Failing—to Win

Make no mistake about it; no one likes to make a mistake. But admitting one’s failure and learning from it often provides for greater success in future. That’s the message from several CEOs who made well-informed decisions backed by solid research and due diligence that nonetheless failed miserably. Sure, their pride took a punch, but they came away from the knockdown tougher and smarter for the next round.

This humble breed of corporate leaders stands in stark contrast to the many CEOs unwilling to concede a wrong turn, shifting the blame to factors beyond their control or people in their employ. This attitude is detrimental and ultimately defeating, as it thwarts a ripe opportunity to learn from one’s errors so as to make more informed decisions in the future. As Dale Carnegie put it, “The successful man will profit from his mistakes and try again in a different way.”

If only every leader, corporate and otherwise, took his or her corporate training homilies to heart. In preparing this article, missives were sent to literally dozens of media relations executives, soliciting the interest of their CEOs in publicly admitting a misstep. Needless to say, there were few takers.

Yet, the blogosphere brims over with advice on how to learn from failure (type those last three words in Google and nearly 100 million results pop up). Are corporate leaders too rigid to acknowledge their blunders, or are they simply tight-lipped on the subject?

Fortunately, A.G. Lafley, president and CEO of Procter & Gamble, is not among them. Considered one of the most successful chief executives in modern times (he’s a former Chief Executive CEO of the Year) and recently returned to lead P&G back to growth mode, Lafley pulls no punches about his own slip-ups. “I’ve come to realize that you learn as much from your failures as you do from your successes,” he says. “The toughest losses are the most instructive, whether it’s a great sports team or a major corporation.

“Really, the only failure to fear,” he adds, with a nod to Winston Churchill, “is the fear of failure.”

Down but Not Out

Lafley makes a good point. The CEO who fears that out-of-the-box ideas might crash and burn is stifling innovation. Similarly, the pursuit of perfection by the CEO may foster a culture of avoiding mistakes; yet as any research scientist will attest, it is trial and error that ultimately yields the perfect formula.

The same situation applies to running a company: The way to stand out in a crowd is to make courageous decisions, not shy away from them because of the risk of failure. Lafley recalled two of his courageous yet ultimately wrongheaded decisions at the helm of P&G that eventually turned south (the second blunder explained on page 3).

“We decided in the 1980s to take on Clorox with our own bleach product, since we were already the market leader in laundry detergents,” he recalled. “The market research indicated this would be a great plan, and we developed a brand called Vibrant, which was the first bleach to have color-safe features.”

Interestingly, P&G had once owned Clorox but was forced to divest it in the 1960s by the Federal Trade Commission. So it decided to pull a switch on the old maxim, “If you can’t beat them, join them.” “We put together a great marketing plan and TV advertising campaign but decided we also should run a test to gauge consumer acceptance before we launched,” says Lafley, a P&G board director today and co-author of the new book, Playing to Win: How Strategy Really Works.

Since Clorox was headquartered in Oakland, California, P&G selected Portland, Maine, as the test site, “as far away from them as we could get,” Lafley explains. “We wanted to fly under the radar.”

No such luck, however. Armed with intelligence about P&G’s test marketing plans, Clorox mailed a free gallon of bleach to every homeowner in Portland, delivered right to their front doors, with a coupon for a dollar off on their next purchase. “We’d already [bought all] the TV commercials and print ads, but no one needed any bleach now,” Lafley says. “They were set for the next month or more.”

The failure was instructive. “Like Don Quixote, we had charged off after the windmills—in this case, the walled city of a competitor,” he explains. “I learned that you don’t want to take on the strongest competitor unless you have to. When Clorox tried to enter the laundry detergent business a few years later, we pulled the same ploy—with the same success.”

Nevertheless, future product introductions benefitted from the “seize the city” failure. “When we entered the air freshener market with Febreze, we didn’t charge in and attack Glade and Renuzit,” Lafley says. “We tiptoed in with a laundry detergent freshener in 1993 first, before gradually building to the odor-removal category. Learning from our previous failure, we created a huge success.”

A Real Lemon

A.G. Lafley actually seems to relish his wrong turns during his first reign as CEO and chairman of Procter & Gamble nearly as much as his many successes (he’s widely credited with reviving P&G with his mantra of “The Consumer is Boss”). Each time he stumbled, he says it gave him an opportunity to reflect on the meaning of the failure.

