Mark Coopersmith is a Senior Fellow, UC Berkeley Haas Entrepreneurship Program, Senior Fellow, Institute for Business Innovation, UC Berkeley Executive Faculty Director, instructor at Learn2Launch Berkeley, and founding Author in Residence of the NA...
Mark Coopersmith is a Senior Fellow, UC Berkeley Haas Entrepreneurship Program, Senior Fellow, Institute for Business Innovation, UC Berkeley Executive Faculty Director, instructor at Learn2Launch Berkeley, and founding Author in Residence of the NASDAQ Entrepreneurial Center. Coopersmith sat down with ExecEd and discussed ‘Leveraging Failure’. The following is a transcript of that discussion.
ExecEd: Today, our podcast interview is with Mark Coopersmith who is a senior fellow at UC Berkeley's Lester Center for Entrepreneurship and Innovation at the Haas School of Business where he also teaches at the Berkeley Center for Executive Education. In addition to being a seasoned Fortune 500 executive, Mark has launched, built, and led high growth businesses from startups to global enterprises. Mark has been a strategic adviser to VC-backed ventures and global corporations such as Intel and Direct TV.
Mark also mentors aspiring entrepreneurs and teams including those working at the UC Berkeley sky deck accelerator. Mark has been quoted in The Economist. The New York Times, USA Today, and has appeared on CNN, The Huffington Post, and National Public Radio. Today, we're going to talking with Mark about entrepreneurship and innovation and his new co-authored book, "The Other F Word, How Smart Leaders, Teams, and Entrepreneurs Put Failure to Work." Welcome Mark.
Mark Coopersmith: Great to be here.
ExecEd: Thanks for joining me. I'd like to start out by asking something about your own personal journey to entrepreneurship. You teach it, you talk about it, you coach it, how did you get started on that path?
Mark Coopersmith: I got started on that path really three decades ago as a student here at UC Berkeley. Studying my master's in business here. I took a number of entrepreneurship courses. I started over this three decade studying entrepreneurship then went into the work force and as an entrepreneur and as a corporate entrepreneur, practice entrepreneurship and innovation in startups and global enterprises and like. For the past 15 years or so I've been teaching here at UC Berkeley as well.
ExecEd: When you talk about the entrepreneurial mindset, can you tell me more about that? What defines that mindset?
Mark Coopersmith: The mindset of an entrepreneur is just a little bit different. Entrepreneurs are wired a little bit differently from the rest of us. I'll put myself in that same category. There's this bias to action, there's this willingness to ask for forgiveness not permission. There's a focus on getting things done and it's different to act and think entrepreneurially in that way, than it is in a larger corporate enterprise in a more bureaucratic place.
It's that bias to action in getting things done and making big things happen. Those are that vision, that aspiration, that ability to get people to follow you.
ExecEd: You talk a lot, you compare, you talk about entrepreneurs and innovators. Are they cut from the same cloth or did the same mindset, are they different?
Mark Coopersmith: Yes. Entrepreneur and innovators often times those terms are used in very overlapping manner. There's definitely a lot of overlap there. There's not a complete level of overlap. If I were to distinguish between those, I would say that innovators are people who come up with new ways of doing things, better ways of doing things. Ways that we hope will add value, will change business models products, processes, services, those types of things. Entrepreneurs then take those innovations and then make them real. The entrepreneurs have that biased action to creating things, to launching new ventures with innovations in most cases.
ExecEd: You're talking about the mindset of an entrepreneur, the mindset of an innovator, can an innovator be an entrepreneur or vice versa? How does that work?
Mark Coopersmith: Innovators can be entrepreneurs and many entrepreneurs are innovators. Those particular attributes innovation and entrepreneurship just aren't exactly the same as we were talking about.
ExecEd: Is there a difference between a general entrepreneur and the Silicon Valley Entrepreneur because you've done a lot of work here. Tell us about.
Mark Coopersmith: Entrepreneurship obviously, it exist everywhere. What we see in Silicon Valley is this really evolved ecosystem. Perhaps the most evolved entrepreneurial ecosystem in the world. It's one where we have all the venture capital, we've got a phenomenal number of entrepreneurs here, and people have been entrepreneurs many times over. We've got this fast network of innovators and entrepreneurs that feed upon one another. We have this amazing network of advisers, of all types from marketing, and go to market strategies, to finance, to technology.
