02 Oct 2015
The ‘F’ Word
Failure. No one likes it, yet everyone experiences it—even the high-achieving graduates of a certain business school.Re: Alex Nelson (MBA 2010); Alison Wagonfeld (MBA 1996); Christina Wallace (MBA 2010); Marty Manley (MBA 1987); Amar Kumar (MBA 2010); Jeff Jenest (MBA 1978); Alan Horn (MBA 1971); Bob Capria (MBA 1969); Julia Kastner (MBA 2012); Charmaine Kyle (MBA 1999); Ken Towl (MBA 1977); Frank Magwegwe (AMP 185); Barry Rowan (MBA 1983); Michael Gingrich (MBA 2007); Mike Enriquez (MBA 1977); Lara Hodgson (MBA 1998); Chuck Stoddard (MBA 1969); Philip Ebeling (AMP 185); Berry Versfeld (MBA 1973); John Sweeney (MBA 1969); Jim Arbury (MBA 1966); Thomas Eisenmann; Shikhar GhoshTopics:
Illustrations by the Voorhes
Edited by Julia Hanna
Complete and utter defeat was something Christina Wallace (MBA 2010) had never really experienced. Academically advanced and musically gifted, she attended Michigan’s Interlochen Arts Academy before earning a double major in math and theater from Emory University, where she graduated with 40 percent more credits than required. A year out of HBS, Wallace and classmate Alex Nelson cofounded Quincy Apparel, an online retailer providing stylish, affordable work clothes for women in a range of close-to-custom sizes. With investor backing, Quincy made it far enough to launch a spring and fall collection and received widespread media coverage. The brand was slowly starting to gain traction with customers, too. But by the end of 2012, the startup—running low on cash and plagued by operational and manufacturing complexities—was in trouble. In early December, the board fired Wallace as CEO. A few weeks later, the company closed for good.
It isn’t the sort of story that alumni like to trumpet when they return to their alma mater. But today, that is why Christina Wallace is back on campus. Her experience, painstakingly recounted in a case coauthored by Professor Tom Eisenmann and researcher Lisa Mazzanti, is under discussion by first-year students in The Entrepreneurial Manager. Wallace has the opportunity to offer a firsthand perspective and listen as her decision points and missteps are dissected and role-played in excruciating detail.
“Everything seems so obvious when it’s written down in condensed narrative format with accompanying exhibits,” she says later, calling the experience of listening to two years of her life boiled down to a 70-minute discussion “incredibly surreal.” “But when you’re living it, the narrative threads aren’t that clear.”
Despite the pain of Quincy’s failure, Wallace doesn’t regret the experience. “I’m more fulfilled when I’m scrappy and building something, so I’m grateful to have been ripped away from the notion that I need financial comfort,” she says. Acting as CEO also pushed her to grow and learn outside her comfort zone. Today Wallace is founding director of BridgeUp: STEM, an educational initiative at New York’s American Museum of Natural History focused on introducing girls and minorities to computer science.
“It’s very easy to leave HBS and continue on the path of being successful in ways that are easily defined and rewarded by society,” says
Steven Carpenter (MBA 2004). “But as you get older, you learn that the line between success and failure is razor thin, oftentimes invisible.” Currently executive-in-residence at venture capital firm Accel Partners after selling his latest startup to Dropbox, Carpenter is the protagonist of another case coauthored by Eisenmann and Alison Berkley Wagonfeld (MBA 1996). “Steven Carpenter at Cake Financial” details his efforts to build and grow an online financial services company that he founded and led for four years before ultimately selling its assets to E*Trade in early 2010. “I never set out to be the failure example in an HBS case,” he says. “But I think everything we do is part of who we are as people and professionals. Cake helped me understand that I’m committed to creating high-growth, fast-paced technology—which by definition means being comfortable with failing.”
“Failure is not just the opposite of success,” says Shikhar Ghosh, a senior lecturer in the Entrepreneurial Management Unit who has founded or led eight tech startups over the past 20 years. “It’s more difficult to teach from failure—it’s not just a matter of avoiding particular missteps. Students really appreciate it when you have someone like Christina who is willing to come to class and talk openly about what happened.”