Such was the case with Fit Fruit & Vegetable Wash. On paper, the idea seemed a sure winner—an antiseptic liquid for soaking fruits and vegetables, ridding them of bacteria and pesticide residue. “Few items are handled more than produce,” Lafley explains.

P&G went full-bore ahead with the unique product concept, testing it four separate times in three different markets—the Philippines, Mexico and the United States—at a cost of $40 million or so. The research was spotty, however. The first test came back so-so and the next one followed suit. Still, P&G was undaunted. It had a golden goose in its hands.

Unfortunately, the market research was right: Fit proved unfit for consumers. “We learned they just wouldn’t change their habits,” says Lafley. “Even though this was a healthier alternative than simply rinsing a plum under the faucet with tap water, they just wouldn’t take the extra step.”

Another problem was retailers. “They didn’t want to display the product in the produce section, as it implied their fruits and veggies were dirty or tainted with insecticides,” he explains. “So they stuck it with the dishwashing products, where no one found it.”

The takeaway? “People do the same thing over and over and over,” he says, “and to think you can get them to change this behavior overnight is a bit of insanity. It reminded me of my mother when disposable diapers (a P&G staple) came on the market. She had used cloth diapers when we were babies and said if she had to do it all over again, [she] would still use cloth diapers.”

Friends of Failure

Other corporate leaders also have found success amid failure. As the CEO of Chicago-based executive talent recruitment firm, Korn/Ferry Leadership and Talent Consulting, Ana Dutra knows well the mistakes made by fellow CEOs. “The confident ones readily admit them, knowing you can’t win without taking risks or trying new things,” she says.

Dutra, too, has taken risks that failed but has no regrets. “I once put someone here in a leadership position heading up a region because I could not find another candidate internally or one externally,” she recalls. “He desperately wanted the job and I was concerned that if I didn’t select him, I’d lose one of my most valuable players. I chose him, even though I knew he was not the right fit for the job—he was great in the marketing space but was just not good at leading people.”

A year and one-half later, Dutra owned up to her mistake. “He was flailing at the task,” she explains. “I got up the courage to tell him it just wasn’t working out. The shocking part is that he agreed he had no passion for the role and was unhappy in the job.” The executive moved back into marketing.

The lesson? “You cannot [sweep] difficult conversations under the rug,” Dutra replies. “I work with boards and CEOs on talent succession all the time, and I can’t tell you how many times I hear that the board is opposed to a particular person but doesn’t have courage to express it. Today, when I have a position to fill here, I don’t rush the decision. There’s always the right person out there for the job.”

Failure has also been instructive to Mike Serbinis, CEO of Kobo, a Toronto-based maker of e-readers. The midsize company launched in 2010 with an app that consumers could click on to read digital books on their mobile tablets or smartphone. “It was an open platform, so any book in any language could be delivered on any device anywhere in the world in a matter of seconds,” says Serbinis. “People were saying that no one would ever read a book on a smartphone, and we wanted to prove them wrong.”

The company’s marketing strategy was to advertise the app to consumers on their mobile devices, figuring this would quickly get the word out and they could easily download the product. While competitors like Amazon’s Kindle and the iPad were manufacturing hardware that provided a similar reading experience, Serbinis says Kobo’s backers never gave two seconds to the thought of making its own devices. “Ninety-nine times out of a hundred, investors said they were crazy about our app idea, but in no way would they ever give us a penny if we wanted to build our own readers,” he adds.

While the app launched well, the customer acquisition costs took a bite out of profitable growth. “The people signing on were technologically sophisticated, but they weren’t exactly avid readers,” the CEO explains. “They’d buy one book and that was about it; maybe two in a year. We were getting customers, but the metrics indicated we weren’t doing all that great.”

Kobo then did the unthinkable, becoming David to the industry’s Goliaths. It started manufacturing its own e-readers, devices a bit smaller than the smallest Kindle, albeit at a more attractive price point. “Our failure was that we weren’t getting the right customers via the app strategy, so we needed to switch gears to find them,” Serbinis says.

