If you were to read the headlines about big technology company launches over the last few years, things might look pretty bleak. There have been a lot of epic failures.
Apple’s Watch, the Amazon’s Kindle Fire phone, Google’s repeated forays into social, Facebook’s Home, Paper, and Indian Free Basics initiative—they are all recent examples of projects that big smart companies launched with great anticipation, fanfare and senior-level commitment, only to see them fail.
While those epic failures might seem to be a reason for concern, I believe the contrary. The ability to launch epic failures is a key indicator of a health of a company. And, especially in the technology industry, it’s one of the key competitive advantages that big companies have to defend themselves against insurgent startups.
Bold successes are always better. But the thing that is most worrisome is when technology companies aren't racking up some embarrassing failures on a regular cadence.
Tough to Do
Launching a big failure is reasonably difficult for most big companies.
There needs to be a big bold new thing which their operating infrastructure could strive for, and which could move the needle for them at scale.
In the case of truly large companies, that means something that can have billions or tens-of-billions of dollars of positive impact that isn't already priced in to their expected performance.
The Apple Watch is a good example here. Apple had a potential product which, if it worked, they could model to add tens of billions of dollars to their business and where they believed their core product-design, supply chain, developer ecosystem and distribution channels were set up to win.
Most companies—even most technology companies—don't have these types of opportunities within their theoretical purview. A few can look at cars, a few can look at VR, and there are always a few other bogies in the mix. But those truly big things which can be pursued are the precious exceptions, not the rule.
Organizational Discipline
Companies also need the organizational discipline to actually pursue things out of the ordinary course of their business that might fail.
This usually starts with the CEO and filters down through the management team. In most big companies the CEOs do not have the formal control or cultural leadership to be able to pursue truly big things.
This is sometimes because of actual economic tradeoffs. It is difficult for companies to sacrifice short term gains for possible long-term wins. Yet that is often the choice facing companies where the stock performance is closely tied with quarterly earnings, management teams are compensated based on immediate results, and new initiatives require serious commitment of resources and capital.
But, even when the cost of projects is relatively small, moving resources to pursue something big and risky comes with political and organizational costs which most leadership teams are unable to digest.
Empowering and incentivizing people to do new things is frequently much harder than it looks on paper.
Scale Advantage
The upshot is that I think the real sign of weakness in a large company is when you don't see them failing. It means they are either in an industry where there aren't great next steps and adjacencies to take, or where the cost of experimentation for the management team is too great to risk.
This is the standard in most industries, which is why most companies trade at reasonable multiples of probabilistic future cash flows stemming from their current business.
But the ability to risk failure should be the core advantage of scale. It’s what ultimately makes leadership teams more than stewards of cash registers. Low cost of capital, broad reach and well positioned resources should open up opportunities for great success and great failure.
Companies like Twitter and Yahoo just haven't really produced any epic fails recently, which should give everyone pause.
And, on the flip-side, when you look at VR at Facebook, Cars at Apple, and the myriad of Google’s Hail Mary initiatives, consider the existence of those projects as signs of great strength—even when many of them don't work.