In the stories that follow, alumni share their own takeaways from setbacks personal and professional, whether a comically whiffed management assignment, an unceremonious firing, or a failed marriage. Whatever the circumstances, one point becomes clear: The only real failure is not learning from one.
Catch those stones
While I have had “whoopsies” at jobs as diverse as Tang (the drink that went to the moon); Doritos; VMX (the company that invented voicemail); Jane Fonda’s Workout; and Playboy TV/Video, my most instructive failure was during my year as product manager of Tostitos. Top management had decided that we would implement a “trial size” promotion in supermarkets across the country, which required significant coordination between sales, marketing, and, crucially, manufacturing. As an egomaniacal, 30-year-old marketing maven, I had been conditioned to look down on the “functional groups” run by people without advanced degrees who got their hands dirty in the minutia of their jobs.
Well, you can see the result of my arrogance from 30,000 feet. I failed to get the other groups invested in the program. I completely fiddle-dee-deed the long-lead timetable. I delegated the entire project to a handsome but clueless assistant product manager. When it became clear that this project had no chance of success, I was hauled into the VP’s office and given a stern lecture regarding the evanescence of superstardom in product management if one didn’t sweat the details of each project.
From that point on, I always insisted on getting my hands filthy with the details of a given initiative. I became a ceaseless information junkie, but I did generally know every answer to every nit-picking question that the higher-ups threw at me (e.g., the cost of capital at Playboy was 10 percent). I even developed a working knowledge of things as abstruse as the technology involved in building and running an all-digital TV studio and uplink center. Not bad for a kid who received a “low pass” in Production and Operations Management and thought he could get away with not having to buy a pocket calculator to do the math for Managerial Economics.
Life throws a lot of stones at us. If we can catch a few of them and learn from whence and why they came, we edge closer to the wisdom that makes being 60-something pretty damned interesting.
Jeffrey Jenest (MBA 1978)
One student’s teachings
Eight years ago, I was a math teacher and principal of a school in India, and we had just received the results of our 10th-grade board examinations. Out of 30 students, 3 had failed. The memory of one of them, Akash, still haunts me today.
The failure that day wasn’t just Akash’s. For 10 years, we had promised his poor parents that if they sent Akash to school, he would make something of himself. If they spent money on textbooks and uniforms, he would have a better life. And for 10 years, that’s what the family did.
But after all that time and thousands of rupees they didn’t have, that family got failure. Failure from teachers like me who didn’t have the skills to help him learn and from a system that forgot education isn’t about butts in seats—it’s about helping people learn and make progress in life.
That experience set me on a trajectory to convert a passion for education into my career. Now I am leading a transformation at the world’s largest education company to improve the quality of education products. In my own way, I’m trying to make up for the failures of the past.
Amar Kumar (MBA 2010)
Do more than deliver
In our first semester at HBS we studied a case on relationship building—something about blue lines and red lines, and how it is critical to make sure you are being really thoughtful about the relationships you foster within an organization. At the end of the case, the individual had not fostered his internal relationships well (not enough blue lines) and was fired from his job. At the time, I thought this was obvious. Yet I found myself facing the same situation years later at a prominent organization. Prior to that, I had worked for the same boss for 10 years. If I did a really good job and delivered, he would watch out for me. In my new position, I operated under the same set of assumptions. I hunkered down, worked really hard, and delivered, delivered, delivered for my boss. We had an external client who loved my work.
There came a point, however, where for various reasons my boss felt threatened by my work and decided to oust me from the organization and proceeded by giving me a horrible review. I was completely shocked and contested the review. Our external client called to ask if he could do anything to make sure I wasn’t leaving, but at the end of the day I hadn’t built enough internal blue lines. The HR representative said it would be easiest if I stepped down quietly and took a significant severance package—which is what I did.
Since then, I never ignore relationships, no matter how busy I am. As a result, I have thrived in every subsequent position. My most recent boss became such a close friend that she even set me up with my now-husband.
