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Does the Swiss culture tolerate failure?

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Here is my fourth contribution to Entreprise Romande. I realize now it is often about failure and innovation. This new article maintains the tradition. And because it was a special issue about failure, let me provide a translation of the editorial.

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Entreprise romande – July 5, 2013 – Véronique Kämpfen, rédactrice en chef:

Tolerance for failure favors growth

We are not all equal vis-à-vis failure. The fact is confirmed by a detailed study published by Barclays in late 2012. First, Europeans have more difficulty seeing failure as positive (69%) than Americans (71%), Asians (80%) and Middle Easterners (91%). Second, entrepreneurs have a less negative attitude towards failure than the rest of the population. They often think that failures have shaped their character, that this event has taught them a lot and they were able to bounce back quickly. Entrepreneurs are also far more optimistic than the rest of their fellow citizens. This phenomenon is described in the medical literature: it seems that a high number of successful entrepreneurs are characterized by a genetic form of psychiatric bias, which predisposes them to be creative, enthusiastic and somewhat less apprehensive vis-à-vis risk taking. John Gartner, the psychiatrist at the origin of this study, highlights the specific features of these characters: “Having that kind of confidence can lead to blindness when facing risk, because these individuals do not believe they can fail. (…) However, if they fail, they will not stay down for long and will soon be energized by a completely new idea”.

More generally, the Barclays study shows that tolerance for failure is essential to growth. The process of “creative destruction”, that is obsolete ideas, technology and business models give way to new impulses, is essential to economic progress and job creation. For this process to be effective, we need entrepreneurs who want to take risks, and an environment that supports their efforts. Until now, Switzerland seems to have done OK, as evidenced by its economic health and its high ranking in terms of innovation and competitiveness. As the Swiss are not the champions of tolerance for failure, they must be supported by appropriate framework conditions and encouraged so that those who have the entrepreneurial spirit may try … without taking too much risk! These topics are covered in great detail in the Magazine Entreprise romande. The taboo of failure and bankruptcy is analyzed in all its forms and put into perspective with practical advice and testimonials from entrepreneurs. Happy reading … enjoy the summer!

and here is my contribution:

Does the Swiss culture tolerate failure?

“The Swiss Society gives us so many slaps in the face through education that we are afraid of being creative, because we show then our weaknesses. By expressing our dreams, we do an intellectual striptease; it is feared that others see them as bad, not good, not nice and not fair.” So speaks Elmar Mock, inventor of the Swatch and founder Creaholic. The Swiss school system is indeed not known for its creativity. The famous (in French speaking Switzerland) « faut se gaffer » (“don’t be goofy”) might make you smile. Our teachers too seem to give more importance to the rigor than to the creativity of our little darlings. The room for error is unconsciously repressed. If one accepts the idea that innovation is above all creating in situations of uncertainty, the statement is worrying. Yet Switzerland is world champion of innovation in almost all global reports. Is there a contradiction?

Innovation is a subtle thing. Innovation is not limited to invention and innovation is not about technology only; it is the result of a process, following which are created products, services or new processes that will have to demonstrate that they answer a (commercial or non-commercial) need. The process leading to innovation is long, unpredictable and hard to control, innovation cannot therefore be planned and we have to accept failure.

Clayton Christensen, a professor at the Harvard Business School, built a theory explaining the process of disruptive innovation, the one innovation which allows the emergence of new revolutionary products such as the Internet, the mobile phone, but also the low-cost airlines, the one innovation which also allows new players to emerge and replace their older competitors. According to Christensen, disruptive innovation cannot occur within established institutions. The best companies are listening to their customers and those only want to improve existing products and will rarely desire new products. The U.S. has seen more than 80 major new companies emerge since 1970, and France, only 4. And Switzerland?

Switzerland is world champion of innovation firstly because the framework conditions are excellent. Everything is done for businesses to succeed, minimizing barriers and constraints. Then, because there is a culture of work well done. Apprenticeship, in the early years of training, helps in maintaining this tradition and Swiss companies are known to be listening to their customers in order to improve existing products in the right direction. But what kind of innovation are we talking about? Probably not about the one which enables technology breakthroughs. No, rather of a different type of innovation, incremental innovation, made of “gradual, continuous improvement of techniques or existing products; usually incremental innovation does not fundamentally change the dynamics of an industry, or does not require a change in behavior,” according to wikipedia. Switzerland is champion of incremental innovation through a dense network of highly performing SMEs. Failure is relatively absent, when the attention to every detail is permanent. But is it enough?

