No Risk, No Return

“It’s important that we start experimenting.  We’ll do any experiment that can guarantee a 20% return on investment.”

That’s what a senior manager said to my Phd student Paul Newbury.  We laughed about it when he told me, but…. I actually hear this far too often.

Any idiot can say yes to a project with a guaranteed 20% return.  That’s not an experiment.

Experiments are things where we don’t know the answer in advance.  Jeff Bezos said this about experiments:

“If you only do things where you know the answer in advance, your company goes away.”

And then there’s this from Alan Kay:

“If you don’t fail at least 90% of the time, you’re not aiming high enough.”

It’s a topic that for some reason has been following me around for the past week.  It illustrates a core innovation problem: if we don’t take a risk, we can’t innovate.  If don’t innovate, we don’t grow.  But we hate risk, so we avoid them.

Avoiding Small Problems Creates Big Ones

Last week I was talking to Cassandra Kelly and Nigel Lake.  They are co-CEOs of Pottinger, and they’re doing absolutely fascinating and important work there.  Cassandra was talking about how consultants often operate – they identify a problem and then they use further engagements to try to eliminate all possible risk for their clients.  When she said this, I blurted out “But that’s like trying to raise germ-free kids.”

The problem with raising kids in a germ-free environment is that decreasing their exposure to germs and illness early in life greatly increases their chances of contracting much more serious illnesses as an adult.

Similarly, if you live in a region prone to drought, you need to have regular small fires.  If you don’t have lots of small fires, then the fuel load builds up so much that you eventually have a devastating big fire.

When we try to avoid the risk of small problems, perversely, we increase the risk of having bigger ones.

With genuine experiments, we don’t know the answer in advance. That means we risk small losses if the experiment doesn’t work.  But if we avoid those small losses, we increase the risk of having the company go away.

We Grow by Messing Up, and Learning

We learn to ride a bike by crashing a lot.  We minimise the damage by going slowly, and using training wheels.  But you can’t learn to ride a bike without trial and error.  We build this new skill by failing, but then learning from it.

Seth Godin says that if we try to avoid risk, we’re putting ourselves in a prison:

“…we’re losing our ability to engage with situations that might not have outcomes shiny enough or risk-free enough to belong in the palace. By insulating ourselves from perceived risk, from people and places that might not like us, appreciate us or guarantee us a smooth ride, we spend our day in a prison we’ve built for ourself.

Growth is messy and dangerous. Life is messy and dangerous. When we insist on a guarantee, an ever-increasing standard in everything we measure and a Hollywood ending, we get none of those.”

And Julien Smith says that scars are a sign that you’ve lived and learned:

“A life that has been wasted leaves a body intact and pristine– but a life that has been properly used leaves scars.

Scars tell stories. They are what’s left by mistakes we’ve made. They’re what remind us of the places we’ve been and the people we’ve known.”

If we want to grow as people, we have to mess up.  That only works if we learn, but that is how we build new skills and attitudes.

If we want our organisations to grow, it’s the same deal.  We have to try stuff, do more of the things that work, and learn from the things that don’t work.  These are at the core of building your innovation capability.

If the world ran like clockwork, then we could only do those experiments that guaranteed a 20% ROI.  But the world isn’t a machine – it’s a complex system.

In a complex system, 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.

That’s how to grow.  Innovate through experiments.  Take some risks, get some scars, learn.