Charmaine Ess Kyle (MBA 1999)
Cofounder, Partners in Scale
Bad news. It’s the feds.
In the late 1990s, I founded Alibris, an e-commerce company that sells used, rare, and out-of-print books. We failed, a lot—HBS has a case on our more interesting failures. Our biggest setback came early. We planned to launch our commercial website and close our first real financing at the same time. The days prior to launch were exhausting but exciting as we raced to hit our deadlines. We were living the Silicon Valley dream.
The afternoon before the launch, I had retreated to a quiet restaurant to work alone when my phone rang. It was our data center on the East Coast.
“Bad news. The FBI entered the building this morning with guns drawn. They seized every server and desktop computer. They are telling us nothing. Not only is our website down—it is in federal custody.”
Holy s#$@. With no clue as to what was going on, the company was toast. Why would any investor, business partner, or employee stick around once federal prosecutors declared us a criminal enterprise? I was sick as I notified our investors and briefed our board. We mobilized an attorney to the East Coast. The investor group met as scheduled the next day, and at one point, they asked me to leave the room—never a great sign for a CEO.
Amazingly, all but two investors wrote their checks despite massive uncertainty as to the nature of the criminal charges and the complete certainty of bad press and high litigation costs. We launched the new website on time.
As the company grew, news of a federal criminal investigation scared many investors and business partners. It took the federal courts nine years to determine in a landmark case that Alibris email practices had violated no privacy laws, caused no harm, nor created undue benefits for the company.
I never forgot the confidence and trust of our early backers. Clearly, they were backing a team they trusted—and especially me. Our near-catastrophe became a source of guidance: Which decisions, large and small, would most likely preserve and strengthen the confidence of our backers? It has proven a useful guide then and in subsequent ventures.
Martin Manley (MBA 1987)
Chairman & CEO, Alibris
Rockets and reentry
I failed my first year as a member of the Class of 1965 and was told not to come back for second year. So I went to work in GE’s spacecraft department, took two semesters of accounting at Wharton, and received two As. After that, I petitioned Professor Frank Tucker for readmission to HBS, was accepted, and graduated as a Baker Scholar.
I’ve told my five children to apply themselves when faced with negative events—my experience is an example to encourage anyone.
Robert Capria (MBA 1969)
What if Harry hadn’t met Sally?
In 1985 I was working as chairman and CEO of Embassy Communications when the organization’s founders and owners sold the company to the entertainment business sector of Coca-Cola—now Sony Pictures Entertainment. I could have remained with the company, but chose instead to accept an offer to be president of 20th Century Fox, reporting to Chairman and CEO Barry Diller. Mr. Diller was and is a brilliant businessman, but we simply had different management styles—I was unhappy and resigned after about a year. Leaving a position like that was certainly a failure, in my eyes at least (and probably everyone else’s), but it just wasn’t a good fit.
I took six months off and then founded Castle Rock Entertainment with four partners, including actor and director Rob Reiner. Our first film was When Harry Met Sally.... We also launched a number of TV series, but only one lasted. Happily, it was Seinfeld. In the early 1990s, our company was acquired by Ted Turner, who sold his company, Turner Broadcasting, to Time Warner. As a result, I found myself reporting to Bob Daly and Terry Semel, the chairmen and co-CEOs of Warner Bros. That in turn led to my being asked to run the film program at Warner Bros. as president and COO.
So had I not left Fox, I would never have started Castle Rock, which would never have resulted in a fabulous 12-year run there, and another 12 years at Warner Bros. that directly resulted in my being asked to assume my present position as chairman of Walt Disney Studios. The point of it all is that failure can be overcome, and when a door closes another one often opens.
Alan Horn (MBA 1971)
Chairman, Walt Disney Studios
Bottoming out in Brazil
Five of the six businesses I’ve helped build over 32 years since HBS have been successful, with one selling for $10 billion. One dramatic failure, however, shaped my judgment of risk and released me from a personal prison of achievement.