We've got as well this amazing network of educational institution that feeds into it. I would say in Silicon Valley, we have this highly evolved ecosystem that then gives rise to all of these entrepreneurship. The other thing that happens here and sometimes it's easy to look at this as a little bit of a bubble is the ethos around entrepreneurship is a bit different. It is okay to fail and it's one of those things and we'll talk about this I think a little later around my book, "The Other F Word." It's okay to fail here and it has been for a while as long as you learn from those failures and put them to work.
That's an element that perhaps has existed here more than in many other parts of the world and perhaps that's one of the reasons why we have more highly successful entrepreneurial ventures and startups. Members of that unicorn club here than in any other part of the world.
ExecEd: Let's talk a little bit more about that, then how can lessons of the Silicon Valley, the startups that reside here. How can they inform other businesses around the world and across different industries and different size companies?
Mark Coopersmith: One of the key things that you always look for is what are the patterns of success and what are patterns and failure. We take a look and try to identify what those patterns of success are and we teach that here at UC Berkeley. Whenever I teach, I call in entrepreneurs, I call in venture capitals and we say, "What's worked and what hasn't worked? What changes do we see happening in the markets? How can we then incorporate those in the next generation of leaders, the next generation of entrepreneurial ventures?"
One of the great things about being here at UC Berkeley is we also have entrepreneurs, students, and executives from around the world that come to study with us whether it's for years, or semesters, or even just a week of executive education. As being able to share those lessons, those most current developments that I think helps us export part of what makes Silicon Valley the San Francisco Bay area such a hot bed of entrepreneurial thinking and success.
ExecEd: You've taught workshops since startups and entrepreneurships and yet there's a big debate about whether entrepreneurship can be taught. In fact when we're talking about the whole nature nurture thing when raising kids. Is it something that you can teach or you're just born to be an entrepreneur?
Mark Coopersmith: That's been a question for a long time, can entrepreneur be taught? I think that the essence of the question in some way has been answered a bit with developments over the last dozen years or so, even more so the last five years, The Lean Startup Movement for example which really emanated here at UC Berkeley. So many of the different clinics and programs that have popped up around how to create better entrepreneurs.
You might even look at approaching it the same way that say a venture capitalist would look at a venture or a team that's launching a new venture and saying, "How can I de-risk that venture?" If you think about how you de-risk a venture, it's by answering questions, it's by providing those skills. When I take a look at can entrepreneurship be taught, there's three key elements that I look at where that we try and communicate. Number one, can we give you tools to be a better entrepreneur? The answer is absolutely.
I spend time with my students providing them with these various tools to help them be better entrepreneurs. Ways of looking at customers and markets, ways of iterating around products, ways of looking at business models, and creating better business models so we provide those tools. Secondly, we take a look at the skills. As opposed to just talking about these things, we then put them to work. It's very interactive the way that I teach entrepreneurship, it's very workshop oriented.
When I introduce a new tool, by the time you come back and see me again I expect you would have used that tool and then we debrief around on what worked, what didn't. We have tool set, and we have skill set, and then we have the mindset. The mindset as we talked about a little bit earlier is something that we look to expose as many our students to as many different entrepreneurs ways of thinking, success and failure. Again, failure comes in because the way you process failure is one of those crucial elements of entrepreneurship, the resilience, the insights that you get from it. My answer now is a resounding yes. Entrepreneurship can be taught, but that also doesn't mean of course that great entrepreneurs aren't also born because they are.
ExecEd: In terms of the participants in your programs and who are you seeing? I mean are these mostly people that are at startups that just really want to know like how can I take it to the next level or are they people in big companies that are just trying to grasp what that is to be that entrepreneur type person?
Mark Coopersmith: Yes. I've been seeing this evolve a lot over the past several years. Typically, it was in the past. Younger students, entrepreneurs, even an executive education, it was people earlier in their careers that wanted a launch ventures. Now, we have experienced executives and mid-career, we have senior executives that are later on in their career that are coming back saying, "How do I take these principals, the approaches, the tools that entrepreneurs use to accelerate their ventures. To disrupt my business if I'm a global enterprise and how do I put them to work inside my organization? How do I propagate this kind of thinking across large teams on global enterprises?"
That's really fantastic for me to see and it's interesting, and exciting to be able to work with this global enterprises and help them think and act more entrepreneurially as well. It's something I've done a lot in my career in global enterprises both as an executive and an adviser, and now we're seeing more and more of that.
