The road to a breakthrough is often haunted by the risk of failure. That's why ABC's Shark Tank investor Barbara Corcoran's number-one rule for building an innovative company is to accept that failure and build it into your budget. 

Corcoran doesn't just mean you should mentally prepare for the possibility that you might not succeed. Rather, she recommends actually setting aside a sum of money on which you're completely comfortable never seeing a return on investment. 

This is what Corcoran did at her real estate firm the Corcoran Group, which she founded in 1973. 

"Each year, I gave all my managers 5 percent of their operating budget to use however they wished, with no accountability," Corcoran writes in Open Forum

If her employees didn't spend the money, they had to give it back. This often led to a lot of dollars spent on parties, day trips, and even alcohol, Corcoran admits. But they also used that money for innovative business projects.

It's OK to have fun, Corcoran insists. That's because you never know when an idea will strike.

"All the small changes that helped grow my business happened when we were playing outside or spending money we had no business spending," she says. "I never had a good idea sitting at my desk, nor did I harvest a big, game-changing idea around a conference table."

For example, after looking at an L.L. Bean catalog, which featured pictures of the clothing company's workers, a receptionist suggested that the Corcoran Group take out a full-page ad to show off its own employees. The team agreed to put some of its "mad money"--the name for Corcoran's failure budget--toward the idea. 

"We dressed our salespeople up, shot a series of ads, and it became the most innovative ad campaign we ever ran," Corcoran says.

She admits that most other zany business ideas didn't work out as well. But the failure budget guarantees at least one benefit: It will train your employees to take their failures less seriously. 

"They learned to laugh it off," Corcoran says. 

Published on: Mar 30, 2015