Failure: Understanding it, Embracing It and Understanding Its Role In Success

The Art of Failure

Monterey Institute of International Studies

Eli Zelkhaeli.zelkha@gmail.com

1The Art of FailureAdminstrative

E-mail: eli.zelkha@gmail.com

Tel:650-218-6789

Address:573 Patrol RoadWoodside, CA 940622The Art of FailureAgenda - Saturday

IntroductionFailure & Customer Discovery & Development Steve Blank

Class Exercise

Building Indias First Coffee Shop Chain - Sashi Chimala

Frameworks of Failure

Student Self-Diagnostics

Samasource Claire Hunsicker3The Art of FailureAgenda - Sunday

Introduction

Starting a Y Combinator Company - Matthew Brezina

Student Discussion: Y Combinator & Failure

Failure & Entrpreneurship Ariel PolerPsychology of Failure

Lessons of Failure & the Concepto Venture Model Eli Zelkha & Simon Birrell Global Failure & Success in Technology & Social Ventures - Kamran Elahian

Closing4The Art of FailureSteve Blank

Serial entrepreneur - 30 years of experience in high tech

Professor at UC Berkeley School of Business, and a Lecturer at Stanford Graduate School of Engineering.

Founder or participant in eight Silicon Valley startups since 1978.

E.piphany; two semiconductor companies (Zilog and MIPS Computers); a workstation company (Convergent Technologies); a supercomputer firm (Ardent); a computer peripheral supplier (SuperMac); a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games).

Boardmember of CafePress.com, an on-line marketplace, and IMVU, a 3D IM social network.

"Four Steps to the Epiphany" is the definitive work on Customer Development and is one of the foundations of Lean Startups.

Steve Blank is a serial entrepreneur with over 30 years of experience in high technology companies and management. He is a Professor at UC Berkeley School of Business, and a Lecturer at Stanford Graduate School of Engineering.

Steve has been a founder or participant in eight Silicon Valley startups since 1978. His last company, E.piphany, started in his living room. His other startups include two semiconductor companies (Zilog and MIPS Computers), a workstation company (Convergent Technologies), a supercomputer firm (Ardent), a computer peripheral supplier (SuperMac), a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games). Steve is on the board of CafePress.com, an on-line marketplace, and IMVU, a 3D IM social network.

Steve teaches entrepreneurship and a methodology of managing marketing, sales and business development in high technology startups.His course text "Four Steps to the Epiphany" is the definitive work on Customer Development and is one of the foundations of Lean Startups.

5Silicon Valley & FailureWe are special because we embrace failure

Silicon Valley & FailureNot True

The Art Of Failure1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

Class Exercise & Discussion The Art Of Failure1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"?

Class Exercise & Discussion The Art Of Failure1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"?

3. How did you recover from this experience?

Class Exercise & Discussion The Art Of Failure1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"?

3. How did you recover from this experience?

4. What if anything did you learn from the experience?

Class Exercise & Discussion FailureInspiring QuotationsFailure is the foundation of Success, and the means by which it is achieved.- Lau Tzu

I have not Failed, I have learnt 9,999 ways that wont work.- Thomas Edison

People dont Fail, it is the Plan, Strategies and Tactics that Fail.- Paul Mc.Kenna

FailureInspiring QuotationsBut how severe is the Downside?!

Can I recover from a Failure?

FailureFear of FailureOne of the greatest fears people have

Related to Fear of Criticism or Rejection

Incapacitates unsuccessful people

Unable to take action

Leads to failure of omission

Fear of failure is one of the greatest fears people have. Fear of failure is closely related to fear of criticism and fear of rejection. Successful people overcome their fear of failure. Fear incapacitates unsuccessful people.The Law of Feedback states: there is no failure; there is only feedback. Successful people look at mistakes as outcomes or results, not as failure. Unsuccessful people look at mistakes as permanent and personal.Buckminster Fuller wrote, Whatever humans have learned had to be learned as a consequence only of trial and error experience. Humans have learned only through mistakes.Most people self-limit themselves. Most people do not achieve a fraction of what they are capable of achieving because they are afraid to try because they are afraid they will fail.Take these steps to overcome your fear of failure and move yourself forward to getting the result you desire:

Step One: Take action. Bold, decisive action. Do something scary. Fear of failure immobilizes you. To overcome this fear, you must act. When you act, act boldly.Action gives you the power to change the circumstances or the situation. You must overcome the inertia by doing something. Dr. Robert Schuller asks, What would you do if you knew you could not fail? What could you achieve? Be brave and just do it. If it doesnt work out the way you want, then do something else. But DO SOMETHING NOW.Step Two: Persist. Successful people just dont give up. They keep trying different approaches to achieving their outcomes until they finally get the results they want. Unsuccessful people try one thing that doesnt work and then give up. Often people give up when they are on the threshold of succeeding.Step Three: Dont take failure personally. Failure is about behavior, outcomes, and results. Failure is not a personality characteristic. Although what you do may not give you the result you wanted, it doesnt mean you are a failure. Because you made a mistake, doesnt mean that you are a failure.Step Four: Do things differently. If what you are doing isnt working, do something else. There is an old saying, if you always do what youve always done, youll always get what you always got. If youre not getting the results you want, then you must do something different. Most people stop doing anything at all, and this guarantees they wont be successful.Step Five: Dont be so hard on yourself. Hey, if nothing else, you know what doesnt work. Failure is a judgement or evaluation of behavior. Look at failure as an event or a happening, not as a person.Step Six: Treat the experience as an opportunity to learn. Think of failure as a learning experience. What did you learn from the experience that will help you in the future? How can you use the experience to improve yourself or your situation? Ask yourself these questions:What was the mistake?Why did it happen?How could it have been prevented?How can I do better next time?Then use what you learned from the experience to do things differently so you get different results next time. Learn from the experience or ignore it.Step Seven: Look for possible opportunities that result from the experience. Napoleon Hill, author of Think and Grow Rich, says every adversity, every failure and every heartache carries with it the seed of an equivalent or a greater benefit. Look for the opportunity and the benefit.Step Eight: Fail forward fast. Tom Peters, the management guru, says that in todays business world, companies must fail forward fast. What he means is that the way we learn is by making mistakes. So if we want to learn at a faster pace, we must make mistakes at a faster pace. The key is that you must learn from the mistakes you make so you dont repeat them.Although we all make mistakes, fear of failure doesnt have to cripple you. As self-help author Susan Jeffers says, feel the fear and do it anyway.

14FailureFear of Failure Another ViewSuccessful people look at mistakes as outcomes or results, not failure

Unsuccessful people look at mistakes as permanent and personal

FoF is self-limiting fear even trying for fear of failure

There Is No Failure, Only FeedbackFear of failure is one of the greatest fears people have. Fear of failure is closely related to fear of criticism and fear of rejection. Successful people overcome their fear of failure. Fear incapacitates unsuccessful people.The Law of Feedback states: there is no failure; there is only feedback. Successful people look at mistakes as outcomes or results, not as failure. Unsuccessful people look at mistakes as permanent and personal.Buckminster Fuller wrote, Whatever humans have learned had to be learned as a consequence only of trial and error experience. Humans have learned only through mistakes.Most people self-limit themselves. Most people do not achieve a fraction of what they are capable of achieving because they are afraid to try because they are afraid they will fail.Take these steps to overcome your fear of failure and move yourself forward to getting the result you desire:

Step One: Take action. Bold, decisive action. Do something scary. Fear of failure immobilizes you. To overcome this fear, you must act. When you act, act boldly.Action gives you the power to change the circumstances or the situation. You must overcome the inertia by doing something. Dr. Robert Schuller asks, What would you do if you knew you could not fail? What could you achieve? Be brave and just do it. If it doesnt work out the way you want, then do something else. But DO SOMETHING NOW.Step Two: Persist. Successful people just dont give up. They keep trying different approaches to achieving their outcomes until they finally get the results they want. Unsuccessful people try one thing that doesnt work and then give up. Often people give up when they are on the threshold of succeeding.Step Three: Dont take failure personally. Failure is about behavior, outcomes, and results. Failure is not a personality characteristic. Although what you do may not give you the result you wanted, it doesnt mean you are a failure. Because you made a mistake, doesnt mean that you are a failure.Step Four: Do things differently. If what you are doing isnt working, do something else. There is an old saying, if you always do what youve always done, youll always get what you always got. If youre not getting the results you want, then you must do something different. Most people stop doing anything at all, and this guarantees they wont be successful.Step Five: Dont be so hard on yourself. Hey, if nothing else, you know what doesnt work. Failure is a judgement or evaluation of behavior. Look at failure as an event or a happening, not as a person.Step Six: Treat the experience as an opportunity to learn. Think of failure as a learning experience. What did you learn from the experience that will help you in the future? How can you use the experience to improve yourself or your situation? Ask yourself these questions:What was the mistake?Why did it happen?How could it have been prevented?How can I do better next time?Then use what you learned from the experience to do things differently so you get different results next time. Learn from the experience or ignore it.Step Seven: Look for possible opportunities that result from the experience. Napoleon Hill, author of Think and Grow Rich, says every adversity, every failure and every heartache carries with it the seed of an equivalent or a greater benefit. Look for the opportunity and the benefit.Step Eight: Fail forward fast. Tom Peters, the management guru, says that in todays business world, companies must fail forward fast. What he means is that the way we learn is by making mistakes. So if we want to learn at a faster pace, we must make mistakes at a faster pace. The key is that you must learn from the mistakes you make so you dont repeat them.Although we all make mistakes, fear of failure doesnt have to cripple you. As self-help author Susan Jeffers says, feel the fear and do it anyway.

