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You actually can afford to fail (intelligently)
By Jamie Wells
In our fast-paced and highly competitive culture, it seems that the ultimate goal is to avoid failure at all costs. Visions of success don’t include bumps in the road. But examining the path of a wealth creator often paints a different picture. Many wealth creators seem to accept failures along the way with great equanimity. They tend to be risk takers, which inherently means they are willing to fail at points because they believe success will be theirs in the end. Many review the past — their personal wealth creation story — through rose-colored lenses and erase the hiccups from the tale. These personalities don’t let the failures define who they are or let the stigma of failure follow them in their next pursuit. Many wealth creators encourage their children to find their own path, and sometimes the wealth creators are comfortable with the idea that their children will falter along that path, but perhaps more often they hope to help their children avoid failure — to have a smoother ride. That leaves the rising generation — the inheritors — susceptible to the fear of failure, to avoiding it at all costs, and to not learning or understanding the key lessons that can come out of failure.
|Many wealth creators seem to accept failures along the way with great equanimity.|
Failure has long been a product of the entrepreneur, embodied fully by the mantra of the economic juggernaut Silicon Valley “ Fail often, Fail Fast, Fail Forward.” Some corporations are following this lead and finding value in experimentation, pushing the envelope and learning from mistakes. It seems to follow that families can apply some of these same tactics to teach children to take smart, calculated risks and learn through experience.
|Failure: a lack of success (Merriam Webster)|
Merriam Webster defines failure as what happens when we don’t succeed. But looking past the black and white definition, many of life’s most impactful lessons come from our failures, or lack of success. How we react to failure and find resilience to try again separates those who find success in life from those who give up. In the end, failures can be positive events that pave the way to success.
Failure comes in many forms. Constructive failures include those wherein a person evaluates the situation and takes a calculated and educated risk to achieve a high-reaching goal but does not achieve it or honest mistakes that do not lead to significant repercussions for anyone. In both cases, important lessons can be learned. These types of failures differ from reckless or ill advised decisions that don’t take into account the consequence of the action and lead to disastrous results with no lessons learned. When experimentation is necessary because of the newness and novelty of an idea, Simon Sitkin, a Duke Professor, refers to these failures as “intelligent failures.”¹ Sitkin laid out the following criteria: (1) They result from thoughtfully planned actions, (2) have uncertain outcomes, (3) are of modest scale, (4) are executed and responded to with alacrity, and (5) take place in domains that are familiar enough to permit effective learning.² Elizabeth Holmes, founder of Theranos, a business claiming to offer extensive blood tests using a very small amount of blood, was charged by the Security and Exchange Commission for fraud and much of this circles back to her failure to fail.³ Holmes exaggerated revenue by 1,000 times, wrote positive reports on her company and fraudulently passed them off as coming from third party pharmaceutical companies and repeatedly lied to press and investors about her company’s numbers and capabilities. Her inability to own failures and delays and instead cover them with lies makes this an example of a straight failure. Contrast this to James Dyson, who had a vision of creating a bagless vacuum cleaner and finally succeeded after fifteen years and 5,126 failed versions.4 This is intelligent failure, using each unsuccessful prototype as a learning experience and using the lessons to propel the product toward his vision.
|Failure comes in many forms. Constructive failures include those wherein a person evaluates the situation and takes a calculated and educated risk to achieve a high-reaching goal but does not achieve it or honest mistakes that do not lead to significant repercussions for anyone.|
|“Failure is just a resting place. It is an opportunity to begin again more intelligently.” – Henry Ford|
The entrepreneurial spirit
Failure is not viewed as the end of the road for most entrepreneurs. Many entrepreneurs don’t succeed at their first attempt in bringing an idea to life. This is reflected in the “entrepreneurial spirit” that seems to be inherent in certain personalities — the ability to keep going, change directions, avoid defeat and learn lessons from failures or bumps in the road. These individuals are usually able to see past the financial losses and appreciate the knowledge gained in the process. For example, Milton Hershey had three failed attempts at candy businesses before eventually finding success with Lancaster Caramel Company, and then Hershey Company.5 Hershey said, “I failed three times because I had not taken the time to get all the facts. After that I learned my lesson well. I also learned that you can surmount failure. You can be battered down three times, as I was, and still come out on top.”6 High school classmates Bill Gates and Paul Allen (Microsoft founders) created a microprocessor, Traf-O-Data, that analyzed traffic data from traffic counters placed on roads.7 Their demo to county officials didn’t work and the idea quickly became obsolete. Allen later told Newsweek “Since then, I have made my share of business mistakes, but Traf-O-Data remains my favorite mistake because it confirmed to me that every failure contains the seeds of your next success. It bolstered my conviction that micro-processors would soon run the same programs as larger computers, but at a much lower cost.”
