Fall 2009: by Brent Banda, MBA

Building off Failures

Failure will exist in any business. High performing companies are prepared to manage setbacks as business and marketing plans are executed.

As a business owner, accept the fact your people will make both good and bad decisions. Then decide how you will work through the impact of these judgement calls.

A professional sports team is a perfect example of this principle. Professional athletes learn to adjust their strategy throughout a game, and if they happen to lose they will accept failure, analyze their performance and move forward. Business people tend to ignore their failures and embrace only their successes. The company remains blissfully naive of what went wrong, and people in the organization will tend to make the same mistakes over and over again.

Businesses are sure to encounter failure for two reasons. First, decisions must be made with imperfect information. Second, your company is a collection of individuals that are constantly learning from their mistakes.

There are two types of costs to failure. Direct out-of-pocket costs draw down the company's operating cash and reduce return on investment. Opportunity costs that involve lost potential revenue may be less obvious but many times are far more expensive.

As a business owner, accept the fact your people will make both good and bad decisions. Then decide how you will work through the impact of these judgement calls. Allow people to fail while minimizing costs incurred by the company. Create formal business and marketing plans in a way that allows for adjustments to broad strategies and individual tactics.

Yes, you need a plan. A company without a plan is a rudderless ship. Your business and marketing plans are crucial when business is strong and also during difficult times. The key is to build a plan that is appropriate for your situation, and then create an environment in your organization that supports effective implementation.

Flexibility Is Your Friend
Marketing and business plans should incorporate only as much detail as is practical to implement.

When you face an uncertain situation, keep your business or marketing plan flexible. Uncertainty means you will likely make some mistakes. Prepare to accommodate failure.

Your marketing and business plans should allow for adjustments and the ability to incorporate new ideas which emerge. You must have the freedom to learn on the fly and adjust as the situation becomes clear.

For example, test whether a new advertising method would work before committing to a long term contract. If you find the promotion does not meet your expectations you are then able to examine what the cause may be. This allows you to make adjustments until you are confident you have something that works, then commit a larger portion of your time and budget.

Note that a highly structured and detailed plan is valuable when you operate in a predictable industry during an economic period of relative stability. Upfront detail work will allow you to simply execute the plan efficiently by not having to constantly adjust your strategy or tactics.

Core Principles Should Guide Adjustments
If you must adjust your business or marketing plan, make sure you retain a focus on what factors drive success in your organization. Allow your Core Principles to guide the many diverse decisions that emerge.

These principles will be different for each company. Basically they are the key success factors in the organization. These will be different for each company, because each business faces a different situation. Three examples of Core Principles are:

1) Maintaining Culture: It can be difficult to maintain your company's culture throughout a period of change. For example, staff hired in growth mode will be familiar with different corporate cultures.

2) Maintaining Profitability: Often, it is crucial to ensure all departments understand a slow economy does not mean operating losses are acceptable. Profitability in tough times builds a strong base for long term health.

3) Retaining Profitable Customers: How can we retain profitable customers when difficult times are over? It is crucial to adopt a long-term view to managing your client base.

Force yourself to identify only a select few core principles, and let these guide all decisions. This process keeps you focused on what is important in the long term.

Incremental Improvements
When times are good, strong revenues hide mistakes and managers have the courage to make difficult business decisions. In difficult times, mistakes become more obvious and managers can be paralyzed by indecision.

Decisions become hard because these managers often lack good information. When you face uncertainty, your first priority should be to learn about your situation. Avoid costly mistakes but accept some degree of failure in your plan. Make minor changes to the business and learn from the result. Then you can apply this knowledge to understand what will actually work on a larger scale.

The key is to move forward, even if it becomes a matter of making baby steps. Adopt the mindset that any decision often puts you in a better position than before.

Educated guesses can be valuable when faced with uncertainty. When an industry is in flux, front line employees and department managers will see trends emerging and understand points of value that are important to customers. Trust the instincts of these front line employees. Build off these industry insights early on in the process to test market new products or attempt adjustments to internal processes.

Monitor Success
Two months into the plan, how will you know if your strategies and tactics are unfolding as you intended? What formal and informal systems are in place to gather necessary information? Do you know what results you are looking for before the plan is executed?

A good performance measurement program will provide valuable feedback on areas of the plan you can actually adjust during implementation. The program should also provide useful perspectives for building future year's plans.

Focus on Execution
When your sales manager reports to you that a certain product launch has not met revenue expectations, does your company encourage that manager to make adjustments? Corporate Culture is the atmosphere in the company that influences employee attitude and actions. Your company's Corporate Culture must create a supportive environment to learn from inevitable failures.

It is crucial to ensure the people executing the plan's strategies have a solid understanding of why they are in place and how they are expected to unfold. Good input from the front line comes from people who understand the bigger picture. They need context for their suggestions.

People that are used to winning often have a hard time accepting failure. People need to expect that some failure will occur.

Back to our sports analogy, professional sports teams know they cannot win every game. The key is to understand why you won or lost and how you can improve.

Conclusion
A plan can be structured in a way that builds on both successes and failures. Often this involves managing your company's risk in uncertain times. You must also create an environment that nurtures an employee's ability to learn from personal judgements, and adjust as information becomes available.

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