15FailureFear of Failure OvercomingTake ActionPeristDont take failure personallyDo things differentlyDont be so hard on yourselfTreat the experience as opportunity to learnLook for possible opportunities that result from the experienceFail forward, fast

Fear of failure is one of the greatest fears people have. Fear of failure is closely related to fear of criticism and fear of rejection. Successful people overcome their fear of failure. Fear incapacitates unsuccessful people.The Law of Feedback states: there is no failure; there is only feedback. Successful people look at mistakes as outcomes or results, not as failure. Unsuccessful people look at mistakes as permanent and personal.Buckminster Fuller wrote, Whatever humans have learned had to be learned as a consequence only of trial and error experience. Humans have learned only through mistakes.Most people self-limit themselves. Most people do not achieve a fraction of what they are capable of achieving because they are afraid to try because they are afraid they will fail.Take these steps to overcome your fear of failure and move yourself forward to getting the result you desire:

Step One: Take action. Bold, decisive action. Do something scary. Fear of failure immobilizes you. To overcome this fear, you must act. When you act, act boldly.Action gives you the power to change the circumstances or the situation. You must overcome the inertia by doing something. Dr. Robert Schuller asks, What would you do if you knew you could not fail? What could you achieve? Be brave and just do it. If it doesnt work out the way you want, then do something else. But DO SOMETHING NOW.Step Two: Persist. Successful people just dont give up. They keep trying different approaches to achieving their outcomes until they finally get the results they want. Unsuccessful people try one thing that doesnt work and then give up. Often people give up when they are on the threshold of succeeding.Step Three: Dont take failure personally. Failure is about behavior, outcomes, and results. Failure is not a personality characteristic. Although what you do may not give you the result you wanted, it doesnt mean you are a failure. Because you made a mistake, doesnt mean that you are a failure.Step Four: Do things differently. If what you are doing isnt working, do something else. There is an old saying, if you always do what youve always done, youll always get what you always got. If youre not getting the results you want, then you must do something different. Most people stop doing anything at all, and this guarantees they wont be successful.Step Five: Dont be so hard on yourself. Hey, if nothing else, you know what doesnt work. Failure is a judgement or evaluation of behavior. Look at failure as an event or a happening, not as a person.Step Six: Treat the experience as an opportunity to learn. Think of failure as a learning experience. What did you learn from the experience that will help you in the future? How can you use the experience to improve yourself or your situation? Ask yourself these questions:What was the mistake?Why did it happen?How could it have been prevented?How can I do better next time?Then use what you learned from the experience to do things differently so you get different results next time. Learn from the experience or ignore it.Step Seven: Look for possible opportunities that result from the experience. Napoleon Hill, author of Think and Grow Rich, says every adversity, every failure and every heartache carries with it the seed of an equivalent or a greater benefit. Look for the opportunity and the benefit.Step Eight: Fail forward fast. Tom Peters, the management guru, says that in todays business world, companies must fail forward fast. What he means is that the way we learn is by making mistakes. So if we want to learn at a faster pace, we must make mistakes at a faster pace. The key is that you must learn from the mistakes you make so you dont repeat them.Although we all make mistakes, fear of failure doesnt have to cripple you. As self-help author Susan Jeffers says, feel the fear and do it anyway.

