This is one of those stories that we hope never happened with us.
I was a fresh graduate with no experience and in my first job. I had decent success in my first job and had reached a point where I had built enough trust with my boss that he allowed me to run one of his branch office. As part of the role, I was supposed to handle sales and procurement both. And in my eagerness to do well for my company, I sold a specific product to a customer at a price that was deeply discounted (I quoted the price of a different quality of the same product) and so got the order confirmed. It is only when I informed my boss, that he realised the mistake I had made. What he did then has shaped my entire career.
First, he asked me if the customer has confirmed the order. When I said that I have a confirmed order, he asked me to dispatch the order as per the agreed terms. He asked me to talk to the customer to check if he could make some payment upfront as an advance, if possible. Try to get this done, without any discussion of the price or the mistake that was made. If it works, it works, if not, it is fine as well. As it happens, the customer agreed to pay 30% of the invoice value as advance. We dispatched the material as per the price I had quoted.
When I met my boss the next time (he was in a different city), I profusely apologised for my mistake as the loss on account of the single order was more than 10 times my annual salary. He said, it is ok to make mistakes as long as you learn from the mistake and don’t repeat it. Your making mistakes shows that you are willing to take risks and push boundaries. This is good for both you and the company.
This one conversation helped me realise (now when I look back) the importance of taking smart risks and that it is ok to fail and mess up, as long as you learn from them. This also taught me that as an entrepreneur, it is important to teach and allow our employees to take smart risks and push boundaries.
The question is what can we do to create a culture where not only is this ok, but is encouraged.
Before we go ahead, we need to understand what I mean by smart risks. First step is to redefine the term risk. Instead of calling it taking risks, we are much better off, calling them experiments. So, what kinds of experiments are smart experiments that we want to encourage our employees to take.
S – Simple:
We need to teach our employees what a simple experiment is and what is not. Any action that the employee takes that is self-contained, the risk associated with that is a simple risk and the experiment is a simple experiment. Any action that can have an impact on multiple sides of for business and can’t be self-contained is a complex risk or a complex experiment.
M – Manageable:
Any experiment that if failed, has the potential to threaten the business or a significant part of the business is non-manageable and the employees need to come us as entrepreneurs with such ideas and we should decide if we go ahead or not. Any experiment that is small enough that even if it fails, it doesn’t threaten the business, is a manageable experiment. It is always a good idea that we start encouraging our employees to start with experiments that have minimal downside and then continue to increase this limit for employees as they become more experienced. We can also start with certain limits within which employees are encouraged to experiment.
A – Astute:
Any experiment is an astute one if it has a potential upside irrespective of what the actual results of the experiment are. This only comes with experience and we need to teach our employees to design experiments which are astute. Once they learn to design such experiments, we can allow them to continue to increase their scope, gradually.
R – Retractable:
If the experiment is designed in such a way that they are retractable as and when needed, they are retractable experiments. These are by nature simple and contained and can be easily retractable. These kinds of experiments serve as good starting point for employees to build their experimentation muscles.
T – Teaches something (irrespective of failure or success):
The goal of every experiment is for us to learn something valuable – irrespective of the experiment’s results. It is important that these teachings are not contained with the employee who ran the experiment but the learning is shared with all the employees, so they all learn from the experiment.
It is not enough for us as entrepreneurs to define what a SMART experiment looks like and how to design one for our employees to start experimenting. We need to walk the talk.
It is in this context that I would like to share this analogy:
Are you a Lifeguard or a Swimmer?
Dave Burgess, author of Teach Like a Pirate (2012) asks this great metaphorical question about whether or not you are walking the talk.
He explains:
“Lifeguards sit above the action and supervise the pool. Although he or she is focused, there is a distinct sense of separateness both physically and mentally. In contrast, a swimmer is out participating and an integral part of the action.” (pp.14-15)
We need to model the behaviour that we expect of our employees and at the same time, recognise and reward the behaviour that we expect from our employees. Without reward and/or recognition, this will just become one of those things that we say and everyone listens with both their ears (in from one and out from the other) and nothing changes.
