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Lesson #1: Smart Companies Encourage Smart Failures

Charles Schwab Articles
Lesson #1: Smart Companies Encourage Smart Failures

At Charles Schwab, management makes a clear distinction between a noble failure and a stupid failure. While the company does not allow the idea of an acceptable failure to permeate its operations, it does allow for mistakes to be made, where they are not made in vain.

Schwab understood that in his line of work, failure was going to be an inevitable and inescapable fact of life. “You've got to understand that markets go both ways, up and down,” he says. “Over longer periods, stocks generally have always gone up. But any specific stock may never come back.” In fact, while index funds can almost guarantee long-term growth, argues Schwab, “buy an individual stock and you never know.” You could go to zero.”

It is for that reason that Schwab decided to implement a set of criteria that would determine whether or not a failure was what he called a noble one. First, there needs to be a plan in place before the failure occurs. Everyone needs to know what they are doing and every step needs to have been thought out carefully. There needs to be enough management discipline that if it was looked back upon down the road, everyone would agree the planning and actions were thoroughly done.

Secondly, a noble failure is one where a contingency plan is present. Should any initial failure occur, the plan needs to be adequate and enacted in order to ensure the least amount of damage done.

Thirdly, after every failure, there needs to be a debriefing. All of the actors involved need to assess the situation to see what can be learned from it and what could be done differently next time. Without this kind of reflection, Schwab believed that his company would have no way of acting smarter the next time around.

At company headquarters, Schwab makes sure to display all of their failed innovations. New employees are also provided with those failures and lessons in a videotaped orientation. “When celebration of noble failure becomes institutionalized, people within the organization are more willing to reassess earlier decisions.”

Schwab once said, “I’m sure luck helps every successful entrepreneur. But it doesn’t come [without] a lot of preparation and hard work.” It is in that very preparation and hard work that the value of a failure is determined. If failures come about as a result of a well-thought out plan of action, then there is always something to be learned from them. On the other hand, if a failure is the result of “how you react,” then there is little to gain. “We get emotional and do dumb things,” says Schwab. And smart failures are not the result of doing dumb things.

In Schwab’s line of work, when down is up, up is down, and vice-versa. He often makes his moves when everything seems to be going wrong, and nobody else wants to invest. Because of that risk, Schwab needs to ensure that he does not make a mistake. And if he does, that it is a mistake worth making.





Lesson 1 Smart Companies Encourage Smart Failures

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John Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website

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Stephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals.

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David Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website

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John Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website

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(Jay's Full Bio: EvanCarmichael.com/jaykubassek)  In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.

 

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