16Failure as a Balancing ActTwo Conflicting Risks:

Taking risks beyond our ability to recoverRussian roulette

2. Avoiding any risk (fear of failure)Home bound paranoid

Is it possible to create life transforming ventures while limiting oneself to manageable risks

Failure as a Balancing ActToo Much Risk(Russian Roulette)Too Little Risk(Homebound)The Comfort ZoneModels of FailureThe Innovators DilemmaIgnore disruptive technologies at your peril

Engineering model: FMEA (Failure Modes & Effects Analysis)

Disease model:Collins How the Mighty Fall

Scenario model: Scenario based planning

Venture incubator model:YCombinators 18 Mistakes that Kill

Innovators DilemmaTechnology sometimes outpaces the marketResulting in so-called "disruptive" technologiesDisruptive technologies are often the standards of the futureIgnore disruptive technologies at your perilTraditional thinking misallocates resourcesManagers must be extreme advocates of new technologies in order to allocate sufficient resources to their developmentInnovators DilemmaSustaining vs. Disruptive innovationSustaining Makes products more appealing to existing customersFaster, cheaper, more capableFunctionally equivalent, but fills same customer needsManagers trained to focus on sustaining R&D

DisruptiveEstablished customers have no use for it (yet)Usually simpler, based on breakthrough or repurposed technologyMust find new customers to sell Doesnt make sense until its too lateLook for them in emerging markets

Innovators DilemmaDisruptive Technology Example8-Inch Disk Drives vs. 5.25-Inch Drives1980s 8-inch drives industry standardSeagate developed 5.25-inch driveLess efficient, slower, and more $ / megabyteExisting (minicomputer) customers did not want 5.25-inchEmerging desktop computer makers needed smaller, lower-cost drive Didnt mind less efficient and slower8-inch drive makers held captive by customersSeagate won the dayInnovators DilemmaAddressing Disruptive Technologies:Develop a strategy to address disruptive technologiesEither learn to retreat up-market, build your own, or imitate competitors with disruptive technologiesSeparate disruptive technology development from the rest of the firmSeparate these groups in order to focus their work and create proper incentives for successRecognize the value of disruptive technologiesConservative initial marketing practices and product redevelopment will eventually yield valueFMEAFailure Modes and Effects AnalysisEngineering View of FailureLearn From FailureIterateFMEAFailure Modes and Effects AnalysisDEFINITIONA methodology to analyze and discover:(1) All potential failure modes of a system, (2) The effects these failures have on the system and(3) How to correct and or mitigate the failuresor effects on the system. [The correction andmitigation is usually based on a ranking ofthe severity and probability of the failure]Source: NASA Lewis Research CenterFMEAFailure Modes and Effects AnalysisBenefits of FMEA FMEA is one of the most important tools of reliability analysis. If undertaken early enoughin the design process by senior level personnel it can have a tremendous impacton removing causes for failures or of developing systems that can mitigate the effects of failures.

It provides detailed insight into the systems interrelationships and potentials for failure.

FMEA and CIL (Critical Items List) evaluations also cross check safety hazard analyses for completeness.Source: NASA Lewis Research CenterFMEAFailure Modes and Effects AnalysisSource: NASA Lewis Research CenterProcedure FlowchartDesignGet System OverviewPerform FMEA, ID Failure ModesEstablish Failure EffectDetermine CriticalityRevise DesignProcedure:

Get an overview of the system:Determine the function of all componentryCreate functional and reliability block diagrams.Document all environments and missions of system

ID all potential failure modes for each component

3) Establish failure effect on the next level of the systemDetermine failure detection methodsDetermine if common mode failures exists

4) Determine criticality of the failure, ranking & CIL (Critical Items List)Develop CILCorrective actions rationale

5) Provide suitable follow-up or corrective actions

28Jim Collins

How the Mighty Fall: and Why Some Companies Never Give InHow the Mighty Fall

Adapted from: Jim Collins, Hoe the Mighty Fall and Why Some Companies Never Give InStage 2: Undisciplined pursuit of more Building from stage one is people chasing goals that take them away from their core, their competitive advantage all in the name of growth, or the grand strategy. Stage 3Denial of risk and peril chasing things that are not part of your core, fail to see the problems..Stage 4: Grasping for salvation The silver bullet, abandoning the flywheel and chase things outside the core.Stage 4: Grasping for salvation The silver bullet, abandoning the flywheel and chase things outside the core.How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationStage 5Capitulation to Irrelevance or DeathAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InArroganceEntitlementLose sight of what made successRole of luck

How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationStage 5Capitulation to Irrelevance or DeathAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InOverreachingStray from disciplined creativityLeaps into unknown

How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationStage 5Capitulation to Irrelevance or DeathAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InIgnore negative dataSpinOutsized risksRisk denial

