Highlights

Regrets? I’ve had a few

Can failure really be a spur to success? By Tim Harford and Emma Jacobs
First published in FT Magazine 4 June 2011

One June evening in the summer of 2002, the Shubert Theatre in Chicago played host to a new ballet/musical, Movin’ Out. The show was an unlikely collaboration between Twyla Tharp, a dynamic and challenging choreographer, and the songwriter Billy Joel. It was scheduled to open on Broadway that October, but the critics hated it, offering reviews varying from “stupefyingly clichéd and almost embarrassingly naive” to “pile-driving and ill-conceived”.
So enthusiastic was the criticism that the New York paper Newsday broke with tradition to reprint one of the choicer reviews, well in advance of the Broadway opening. It was left to Twyla Tharp, who had dreamed up the project and directed and choreographed it, to somehow fix the multi-million-dollar mess.
Tharp’s experience, as related in her book The Creative Habit, exemplifies the textbook response to failure: she took the criticism on board, made the necessary changes to her show, and opened on Broadway to glowing reviews. The show won two Tony awards, one for Tharp’s choreography.
The story of Movin’ Out is striking not just because it offers an inspiring narrative of adversity and triumph, but because this sort of transformation is unusual. The idea that one should bounce back from failures is an old one. King Robert the Bruce’s eventually successful war against the English is said to have been inspired by a persistent spider spinning a web in the cave where he was hiding. This was eight centuries ago, yet suddenly the idea seems fashionable – perhaps because there is a lot of failure to go round these days.
In the abstract, learning from your mistakes is an easy and uncontroversial idea. In practice, the whole, facile concept is shot through with difficulty. Who is to say that a mistake has been made? Are the lessons to be learnt really so obvious?
We approached public figures – entrepreneurs, artists, politicians and, of course, bankers – associated with spectacular setbacks of one form or another, asking them to explain what effect the failure had had on them. There were few takers, and one of the refusals – from the former chief executive of a failed bank – was particularly colourful. It seems that these redemptive stories of “learning from mistakes” are less inspiring from the wrong end of the steamroller.
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Put yourself in the shoes of Gerald Ratner. Two ill-judged jokes about his jewellery empire, and it had gone. Ratner says he learnt nothing from this. At first that seems outrageous – but on reflection it is hard to see what he might have been expected to learn, beyond the narrow fact that he shouldn’t sneer about his own products in public. His later, more modest, success with a chain of health clubs didn’t reflect the lessons he had learnt but his proven gifts as an entrepreneur, and they had been there all along.
Twyla Tharp learnt more from her failure in part because she was operating in an environment designed to allow that learning process. The out-of-town tryout is a well-established theatrical institution, and there is an honourable history of rewrites in musicals. (A Funny Thing Happened on the Way to the Forum was first staged, unsuccessfully, without its opening number, “Comedy Tonight”.) Tharp masterminded a more profound and successful transformation of her work than is usual, but this is a difference in degree rather than a difference in kind.
Prototypes – the pre-Broadway run; the focus group; the beta release – are an essential business tool. But they would not have saved Gerald Ratner’s empire, and there are many situations in which prototyping simply cannot help. What exactly is the right way to test a safety system in a nuclear power station, for example? Or, for that matter, a credit default swap on a package of subprime loans? (In fact, nuclear power stations make extensive use of simulators to train their operators – a good idea, but only as good as the simulator itself.)
An important principle of safety engineering, now making its way into banking regulation, is to decouple a complex system so that small parts can fail without destroying the whole. This is wise but it is not always easy. If the mistake is catastrophic enough, learning lessons will be futile.
Ernst Malmsten, the co-founder of Boo.com, a notorious dotcom flop, has reached the conclusion that sometimes it’s not what you do but whether you do it gradually or at a gallop. Boo.com was a fashion retailer, but the manner of its collapse foreshadowed the likes of Northern Rock: the proximate cause of its implosion was the sudden refusal of lenders to back its aggressive business model. There was no off-Broadway tryout here: Boo launched on a grand scale with an expensive 3D website that was way ahead of what surfers on dial-up lines were ready to view. Modest errors in the design of the site were magnified by the ambitious scale of the launch. Malmsten says he has learnt to take things slowly.
The interviewees on this page had one thing in common: their woes became impossible to ignore. Ernst Malmsten watched financiers suddenly pull the plug; Ratner’s gaffe was hurled back at him by the newspapers; Lucy Prebble got to read the obituary of her play in The New York Times, “factitious, all show (or show and tell) and little substance” and the show folded shortly afterwards. Twyla Tharp, too, could hardly deny the message of the critics.
