The Art of Failure Monterey Institute of International Studies Eli Zelkha eli.zelkha@gmail.com

1. The Art of FailureMonterey Institute of International StudiesEli Zelkhaeli.zelkha@gmail.com

2. The Art of FailureAdminstrative E-mail: eli.zelkha@gmail.com Tel: 650-218-6789Address: 573 Patrol Road Woodside, CA 94062

3. The Art of FailureAgenda - Saturday Introduction Failure & Customer Discovery & Development – Steve Blank Class Exercise Building India’s First Coffee Shop Chain - Sashi Chimala Frameworks of Failure Student Self-Diagnostics Samasource – Claire Hunsicker

4. Introduction Starting a Y Combinator Company - Matthew Brezina Student Discussion: Y Combinator & Failure Failure & Entrpreneurship – Ariel Poler Psychology of Failure Lessons of Failure & the Concepto Venture Model Eli Zelkha & Simon Birrell Global Failure & Success in Technology & Social Ventures - KamranElahian Closing The Art of FailureAgenda - Sunday

5. Serial entrepreneur - 30 years of experience in high tech • Professor at UC Berkeley School of Business, and a Lecturer at Stanford Graduate School of Engineering. • Founder or participant in eight Silicon Valley startups since 1978. • E.piphany; two semiconductor companies (Zilog and MIPS Computers); a workstation company (Convergent Technologies); a supercomputer firm (Ardent); a computer peripheral supplier (SuperMac); a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games). • Boardmember of CafePress.com, an on-line marketplace, and IMVU, a 3D IM social network. • "Four Steps to the Epiphany" is the definitive work on Customer Development and is one of the foundations of Lean Startups. The Art of FailureSteve Blank

6. Silicon Valley & Failure • “We are special because we embrace failure” • “” “” ‘’ ‘’ “” “””

7. Silicon Valley & Failure Not True

8. The Art Of Failure Class Exercise & Discussion 1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences?

9. The Art Of Failure Class Exercise & Discussion 1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences? 2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"?

10. The Art Of Failure Class Exercise & Discussion 1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences? 2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"? 3. How did you recover from this experience?

11. The Art Of Failure Class Exercise & Discussion 1. Describe your closest encounter(s) with Failure. (Objectively what happened? How did it feel? Consequences? 2. Reflecting on this and other experiences, do you notice any patterns in your past "failures"? 3. How did you recover from this experience? 4. What if anything did you learn from the experience?

12. FailureInspiring Quotations • “Failure is the foundation of Success, and the means by which it is achieved.” - Lau Tzu • “I have not Failed, I have learnt 9,999 ways that won’t work.” - Thomas Edison • “People don’t Fail, it is the Plan, Strategies and Tactics that Fail.” - Paul Mc.Kenna

13. FailureInspiring Quotations But how severe is the Downside?! Can I recover from a Failure?

14. FailureFear of Failure • One of the greatest fears people have • Related to Fear of Criticism or Rejection • Incapacitates unsuccessful people • Unable to take action • Leads to ‘failure of omission”

15. FailureFear of Failure – Another View “There Is No Failure, Only Feedback” • Successful people look at mistakes as outcomes or results, not failure • Unsuccessful people look at mistakes as permanent and personal • FoF is self-limiting – fear even trying for fear of failure

16. FailureFear of Failure – Overcoming • Take Action • Perist • Don’t take failure personally • Do things differently • Don’t be so hard on yourself • Treat the experience as opportunity to learn • Look for possible opportunities that result from the experience • Fail forward, fast

17. Failure as a Balancing Act • Two Conflicting Risks: • Taking risks beyond our ability to recover • Russian roulette 2. Avoiding any risk (fear of failure) • Home bound paranoid Is it possible to create life transforming ventures while limiting oneself to “manageable risks”

