One of the buzz phrases of 2016 is the idea of ‘failing fast’. It’s a concept often bandied about by start-ups. The idea is that if a business is going to be unsuccessful in a pursuit, it’s better off doing this quickly, rather than prolonging an idea that won’t work, risking wasteful use of company resources including time, money and labour.

Cassandra Kelly, chair and co-founder of corporate advice business Pottinger refutes the idea that failing fast is a sound approach to take in business.

“I remember being on a panel years ago. There were three of us and we were asked to talk about failure and its importance in our life and what it had meant to us. The first two successful entrepreneurs replied exactly as the interviewer had hoped. They talked about how they had failed and how marvellous that had been for them, how they had learned from it. They knew it was what they were meant to say,” explains Kelly.

“It came to my turn and I just paused and said to the audience, well, I feel differently. I don’t love failure. Actually, I think failure really sucks. I hate to fail. I don’t work with many leaders who sit with me and say ‘Cassandra, I just can’t wait to fail because I know it will really be good for me.’

“For me, it isn’t that I don’t fail because of course I do. But I really hate to. And this means that I try really hard not to. I seek advice. I do my research. I try to mitigate risks to prevent failure where I can,” she explains.

Kelly says the audience response was extremely positive. “They had each been sitting there thinking … really, to be successful do I have to be excited to fail? I would rather not fail.

“We have been through a long period of time where people had a mindset of ‘if it isn't broken, you don't need to fix it.’ Then we’ve moved on to say, instead, let's just try lots of things. The things that don't work very well, never mind. In that mass experimentation we will then find a few things that work very well. And that mindset has worked well in the early days of the B-to-C tech era, from the mid 90’s onwards. But we have gone too far. There is a sense that every college graduate could be the next billionaire. Enormous amounts of money are being wasted supporting ideas that will never be successful.”

Consequences of failure

Kelly says what upsets her most is the cash being wasted is often not that of the person with the badly thought through, badly researched idea. “Shareholders of listed businesses or investors in private companies will be the ones to see their cash flushed down the toilet.”

She says the point that is often overlooked is that there is a cost greater than a wasted investment. “You don’t just waste cash, you waste dreams and negatively impact people’s employment, livelihoods and quality of living.”

Nevertheless, Kelly says failing fast is not in and of itself a bad idea. “It isn’t meant to be applied to big decisions. It is an approach that allows for small experiments in order to design, build or improve.”

She says the good part about failing fast is the idea that it’s important to acknowledge early that something is not working. This may be because consumers don't respond to the proposition, they don't want the proposition with the business model the business is using, or there is some other aspect of the way it is being delivered which isn't working.

“The key thing is to figure out which of these it is. If it is an amazing idea that is just too early, you may be better to put it on ice for a few years than abandon the whole thing or let it fail.”

The downside to failure

What’s important to understand, says Kelly, is that businesses end up failing unnecessarily by becoming complacent about failure.

“The foundation work gets glossed over, so you end up supporting ill conceived plans. As Nigel Lake refers to in his latest book,  the fundamental challenge we are really trying to deal with is the entire decision-making paradigm that has been in use for several decades, one that drives people to focus on relatively short term performance,” says Kelly.

This is evidenced through short-term shareholder activism, or methodologies such as discounted cash flows, which focus entirely on value in the near term. “As Nigel Lake argues, all of that whitewashes the fact the most exciting opportunities typically show minimal returns for the first five years, maybe even ten, and show huge returns after that. The whole way we think about opportunity in business means we shun opportunities to develop long-term value.”

Failing fast and a risk based approach

Interestingly Kelly says failing fast and a risk-based approach are not mutually exclusive.

She says organisations need a framework that guides the opportunities they should be exploring. Part of this is a system that allows businesses to measure the success or failure of the new business ideas they wish to pursue.

“If you say, we've got a bag full of money, let’s just spray it around, because after all, it's someone else's money anyway and we have an upside if it works out, well that’s foolish,” says Kelly.

“So it is absolutely about the governance and risk framework that sits around the experimentation or investment decision,” she adds.

Kelly says there is also an alternative to the fail fast mindset. “We are not trying to throw out the mindset of allowing bushiness to fail quickly. Because the reality is if you set up something that you think is a genius idea, and you try it out on five clients and they don't like it, then you try it out on 30 more, and they don't like it, there is no point in fighting that battle. You've got to be prepared to draw a line under things that aren't working.”

She says the other word often used in this context is pivoting. “That remains very important. You need to be able to say, ‘okay, what out of this can we take and reapply in some slightly different field, or some slightly different audience, or slightly different way at a slightly different time? And is it economic to try that?’ That is entirely logical, and that might take several pivots to get to the place where suddenly you have something that takes off”.

“I’m not trying to shift the mindset that says, ‘if you're going to fail, fail quickly.’ The mindset I'm trying to change is one where failure is cool and almost desirable. Because that takes you too far towards not doing your homework, not being diligent, being too complacent. It suggests you don't need to be disappointed to fail, in fact you almost need to be pleased about failing because there’s something heroic about it. Failure should go back to being undesirable. Degrees of failure are inevitable but that doesn’t become an excuse for not doing enough homework in the first place.”

Ultimately, Kelly argues there is a healthier way of accepting risk without accepting failure.

“We have grown very accustomed to setting out risk as a single number. The reality is it's not like that. There is a huge continuum of possibilities. The starting point for addressing risk in a meaningful way is to accept that there is a wide range of possible outcomes and try to get your head around how likely those individual outcomes might be,” she says.

Cassandra Kelly is the chair and co-founder of Pottinger. She is a global advisor and company director with a passion for commercial and social enterprise and a background in finance, risks and markets. She believes clients deserve the highest quality advice and the very best service from people they trust. She is also a keen philanthropist, having supported multiple national and international causes and a champion for diversity, including co-founding the Glass Elevator.