ExecEd: I'm just curious if there's any generational difference. I know you coach and you work with the sky deck, and you're seeing millennials, and then you say you see this season of executives coming back. Is there a definite difference or they're both after the same thing and open to the same kinds of learning?
Mark Coopersmith: I think everybody is after the same thing. If you think about listen to any earnings call for example. You'll hear most CEO say, "Our company is innovative. We are driving growth through innovation. Our employees are engaged." These are kind of universal wants that we have. Whether you're early in your career and you are trying to launch here that new entrepreneurial venture, or whether you are established in the global enterprise, those objectives remain.
What's interesting as we now see later commit in later career executives coming in is having to un-teach some of the things that they know about the way you build global enterprises. There's room in their thought processes to rethink in the more entrepreneurial manner how to grow these enterprises, how to empower your people in different ways.
ExecEd: In terms of empowering the people then is the entrepreneurial mindset, how does that relate to culture in companies?
Mark Coopersmith: They say there's strategy and there's culture and culture always wins right? One of the key things is how do you change culture? How does this entrepreneurial mindset takes place, take hold? It can starts from the top or it can start from the bottom and really it's best if it starts from both, or if you start at some place. There are times when I have executives that come in and say, "We want to instill a more entrepreneurial mindset. We want to instill a mindset where it's okay to fail, especially in certain areas like launching new products, or coming up with new marketing campaigns."
Because if we're not trying hard enough, we are not going to create that next generation of products. We are going to disrupted by that next startup. Those are areas where my advice to them is we'll start in your part of the company and see if you can help create this benevolent infection of entrepreneurial thinking of more employee engagement of driving innovation as well. When we get the senior executives engaged in that way looking to propagate that across the whole company, then the best of all.
ExecEd: You just mention something about not being afraid to fail. How does one or how does a business leverage failure?
Mark Coopersmith: You noticed that I've mentioned the word failure a couple of times. I know you're going to ask me about my upcoming book or my recent book. I'm going to go ahead and mention a little bit about that. The book is "The Other F Word, How Smart Leaders, Teams, and Entrepreneurs Put Failure to Work." I wrote it with my co-author and my colleague here at Berkeley John Danner. In that book, we investigate how to leverage failure as a resource as oppose to something that you want to sweep under the rug.
Going back to what we were talking about earlier, here in Silicon Valley, in the San Francisco Bay Area it's been okay to fail for a while as long as you learn from those failures. I was just for the leading venture capital as yesterday and we were talking about that and he said, "I would much rather invest in a team that has failed once and has learned some insights from that failure and they want to put it to work in a new venture that benefits from those learnings. I'd rather invest in them the second time around than in the first time around." They look for that.
It was those insights from being here in Silicon Valley about leveraging failure, about the fact that every failure does indeed have a lesson inside of it if you're willing to look for it than then gave rise to the book that we wrote and the broader lessons that we look to extract from failure and share around the world.
ExecEd: Are there any specific examples in your book that I'm thinking of a couple but where companies failed and failed and failed and then it turned around and there was a success?
Mark Coopersmith: There are plenty of those and of course sometimes you have to say, "Okay, how many failures?" There are too many. I mean we look at Rovio which launched Angry Birds and Angry Birds was depending upon how you count at the 53rd or the 54th product that they came up with, with the 50-something before that being failures. One would hope that every time they fail, they learned a little something about what it takes to drive that engagement with online gamers.
One of the examples that we cite in the book is WD-40, the common household lubricant, fix everything that stuck product. WD-40 stands for water displacement formula number 40. The Rocket Chemical Company back in the 1950s started out with the effort to create a new lubricant that also was an anti-rust coating because they work with rocket manufactures then so the Rocket Chemical Company. They came up with water displacement formula number 1, WD-1 which didn't work so well, so then they went on the WD-2, and WD-3, and WD-4, until we got to WD-40. Since then that iconic formula has remained unchanged. There's an example of the company that persevere through failure but with every formula they learned a little something until they got it right.
ExecEd: It was Instagram another one, I think that you …
Mark Coopersmith: Instagram was one that we mentioned as well in the book which is really different. This is where you persevere. WD-40 was a persevere through failure but learn in every step. Instagram is a really different story and that Instagram started out as a product called Burbn funded by Andreessen Horowitz, one of the top venture capital firms in Silicon Valley. Burbn, my description out there was king of a Swiss army knife of mobile applications. Some e-commerce, some social media, some photography, some gaming, whole host of things.