Of course, a person who vehemently denies that he failed is hardly likely to agree to a newspaper interview on the subject of that failure. There are exceptions: witness Donald Rumsfeld’s “Lunch with the FT”, in which he briskly justifies the botched invasion of Iraq, dismisses the missing weapons of mass destruction as bygones, and waves away criticism of his management style (“I don’t give it a lot of credence”).
Rumsfeld is a fascinating character in the study of failure. His refusal to listen to warnings from his own generals – well documented in histories of the Iraq war such as The Gamble and The Fourth Star – is striking. In one infamous press conference, near the height of the insurgency in Iraq, he took the Orwellian step of forbidding his most senior general, Peter Pace, to use the word “insurgent”.
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Yet Rumsfeld’s powers of denial are not terribly unusual. The social psychologists Carol Tavris and Elliot Aronson, authors of Mistakes Were Made (but Not by Me), explain that we are easily sucked into a cycle of self-justification. Once a detective has made up his mind about a guilty man, or a chief executive has set out a bold new strategic direction, contrary evidence is highly discomfiting and will often be rejected out of hand. This “cognitive dissonance” can be extremely powerful, and some of the resulting miscarriages of justice described by Tavris and Aronson beggar belief. When DNA testing was introduced, several prosecutors were confronted with evidence that the semen found on the body of, say, a murdered rape victim did not match the DNA of the man they’d put behind bars. In some cases prosecutors went through extraordinary contortions to explain how this state of affairs might have arisen – rather than accept the painful but overwhelmingly likely conclusion that they had made a mistake.
Tavris and Aronson also reinterpret Stanley Milgram’s notorious “obedience” experiment, in which Milgram’s subjects often showed themselves willing to administer apparently fatal electric shocks. The experiment is usually interpreted as showing that some people will do anything if an authority figure tells them to do so. But there is something else going on: the shocks were very gradually increased in intensity from trivial to dangerous. There was no obvious point at which an experimental subject would find a reason to refuse to continue, because each new shock was similar to the previous one. Tavris and Aronson point out that the moment of quitting is also the moment of recognising that the previous shock had been a mistake. It is very hard to admit such an error to ourselves – we would rather repeat it, in an act of self-justification.
The everyday rituals of life are carefully designed to ensure that people experience the painful sensation of failure as rarely as possible. Think of that trustworthy tactic of office life, the “praise sandwich”. The praise sandwich is a criticism made palatable because it is concealed between two scrumptious slices of praise: “I think this is really good, creative work. It would be wonderful if you could [insert important feedback here]. But overall, as I say, it’s really very good.”
The praise sandwich works because of what the behavioural economist Richard Thaler calls “hedonic editing”. Because losses are far more painful than gains, it’s worth bundling losses together with larger gains – if I receive a tax refund of £150 but lose £10 in the street, hedonic editing is the process of rolling the two together for a net £140 gain. The praise sandwich deploys the same principle: it allows people to save face. Yet as a feedback technique it is risky: the sandwiched-between praise may be lost in the whole. You say, “It’s excellent, but you need to fix …”. I hear “It is broadly excellent”. I feel better, but I will not become better. This will not do, but what is the solution?
There are some people who seem to have an unblinking ability to analyse their mistakes and learn from them. Most of us are not in that category, however. General David Petraeus, celebrated for his achievements in Iraq, was notorious as a young officer for being unable to admit that he was ever wrong: it was the dark side of a brilliant, indefatigable perfectionism. But in 1981, one of the young Petraeus’s first commanders, Major General Jack Galvin, installed Petraeus in the role of official critic. “It’s my job to run the division, and it’s your job to critique me,” insisted Galvin over Petraeus’s protestations. Galvin well understood that not only can we not afford to ignore criticism, we must often go out of our way to solicit it.
Gerald Ratner’s experience is revealing here. Before he gave his fateful speech to the Institute of Directors, he consulted the public relations expert Lynne Franks and explained that he was going to go with the self-deprecating jokes that he was using with some success on the after-dinner circuit, including the “total crap” line. Franks told him to give a speech about ethical business instead. He ignored her. He also ignored his wife’s advice and even that of the woman operating the autocue.
A textbook example of dismissing good advice? Unfortunately it’s not so clear-cut. Ratner asked his company accountant, a trusted associate, who told him to put in riskier jokes. Ratner recalls that his friend Michael Green, of Carlton Communications, thought the speech was fine. So did Charles Saatchi. (All the female critics were correct; all the men were wrong. It is not clear whether this is a pattern that we can rely upon. Perhaps.) In short, you can get good advice, but you still have to decide whose advice to take.
Failure isn’t going away. The economist Paul Ormerod points out (in a book called Why Most Things Fail, of course) that more than 10 per cent of American companies disappear each year. Failure is ubiquitous, which suggests that managing failure is an important skill. We are probably not very good at it. One of the earliest findings in the now red-hot field of behavioural economics was the existence of “loss aversion” – that is, we seem to care more about losing what we have than we care about gaining something new. More recent research into stock market trading, professional poker and even the daytime television sensation Deal or No Deal suggests that we react poorly to the prospect of losses, taking unwise risks in an attempt to recoup what we should regard as gone.