How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationStage 5Capitulation to Irrelevance or DeathAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InPrevious risks become apparentRadical transformationCultural revolution

How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationStage 5Capitulation to Irrelevance or DeathAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InAccumulated setbacksEroded financial strengthAbandon hope

How the Mighty Fall

Stage 1Hubris Born of SuccessStage 2Undisciplined Pursuit of MoreStage 3Denial of Risk and PerilStage 4Grasping for SalvationAdapted from: Jim Collins, How the Mighty Fall and Why Some Companies Never Give InRecovery and RenewalScenario PlanningEli Zelkha & Simon BirrellManaging Partners, Concepto Ventures

Stanford School of Engineering3rd Novermber 2010The Background: Deal at PhilipsCorporate venture capital and strategy for a major global consumer electronics player

DeliverablesStrategic plan unifying disparate unitsHigh impact strategic venture capital investmentsForge strategic alliancesDevelop transformative vision of industry futureVisionary projects on the edge

Background: Deal at PhilipsCorporate venture capital and strategy for a major global consumer electronics player

Background: Deal at PhilipsHow can we do deals or strategy if we know nothing about the space?

About Scenario PlanningScenario Planning: An OverviewTODAY+10%-10%Forecast Based PlanningKnowns and trendsKnowns42Before I dive into the scenarios, let me re-iterate some of the fundamental concepts of scenario planning.

1) We believe that when it comes to long-range planning, a company should imagine a range of possible outcomes, not just one forecast for the future.

2) We also believe that the consumer electronics industry has too many variables--such as industry structure, business models, competitors, technology, regulatory environment, consumer demands, etc.-- affecting the future to reasonably entertain them with one forecast.

3) And finally, we believe its better to be roughly right about a committed direction for Philips, than to be precisely wrong. That is, we think theres a lot of value in making decisions that move us in a direction, even before we know that the decision will have a perfect outcome.

Compare scenario planning to a traditional strategic planning model.the primary difference is comparing knowns and unknowns, that is predictable events and unpredictable oones. And forecasts vs. stories...

So, the simplified scenario planning process is a three-step process First, identify what the world outside of Philips might look like. We do this by analyzing trends and uncertainties that Philips can not control--and we develop several snapshots of those worlds 5-7 years in the future. Next, we imagine what would make that world come about--what are the concrete headlines that would occur in the years leading to the snapshots? And finally we analyze what Philips current strengths and weaknesses are. With each of these steps completed, were ready to identify where the gaps are between what were good at today, and what we believe may be important in the future.

Of course, Im over simplifying here. There are all kinds of statistical models that my partner sometimes uses to test correlation between forces. And there are sophisticated planning tools for identifying existing capabilities. But, the main process take-away here is: scenario planning is a highly structured process for deciding on how a company can close the gaps between what it is today, and what it wants to be in the future.

Scenario Planning: An OverviewTODAY+10%-10%Forecast Based PlanningKnowns and trendsKnownsTODAYScenario Based PlanningUnknowns and uncertaintiesUnknownsUnknownsUnknownsKnowns and trends43Before I dive into the scenarios, let me re-iterate some of the fundamental concepts of scenario planning.

1) We believe that when it comes to long-range planning, a company should imagine a range of possible outcomes, not just one forecast for the future.

2) We also believe that the consumer electronics industry has too many variables--such as industry structure, business models, competitors, technology, regulatory environment, consumer demands, etc.-- affecting the future to reasonably entertain them with one forecast.

3) And finally, we believe its better to be roughly right about a committed direction for Philips, than to be precisely wrong. That is, we think theres a lot of value in making decisions that move us in a direction, even before we know that the decision will have a perfect outcome.

Compare scenario planning to a traditional strategic planning model.the primary difference is comparing knowns and unknowns, that is predictable events and unpredictable oones. And forecasts vs. stories...

So, the simplified scenario planning process is a three-step process First, identify what the world outside of Philips might look like. We do this by analyzing trends and uncertainties that Philips can not control--and we develop several snapshots of those worlds 5-7 years in the future. Next, we imagine what would make that world come about--what are the concrete headlines that would occur in the years leading to the snapshots? And finally we analyze what Philips current strengths and weaknesses are. With each of these steps completed, were ready to identify where the gaps are between what were good at today, and what we believe may be important in the future.

Of course, Im over simplifying here. There are all kinds of statistical models that my partner sometimes uses to test correlation between forces. And there are sophisticated planning tools for identifying existing capabilities. But, the main process take-away here is: scenario planning is a highly structured process for deciding on how a company can close the gaps between what it is today, and what it wants to be in the future.