When they went to market with their initial customer group with their beta customers, they were getting ready to launch and they were excited, and they went to their customers, and their customers basically said that the product sucked. They just didn't know when they should use it, and most of the apps weren't great. They were good but not great, but we have a 100 apps on each of our smart phones now. Right at our customers disposal, they had better apps for each one of these things. The guys were about to go ahead and scuttle the whole project until they heard some of their customers say, "This little photo app you have over here is pretty cool."
Rather than jettisoning everything, they got rid of everything but the photo app. They relaunched the product as Instagram and since then we know the story. It was acquired by Facebook for more than a billion dollars. The team had a total of 13 or 14 team members on it, so still a small team. What's interesting is since then, this product Instagram has been Facebook's most effective fastest growing application. They were clearly on to something good with that and they learned by listening to their customers in spite of the failure.
ExecEd: In terms of listening to your customers, I think you mentioned Netflix and Qwikster. What kind of lessons are learned by that sort of failure?
Mark Coopersmith: This is another failure. Many of you may remember that Netflix decided that it was going to split it service a couple of years ago. Netflix would remain the brand for the streaming video service and then they would take the video by mails which is the DVDs by mails, how they started, and launch a new brand called Qwikster. Their customers didn't like that very much, and their customers reacted quickly and vehemently. Within just a couple of months Netflix share price had lost 75%.
Netflix was on sale for 75% off. Most market watchers figured that somebody, a Disney, a Time Warner, a Fox would jump in and gabble them up for the discount price. What Netflix did was really smart, Netflix CEO Reed Hastings videotaped a public apology to the customers and said, "We've been working for 15 years to build this company and we did something that really pissed you off. We're sorry. Stay with us, we will fix it." Now, a lot of people said, "That's not going to make a difference." It did. People stopped leaving, some of the customers came back.
What the leadership team and Netflix then did was they paused, they had stemmed the bleeding, and they reflected on what was happening. Since they were all ready in the midst of such a failure, they said, "What else is going on?" One of the steps in our failure value cycle or seven stages of how to process failure is once you react effectively to reflect upon those learnings, what just happened? They then double down by creating original content like House of Cards and others, and then they launched the next step is to rebound. They launched they rebound strategy and that was really effective.
They almost kill themselves. They brought on this near existential failure to themselves with this move but they reacted well, they reflected upon the learnings, and they rebounded effectively. Now, they're the number one video streaming service in the world.
ExecEd: Tell me more about the failure value cycle?
Mark Coopersmith: The failure value cycle is the seven stage cycle that came out of the work that we did, the research that we did to write our book. Let me go back and just share just a little bit of context on the book. I describe that it really came out of looking at Silicon Valley and saying, "How do we take the lessons from Silicon Valley from the San Francisco Bay Area and startups and apply them more broadly across businesses small, medium, and large.
How do we take a look at it that way? John and I went out and we talked to hundreds of executives. We looked at hundreds of additional company, small, medium, and large, and then we talked to executives and leaders and other disciplines and entertainment, in government, in disciplines like space travel. We talk to astronauts and fighter pilots across a whole discipline to understand how failure place a role in driving innovation, in driving growth, and driving new ways of doing things.
Through that we saw patterns emerge. What we didn't want to do was just to create another memoir, like I failed, I persevered, I succeeded, the Steve Jobs story. That's great, but that's not that helpful. We didn't want to create yet another Silicon Valley, lean startup clone about how to learn from failure if you're a startup to fail fast, fail forward, fail smarter, fail whatever. We didn't want to create a self help book, "I need a hug I failed" kind of thing.
Those three were off the table. The key thing here was what patterns do we see in failure that the broader spectrum of leaders, executives, and others can put to work. That's the back drop, and out of that, a number of patterns emerged and we distilled it down to seven key steps. I'll walk through them really briefly, see if I got them all right. The first one is to respect the fact that failure happens a lot. It's much more of a reality than we often think it is. It's kind of like gravity, it's around us all the time pulling us down. We have to recognize that and we learn to leverage it.