Not only the Swiss school system is not known for its creativity, but furthermore our academic spin-offs create few jobs. If we accept the corollary that innovation is a source of growth and new jobs, we might not be as innovative as it might be desired. We are obviously efficient for incremental innovation, but certainly not as good when it comes to disruptions. Except for one example that comes easily to my mind, the Swatch. But Nicholas Hayek was not the product of the Swiss culture! I could add Nespresso, but Eric Favre, inventor of the product, had suffered a strong initial reluctance from Nestlé to the point of saying: “The Swiss economy lacks real entrepreneurs!” The difficulty of integrating risk and radical innovation can make anyone short-sighted when experiencing ongoing changes and cause much bigger failures, as evidenced by the grounding of Swissair, which was seen as a national trauma. The United States has lost TWA and PanAm, but Americans have invented the concept of low cost airlines with Southwest or JetBlue, which have happily replaced the old players. In Europe, EasyJet and similar companies only followed the American model.

The Swiss start-ups never die. They have a survival rate of 90% after 5 years. Whereas across the Atlantic and even in Switzerland for traditional businesses, this rate is less than 50%… This may mean, quoting Xavier Comtesse, that “startups are protected by the academic system or federal funding.” Because failing is an unacceptable stigma? Or because taking risks, an inevitable cause of a greater failure rate, would be too dangerous? Without being so pessimistic, I would add that our start-ups are often excellent engineering offices, with great know-how. With a service business model eventually outweighing new products, the company survives without significant creation of jobs and without growth. I often asked entrepreneurs who failed to share their experience. A real failure! Our experts and mentors do not grow our young entrepreneurs in this direction, and I have heard it so often that I almost got used to it. Our business angels have a great distrust of more aggressive venture capitalists and they fear their more binary approach of “make it or break it. ”

Daniel Borel, the iconic entrepreneur: “In our industry, if we do not innovate constantly, if we do not have the courage to take risks, we disappear. This is why I prefer to get into seven projects even if it means failing three, as not to fail in anything, by chance, having focused on a single project.” […] “We only learn from our failures, rarely from succcess. Success can be your worst enemy: it makes you think you are strong, very strong; you could even walk on water. And it is at this point that you drown. ”

The Swiss culture has certainly a very small tolerance for failure. It promotes a type of innovation (incremental) which may explain its strengths. Its network of strong SMES is probably the result of this conservative and demanding culture. There is reason to be proud of it. But I like the quote from the former star of Hockey, Wayne Gretzky: “I skate to where the puck will be, not where it was.” The question is whether Switzerland will be tomorrow at the right place to get the puck …

Failure is a learning experience

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This is my third article in the journal Entreprise Romande (and thank you to them for editing my work and for the opportunity given to talk about topics that are dear to me.)

Every entrepreneur knows that failure is an integral part of business: a contract breach, a lost customer, a unsatisfactory hire… So why is failure so stigmatized in the European culture, and especially in Switzerland? Freeman Dyson, ths famous physicist explains it more clearly: “You can’t possibly get a good technology going without an enormous number of failures. It’s a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we’ve been building them for 100 years, it’s very difficult to understand just why a bicycle works – it’s even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential.” The example of the bicycle is just perfect: who would blame a young child for his multiple drops wjile learning who to ride it?

FAILURE AND CREATIVITY

Silicon Valley is known for its tolerance for failure, which, far from being a stigma, is even valued. “In Silicon Valley, if we had not tolerated failure, we would not be able to take risks and we would have many fewer entrepreneurs than we have today. If you fail for good reasons, that is to say almost all, except to be corrupt, stupid or lazy, then you have learned something that will make you more useful,” says Randy Komisar, based in Silicon Valley, as are the other people mentioned in this article. “You’d be amazed at how many investors prefer to back someone who has tasted the bitter fruits of failure. In failing you learn what not to do. Get your skin in the game and there is no failure—you have opened your mind to growth and yourself to reinvention,” adds Larry Marshall.