Some context: In 1999, I joined a large-scale startup providing a new consumer phone service in Brazil. We raised $2.5 billion, hired 4,000 people in two years, and successfully deployed a network to reach 80 cities. The company became the fastest-growing competitive local exchange carrier in the world, adding 500,000 customers in 10 months, and the stock price tripled.
Then we learned that 40 percent of our customers couldn’t pay their bills. The capital markets crashed, and one partner decided not to fund the next $110 million tranche of capital. I moved to Brazil, and my supportive wife’s only requirement was that I have a bodyguard and a bulletproof car. As CEO, I had to lay off 1,500 of the 4,000 employees. We did it with dignity, but the pain was personal. We restructured the debt, raised an additional $260 million in equity, and sold the company. But the investors, including our family, lost money.
Professionally, my judgment of aggregate risk was honed through this failure. The company was international, run out of a holding company with diluted control, and relied on a regulatory environment in a foreign land as well as a relatively new handset technology. The capital intensity made the company vulnerable to external markets. Taken separately, these risks were manageable. Taken together, they added up to failure.
The personal lessons ran even deeper. I had made achievement my god. Through this experience I found that I was released from the prison of striving and achievement. Since then I work just as hard as ever. Seeing things done well is just as important to me. But I can now live into the deeper truth that we are not what we do; rather, what we do is an expression of who we are. I am a better leader and a better human being for embracing the pain of this experience.
Barry Rowan (MBA 1983)
EVP & CFO, Cool Planet Energy Systems
Seventh time’s a charm
When I left HBS my plan was to work for a small company for a couple of years and then start a small enterprise. It took me 13 years to break away from the golden handcuffs to try something on my own. When that didn’t work, I tried another venture (which also didn’t work) and then went back to work for the company I had left.
After another 5 years, I tried my third new venture, which was a modest success. After that was sold, I tried another that failed, followed by another that managed to limp along without much success.
At age 60 I started my seventh venture, Uplands Cheese Inc., a manufacturing business that has been very successful, meeting all my goals for it and providing a fairly comfortable retirement. I wrote a lot of business plans in my career, but only the last one worked exactly as planned and in many respects exceeded my expectations. My takeaway? Every failed startup effort has the potential to be a valuable learning experience and one that you would never get if you didn’t try it.
Mike Gingrich (MBA 1965)
Alone, broke, and homeless
My biggest failure in life was my marriage. My wife filed for divorce, and the judge gave her all the assets and me all the bills. After 23 years of marriage I was alone, broke, and homeless. I needed to understand why this had happened, so I undertook a project to interview 1,000 women whose marriages had ended. I realized that my wife did the right thing by leaving me. I drank too much and spent too much time away from home on business and political activities. (I ran for mayor of Phoenix and was on every board and commission that would have me.) The women I talked to had many different stories as to why they divorced, but there was always a central theme: Their husbands, like me, did not care for and nurture their marriage.
Marriage is a commitment. Both parties must be willing to care for their spouse. I didn’t understand that, and at the time I just assumed I, as a man, was doing what I was supposed to do. I was very, very wrong. The women I interviewed fed me a feast of failures on which I have built my second marriage.
Mike Enriquez (MBA 1977)
Failure, well served
After completing high school in the Eastern Cape of South Africa, I was hired as a barman at the Kirkwood Hotel with the strict instruction that drinking on the job was not allowed. Two months in, I regularly enjoyed a few gin and tonics while on duty.
One day the owner found out what I was up to and fired me. I had to immediately vacate the hotel.
Looking back on it, getting fired was a failure that served me well. It forced me to leave the comforts of a “great” job for the unknown of Johannesburg, a bigger city where I had no close family. Within six weeks of my arrival, I had run out of the little money I had and was homeless. That led me to meet a Good Samaritan who helped me to enroll at a local university. University was the bridge to who I am today.
Frank Magwegwe (AMP 185, 2013)
Segment Head, Momentum Retail
A dream grounded
I’ve been intrigued by aviation since childhood. After HBS I spent several years in the Middle East running a joint venture with the Saudi government and saved my earnings. Afterward I invested the money to develop a life-saving aviation technology but couldn’t attract resources to commercialize it. I was offered the chance to fly it on the Rutan Voyager (the first aircraft to fly around the world without stopping or refueling), but had no money left to build the necessary prototype.
