MONEY

You Need to Make More Mistakes

Many of today's best companies arose out of lucky mistakes. That's why fear of being wrong is the biggest mistake of all.
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If you have ever flown in an airplane, used electricity from a nuclear power plant, or taken an antibiotic, you have benefited from someone's brilliant mistake. Each of these life-changing innovations was the result of many missteps and an occasional insight that turned a mistake into a surprising portal of discovery. Even Albert Einstein made at least 23 mistakes in his published scientific publications. Some of these were necessary to achieve his monumental insights about the deeper forces of nature.

Successful people tend to have a different view about mistakes than most ordinary people. Not only are they more tolerant of them (in themselves and others), but they often embrace them. Steve Jobs celebrated his mistakes during a commencement speech at Stanford, and J.K. Rowling admitted that she could not have produced the astoundingly successful Harry Potter series without having hit rock bottom first.

People in the arts and humanities tend to embrace mistakes comparatively easily. As trumpet great Wynton Marsalis put it, if you are not making mistakes, you are not playing jazz – you are not trying. But I believe the same applies to business:

During the monopoly era, U.S. telephone companies had to provide service to every household in their region, no matter the household's credit history. Each operating company collected deposits from customers with the worst credit history in their state, in order to minimize damage to equipment and delinquent bills. A few companies decided to test their credit scoring model by not charging the deposit for several months. This was clearly a mistake by normal business standards. But then they discovered that the "risky" customer segment actually had fewer delinquencies than some of the others, with less damage to equipment. This counterintuitive insight caused them to recalibrate their risk models and to charge deposits based on different criteria. The improved credit models added an average of $137 million to the bottom line every year for a decade.

As Chairman and founder of our company Decision Strategies, I wondered whether our policy of not responding to Requests for Proposals (RFPs) that came in over the transom was perhaps flawed. We had never responded to an RFP without knowing at least one person at the requesting company, assuming that the prospective client was either price shopping or had already determined its favorite candidate. Against the better judgment of many, I decided to test this assumption. We took the next RFP that came in and tailored a proposal. To our pleasant surprise, the unknown client accepted the proposal, and then hired us for additional projects, amounting to more than $1 million in consulting fees.

John Wanamaker, founder of the first major department store in Philadelphia, famously said: I know that half my advertising dollars are wasted, but I don't know which half. The same is true for your business assumptions, especially if you are in a changing market, uncertainty is high, your problems are complex and innovation is your game. In such an environment, a good portion of your assumptions are likely wrong, but you don't know which. The only hope to escape from your self-imposed mental box is to test beyond the scope of what you deem worth testing.

This is quite different from normal experimentation which you can justify on the basis of expected cost and benefits. When making a deliberate mistake, you are spending time and money on tests that conventional wisdom suggests is not justifiable. Deliberately making errors goes against the human grain. But trying too hard to avoid them may be the greatest mistake of all.

PS. Enter our prize contest (co-sponsored by Inc Magazine) and tell us about your most brilliant mistake at http://wdp.wharton.upenn.edu/brilliant-mistakes-contest/

Last updated: Jan 5, 2012

PAUL SCHOEMAKER | Research Director, Wharton School

Paul J. H. Schoemaker is the founder and chairman of Decision Strategies International. A speaker, professor, and entrepreneur, Schoemaker is research director at the Mack Institute for Innovation Management at Wharton, where he teaches strategic decision making. His latest book is Winning the Long Game: How Strategic Leaders Shape the Future.




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