I often tell people that failure is an essential part of innovation. What do I mean by that?

I think that what I really mean is that to innovate, we have to learn. It’s not the failure that drives innovation, but rather the learning.

There is really a hierarchy of failure:

• System failure (the collapse of communism)
• System component failure (stock market crashes)
• Major firm failure (Enron going out of business)
• Start-up failure (pets.com going out of business)
• Product failure (New Coke tanking)
• Idea failure (Apple Navigator prototyped but never launched)

Idea failure can happen in many different ways too – prototypes, assumptions, hypotheses and guesses can fail to work as anticipated.

When people react against the idea of failure, they are usually thinking about higher levels of failure than ideas. And it is really bad when entire systems fail. When firms fail, it is certainly bad for the people that are invested in them – especially the workers.

On the other hand, firms that aren’t doing well often are in that position because they are not providing value to people. And yet, there are still many resources tied up in keeping these firms going. In many cases, an economy or a region is better off when these firms fail, and the resources are reallocated to other ventures that are able to provide greater value.

Nevertheless, if you are a CEO, or a manager, or a worker, you don’t want your firm to fail, or your new product launch. Or often even your idea. And this is why we keep talking about failure – because in order to innovate, and in order to continue to provide value to people, some of your ideas must fail.

Watch this short clip from the great physicist Richard Feynman:

Here’s the transcript of what he says:

Now I’m going to discuss how we would look for a new law. In general, we look for a new law by the following process. First, we guess it (audience laughter), no, don’t laugh, that’s the truth. Then we compute the consequences of the guess, to see what, if this is right, if this law we guess is right, to see what it would imply and then we compare the computation results to nature or we say compare to experiment or experience, compare it directly with observations to see if it works.

If it disagrees with experiment, it’s WRONG. In that simple statement is the key to science. It doesn’t make any difference how beautiful your guess is, it doesn’t matter how smart you are who made the guess, or what his name is… If it disagrees with experiment, it’s wrong. That’s all there is to it.

So theory is built on testing guesses. When they are wrong, the idea fails, but we learn. That helps us make the next guess better.

This is what Edison did when he tried out 10,000 things as elements in a light bulb – tested guesses, watched them fail, learned.

Julien Smith talks about this in The Flinch(still free to download to kindle!):

Here’s the thing: the lessons you learn best are those you get burned by. Without the scar, there’s no evidence or strong memory. The event didn’t actually happen or imprint itself on your brain—you just trusted those who know better. Adults know what’s safe, so you listen. Over a lifetime, those who listen too much build a habit of trust and conformity. Unfortunately, as time goes on, that habit becomes unbreakable. This is dangerous.
…
Ralph Waldo Emerson said, “Do not go where the path may lead; go instead where there is no path and leave a trail.”
…
Consider this: in your corridor, every flinch is a door you can open with a new scar and lesson behind it, the same way a kid learns by touching the burner. It’s an experiment—an attempt at something new. Not all experiments hurt, but all of them are valuable—and if you don’t open doors, you’ll never get the scars or learn the lessons. Open doors mean expanded options. The flinch will block you, but once the door is open, the threat vanishes. A new path appears.

It’s the experiments that lead to learning, and also what allow you to forge the new trail.

Theories are built on many failed ideas in the form of experiments, business models are built on many failed ideas in the same way. We build the big ideas on top of a foundation of failed ideas. In other words, failing at the lowest level and learning from it is the best way to avoid failing at the higher levels.

When I talked about how to think about the future, I said:

In a complex economy, the way to think about the future is this:

• We can’t predict the future.
• But we can learn about the patterns from which the future will emerge.
• In fact, while we can’t control the future, we can influence it.
• The best way to influence the future is by innovating through experiments.

What experiment can you try today?

That is what we’re talking about when we talk about failure. It’s not big, headline-grabbing major failure. It’s small, easy-to-miss idea failure. These are important because that’s how we learn.

And really, it’s the learning that drives innovation, not the failure. It’s just that if we’re scared of failure, we’ll fail to learn.