FF49: Failure stinks, but it's not always bad
Jul 07, 2022Welcome to the 111 new subscribers this week! Going forward, each week you'll receive one framework and one finance concept. I hope you enjoy this new format!
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Framework: The Waterline Principle
Growing up, I always saw failure as a bad thing.
In sports, it was all about winning.
In school, it was about getting the best grade.
Over time, that fear of failure can create paralysis. How many children had dreams of becoming an astronaut or the president ended up in a 9-5 they hated for the rest of their days?
For me, my fear was a fear of sticking out. I didn’t want to be seen or noticed by those around me. That fear resulted in my taking every “traditional” path without much thought of anything else.
I don’t think any one thing created this fear, but I do think society makes this fear worse.
When we talk about famous people, we focus on their successes and gloss over their failures. But when you look at their life, the story is a lot different. Bill Gates had multiple companies before Microsoft, all of which failed. Elon Musk has failed again and again. Walt Disney struggled for years before his breakthrough.
The reality is, failure is often a necessary part of any breakthrough in life.
But, not all failure is equal or the same.
Jeff Bezos, founder of Amazon, has talked about failure his shareholder letters:
"One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it's going to work, it's not an experiment.”
Bezos uses the example of failing at building a fulfillment center versus failing at developing a new product or service. Failure at building a fulfillment center means that some planning wasn’t done correctly and it has a big financial impact. Failing at developing a product or service is expected and “baked in” to the model. It’s expected.
A good framework to help us identify good failure versus bad failure is the waterline principle.
The company W.L. Gore developed this principle and says:
"The waterline principle means that it's ok to make a decision that might punch a hole in the boat as long as the hole is above the waterline so that it won't potentially sink the ship. But, if the decision might create a hole below the waterline which might cause the ship to sink, then associates are encouraged to consult with their team so that a collaborative decision can be made.”
So, how can we apply it?
As a manager, when mistakes aren’t fatal or irreversible, allow and encourage experimentation.
But, when the consequences are serious or expensive, provide more guidance and be more hands-on.
As an entrepreneur, when above the waterline move quickly.
When below it, seek the counsel of others and have a more deliberate process.
If you want to dive deeper, I talked about this principle in my latest podcast episode, which you can listen to here:
FF 53: How to fail well (The Waterline Principle) - Kurtis Hanni - CFO, Consultant, & Podcast Host — kurtishanni.com
Failure is seen as a bad word, but not all failure is bad. In this episode, I talk about what good failure looks like and introduce a few principles that will help you fail well. Follow me on Twitter Subscribe to my email newsletter
Financial Concept of the Week
Establishing a rhythm of financial reporting in your company/department is extremely important. Today on Twitter I broke down the concept of the weekly dashboard.
In the next few weeks, I'll break down the monthly and annual reporting rhythms.
Read about the weekly one here:
Question of the week
Ask yourself: what have you put off making a decision on that the consequences aren’t severe?