When Ernst Malmsten says he never recognised that failure was possible, this is not how most people think. The typical person – at least in the laboratory games of psychologists and economists – is too conservative, too afraid of failure. Malmsten, however, is a serial entrepreneur; after losing $130m of investors’ money, he says, “I’m more afraid of failure now”. He should be.
Lucy Prebble is perhaps in the strangest position of our three survivors: she wrote one play and received two very different critical and commercial responses on opposite sides of the Atlantic. No wonder she feels “distanced” from the play’s British success. It’s a reminder that success and failure are sometimes separated by the smallest accidents.
And yet they will always feel very different. As motivational posters remind us, Rudyard Kipling urged us to “meet with triumph and disaster and treat those two impostors just the same”. It’s an unlikely thought. Some people can flourish in the wake of disaster; others merely drag themselves on to whatever comes next. But to treat triumph and disaster just the same? That sounds suspiciously like Donald Rumsfeld.
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Lucy Prebble
Writer of Enron – a West End hit and Broadway flop
At 28, playwright Lucy Prebble became the darling of British theatre critics for doing the unthinkable – making a drama out of accountancy. Her musical, Enron, which charted the rise and fall of the Texan energy company, became a sell-out in London in 2009-2010. Broadway beckoned, and in April 2010 the show opened at the Broadhurst in New York.
Then came the reviews – or rather, one in particular. Ben Brantley, theatre critic of The New York Times, who wields huge influence over Broadway, decried Enron as a “flashy … laboured economics lesson”. In May 2010, a month after opening, the final curtain came down.
Prebble had her suspicions that the play might receive a poor critical reception in America: “It had followed a long preview period in which we had a sense that something was wrong.” There were some “very good reviews”, she points out, just not in “the publication that mattered”. However, it was the picture in her mind of her family reading the criticism that made Prebble cry. “Knowing the anxiety and disappointment that they would be feeling on my behalf … I found that very upsetting.”
The criticism hurt “both more and less” than she had expected: “Less,” she says, “in that it’s a group endeavour, and you feel much more the innate kindness and decency in people when they support each other in failure.” But it hurt more because she felt bad for the cast and crew, who became unexpectedly unemployed. Prebble felt guilty, and also responsible – for making people look foolish.
She accepted some of the criticism: “There were a few things mentioned about the writing that I had always quietly thought, but much of it I didn’t recognise as being the show we had made; some of it felt like it was about something else.” She regards criticism and failure as slightly different animals. “Failure is easier to discuss and more interesting, because obstacle is interesting. Failure serves as a very powerful tool, narratively.” But as she points out, the actor who happily recounts the tale of onstage disaster generally does so from a position of having left such times behind. “We all like it best when someone fails but eventually succeeds.” She finds criticism harder to discuss, “because it’s specific and personal, and the spirit in which it’s given varies so wildly. As writers, we are by nature too sensitive, too inward-looking. I try to take what I can learn from critics and leave the rest.”
Did Prebble’s failure in America change how she viewed her success in the UK? “I felt more grateful for it and also, sadly, more distanced from it.” But her New York experience did not affect the way she saw her play: “There are bits of my writing I cringed at and bits I was proud of. I always thought the production was fantastic.” Unexpectedly, it helped her identify with Jeffrey Skilling, the former chief executive of Enron, who is serving a 24-year jail term for fraud. “Underlying some of the criticism was a notion that: how could this British girl claim to know anything of international enterprise, of greed, business, of America, of this man who lost the people around him millions of dollars and saw all his work crumble in a few weeks? And the effect of that criticism [was that] I learnt the truth of the story I had been trying to tell.”
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Gerald Ratner
After-dinner speaker and former jeweller
Gerald Ratner transformed his family’s struggling business into the biggest jeweller in the world, with 2,500 shops. Then, seven years after he took over Ratners, he killed it. With just two jokes. In a speech he made in 1991 to the Institute of Directors, the north Londoner quipped that one of his products was “total crap”, and boasted that some of Ratner’s earrings were “cheaper than a prawn sandwich”.
The speech was splashed across the tabloids and wiped an estimated £500m from the company’s market value. Ratner left the following year and his name was excised from the company in 1994. Two decades after one of the biggest corporate gaffes in history, “Doing a Ratner” is firmly in the vernacular.
As Ratner gave his speech, he had no idea of the impact it would make. “When I read about it in The Sun and The Mirror the next day, I realised it was a story,” he says, “but [thought] it would blow over. The first set of sales I got after the speech were 4 per cent down, but I was pretty confident that would reverse.” If only. In fact, the opposite happened. When Ratner realised the extent of the mess he “felt sick to the stomach”.