Secondly, it's to rehearse for failure. If you think about that, you want to rehearse for two particular types of failure. The first are failures that might happen a lot. Let's say that you have a new product launch. You might expect that some things won't work and your customer service people better be ready for it. The second is that failure that could be fundamentally existential that could threaten the life of your company like VW is facing right now based on this massive failure that they've had.
The third is to recognize it early. Put in place warning systems, look outside your sector, put in place automated or big data diagnostics that may capture slight changes and trends or directions that enable you to earlier be able to respond and react to the problem. The fourth stage is to react in the moment as we've talked about with Netflix. When a failure happens, do you react effectively and quickly and when necessary does leadership step up, take responsibility and if needed apologize because sometimes that's appropriate.
The fifth stage is to reflect upon that. When we have a failure, the thing that we most want to do is to fix it right away. What's hard and this is the advice that I give to leaders is to say, "Don't always jump to fix it, take a moment to reflect on what just happened." Because there maybe learnings embedded in there that you want to incorporate in your response as oppose to just putting a band aid on it. As we saw with Netflix, they actually change direction.
The six out of our seven stage is to rebound. That's when you move from defense into offense and you say, "What is it now that we need to do operationally to execute our new strategy, or to redouble our efforts on our existing strategy? If you say, look we just ran into a headwind." Finally, the seventh stage is to remember failure. You don't make those same failures again. One of the things that I often like to say around this is do you ask questions in the right order?
One of the questions that's often the first question that's asked when there's a failure is, "Whose fault is it?" Which immediately creates an environmental blame. What if instead you said, "What just happened? Why did it happen, and how did it happen?" Once you've determine that, then you say, "Now, who is involved and how can we involve them in the recovery effort in the next steps." Because you know that those people, first of all they know the most about it and they are the most motivated to be able to take those learnings and put them to work. That's our seven stage failure value cycle that John and I developed.
ExecEd: There be then given all that you've said, it's inevitable. It's going to happen. Should there be a culture embracing the fact that failure happen, should leaders be talking to their teams and their people about it's going to happen let's embrace it, this is good.
Mark Coopersmith: We don't necessarily advocate throwing failure parties per say. We do recognize, I recognize that it's important to say there are parts of the business where you do need to encourage failure. Let's say we're talking about new product development or marketing campaigns. If you want improvement, if you want innovation, you have to take risk, you have to change. If you do those especially aggressively enough, a number of those are going to fail.
You have to expect that failures are natural outgrowth of trying to innovate, and change, and evolve. Because you know that the startups that are after the business that every enterprise has are not afraid to fail. The failure rates on startups are huge, somewhere between 75 and 90% fail and they go in knowing that, so that's all right. Now, if you as an enterprise are afraid to fail, I talk to CEOs and they say, "We want innovation and growth but we just can't afford to fail." You've got the math wrong on that one.
ExecEd: I've heard you talked about static quo. I mean how does that relate to this idea?
Mark Coopersmith: We can talk about the status quo but if we call it the static quo instead, it's the place in which we are stuck right now.
ExecEd: Is that from fear of failure though?
Mark Coopersmith: It is, it is a fear of failure. It is a comfort with the current situation. If we compare the static quo inside enterprises versus entrepreneurs who welcome change, drive change are ready to knock you off that pedestal, then what I like to say is think about your future quo not your static quo. How do you bring that future quo that desired future state into being? By the way, there will be some failures between now and then.
ExecEd: Actually, does that align with your teaching at Berkeley and there are guiding principles at Berkeley one about challenging the status quo?
Mark Coopersmith: One of the great things about being here at Berkeley and being a student here at Berkeley and now teaching here at Berkeley is the defining principles, question the status quo. It align so much with what we're talking about. Student always constantly be out there looking for new ways of doing something. What else do we have?
We have behind yourself here which again if you're building new businesses, look for those multiple bottom lines. Look for a way to give something back beyond just the financial returns, you don't have to compromise the financial returns to do that. Those are great defining principles.
Mark Coopersmith: Confidence for that attitude being the fourth of our fourth, so thank you for that. Yeah, we call that the no jerk rule and I think that that's really appropriate for the kind of leadership we're talking about. Because the kind of leadership we're talking about and I call it failure savvy leadership, the kind of leadership we're talking about is one where it says, "Sometimes failures happen. Let's learn from those."