Scenarios are alternative visions of the futureScenarios are generated by analysis of what we dont know, not just what we doScenarios are used to envision and try out multiple futuresScenarios are used to work backwards in time to today

TODAYScenario Based PlanningUnknowns and uncertaintiesUnknownsUnknownsUnknownsKnowns and trendsScenario Planning: An Overview44Before I dive into the scenarios, let me re-iterate some of the fundamental concepts of scenario planning.

1) We believe that when it comes to long-range planning, a company should imagine a range of possible outcomes, not just one forecast for the future.

2) We also believe that the consumer electronics industry has too many variables--such as industry structure, business models, competitors, technology, regulatory environment, consumer demands, etc.-- affecting the future to reasonably entertain them with one forecast.

3) And finally, we believe its better to be roughly right about a committed direction for Philips, than to be precisely wrong. That is, we think theres a lot of value in making decisions that move us in a direction, even before we know that the decision will have a perfect outcome.

Compare scenario planning to a traditional strategic planning model.the primary difference is comparing knowns and unknowns, that is predictable events and unpredictable oones. And forecasts vs. stories...

So, the simplified scenario planning process is a three-step process First, identify what the world outside of Philips might look like. We do this by analyzing trends and uncertainties that Philips can not control--and we develop several snapshots of those worlds 5-7 years in the future. Next, we imagine what would make that world come about--what are the concrete headlines that would occur in the years leading to the snapshots? And finally we analyze what Philips current strengths and weaknesses are. With each of these steps completed, were ready to identify where the gaps are between what were good at today, and what we believe may be important in the future.

Of course, Im over simplifying here. There are all kinds of statistical models that my partner sometimes uses to test correlation between forces. And there are sophisticated planning tools for identifying existing capabilities. But, the main process take-away here is: scenario planning is a highly structured process for deciding on how a company can close the gaps between what it is today, and what it wants to be in the future.

CONFIDENTIAL - 45Rethinking Industry DynamicsPhilips has a sophisticated way of planning for the future when operating in a mature industry environment

But there are emerging forces that threaten to disrupt--and recycle-- the entire industry, and the current view of dynamics

Forecast-planning is sufficient for a mature industry. But its inadequate when industry transformation is taking place

EmbryonicGrowthMatureAgingIndustry SalesTimeBreaking Out of our PreconceptionsThey are stories that help suspend disbelief in possible futuresWe have a tendency to fixate on one future, or at most, two

Scenarios are a powerful tool for forcing us to abandon previously fixed ideasScenario-based planning allows managers to deliberately try to break the rules of their businessScenarios are about the world, not about us

46Scenario planning is the application of visual dialogue. It is a way to structure and facilitate strategic thinking in management teams and multi-organizational corporations where there is increasing uncertainty in the business environment.

The beauty of scenario thinking is that it allows us to tell each other stories about how the world might work. The key element is not whether we are "right" or "wrong," but rather, that we dig deep down to understand that it is our assumptions and perceptions that underpin the imaginations in each scenario, and evaluate their plausibility, their credibility. Scenarios are not linear or mechanistic, they are displays of exponential connections.How they help usThey enable us to practise for different futuresThey are a tool for envisioning, not predictingThey suggest the strategies, deals and alliances that we would need to prosper in different worldsThe process of creating scenarios makes you smart about a space

The pace of change in large corporations has reached stunning speed. And this speed is matched equally by the scale and scope of decisions being made by management-decisions that often change the very nature of the company, and may even alter the structure of its industry and markets. Many decisions are needed to be made, and some are rather important. How are such momentous decisions actually made in large businesses?

What usually happens is that executives test a critical decision against their mental model of how the business and their market works. We each carry mental models in our heads; they are the products of our accumulated individual experience. If the decision is compatible with our mental model, we act on it.

When we read objective reports and forecasts, we interpret them through the filter of our experience. This is acceptable in relatively stable industries, where the wisdom inherent in an experience-based mental model has lasting value. But this approach can be extremely dangerous in fast-changing environments. The biggest pitfall is obvious: An experience-based mental model is based on past knowledge and may not be carrying critical new information. If the rules of competing in the market change, a past-oriented mental model will not be able to acknowledge the shift, and wrong decisions will be made.