18. Failure as a Balancing Act The Comfort Zone Too Much Risk (Russian Roulette) Too Little Risk (Homebound)

19. Models of Failure • The Innovator’s Dilemma • Ignore disruptive technologies at your peril • Engineering model: • FMEA (Failure Modes & Effects Analysis) • Disease model: • Collins “How the Mighty Fall” • Scenario model: • Scenario based planning • Venture incubator model: • YCombinators “18 Mistakes that Kill”

20. Innovator’s Dilemma • Technology sometimes outpaces the marketResulting in so-called "disruptive" technologies • Disruptive technologies are often the standards of the futureIgnore disruptive technologies at your peril • Traditional thinking misallocates resourcesManagers must be extreme advocates of new technologies in order to allocate sufficient resources to their development 

21. Innovator’s Dilemma “Sustaining” vs. “Disruptive” innovation • “Sustaining” • Makes products more appealing to existing customers • Faster, cheaper, more capable • Functionally equivalent, but fills same customer needs • Manager’s trained to focus on “sustaining” R&D • “Disruptive” • Established customers have no use for it (yet) • Usually simpler, based on breakthrough or repurposed technology • Must find new customers to sell • Doesn’t make sense – until it’s too late • Look for them in emerging markets

22. Innovator’s Dilemma Disruptive Technology – Example 8-Inch Disk Drives vs. 5.25-Inch Drives • 1980’s 8-inch drives – industry standard • Seagate developed 5.25-inch drive • Less efficient, slower, and more $ / megabyte • Existing (minicomputer) customers did not want 5.25-inch • Emerging desktop computer makers needed smaller, lower-cost drive • Didn’t mind less efficient and slower • 8-inch drive makers “held captive” by customers • Seagate won the day

23. Innovator’s Dilemma Addressing Disruptive Technologies: • Develop a strategy to address disruptive technologiesEither learn to retreat up-market, build your own, or imitate competitors with disruptive technologies  • Separate disruptive technology development from the rest of the firmSeparate these groups in order to focus their work and create proper incentives for success • Recognize the value of disruptive technologiesConservative initial marketing practices and product redevelopment will eventually yield value

24. FMEAFailure Modes and Effects Analysis

25. Engineering View of Failure Learn From Failure Iterate

26. FMEAFailure Modes and Effects Analysis DEFINITION A methodology to analyze and discover: (1) All potential failure modes of a system, (2) The effects these failures have on the system and (3) How to correct and or mitigate the failures or effects on the system. [The correction and mitigation is usually based on a ranking of the severity and probability of the failure] Source: NASA Lewis Research Center

27. FMEAFailure Modes and Effects Analysis Benefits of FMEA • FMEA is one of the most important tools of reliability analysis. If undertaken early enoughin the design process by senior level personnel it can have a tremendous impacton removing causes for failures or of developing systems that can mitigate the effects of failures. • It provides detailed insight into the systems interrelationships and potentials for failure. • FMEA and CIL (Critical Items List) evaluations also cross check safety hazard analyses for completeness. Source: NASA Lewis Research Center

28. FMEAFailure Modes and Effects Analysis Procedure Flowchart Design Revise Design Perform FMEA, ID Failure Modes Get System Overview Establish Failure Effect Determine Criticality Source: NASA Lewis Research Center

29. Jim Collins “How the Mighty Fall: and Why Some Companies Never Give In”

30. How the Mighty Fall Stage 3 Denial of risk and peril chasing things that are not part of your core, fail to see the problems.. Stage 2: Undisciplined pursuit of more Building from stage one is people chasing goals that take them away from their core, their competitive advantage all in the name of growth, or the grand strategy. Stage 4: Grasping for salvation The silver bullet, abandoning the flywheel and chase things outside the core. Stage 4: Grasping for salvation The silver bullet, abandoning the flywheel and chase things outside the core. Adapted from: Jim Collins, “Hoe the Mighty Fall and Why Some Companies Never Give In”

31. How the Mighty Fall Stage 3 Denial of Risk and Peril • Arrogance • Entitlement • Lose sight of what made success • Role of luck Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Stage 5 Capitulation to Irrelevance or Death Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