I went on to found a microelectronics startup, but will always regret that I couldn’t make a go of my dream. For those who do, build your own walk-away fund and make sure the dream is your own. To enjoy the (sometimes rough) ride, you have to love the nuts, bolts, and other people involved. The trappings of potential success alone aren’t worth the sacrifice.
And finally, understand that there is life on the other side, regardless of the outcome.
Ken Towl (MBA 1977)
President, Midas Technology
Let not your heart be troubled
There is an old joke about an archaeologist; he said that he was depressed because his life was in ruins. In 1985, I felt the same way, having just been involuntarily released (fired) as CEO of a bank. My late father had founded the parent organization, Michigan National Bank, in 1941, but a new CEO decided to consolidate, resulting in the loss of my job and that of 24 other affiliate bank CEOs.
Sometimes, failure is a result of being in the wrong place at the wrong time rather than lack of performance. What was I to do next? I loved being a banker, having done it all my life—I started as a teller at age 16. My wife and I also loved living in Grand Rapids and did not want to disrupt the family by moving.
I turned to the Bible; one verse in particular gave me much comfort: “Peace I leave with you...Let not your heart be troubled, neither let it be afraid.” (John 14:27) Based on a great deal of thought and prayer, I started a de novo bank in Grand Rapids in 1987 called the Grand Bank; its success led to an acquisition 15 years later. Alexander Graham Bell once said, “When one door closes, another opens.” Although it does not necessarily open quickly, I testify that it does over time.
Charles Stoddard (MBA 1969)
Opportunity in reverse
In many ways, my life never really began until the spring of 2007, even though I am now 45 years old. In April of that year I found out that two of my children were diagnosed with forms of autism spectrum disorder, or ASD. That day was the first time in over 15 years of marriage that I felt like a true failure—failure as a father to somehow protect my children from this disorder.
For the next 18 months, my entire life began to feel different. Things that were so important before just didn’t seem to matter now. You would think a jolt like this one, to remind me of what was truly important in life, would be a good thing. Amazingly, it wasn’t, as I now had very little balance in anything I did each day. All that mattered was worrying about my kids.
I was able to use this crisis, however, as a way to change my life—some things by choice, others by brute force. I left my job as an R&D program manager at a health-care company and moved into my current role, which has grown in scope, role, impact, and overall learning opportunities. It also taught me to live for the day and to take personal challenges head-on whenever they come my way.
Personal crisis is just opportunity in reverse. I know that now.
Philip Ebeling (AMP 185, 2013)
SVP, R-&-D, St. Jude Medical
A foundation and a catalyst
In September 2001, I quit my job as VP for derivatives training at an investment bank to start my own derivatives brokerage business. After a few months of struggling to understand why the business was slow, I realized that derivatives volumes on the exchange were at five-year lows because of low volatility, a key success factor I had overlooked. As the first anniversary of my business approached, the inevitable collapse of the business became a reality as we ran out of cash to pay suppliers.
I felt stupid for failing within a year, but performed a detailed post-mortem analysis and identified the reasons for my failure as poor business capitalization and lack of a well-defined business strategy.
Bill Gates once said, “It is fine to celebrate success, but it is more important to heed the lessons of failure.” My key lesson was to view this failure as the beginning of a new journey and use it as a foundation for future success. Although my brokerage business was a failure, it became the catalyst for my transition into general management and eventual role as a CEO.
Frank Magwegwe (AMP 185, 2013)
Segment Head, Momentum Retail
In 1968 I lived in Durban, South Africa. In conjunction with my best man at my wedding, who lived in Johannesburg, I formed a company to sell microfilm services. I was the sole initial employee, selling concepts because we had no equipment to produce a product. After making several significant sales, we purchased equipment in both cities and were up and running. After two years, my partner persuaded me to introduce another partner to the company, all with equal shares. The two of them then conspired to force me out of the company I had started. At this point, with a wife and six-day-old daughter, I decided to apply for admission to HBS. Attending the MBA program, living in Cambridge, and meeting young, enterprising Americans, resulted in my immigrating to America and building my travel companies and my family, now 19 strong and thriving in this wonderful country.