A critical task of planning is to provide tools that adjust managers' mental models to reflect the rapid changes in their competitive environment. A key success factor is how fast the whole company--not simply individuals--can learn. In fact, this is the central management challenge of the 1990s. The corollary, of course, is the requirement that the organization be able to forget the outmoded information and concepts. Adjusting mental models has everything to do with KM, learning orgs, and future scenarios.

47ScenariosTool for embracing uncertaintyTool for play & provocationTool for envisioning value creation & migration

Tool for upsetting the world(within our minds & outside) & strategic transformation48Redefining Failure

Seth GodinCommon Types of FailureSeth GodinDesign Failure. If your product or service is misdesigned, then people dont understand it, dont purchase it, or may even harm themselves when they use it, and you have failed.Failure of Opportunity. If your assets are poorly deployed, ignored, or decaying, its as if you are destroying them, and you have failed.Failure of Trust. If you waste stakeholders goodwill and respect by taking shortcuts in exchange for short-term profits, you have failed.Failure of Will. If your organization prematurely abandons important work because of internal resistance or a temporary delay in market adoption, you have failed.

Common Types of FailureSeth GodinFailure of Priorities. If your management team chooses to focus on work that doesnt create value, thats like sending cash directly to your competitors, and you have failed.Failure to Quit. If your organization sticks with a mediocre idea, facility, or team too long because it lacks the guts to create something better, you have failed.Failure of Respect. If you succeed without treating your people, your customers, and your resources with respect and honesty, you have failed.Failure to See. And, of course, the most self-referential form of failure is the failure to see when youre failing

Learning From Failure

Fast Failure

Learning From Failure

IdeaInceptionThe Traditional Way

Learning From Failure

IdeaInceptionCreate/Evaluate Alternative ApproachesThe Traditional Way

Learning From Failure

IdeaInceptionCreate/Evaluate Alternative ApproachesChooseAlternativeThe Traditional Way

Learning From Failure

IdeaInceptionCreate/Evaluate Alternative ApproachesChooseAlternativeBuild Full Product and Go To MarketThe Traditional Way

Learning From Failure

IdeaInceptionCreate/Evaluate Alternative ApproachesChooseAlternativeBuild Full Product and Go To MarketThe Traditional WayRange OfOutcomes

Learning From Failure

IdeaInceptionCreate/Evaluate Alternative ApproachesChooseAlternativeBuild Full Product and Go To MarketThe Traditional WayFeedback Too LateNo Resources leftNo Fallback PositionNo Useful LearningRange OfOutcomes

Fast Failure

Failure = Normal = Good. Reward excellent failure. Punish mediocre success.Fail faster. Succeed sooner.Fail. Forward. Fast.Educate for Risk-taking, Creativity, Independence.The Great ComebackVideo LinkSource: Tom PetersThe New WayFail Early and Often

Theory of Small FailuresTest components, not the whole thingControl the environment dont risk everything, e.g. small test marketsExpect failureGain feedbackRedesign componentEmbrace market reality by testing assumptions against realitiesSave resources for fallback position!

The New WayIntelligent, Fast Failure

InceptionThe New WayIntelligent, Fast Failure

InceptionIdea Generation Rapid PrototypingThe New WayIntelligent, Fast Failure

InceptionIdea GenerationRapid PrototypingChooseThe New WayCustomerFeedbackCustomerFeedbackcCustomerFeedbackIntelligent, Fast Failure

InceptionIdea GenerationRapitd PrototypingChoose/TestChoose/Re-Design/Re-TestCustomerFeedbackThe New WayCustomerFeedbackCustomerFeedbackCustomerFeedbackCustomerFeedbackcCustomerFeedbackIntelligent, Fast Failure

InceptionIdea GenerationRapid PrototypingChoose/TestChoose/Re-Design/Re-TestGo To MarketRange OfOutcomesThe New Way

CustomerFeedbackCustomerFeedbackCustomerFeedbackCustomerFeedbackCustomerFeedbackcCustomerFeedbackIntelligent, Fast Failure

InceptionIdea GenerationRapid PrototypingChoose/TestChoose/Re-Design/Re-TestGo To MarketRange OfOutcomesFallback StrategyThe New Way

CustomerFeedbackCustomerFeedbackCustomerFeedbackCustomerFeedbackCustomerFeedbackcCustomerFeedbackAgile Software Development

Agile Software DevelopmentTraditional Development Process

Customers only involved at beginning and end of process

No Iterations

Takes a long time.

