had tried to expand its business by bying another smaller company, which was just a huge disaster, wasting years of work and tens of millions for trying to keep the one new business alive just because for too long it was regarded as too big to fail. The good thing from this was that the old CEO "found new challenges" and the new one started driving the startup model with an emphasis on knowing when to stop.
That sounds like my experience as well. The last two companies I worked at may have looked like boring traditional mid-sized engineering firms from the outside, but both also had a "startup scene" internally. Sure they have their bread and butter business that brings in the steady revenue, but they both realized that just doing what you did yesterday isn't going to work forever and fund small groups to strike out on their own and try to start up some new venture, develop new products and break into new areas and markets.
Excellent article - but I do not think that large corporation are doing it wrong.
Some large companies even encourage people with entrepreneurship spirit and ideas to leave the company (and their VC arm / friends even invest in them). And in many cases they are acquired back.
The problem is actually with relatively smaller companies: which do not have $$ in the bank to acquire anything useful.
I've been saying for years that in big corporations, not being wrong is more important than being right. Slightly different phrasing and intent, but same basic principle.
I think this is one of the things that kills many startups targeting the enterprise - unless the founders have extensive enterprise experience themselves, they simply don't understand the perverse disincentive structures that dominate corporate decision-making. Hell, I have 20 years of enterprise, and as a founder, it's still hard. For example, selling a product as a time-saver for engineers doesn't work, basically because enterprises don't care that much if they're wasting their employees' time.
The leaders of large corporations are able to spread out failure, so no one can ever accuse them of it.
For small enough startups, leader failure is visible, so a culture of "no failure" is not possible and failure is viewed as a learning experience.
When the leaders surround themselves with enough yes men and start to believe they are infallible and if there were only enough people to catch all of the pearls of wisdom falling from their mouths everything would be perfect, the "failure is not an option" culture takes hold.
Happens to good leaders and will happen to me if I'm in the position were everyone is telling me I'm right all of the time.
Lack of speed can be a safety feature. As a pizza delivery man operating in the city of Chicago, I've seen all too many young hotshots come in the business, and leave with moving violations.
folks in startups fear failure. So they move quickly and end up with innovative models (or dead)
Folks in enterprises fear failure, so they move slowly and don't take risks
The reason is that (successful) startups measure on "searching for a product/market fit" (c) Steve Blank
So projects are judged on how quickly / well they show fit or move on.
But enterprises already have a product market fit and it pays the bills - so projects are judged on execution metrics.
So if you want innovation, judge those projects differently.
As the investigation notes, luck - good or bad - stems from the kinds of decisions people make. If you're doing well, you're more likely to place bets with lower risk, which are more likely to pay off. This is how success breeds success; good fortune optimizes for more of the same.
Conversely, if you're doing badly and feeling desperate, you're more likely to take the riskier bet, which is naturally the one more likely to fail. In this way bad luck usually leads to worse - except in the rare cases when it doesn't.
If you're (a) in a position to cast a very wide net by (b) placing lots of relatively small bets in (c) a field that produces rare but ginormous winners, then you can turn the loser's dynamic into a gold mine (maybe!), but that's three hard things you have to get right, and coming up short on any one front will reduce you to the exact same roadkill that your model churns out daily.
I know the story was just a vehicle for the broader point - but I don't know that it's apples to apples re the fear. In a startup, you work hard because you fear the company dying. Practically nobody at a large corporation is afraid of it dying - the fear there is for their own career (e.g. they don't want to get fired for a failed project). To me, it seems like it's that difference that explains the different outcomes.
I thought the conclusion from that was so obvious that Steve Blank was surely going to talk about it later in the article, but he didn't...
In a startup, the "default" state - if you do nothing - is that you run out of money and starve. That's why fear of failure drives speed and urgency.
In a big company, the "default" state - if you do nothing - is that you collect a paycheck and live a relatively comfortable life. That's why fear of failure inhibits speed and risk-taking.
I recall a comment or an essay of PG's where he said that poverty seems to be a necessary condition for startup success, and without that incentive, startups frequently die. (There are counterexamples like Evan Williams or Travis Kalanick, but in both those cases they picked up their habits while fighting for their previous companies' lives.)
I read that and thought "It isn't so!", and then got a job at Google hoping to do the intrapreneur thing, but with the risk/reward balance slanted toward the big company. I found that there were managers willing to give me nearly carte blanche for finding & fixing new problems, but that didn't mean that I could actually launch or grow anything new or revolutionary. The problem wasn't actually with me or with management or with any corporate structure, it's that for a new idea to take root, you need many peoples' help, and each one of them needs their incentives biased against the status quo. That's why Silicon Valley works: there is a critical mass of people here who get nothing if the startup(s) they back don't take off.