Where were these buyers? In bookstores—the really avid readers. Kobo signed distribution deals with thousands of neighborhood bookstores across the country. Since their patrons read a lot more books than the general population, they didn’t blanch at the cost of the reader, even at $149.99. “Everyone knows that 20 percent of the market gets you 80 percent of the profit, but the hard part is defining that 20 percent,” Serbiris says.

Kobo is now well on its way towards $1 billion in revenues this year. “I learned that there are a million people who will tell you something is impossible, but you can’t find out for yourself unless you give it a try,” he says. “We were seduced by all the buzz around online marketing via mobile devices without first considering what our market was.”

Know Thy Market

Merisant also blundered into a market and learned to prosper from the experience. The Chicago-based manufacturer of the ubiquitous restaurant coffee sweetener Equal embarked on a new product in the sweetener category that came a cropper. “We decided to innovate and took Equal, which is aspartame, and mixed it with sugar, thinking this is a great idea,” says Paul Block, CEO of privately owned Merisant, with $300 million in annual revenue.

It turned out to be anything but. Not that the idea didn’t have some legs under it. “Our thinking was that it would taste more like sugar at half the calories,” Block explains. “We did beta quantitative research that indicated that it would most certainly find a market. It looked great—on paper. Well, it was a bomb. We spent $20 million to $30 million on launching Equal Light, as we called it, and it went nowhere.”

What went wrong? “There was no frame of reference for the category,” Block replies. “Your wife says pick up two percent milk and you get it—this is good old milk with less fat. Same thing when she says pick up Equal—a sweetener that is not a sugar. But, consumers couldn’t conceptualize putting together an artificial sweetener with a natural sweetener. It was ahead of its time.”

From Equal Light’s ashes, a Phoenix rose—PureVia. “What we did was take two natural sweeteners—raw sugar and stevia rebaudiana, which comes from the leaves of a South American shrub—and blended them into a whole new product category,” Block says. “This isn’t sugar with something synthetic. It’s a fully natural high-intensity sweetener at half the calories.” Stevia has 300 times the sweetness of sugar, but is very low in carbohydrates and has a negligible effect on blood glucose levels.

Rather than simply blending two ingredients as it did with Equal Light, Merisant coats each raw sugar crystal with stevia via a proprietary spray-drying process. “Three months ago, it hit store shelves in Wal-Mart and Kroger and is being distributed by food service channels to restaurants—to tremendous success,” Block says. “We knew we had a great idea with Equal Light; we just went about it the wrong way. If at first you don’t succeed, you try again.”

Even if you do succeed, you can’t rest on your laurels. That was the lesson learned at Cbeyond, a midsized, publicly traded provider of integrated local and long distance telephony services and high-speed Internet access. Founded in 2000, Cbeyond initially capitalized on VoIP (Voice over Internet Protocol) telephony technology to provide local phone and Internet services, as well as Internet-based applications, to small businesses. “From a small startup, we grew fast to $500 million in annual revenue,” says Jim Geiger, Cbeyond founder and CEO.

Then, business stalled. Although the company’s growth rate, revenues and customer retention metrics were healthy, it had become incrementally less profitable. “We had stopped innovating,” Geiger says. “We were focused on optimizing the existing business, but the returns were diminishing. That was my mistake. We were resting on our laurels, and atrophy set in.”

Cbeyond picked itself up, dusted itself off and started all over again. “We built a range of new products and capabilities last year,” Geiger points out. “For example, we now offer our services in the Cloud—using our own servers—at improved prices. The customers’ apps and data reside in our data centers on our dedicated network, a competency we had but didn’t fully invest in. It’s a new revenue stream for us, one that offers a 60 percent higher revenue-per-customer metric than the old strategy.”

The company’s reversal of fortune (both cash flow and EBIDTA rose in the months after the Cloud offering was made last year) illustrates the folly in the old adage, “Nothing succeeds like success.” As these personal admissions of failure reveal, mistakes not only go with the territory, they provide useful lessons. “Failure isn’t necessarily something bad,” says Lafley.

On that, Dale Carnegie would agree. “Two of the surest stepping stones to success,” he wrote, are “discouragement and failure.”

Fail on!

Russ Banham (www.russbanham.com) is a freelance writer and book author.

Russ Banham: Russ Banham (russ@russbanham.com) is a contributing writer to Chief Executive