Berry Versfeld (MBA 1973)
President, Travelong of Summit
The language of loyalty
After graduating in 1969, I joined Baxter Laboratories (now Baxter International) as assistant to the president, international division. After a year in the United States, I was offered the job of general manager of the Italian marketing operation based in Rome, with responsibility to integrate it with a newly acquired manufacturing company outside Florence. I insisted that I would need to have both companies report to me if I was to be successful. This was agreed to, and my assignment resulted in the successful integration of operations and rapid growth.
I was then asked to take an assignment in Japan as managing director, Far East, to wrest control of a 50-50 joint venture with Sumitomo. I knew this was a tough assignment but was excited by the challenge. However, I mistakenly agreed to hire a Japanese American assistant who felt a strong allegiance to the Sumitomo-appointed general manager of the joint venture. He undercut me at every opportunity, working against the objective of achieving complete control. Despite this, I was able to obtain government approval of the first 100-percent American-owned medical manufacturing license since the American occupation and took over the joint venture.
I learned from the experience to assure the loyalty of those working for me. I left Baxter, and acquired a US medical instrumentation company, staffing it with the best people I could hire.
John Sweeney (MBA 1969)
That worked out pretty well
I was fired once. I had been placed as general manager of a division of a larger company. We had two boom years and then everything seemed to fall apart. My VP of manufacturing died a week before undergoing heart surgery. We also kept coming up with shortages when annual inventory was taken and simply could not figure out the problem. This all finally came to a head with a nearly $1 million shrinkage at a time when our profits had sunk due to the mid-1970s recession. In addition, our $40 million backlog of orders suddenly dropped close to zero—many customers had double- and triple-ordered due to shortages caused by the oil price extremes of that decade.
I learned two things: (1) a backlog of orders can be illusionary and (2) if your manufacturing people put 510 feet of wire on each 500-foot reel of wire shipped, you are going to have a shortage when you take inventory.
I ended up landing another job in a totally different industry—it was a terrific experience. Three years later I moved to Washington, DC, where I worked for a senator and also as a lobbyist. Now I am fading into the sunset as an expert on student housing. None of that would have happened if I had not been fired in 1976.
Jim Arbury (MBA 1966)
VP for Student Housing
National Multifamily Housing Council
Growing out of business
After a year of planning and negotiating, my partner and I successfully secured a national account for Nourish, a patented line of spill-proof bottled water for infants and toddlers that we had already launched in airport shops and specialty stores. The product flew off the shelves. The national retailer and its distributor required net 30-day terms, which we didn’t love, but we had developed such strong relationships with our suppliers that we easily convinced them to extend us additional terms to fill that first big order. We shipped the product and waited. Day 30 arrived and a check did not. On Day 45 we received another order along with a note explaining that the product had been so well received that they were going to put us in more stores—but still no check. Everyone told us to get a line of credit, but I couldn’t understand why I should have to borrow money and commit personal guarantees when I was essentially lending my capital to my customer for free. The very thing that we had worked so hard for was the very thing that would kill us.
That realization led me to the development of NOWaccount, a merchant service that relieves small businesses from the burden of funding and managing trade credit by immediately enabling payment for a 2.5 percent fee. Cash flow is great, but revenue flow is even better because most businesses don’t go out of business—they grow out of business.
Lara Hodgson (MBA 1998)
Cofounder, President, and CEO
Stages of grief
There was pain but also pride when I shut Eva & Paul Denim. It was like having a death in the family. I mourned it for a while, then picked myself up and moved forward. And part of the moving on process was to really stop. It’s a lot of work to shut down a company—almost the same amount of work as starting one up, but in reverse and a lot less fun. Afterward I took a break in Florida, appreciated the journey I had been on, and stopped to think where I had been and where I wanted to go.
Julia Kastner (MBA 2012)
Product Manager, Yodle