A data-backed argument for business failure

Business Failure

Business failure: everyone runs from it and no one wants to be associated with it. But maybe that’s the wrong attitude.

Here’s a recent article from Wall Street Journal on the most successful stocks of the past 30 yearsHarvard Business Review then invited one of the founding editors of Fast Company to reflect and analyze on the list.

Turns out the highest stock growth since 1985 is a lesser-known company called Balchem Corporation, which makes flavorings and nutritional additives for animal feed. Their stock has grown 107,099% — that’s not a typo — since the year Back to the Future came out.

Most senior executives would lob off 2-3 key pieces of their anatomy for growth like that, all the while calling all-hands meetings and bellowing that “business failure is not an option!”

But what if business failure — or rather, near business failure — is actually the key?

The logical argument for business failure as a driver

Let me run a quick little story one of my consulting friends once told me.

He was brought in to work with a restaurant chain that specialized in scantily-clad women (you’re likely guessing it now) in northern Atlanta. There were two locations about seven miles apart. One location was tanking. The other was flying high. All the executives and analysts assumed it was something about the leadership, the processes, the protocols, the revenue modeling, the KPIs, or whatever else. They wanted to know how to pull the other one up by its bootstraps!

Well, it turns out there was a construction site near the high-performing one — and that’s why they were getting so much daily business (construction workers). Once the construction project ended, the numbers for each restaurant were relatively comparable.

What does that story teach us?

  • Construction workers like women with large breasts serving them food
  • We often confuse failure and success; they’re really two sides of the same coin and without proper analysis or context, we’re not sure what we’re actually discussing or analyzing

So that’s the first thing to understand: business failure is often 1 step to massive business success. You can totally flop an idea or product launch and then you can pivot something related to it, or try something new — hopefully having learned from the business failure — and suddenly be hitting business success.

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Here’s a low-grade example from my own life: I got fired in November 2015 for the first time ever. I had some rough days, and still do, but I pivoted and now do freelance work from home. Because I value time more than money, this is good for me. For example, I just ran 3 miles before doing this blog. If I was in a cubicle job, I couldn’t have done that. See?

Business failure (getting fired, restaurant under-performing) can lead semi-directly to business success (new idea, improper analysis of actual problem).

Failure and success aren’t opposites; they’re not antonyms. They’re essentially the same thing with 1 or 2 small differences somewhere — usually around excuses.

The next tier of the business failure argument

There’s something that happens in a lot of organizations that’s very powerful called homophily, which basically refers to the same group of people — especially decision-makers — working together for years and years. This is good in one way, in that processes, protocols, and the cadence of work is usually very clearly defined — as are, hopefully, roles.

It’s terrible in another way because usually it’s deadly to innovation, since homophily-based teams will run around screaming “We’ve always done it that way!” at any new idea coming down the pike — and in the process, they gradually burn through every lower-level employee who might actually have the incentive to develop new ideas. So what results is a team of managers who all think alike, and a team of execution-level players who also all think alike and think management is on the ball … and that’s not a culture where you’re going to innovate very much.

Not every culture needs to be innovative, per se — and not every employee needs to be innovative either — but in a time of business failure, you need some process or plan to move you back to success. If you have a very ensconced leadership team and a culture where ideas and innovation don’t matter — rather, heads-down work is what matters — you’re not going to get through the business failure portion.

In this way, all the things we yelp about “teamwork” and “collaboration” and “building a collective culture” can actually hurt us when the rubber hits the road on business failure.

The data-backed portion of business failure

Remember our Balchem friends above, with the amazing stock growth in three decades? Check this out: years ago, they invested in a new coating technology and it bombed. In 13 months, they lost 53% of their market share. Their senior leadership team could have dove through a series of plate-glass windows screaming about the injustices of disruption and market alignment, but instead they took their business failure and focused on three things:

  • Patience
  • Grit
  • Luck

You can’t per se “focus” on luck, but you get the point.

Especially in America, we live in a very now-now-now business culture. Everything is always so hectic! If an employee fails the first time he/she tries something, most managers go ballistic and totally forget that failure happens all the time, everywhere. There’s pressure and busyness and targets and deliverables and we don’t have time to appreciate anything even being remotely wrong — so we hole up chasing process and protocol (which we feel we can control) until 6pm and totally ignore most ideas about how ‘strategy’ (what the bigwigs are saying) aligns with ‘execution’ (the work we’re doing).

That’s business failure.

So it’s gonna happen.

And you can overcome it — and you can overcome it to the point of having insane stock growth.

Think Balchem is a lone wolf exception? Nope. Other stocks on that Wall Street Journal list include:

Point is: business failure happens. So what next?

The simplest first step to overcoming business failure

I can’t tell you the entire progression of steps your company needs to go through to overcome business failure, because that depends on your company, your players, your decision-makers, your financials, and your market conditions. I can tell you the first step, though.

Put aside all the bullshit buzzwords associated with leadership and management, and just start becoming comfortable with having conversations about failure. I know this is hard for many executives because their own largest fear tends to be incompetence, but it’s vital. If you have a culture where failure can’t be discussed — or where failure can only be discussed if someone can be reamed out within an inch of their life for messing up a deadline — then you can never get through the actual business failure periods, because no one will know what to do without the ability to lie and hide behind cheapened success metrics.

Here’s an idea that my man Steve Dunlap — a fintech executive in SoCal — once mentioned: fire yourself. Wait, what? No, seriously. Put your execs in a room and have them go around. Each one fires themselves for something that quarter. (“I missed this metric” and hopefully not “I shagged my secretary on the rug.”) If you become more comfortable with business failure, you start to see how it ties quite directly to success — rather than thinking of it as this huge iceberg that you need to avoid as you pilot your silo into Success Metric Bay. That’s all bullshit. You will fail. You will fuck up. You probably already did today.

Business failure: embrace it, talk about it, make it part of your culture — and then, 30 years later? Roll around in the piles of money that your stock price has yielded you. Sounds like a good career arc, eh?

Ted Bauer


  1. Overall, I’d agree with the sentiment of your post. Fear of failure can certainly hold some firms and employees back. I’d just challenge the black and white, one size fits all language of this e.g. “Failure is deadly to innovation”.
    In healthcare, and pharma in particular, failure is welded into the innovation process. The failure rate in bringing a new drug to market is around 94 per cent. This does not stop firms learning from the experience – on the contrary, the next drug trial bakes in the failure and the lessons from the last failure. Instead, pharma has learned (is still learning) to make failure recognition happen as early as possible, so the costs can be limited and the learning applied quickly.
    In surgical techniques, innovation is driven by where the existing process is failing – wound healing rate, infection levels, scar severity, etc.

    You’re right that there are plenty of industries where failure is not discussed, a shameful thing. But it’s not universal, so hopefully my examples add some balance to your post.

    • Rick — totally on pharma. In that industry, failure is baked into success. But in industries and verticals where it’s NOT, often the sheer concept of potential failure can lead ‘leaders’ (really just peeps with formal power) to make same-old, same-old decisions because they don’t want to rock the yacht. That’s what happened at the last place I was working, and it wasn’t pretty.

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