Experiment Now Or Follow The Brave Later

Are You Prepared To Fail?

Jeff Bezos’ letters to shareholders are inspiring in that they draw the reader into the DNA that makes Amazon unique. Jeff’s view on experimentation, the courage to make big bets, and acceptance of failure as a consequence is simply remarkable.

Society has never been kind to those who fail, let alone those who fail often. The stigma is hard to escape and trust becomes a luxury. That sentiment prevails in business too and it stifles creativity and experimentation to a large extent.

In my years as a product manager for private label electronics companies, experimentation was often frowned upon. The “do as others do” mantra was suffocating leading to constant tussles with leadership teams.

I imagine the risk appetite for many companies follows a similar trajectory as the product adoption curve. Their ability to innovate is often compounded by their fear of failing.

However, one must also entertain the fact that risks are expensive and the power to gamble is largely dictated by the financial standing of the company. Those who’ve worked for smaller firms understand these constraints well.

Nonetheless, I wanted to share a few snippets from shareholder letters sent by Jeff Bezos where he highlights the importance of experimentation at Amazon and the acceptance of failure as a natural outcome when swinging for the fences.

I thought it would make good inspirational reading for those entrepreneurs and businesses looking to make some big bets. Source: Forbes

One area where I think we are especially distinctive is 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. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right.

Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. 

Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.

The fear of failure leaves many swimming in a zone of comfort. Most will never challenge the status quo preferring to let others show them the way instead. The trouble is, those who shoot for the stars receive the biggest payoffs.

It’s thinking like Jeff Bezos that separates the good from the great. Take Amazon Web Services (AWS) for instance. Most considered it an uncanny move by Amazon when they first pushed the idea.

Fast forward and AWS contributes over $35 billion in annual revenue. AWS boasts over a million customers from almost every industry across the globe. Companies like Airbnb, Philips, McDonald’s, GE, Capital One, Canon, Lamborghini, Pinterest, Sony, Netflix and Adobe depend of AWS. Not bad for an online bookseller, right?

Now, I’m no Jeff Bezos nor have I worked for a company the size of Amazon, as I imagine many of my readers. But, I’m sure in our own little ways, we too have made some proportionally big bets.

For instance, I once pushed a fairly risky strategy in my division’s flat panel television category, choosing to focus heavily on technology and larger screen sizes. This was an avenue that every other private label skirted.

The risk involved big-ticket investments in stock that may not move out of the warehouse. Couple that with an ambitious marketing plan. Our status in the industry was akin to a goldfish swimming with the sharks.

What was widely held as a “leap of faith” ended up contributing  60% of overall TV sales and 80% of the gross margins 3 years later? The same company is today the leading private label for flat-panel televisions in the Middle East.

I guess, to go places you’ve never been, you must be prepared to do the things you’ve never done.

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