The fear of failure has deep roots. The school system encourages the child not to try or say anything if she does not know the answer rather than testing hypotheses, for fear of reprimand. Experimentation, creativity, the “process of trial and error”, are never quite encouraged in favor of more rational disciplines. “Indeed, we have psychological and intellectual difficulties with trial and error and with accepting that series of small failures are necessary in life. “You need to love to lose”. In fact the reason I felt immediately at home in America is precisely because the American culture encourages the process of failure, unlike the cultures of Europe and Asia where failure is met with stigma and embarrassment”, says Nicolas Taleb, essayist of Lebanese origin and writer of The Black Swan.

The European start-ups do not fail! Their survival rate is 90% after 5 years of existence. But is it good news? In the first months of Google,co- its founder Larry Page considered a success rate of 70% of individual projects was ideal. Asking for more, “we would take too few risks.” And failure is so digested that Americans have created the FailCon (a conference on failure) in 2009. By sharing their experience of failure in public (because failure is still a taboo even in the United States), participants learn from their peers and leave strengthened. The famous entrepreneur and investor Vinod Khosla admitted to have failed more often than he was successful. “Failure is not desirable, it is just part of the system, and it is high time to accept it.” Would this explain why we do not create any Google Switzerland and Europe?

PREPARING FOR SUCCESS

Nevertheless, the failure will always be unpredictable. “Of course, business, just as life, is never a smooth curve. Failure can come as quickly, and more unexpectedly, as success. But true success is management of failure. Every time you hit a bad patch you must be able turn your fortunes around. That’s why it’s important to be always prepared for failure and build strong teams. To be a successful entrepreneur, venture capitalist or philanthropist, you must bring together people who know there will be problems, love to solve problems, and can work well as a team.” … “It reminds me not to be too proud. I celebrate failure — it can temper your character and pave the way for great achievement.” notices Kamran Elahian.

So, should we be not afraid to fail? A short and most moving answer comes from Steve Jobs, who – we must not forget – failed to grow Apple in the 1980s: “I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.” And even better: “Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”

When will a FailCon be organized in Switzerland?

A Chinese student introduced me to a few years ago the following proverb: “Shi Nai Bai Zhi Gong Cheng Mu”, which means “failure is the mother of success.” Asia might learn perhaps faster than Europe this important concept.

Is Intellectual Property out of Breath?

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Here is my second paper published by Entreprise Romande after the one on the Challenges of Innovation.

Copyrights, patents, trademarks. Never intellectual property (“IP”) has seemed so visible, but would it be a victim of its success? It is indeed becoming an almost exclusive tool of the rich and powerful and even worse, it may be hindering innovation whereas it was supposed to encourage it.

In July 2011, a consortium including Apple, Microsoft, Sony bought 6,000 patents from now deceased Nortel for $ 4.5 billion. In August 2011, Google replied by acquiring patents from Motorola Mobile for $ 12.5 billion. Finally in September 2011, the United States announced a major reform of patent law, the America Invents Act. These three events in a single summer confirm the increasingly dominant position of IP in the business world. Yet I think it is bad news!

New privileges

If a patent application only requires a few hundred dollars and tens of thousands to maintain over 20 years, should a company enter in legal dispute over it, it might cost millions in damages and attorney fees. Any fragile business might be dead long before winning a case or proving its innocence. Woe to the weak! Large companies are not the only ones to have understood: companies specialized in the valuation of IP portfolios (“patent trolls”) have emerged in recent years and these companies have no ambition to sell products or services around their IP. And Europeans should not think that the problem is American only as illustrated by the recent battle between Nokia and Germany’s IPCom.

IP is now a far cry from the original patent and copyright statements made by the revolutions of the late eighteenth century. It was then about ending the monopoly of corporatism and about supporting inventors and creators. Far be it from me to push the disappearance of intellectual property. I only here mention the example of the laser patents whose saga has at least allowed a wonderful book, closer to a thriller than the complex physics from which ir was born, Laser: The Inventor, the Nobel Laureate, and the Thirty Patent-year War. But I’m not at all convinced that IP could now enable what was possible almost 50 years ago with the laser. And already in the nineteenth century an abolitionist movement had appeared, aware of the limitations of a system that set new privileges.

