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In early 2010, the staff of Appareo Systems, a Fargo, North Dakota-based engineering firm, gathered for a post-holiday party. The past year had been a challenging one for the company, which was founded by serial entrepreneur Barry Batcheller in 2003, and the party was a chance to reflect on lessons learned from the experience.

The challenges had been particularly tough for Robert Weinmann, the head of the firm’s eight-person engineering department, who had found himself consumed by a massive undertaking that threatened the future of the firm. Appareo had won a contract the year before to build an advanced camera and imaging system for Eurocopter, the world’s largest helicopter manufacturer. Winning the contract had been a huge victory for the young company -- something that, when completed, could propel Appareo’s growth to another level. At first, the project, dubbed “Vision 1000,” seemed like an ambitious one for the Appareo engineering team to tackle as it involved building and integrating new technology that had never been done before. Nevertheless, everyone agreed it was too big of an opportunity to pass on.

It soon became clear, however, that building the camera system -- which would incorporate GPS technology among other new advances in image capturing and processing -- was far more complicated than Weinmann and his team could ever have imagined. The result was that the project fell six months behind schedule, which meant that Eurocopter wouldn’t pay another dime until it was done. To keep the development going, Batcheller had to invest about $500,000 more of his own capital -- a stiff price for a growing company.

In most companies, that would have meant that Weinmann would have had a target on his back -- a candidate to be blamed and fired. That wasn’t the case at Appareo. Not only did Batcheller encourage Weinmann to continue doing what he thought was best for the project, he also gave him an award at that holiday party named for one of the company’s values: Encourage risk taking and tolerate failure. “If you are going to do things that will have a jaw-dropping impact in the market, you need to push boundaries and embrace risk,” says David Batcheller, Appareo’s COO and part-owner. “If you do that, you have to be prepared to fail. Perhaps colossally. We put this award together to celebrate that we learned a lot from a painful experience.”

While most companies understand the importance of innovation in driving their future growth, few seem to understand how to build a culture that supports the accompanying risk of failure that comes along with it. Too often, it seems, failure is something to be punished and forgotten. The downside of that approach, however, is that it often leads to a culture where employees choose the safe route. But in limiting the risk they take on, they also dampen the chances of reaping the kind of breakthrough rewards companies needs to keep growing. “Performance and learning can often be at odds with each other,” says Ben Dattner, an organizational psychologist who runs Dattner Consulting. “Sometimes you need to take a step backwards to take two steps forward.”

Want more from Darren Dahl? Check these stories out:

Dattner points to the early days of NASA, when the fledgling American space program was racing to keep up with its Russian rivals. Due to such intense competitive pressure, it would be easy to see why everyone would do their best to avoid being blamed for any mistakes or failures. Yet, when one of the prototypes of a new ballistic missile blew up during a test, a setback that could have set the program months behind schedule, one engineer spoke up, volunteering that he thought his mistake had led to the failure. Rather than sending the engineer a pink slip, Werner von Braun, who ran the program at the time, instead sent him a bottle of expensive champagne as a reward for his courage in speaking up. “Great organizations don’t necessarily want to celebrate failure as much as they want to illustrate that there are serious consequences that come with it,” says Dattner, whose book, The Blame Game: How the Hidden Rules of Credit and Blame Determine Our Success or Failure, will be published in March. “It all comes down to managing the balance of risk and reward.”

David Batcheller says the goal in awarding Weinmann -- who continued to put in 100-hour workweeks even before he received the award -- was to show him and other employees that while the goal was clearly not to fail, no one would be ostracized if he or she did. “Employees face both professional and personal risks when they take on an ambitious projects like Bob did with Vision 1000,” he says. “It’s extremely difficult for someone to invest thousands of hours in a project and then have to acknowledge failure. Our goal is to build a culture where our employees feel encouraged to embark on big, hairy, audacious things. And even if they don’t succeed, they know they’ll still be here.”

Headquartered in a lab on the campus of North Dakota State University, Appareo actively recruited young engineers from its start with a bold goal: to create a new market for products in the nascent field of augmented reality, where computer-generated sensory inputs could be used to enhance how we see the world around us. That meant that by its very nature, Appareo needed to find ways to gets it employees to embrace risk as they designed and manufactured products like Vision 1000 that have never existed before. That’s where the company’s values like encouraging risk-taking and pushing the boundaries of what is possible come into play, says Batcheller. “We want to attract and retain the brightest technical minds we can find who want to tackle old problems in new and innovative ways,” he says.

The good news for Appareo was that Weinmann and his team eventually completed the Eurocopter camera project in the summer of 2010. The resulting product has been so well received that it now comes installed on every new helicopter Eurocopter sells, while also creating a slew of new growth opportunities for Appareo, which is something that means a lot to Weinmann. “It’s typical that as you advance in your career, most people take on less risk,” he says. “But if you don’t take risks, you become stagnant. I’m happy to work for a company that recognizes that taking on risk is how you make things happen.”

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