Let's not have a culture that we call trial and error, but really it's trial and terror because the moment we do and there's an error, the person who's involved get shown the door or gets the least appealing assignments. It's really creating that right kind of culture and I think that aligns with a lot of what we stand for here at Berkeley.
ExecEd: In a way, I'm wondering does it take sort of a brave perspective or a brave personality to fail?
Mark Coopersmith: It takes a number of attributes, it does take a brave, and very honest personality. It takes a leader who's comfortable with who they are as a leader and a leader who's not afraid to share of some of the failures that they've had themselves throughout their career. One of the interesting things in writing this book is we sent invitations to many leaders of fortune 100, fortune 500 companies. The fascinating thing was the number of leaders that responded and said this is an important topic.
It's not a topic that's a topic we address as proactively as I would like in my company or in companies where I've worked or been a leader in. I like the way you're coming at it, how can I help. It's those leaders who are comfortable with themselves who share their own failure story and want to create a culture where they recognize innovation will result in a certain amount of failure. Those are the lessons, the messages that we want to communicate, that we want to have come out of this book.
ExecEd: Is that the kind of advice that then you give to the executives when they're asking you about innovation? How does that relate to this failure?
Mark Coopersmith: When it comes to failure, the other thing we have to recognize is there are parts of most operations where when our executive say failure is not an option, sometimes they're right. If you're running a nuclear power plant for example, or if you're flying fighter jets off air craft carriers, a small miscalculation results in a massive cost. Let's talk about business application, let's say you're running a pharmaceutical manufacturing facility or you're doing global transfer of funds. Those are areas where you want to harden your processes, where you want that excellence in quality.
You don't really want to drive innovation and change without a huge amount of testing. John and I address this in our book by defining different types of failure results. There were zones that we call no failure zones, like the ones that I just described and that's where failure really isn't an option. You have to put contingencies in place but we look at it that way. You have a continuum, you have areas where perhaps small failures are okay.
One example might be in the customer service department of an organization where you put new customer service agents in front of customers early recognizing they may not perform at a 100%. As long as you have the right systems in place, they'll learn faster. We have those areas where we encourage failure or at least we recognize that failure is a natural by product.
If you're launching new products and new campaigns and you're not failing a third or a half of the time, then you may not be trying hard enough, you may not be reaching far enough.
ExecEd: You talk a lot about the other kind of failure like Kodak or the other companies that talk about those kinds of ... What went wrong there?
Mark Coopersmith: In many cases, they didn't recognize change, they didn't recognize the change that was coming.
ExecEd: It relates to the innovation and?
Mark Coopersmith: One of the key things, why do startups have opportunities? Startups have opportunities in large part because whoever is incumbent in the market place is either doing a poor job servicing their customers, or they don't see the change that's coming. There's an unmet set of needs that's out there and the startups that step in to meet that need or those needs.
Now, Kodak was one of those examples that is terrible on many levels. Because they actually create it as you may know, they invented digital photography, they hold the early patents in digital photography. They had such a great business model where they sell reasonably cheap cameras and they made a ton of money on paper, film, chemicals that they couldn't upset that. They were afraid of upsetting that.
What did they think, nobody else would invent digital photograph? There was an arrogance around that too. They lock it up and by the time they realize that this was a trend that was happening, it was too late. The other thing that's interesting about Kodak is that in an effort to save the company, they sold off some assets. One of the businesses they sold off was their film business. Now, if you think about our smart phones today and our tablets today, all of those work because of the other side of that shadow resistant glass is a very thin film.
Do you know who controls the line share of that market place? Fuji Film. Because Fuji kept that business. Fuji saw the opportunities in that business beyond the traditional film photographic business and kept it and now it's a very profitable business in the digital world of smart phones, and tablets, and other devices.
ExecEd: With Kodak being an example of this failure to truly innovate. In other words, stick with what I know, head in the sand, they have the innovation?
Mark Coopersmith: They have the innovation.
ExecEd: They didn't typically call it.
Mark Coopersmith: They actually have them. I think that they failed on so many levels. They fail to respect failure because ultimately failure happens. They fail to respect that their current business model is successful as it had been for so many years was about to fail. They didn't recognize it in the right time frame. They didn't rehearse and run those simulations to say, "What if we do this? What if we do that?" All of those pre-failure events, they failed at fundamentally. By the time they recognize the failure, it was too late. The writing was already out of the water.
ExecEd: Right. Often it's with a giant. There is Blockbuster in Netflix.