Hindering innovation

The other debate about IP is best summed up in a recent article in the ParisTech Review: “Are patents hindering back innovation?” The story is old: Boldrin and his coauthors [1] argue that the developments of the steam engine were hindered by patents filed in 1769. Do we know that the microprocessor from Intel was never protected, nor of course the Internet, and it is more or less constrained that Bell Labs granted licenses on the transistor, an event that is perhaps at the origin of Silicon Valley culture: “In the 70s and 80s, many engineers from Fairchild, National and others met over a beer to talk about problems they encountered in the production or sale of semiconductors. The Wagon Wheel Bar was a meeting place where even the fiercest competitors exchanged ideas.” Having recently visited LinkedIn, I’ve heard engineers explain how they solve problems with competitors from Facebook. Discussing with Apple or Google seems much more difficult today.

Intellectual property is not the answer to everything and in its current development, it poses more new problems than it solves. The U.S. patent reform has already attracted much criticism. As for Europe, it seems stuck in its national self-interest as there is no European patent and the lack of patents on software or business models does not give it any advantage. In a globalized and dematerialized world, the IP must protect the creative people, to better enable the dissemination of ideas and techniques. The “open source” software movement as well as recent experiments in the diffusion of artistic works exclusively on the Internet show that new approaches are possible without killing business or innovation. But it seems that the fears of the established players outweigh the passion and creative risk-taking culture.

-[1] Do Patents Encourage or Hinder Innovation? The Case of the Steam Engine. Patent Law Is Highly Controversial. Michele Boldrin, David K. Levine, and Alessandro Nuvolari.
– Laser: The Inventor, the Nobel Laureate, and the Thirty-year Patent War. Taylor, Nick (2000). New York: Simon & Schuster
– Are patents hindering innovation? Paristech Review, September 2011

PS: When writing this paper, I had not measured yet the impact of the Apple-Samsung litigation…

The challenge(s) of innovation

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Entreprise Romande asked me to write a short article about Innovation. It was published on March 2, here is my quick (and dirty) translation

Two famous quotes are worth recalling: in 1899, Charles Duel proposed to close the patent office he headed the U.S. stating that “everything that has to be invented has already been.” Less than a century later, Bill Gates stated with conviction that “a computer did not need the equivalent of more than a memory disk.”If these two predictions show that the difficulties of innovation are linked to the difficulty in predicting the future too far, they are unfortunately only legends! It remains no less true that innovators face many obstacles, the first of them being the permanent uncertainty in which swims the one who wants to offer something new.

The difficulties do not stop at the door of the future. In a famous book, Professor Clayton Christensen explains the dilemma of large companies toward innovation. Christensen uses the term Great and not Large because he speaks of the best managed corporations: by being attentive to their customers, they constantly seek to serve them better by improving the constant changes in the quality of their products and services. In doing so, it is extremely difficult to see coming revolutions, all the more difficult to identify that they often start very humbly, with products of inferior quality and very incomplete. Christensen cites numerous examples, but simply note that Microsoft almost missed the turn to a web that did not generate income, Nokia has missed the market for smart phones and I remind you this famous quote by Henry Ford: “If I had asked consumers what they wanted, they would have said a faster horse.”

Any smart player quickly learns from those mistakes. Christensen, who has become an icon in innovation, explains that the major players must simply create spin-offs away from customers and development centers. Despite some initial mistakes, Nespresso has become a flagship product of Nestle. Perhaps less known is the fact that Cisco has become a major player in the world of servers thanks to a start-up it had funded in its infancy and then acquired. The lessons were digested; Christensen and other experts today have become popes of innovation with more refined models

The spin-off concept is nowadays obvious, and good news, there is no need for significant resources, at least initially. Experts advocate rapid iterations in constant contact with potential customers, from the start of a project. It was also understood that one must first find customers willing to test visionary products, even promising but incomplete. Adjustments can be made continuously and avoid unnecessary investments in directions that the market would refuse later. Finally, the transition for visionary customers to more conservative customers will require a specific strategy and often a new team for product development. Systematic procedures that would ensure the success of future innovations? Unfortunately not. In a recent interview to the Finnish press, Steve Blank who believed he had developed a scientific theory of innovation said, ” Over the last decade we assumed that once we found repeatable methodologies (Agile and Customer Development, Business Model Design) to build early stage ventures, entrepreneurship would become a “science,” and anyone could do it. I’m beginning to suspect this assumption may be wrong. It’s not that the tools are wrong. Where I think we have gone wrong is the belief that anyone can use these tools equally well.” In the same way that word processing has never replaced a writer, a thoughtful innovation process will not guarantee success. Blank added that ” until we truly understand how to teach creativity, their numbers are limited. Not everyone is an artist, after all.”