The reward for having enterprising employees who are willing to design experiments to learn and push the envelope is something that all of us entrepreneurs yearn for as this gives us leverage like no other action can. Suddenly, we can find that employees are engaged, trying new stuff and learning from them.
One key insight here is that while we want to encourage risk taking through experimentation, we don’t want to rock the boat. So, it can also help to identify certain areas of our business that are ripe for experimentation and unleash our employees to design and run experiments in that specific area. This restriction and focus at times brings out the best creativity amongst our employees and has the potential to bring in game-changing results for us. This area can change every quarter or half-year, depending upon where in our business do we need a burst of creativity.
One of the most important thing that we can do to encourage SMART experimentation is to acknowledge every effort and coach the teams at the end of every experiment. The coaching can be very simple things like asking them some very pointed questions like the following:
Coaching Questions at the end of every experiment
1. Why did you design the experiment the way you designed? What other options did you consider before finalising this design?
2. What was your purpose of running this experiment? Did you achieve what you set out to achieve? How? Why not (if the experiment failed)?
3. Given that you have now finished your experiment, what could you have done differently? Did you think of that while designing the experiment? IF yes, why did you not go with that option? What assumptions did you have that indicated you go with the design you went with?
4. What have you learnt from the experiment, that you did not already know? Why?
5. Based on what you have learnt, what can we do differently going forward?
Conclusion
These questions will help the team reflect on their experiment and internalize their learning. Knowing that they will have to answer these questions at the end of each experiment will also force them to document their thinking while designing the experiments, which when they revisit at the end of the experiment will give them a very good sense of what they were right about and where they were off the mark to start with.
This will also show people that we value both successful and failed experiments equally and thereby will encourage more smart experimentation amongst our employees.
Hi Mukesh: thanks for posting this interesting article. I see this challenge differently. First, despite that for some, risk might have a negative connotation, we should not substitute words. Experiment and risk have different meanings. Employees should think about risk, because that’s what’s involved in betting, whereas experiments are conducted for knowledge acquisition. If my experimental hypothesis is disproven, I have gained knowledge, and not necessarily failed. When risks become reality, failure is often the outcome, or at least, failure is often more likely. Probability underpins the concept of risk. With experiments, I’m not necessarily thinking, “what are the chances of X occurring if?. . .” I’m just thinking “what happens if? . . .” When I’m managing projects, I always want my employees thinking in terms of the former, not the latter.
Which brings up the question about what distinguishes an intelligent bet from one that is not. (note: I purposely did not say “good” bet.) An intelligent bet has the following characteristics: 1) the odds of winning are understood, 2) the bettor can sustain a failed outcome, and 3) the best possible result should be one worth having (as you point out in your article).
The problem comes from applying the risk model you have described across the board. Some situations and organizations are notably risk intolerant. An extreme example: most health-care providers don’t want their employees taking chances with administration of pharmaceuticals. Their operational risk capacity is much smaller than where I have spent most of my B2B sales career. Generally, if I don’t specify or supply the right equipment for an application, people don’t die or get injured. Gross margin might take a hit, but my company will fix things and we’ll move on, as in your excellent example. In my niche, we just use sales pipeline multipliers (e.g. 2X or 3X quota) as a proxy for risk capacity.
Similarly, some start-up companies that are weakly capitalized don’t have the same risk capacity for a company like, say, Google, which has funded some monstrously expensive project debacles (Google Glass, Google Groups), and still survived. In Google’s case, their risk capacity gives them a key competitive advantage because failures won’t sink the company. Something that executives at Boeing and Airbus are no doubt very envious of.
Hi Andrew
Thanks for the thoughtful comment. I do agree with you that certain organisations are more risk averse than others and hence their approach to allowing their employees to take risks could be very conservative.
It is my personal belief that in most organisational context we can use the SMART metaphor for encouraging experimentation. In business, knowledge when applied can lead to result. The application part is what I cover while talking about coaching at the end of every experimentation.
Again, thank you for the thoughtful comment.
Regards
Mukesh