Today, Ratner maintains that “it was a stupid thing for me to say, but the reaction was completely over the top”. Context is all, he says – blaming the furore on the recession Britain was suffering at the time. “The press were looking for scapegoats, just as they are with bankers now. And there I was – as they saw it, a multimillionaire making jokes about his customers who were struggling with money.”
Ratner’s spectacular fall from grace triggered what he calls his “seven wilderness years”. Friends offered help, but “I was depressed,” he says. He hoped to reinvent himself, but “the elephant in the room” put people off: no one could think of his successes, just this one gaffe. A psychiatrist prescribed antidepressants, “which took away the heavy feeling but made me more withdrawn. I didn’t speak – I was silent in meetings.” He gave up the pills for cycling, and it was this that proved his salvation – it left him “euphoric”. Today, he cycles 25 miles every day.
It was only after he set up a chain of health clubs, which he sold for £3.9m in 2001, that Ratner felt able to tackle his demons and even joke about the collapse of his family business. He insists he learnt nothing from failure. “The opposite. I learnt from success – while I was successful, I learnt from new opportunities and challenges, I gained confidence. With failure, you lose your confidence.”
Nonetheless, he is grateful for a few things – cycling, and a new career in after-dinner speaking. “The speeches are therapeutic. It’s better to talk about the episode. People are generally sympathetic. I think they worry I’m going to be miserable but I cheer people up – it chimes with others, as it makes them think there’s light at the end of the tunnel.”
The failure also taught him to appreciate his new business, the jeweller Gerald Online. “I’m more grateful for my success the second time around.” Before, his attitude to money was “pathetic”, he says. “If the seat was too far back in first class, it wasn’t good enough.” He is a more patient person now, yet that is scant compensation. “People ask me if I’m glad I said what I said. They’re ridiculous. How could I be grateful? I lost everything.”
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Ernst Malmsten
Co-founder of Boo.com
In 2000, Ernst Malmsten made a desperate plea for money. “Unless we raise $20m by midnight, Boo.com is dead.” The Swedish co-founder of the European online fashion retailer failed to find the funds. The next day, on May 18 2000, less than a year after its launch, Boo.com collapsed. The site, once a posterchild for the dotcom boom, became a symbol of its excesses, burning $130m of investment.
“We weren’t in denial that it was collapsing,” Malmsten recalls, “that’s why we were raising funds. But when it collapsed it was a shock, like a sudden death.” He felt hollow. “I never felt relief that it was over. I know some people feel liberated [when their company folds]. I didn’t. I felt emptiness. I loved the business and was so proud of it. We thought we were unstoppable.” He does concede that this may have been proof of the board’s naivety.
Nonetheless, there was solace to be drawn from the fact that Boo.com’s demise was part of a worldwide phenomenon, the bursting of the dotcom bubble – for this meant that the failure did not feel so personal. And the publicity that the company’s demise attracted was a boon, says Malmsten. “Because we were so high-profile it was easier.
Our failure was very public, so friends and family knew to rally round us. If it had been private failure and we were isolated, we might not have got that much personal support.”
Malmsten credits his robustness to his upbringing. “I never felt there was an expectation on me to succeed,” he says. “Knowing that my family would always support me helped – I knew that there was always a place to go to make me feel safe.” Malmsten believes that this security protected him from depression, and says that “I think I coped well.” After the shock, he says, he analysed what went wrong and then “moved on”. While he does not accept all the criticism flung at him at the time
(“We could never have lived up to the hype”), he acknowledges that he can’t minimise the failure.
“At the end of the day, we were trying to build an empire and it fell apart.”
Malmsten had feared his high-profile business collapse would make people steer clear of him. In fact, he says, “It doesn’t put people off. They think it is fascinating that I was a young person at the centre of a business phenomenon.” He also claims that he has not been short of job offers. Today, as chief executive of Lara Bohinc, the UK-based accessories designer, in which he has a 40 per cent stake, he says he is more cautious. “Boo.com made me more risk averse … We were young then and didn’t think of failure as a possibility. I’m more afraid of failure now, as I understand that businesses can fail, whereas before, I don’t think I did.” In fact, Malmsten admits to having been reluctant to venture into e-commerce again. “We have been slow to launch a website at Lara Bohinc. We could have done it earlier but I wanted to take time … we [did] a lot of beta testing.”
As a European, he says, he feels more comfortable discussing failure than success, because “in Britain and Scandinavia we’re more modest [than in America]”. People in European cultures, he says, are much more honest and analytical about failure than success. “Are you really going to [confess that your success] is due to screwing someone over?”

Interviews by Emma Jacobs

4th of June, 2011HighlightsOther Writing • Comments off