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Why Success Always Starts with Failure

By Tim Harford
  • Read in 16 minutes
  • Contains 10 key ideas
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Adapt by Tim Harford

The world is complex and unpredictable, from the inner workings of the humble toaster to the countless problems facing the very existence of mankind. Instead of applying traditional means of approaching problems and managing organizations, we must instead use trial and error. Only by experimenting, surviving the inevitable failures and analyzing the failures themselves, will we be able to adapt to the complex and changing environments we find ourselves in.

Key idea 1 of 10

The only thing that’s certain about predictions is that many of them will be wrong.

What’s the difference between the survival rate of biological organisms and that of companies?

Not much, as it happens. No matter how competent companies and leaders appear, most of them fail to survive in the long term.

In an analysis of the fossil record, economist Paul Ormerod found that the extinction rate of species over a time period of 500 million years matched the extinction rate of companies (albeit on a shorter timescale).

To understand why only certain companies survived, Ormerod built a mathematical model of corporate evolution. In this model, Ormerod gave some companies random strategies; some a small advantage over these strategies; and made some of them perfect planners, able to use their knowledge of other companies to maximize their advantage.

It turned out there was no overlap between the results of this managed model and a model that represented the actual company extinction rate. In other words, the survival of companies is not due to success or failure in strategic planning.

This was also shown in another study, where economic historian Leslie Hannah tracked the world’s largest companies from 1912 onwards. In 1912, US Steel was the market leader, with over 200,000 employees. However, by the 1990s, the company was not even in the top 500.

Although some of the companies studied did prosper over the decades – like Shell and General Electric – most of them vanished. And these forgotten companies were, in fact, the Googles and Walmarts of their time.

So, since companies frequently appear and vanish, predictions about any company’s future must be treated with suspicion – even when they’re made by so-called experts.

Over the course of 20 years, psychologist Philip Tetlock asked 300 experts for their forecasts of a variety of future events. These experts included diplomats, political scientists and economists, many with PhDs. Yet most of their predictions never came true – especially those concerning Russia’s political development from the Cold War to the collapse of the Soviet Union.

Therefore, because we can’t predict whether or not a company (or any endeavor) will succeed or fail, it’s crucial that we learn to be resilient against inevitable failures. The following blinks will show you how to accomplish this.

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