|Many entrepreneurs don’t succeed at their first attempt in bringing an idea to life. This is reflected in the “entrepreneurial spirit” that seems to be inherent in certain personalities.|
Organizations taking note
Taking a lead from entrepreneurs, more businesses are recognizing the value in these intelligent failures. These organizations are creating cultures where failure is accepted and at times, celebrated because these organizations see the value in pushing the envelope, testing creative theories and attempting to go where no one has gone (as long as lessons are learned in the process). These organizations distance themselves from the negative connotations and punishment associated with failure. Some have instituted policies that encourage sharing the failure so that the organizations and employees can truly learn from whatever went wrong. Eli Lilly holds “failure parties” to celebrate smart, high-quality scientific experiments that end up ultimately failing.8 After Coca-Cola went through a series of failed beverages (Choglit, New Coke, Surge and OK Soda), its Chairman and CEO acknowledged this at an annual meeting, stating, “you will see some failures.9 As we take more risks, this is something we must accept as part of the regeneration process.” The 3M Corporation has been extremely successful in encouraging deliberate experimentation, even if the result is not the desired outcome.10 Their culture tolerates and rewards failures because failures are viewed as a necessary step in developing successful and innovative products. The Post-it note even stemmed from a failed attempt at creating a super-adhesive.
Visionary leaders create the cultures that allow for constructive failure. These leaders see the value in failures and the positive consequences that result from creative and intelligent experimentation instead of creating a culture where failures are punished. They see that in the end, the financial impact from the failure is minimal compared to the lessons learned and the end result that can take the organization to new heights. These organizations develop processes and procedures to catch small failures fast and know when to discontinue a project and walk away. Leaders have to believe in and be willing to defend the concept of intelligent failures against traditional business cultures that avoid risks that, in the short term, adversely affect the balance sheet or the internal reputation. Most internal review processes and business plans don’t give credit to ideas that, although failed, still moved the organization ahead in a different way. Allowing failures doesn’t mean the entire organization fails; it simply means organizations have to allow-experimentation along the way in order to learn lessons they would not otherwise learn. In contrast to the conservative safety net of routine and, quite possibly, boredom, a culture of constructive failure allows and encourages individuals with creative minds and ideas to put their ideas to use and propel the organization towards greater innovation and success.
|Visionary leaders create the cultures that allow for constructive failure. These leaders see the value in failures and the positive consequences that result from creative and intelligent experimentation.|
Sharing stories about failure insights from the experience and events leading up to the failure can be immensely valuable. Indeed, since 2009 technology entrepreneurs, investors and developers have gathered at FailCon, a conference devoted to sharing stories about failure in in order to find a path towards success.11 By understanding where other people’s grand ideas have fallen short of success, FailCon aims to normalize and de-stigmatize the taboo topic of failure. By sharing stories about failure, other people can learn lessons about pitfalls to avoid as well as the personal and professional benefits that can come from making mistakes. This allows people to see that failure can be a necessary ingredient to success and that learning lessons and finding resilience to try again can eventually payoff.
|Sharing stories about failure insights from the experience and events leading up to the failure can be immensely valuable.|
“Success is not final, failure is not fatal: it is the courage to continue that counts.” – Winston Churchill
Are families next?
While corporations with shareholders, boards, executives and many others watching numbers on a consistent basis are seeing the value in intelligent failures and creating environments where employees feel safe in taking on projects and ideas that might fail, many families (who have less oversight and scrutiny) are slower to accept this idea and possibly do not see value in it. Families with great financial wealth would be well-served to create environments where their children can fail and in doing so, learn invaluable lessons about finance, business and personal resilience. Older generations may set the tone by sharing their own stories about overcoming adversity, but rising generations will learn best by making their own mistakes.
How to put into action
Credit cards are effective tools for teaching financial literacy and budgeting to older children, while allowing room for constructive failure. High-school age children soon discover that one credit card requires a fair amount of diligence in budgeting; they require adequate cash in the bank to make the payment, interest fees rack up quickly when credit cards are not paid in full each month and penalties for missing a payment can be painful. Mistakes in these areas, while not something to brush under the rug, are a small price to pay if lessons are learned and parents feel better about their children navigating the financial world without parental involvement. To take it a step further, some families have set up investment accounts with a certain amount of money and have their children manage the money as a team. This not only promotes team decision-making and professionalism in researching and presenting ideas and working collaboratively, but also teaches young adults about investments, risk, diversification, fees and advisors. Once again, the children may incur financial losses, but learning these lessons in a controlled environment with consequences and accountability may yield a greater return in the long run. And who knows? A child or young adult could rise to the occasion and maintain responsibility right away, and at least some parental worries can be put to rest. Later in life, allowing a child to take on a role in the family business or even start their own business will again present opportunities for failure, lessons and character building. Let them make their decisions, right or wrong and deal with the consequences. At this point, hopefully the risks are calculated and there is a real understanding about ownership of consequences.
|The research shows that figuring out for themselves is a critical element to mental health.|
It’s important in teaching these lessons to give your children room to make mistakes and learn lessons. Setting up these types of exercises and then staying involved to protect your child from failing misses the point. That said, it’s also important that parents set expectations and and provide enough oversight to make sure that failures do result in consequences and teachable moments. These experiential lessons are invaluable in learning fiscal and personal responsibility. When parents try to engineer failure out of kids’ lives, kids feel incompetent, incapable, unworthy of trust and utterly dependent.12 They are unprepared when “failures that happen out there, in the real world, carry far higher stakes.” When parents over-parent, they ultimately do more harm than good. Because failure is essentially removed from children’s worlds, opportunities to fail must be created.