32. How the Mighty Fall Stage 3 Denial of Risk and Peril Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Stage 5 Capitulation to Irrelevance or Death • Overreaching • Stray from disciplined creativity • Leaps into unknown Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

33. How the Mighty Fall Stage 3 Denial of Risk and Peril Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Stage 5 Capitulation to Irrelevance or Death • Ignore negative data • Spin • Outsized risks • Risk denial Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

34. How the Mighty Fall Stage 3 Denial of Risk and Peril Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Stage 5 Capitulation to Irrelevance or Death • Previous risks become apparent • “Radical transformation” • “Cultural revolution” Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

35. How the Mighty Fall Stage 3 Denial of Risk and Peril • Accumulated setbacks • Eroded financial strength • Abandon hope Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Stage 5 Capitulation to Irrelevance or Death Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

36. How the Mighty Fall Recovery and Renewal Stage 3 Denial of Risk and Peril Stage 2 Undisciplined Pursuit of More Stage 4 Grasping for Salvation Stage 1 Hubris Born of Success Adapted from: Jim Collins, “How the Mighty Fall and Why Some Companies Never Give In”

37. Scenario Planning Eli Zelkha & Simon Birrell Managing Partners, Concepto Ventures Stanford School of Engineering 3rd Novermber 2010

38. The Background: Deal at Philips • Corporate venture capital and strategy for a major global consumer electronics player

39. Background: Deal at Philips Deliverables • Corporate venture capital and strategy for a major global consumer electronics player • Strategic plan unifying disparate units • High impact strategic venture capital investments • Forge strategic alliances • Develop transformative vision of industry future • Visionary “projects on the edge”

40. Background: Deal at Philips • How can we do deals or strategy if we know nothing about the space?

41. About Scenario Planning

42. Scenario Planning: An Overview Forecast Based Planning Knowns and trends -10% +10% Knowns TODAY

43. Scenario Planning: An Overview Scenario Based Planning Forecast Based Planning Knowns and trends Unknowns and uncertainties -10% +10% Unknowns Knowns Unknowns Knowns and trends Unknowns TODAY TODAY

44. Scenario Planning: An Overview Scenario Based Planning Unknowns and uncertainties • Scenarios are alternative visions of the future • Scenarios are generated by analysis of what we don’t know, not just what we do • Scenarios are used to envision and “try out” multiple futures • Scenarios are used to work backwards in time to today Unknowns Unknowns Knowns and trends Unknowns TODAY

45. Rethinking Industry Dynamics Industry Sales Embryonic Growth Mature Aging Time • Philips has a sophisticated way of planning for the future when operating in a mature industry environment • But there are emerging forces that threaten to disrupt--and recycle-- the entire industry, and the current view of dynamics • Forecast-planning is sufficient for a mature industry. But it’s inadequate when industry transformation is taking place

46. Breaking Out of our Preconceptions • They are stories that help suspend disbelief in possible futures • We have a tendency to fixate on one future, or at most, two • Scenarios are a powerful tool for forcing us to abandon previously fixed ideas • Scenario-based planning allows managers to deliberately try to break the rules of their business • Scenarios are about the world, not about us

47. How they help us • They enable us to “practise” for different futures • They are a tool for envisioning, not predicting • They suggest the strategies, deals and alliances that we would need to prosper in different worlds • The process of creating scenarios makes you smart about a space

48. Scenarios • Tool for embracing uncertainty • Tool for play & provocation • Tool for envisioning value creation & migration Tool for upsetting the world (within our minds & outside) & strategic transformation

49. Redefining Failure Seth Godin

50. Common Types of FailureSeth Godin • Design Failure.If your product or service is misdesigned, then people don’t understand it, don’t purchase it, or may even harm themselves when they use it, and you have failed. • Failure of Opportunity.If your assets are poorly deployed, ignored, or decaying, it’s as if you are destroying them, and you have failed. • Failure of Trust. If you waste stakeholders’ goodwill and respect by taking shortcuts in exchange for short-term profits, you have failed. • Failure of Will.If your organization prematurely abandons important work because of internal resistance or a temporary delay in market adoption, you have failed.