Make-or-break

Rarely deliver according to planAgile Software DevelopmentGuiding PrinciplesOur highest priority is to satisfy the customerthrough early and InvolvementWelcome changing requirements.Deliver working software frequently.Business people and developers must work together .Build projects around motivated individuals. Face-to-face conversation. Working software is the primary measure of progress. Agile processes promote sustainable development. Continuous attention to technical excellence and good design enhances agility. Simplicity is essential. Self-organizing teams. Constantly tuning of processes.

Agile Software DevelopmentCustomer Involvement and Rapid Iterations

Plan out 1-4 weeks workImprove processReview productCreate product needs Meet dailyStrategic planning

Agile Software DevelopmentCustomer Involvement and Rapid Iterations

Agile Software DevelopmentCustomer Involvement and Rapid Iterations

MarketsCustomersBiz ModelsStrategyPortfoliosFundingCustomersSalesMarketingSupportUpgradesEOL/EOS

The Gladwell Model

Venture Capital

Debunking The Embracing Failure Myth75Venture CapitalHow It WorksRaise a Fund(Pension, Families, Corporations)Invest (Evaluate, due diligence, close)Harvest(IPO, mergers, management buyout)Raise pools of capital from institutional and individual investors

- Finance new and rapidly growing companies; - Purchase preferred equity securities and take board positions; - Add value to the company through active participationMake $$$ via M&A or IPO

Management Fees (typically 2-2.5% of AUM)Charge a management fee to cover the costs of managing the committed capital.

Carried Interest (typically 20-25%)"Carried interest" is the term used to denote the profit split of proceeds to the general partner.

Example $100m fund 4x return and 2 and 20%$2m per year in management fee(($100m x 4) - $100m) * 20% = $60m in carried interestVenture CapitalHow It WorksVenture CapitalHow It Works

Venture CapitalThe Real Story

Venture capitalists talk of accepting failure

But they are financially motivated only for success the Home Runs

They get their large management fees come rain or shine

They get no compensation for Failures, Living Dead.

They get trivial compensation for Base Hits.

They make their big money from Home Runs.

They cant risk the big pay day by Embracing Failure.Silicon Valley Hype on FailureWe embrace failure BUTone failure is OK, serial failures are deathJust try failing and see where it gets you in the valleyYou become a pariahThe successful are rewarded and the failures are shunned like the plague

The Concepto Venture Model

Simon Birrell, CEOEli Zelkha

Failure in Engineering

Speaker TBD

Cross-Cultural Perspectives on Failure

Speaker TBD

Kamran Elahian

Trans-National Ventures

The End

Frameworks of Failure

Failure Modes & Effects AnlysisCollins: How th Mighty FailScenario PlanningFast, Intelligent FailureAgile ModelGladwell ModelVenture Capital & Failure

FailureWhat The Famous Have To Say .Failure is the foundation of Success, and the means by which it is achieved.- Lau Tzu

I have not Failed, I have learnt 9,999 ways that wont work.- Thomas Edison

Failure is simply the opportunity to begin again, this time more intelligently. - Henry Ford

Only those who dare to Fail Greatly can ever Achieve Greatly.- Robert F. Kennedy

My Failures are as much a blessing from God as my Successes and I lay them both at his feet.- Mahatma Gandhi

People dont Fail, it is the Plan, Strategies and Tactics that Fail.- Paul Mc.Kenna

IntroductionFailureThe Traditional View

Avoided At All CostsDisasterCareer-EndingCompany-EndingPersonal CatastropheEnd-Of-the-Road

IntroductionFailureThe Traditional View

Avoided At All CostsDisasterCareer-EndingCompany-EndingPersonal CatastropheEnd-Of-the-Road

FailureThe Road To Success

Fact Of LifeUse To Our AdvantageBuilds KnowledgeLearn Dont RepeatPlan For ItStart of Next Step

IntroductionMy First Big Failure In Afganistan

Steve Blanc

Failure & Customer DiscoveryBreak15 Minutes

Jessica livingston

Y CombinatorLunch Break

One HourCarol Dwek

Professor of PsychologyStanford UniversityStudent Exercise

Examining Personal patterns of FailureChart111.31.51.72.12.73.44.55.56.16.36.43.53.922.41.21.50.30.1

Stage 1Hubris born of success The cultural tipping point when hard work and focus to earn the business turns into a sense of entitlement to future success.Column1

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Chart10.20.20.6

Portfolio Distribution

Sheet1Portfolio DistributionWinners20%Losers20%Living Dead60%To resize chart data range, drag lower right corner of range.