Mark Coopersmith: Right.
ExecEd: Isn't that another example?
Mark Coopersmith: It is. What Blockbuster had was this massive installed base. Netflix didn't. Netflix actually was really well positioned. There's some times as a company your infrastructure just locks you in to a certain strategy. What you need to do is you need to figure out how to fundamentally remake yourself. It's kind of interesting.
Some companies that you don't think of is being innovative are often times once that have remade themselves. Think of IBM. They started out as a typewriter company, then a computer company. Now, they're more of a global services company than anything else. Each of those changes, they've had to undergo massive change and disruption. Very painful to be able to transition from one way of doing business, one set of product into something that's fundamentally different.
ExecEd: When you talk about entrepreneurship, you talk about it's about being flexible and nimble. It's the failure of not being that sort of flexible nimble?
Mark Coopersmith: You want to be flexible and nimble but recognize to that, there's a fundamental difference between the startup and an enterprise. The startup is really a temporary vehicle, a temporary entity in search of a new product market fit and a workable business model. Once they find that, then the startups job changes to being a company which is to scale around those new findings. An enterprise isn't going to be experimenting as much obviously their job is to try and maximize the value in this product market fit in this business model.
In a world where failure happens all the time and you have to respect it, how do you manage both of those. Some of the things that Google did recently are fascinating. Google recently announced that they were splitting into alphabet and Google, they announced alphabet. What's the importance of that? Google has this incredible cash generating machine in search and advertising which generates 80, 80% or more of its revenue. They've got all of these new ventures, space exploration, medical devices, self driving cars, hundreds of new ventures they invest in every year.
Do you apply the same rules to both of those? No. What Google did which was really I think bold, was they created a structural solution. Everybody understood inside Google and outside what the rules were. The rules are different if you're in the exploratory mode versus if you're in the execution mode. Now, the people on the exploratory side were happy because some of the constraints or concerns they had, had now been clarified and lifted.
The interesting thing is the people in the operating mode also this comes from conversations I've had with people at Google are also excited about this because now they understand what success looks like. If you're in this division over here, this generating cash you actually don't have to worry about space exploration anymore. You get to focus on ad words and search and optimize that business. Part of it is being this ambidextrous organization to manage your business today versus creating your business for tomorrow.
In the book we call this our T to T ratio, your today to tomorrow ratio which is make sure that you have enough experiments going on where you're inviting failure as well as managing your operations, your cash flow, your company for today as well.
ExecEd: In other words would you say that that's a great structure to have like a separate entity. It's like an incubator within your bigger organization. Is that the model that you recommend often?
Mark Coopersmith: This is something new that we've seen with Google. Other companies do this by creating new entities or new ventures. Apple did it years ago when they launched the Mackintosh if we want to look at this. I did it when I was at Sony and launched the brand new division with Sony's capital to enter brand new markets. I've span an e-commerce operation out of that, that's now actually owned by Google.
Every company does it differently but I think that you have to take a look at the structure of companies as well as the culture inside companies. This maybe something new that we're seeing that Google has done from a structural standpoint that will create higher profile copiers or not. We'll have to wait and see.
ExecEd: Are there any other lessons or advice from your book that you would give business leaders that are seeking to be successful in this dynamic ever changing world? Are there any other lessons?
Mark Coopersmith: Yes, because of the way you asked the question, there's one that I really want to mention. That is to the business leaders of the world. Don't always think like a business leader. Now, we're sitting here at the Haas School of Business, so I'm going to say don't think like an MBA. Because businesses think of success and failure, we have a new project, we have a new product, we have a new venture. We'll just succeed or fail.
That's the way Wall Street often looks at it too. What if you use the language of science? Which is we are launching a new venture, we're going to consider this an experiment. We're going to have positive outcomes and negative outcomes, and we will learn from each set of outcomes. We may have to iterate a number of times until we get it right. Experiments are the search of knowledge and ultimately that knowledge can result in that great new product or that great new business model.
If we look at it just as a business project, then we may shut it down when it fails. I would say look to other disciplines like science, like engineering which has a whole discipline of failure analysis. Like the creative arts where there are rough drafts, where there are all sorts of other elements to drive some inspiration about how we can take those lessons from failure.
ExecEd: I want to thank you so much for a fascinating interview and good luck with the new book.
Mark Coopersmith: Thank you.