Julie Lythcott-Haims, a dean of students at Stanford University noticed a trend, that these high-achieving students were becoming less and less independent as parents increased control over and became overinvolved in their children’s lives.13 Seeing that trend drove her to research this phenomenon. Results pointed to over-parenting and over-structuring of children’s lives leading to possible depression, anxiety and an overall lack of development in life skills and inability to make decisions on their own. The research shows that figuring out for themselves is a critical element to mental health. This requires parents to take a step back with involvement, to allow kids to talk to teachers and coaches on their own; to do their own homework and remember their own items. It’s these types of tasks that empower the child and get them used to thinking through consequences of decision making. Allowing children appropriate financial freedoms and the ability to make mistakes (and learn from the mistakes) is critical in teaching financial and life skills.
|Resilience and realizing that failures are not the end of the road are skills that can take people far in life, and parents who create a culture that encourages intelligent failures are giving their children a priceless gift.|
Parents want their children to make good decisions and “get it right.” Expectations exist, especially within wealthy families, to continue the financial success that the family has had thus far. But if young adults have never had to think about money, manage money or feel the consequence of a financial decision, how can they be expected to go into the world as financially responsible adults? In wealthy families, sometimes children don’t see the connection between hard work and money and many times they don’t see financial failures, or examples of things not to do. With wealth comes the ability to shelter children from many of the cost of living and the challenges that most people experience in everyday life, so these lessons must be taught thoughtfully.
It’s okay (even good) to allow children to fail in a way that doesn’t leave devastating financial or emotional consequences. Failure can promote personal growth and creativity through experiential lessons. Resilience and realizing that failures are not the end of the road are skills that can take people far in life, and parents who create a culture that encourages intelligent failures are giving their children a priceless gift.
“Failure is so important. We speak about success all the time. It is the ability to resist failure or use failure that often leads to greater success. I’ve met people who don’t want to try for fear of failing.” – J.K. Rowling
1 Amy C. Edmonson, Strategies for Learning from Failure, Harvard Business Review, (April 2011), available at https://hbr.org/2011/04/strategies-for-learning-from-failure
2 Mark D. Cannon & Amy C. Edmondson, Failing to Learn and Learning to Fail (Intelligently), The Long Range Planning Journal at 299-319 (2005).
3 Kevin Roose, Kevin’s Week in Tech: Theranos, Fraud and the Failure to Fail, The New York Times (March 16, 2018), available at https://www.nytimes.com/2018/03/16/technology/kevins-week-in- tech-theranos.html
4 Nadia Goodman, James Dyson on Using Failure to Drive Success, Entrepreneur (November 5, 2012), https://www.entrepreneur.com/article/224855
5 Jayson DeMers, 6 Stories of Super Successes Who Overcame Failure, Entrepreneur (December 8, 2014), https://www.entrepreneur.com/article/240492
7 Stephanie Vozza, 5 Famous Entrepreneurs Who Learned From Their First Spectacular Failures, Fast Company (February 12, 2014). https://www.fastcompany.com/3026253/5-famous-entrepreneurs-who-learned-from-their-first-spectacular-failures
8 Edmonson, Strategies for Learning from Failure
9 Jena McGregor, How Failure Breeds Success, Bloomberg Businessweek (July 9, 2006), http://www.bloomberg.com/news/articles/2006-07-09/how-failure-breeds-success
10 George A. Bonanno, Loss, Trauma and Human Resilience, American Psychologist at 20-28 (2004) http://www.public.asu.edu/~iacmao/PGS191/Resilience%20Reading%20%231A.pdf
12 Lahey, J. (2016). The Gift of Failure: How the Best Parents Learn to Let Go So Their Children Succeed. New York, NY, HarperCollins Publishers.
13 Lythcott-Haims, J. (2016), How to Raise an Adult: Break Free of the Overparenting Trap and Prepare Your Kid for Success. New York, NY, St. Martin’s Griffin.
About the author
Jamie Wells is a director of wealth planning for Ascent Private Capital Management of U.S. Bank in Denver, Colorado. She holds a J.D. and LL.M. in Taxation and has previous experience as an estate planning attorney.
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Wealth Sustainability services are not fiduciary in nature, and Ascent serves in a non-fiduciary role when providing these services. Wealth Sustainability services may include strategic wealth coaching services in order to facilitate your self-assessment of wealth sustainability issues. Ascent does not engage in the practice of psychology.