Learning to Fail Well ft. Amy Edmondson

[00:00:06] Amy

In a sense, part of being innovative, part of taking risks, part of growing and learning in your life in any realm is being willing to take interpersonal risks, being willing to do things that might not immediately earn the approval of others. Learning, growing, failing well is about saying, yes, I can take these interpersonal risks and pausing to take a breath and realize no, I won’t die if so and so doesn’t like me in that moment. In fact, I will be contributing to the team.

[00:00:50] Intro

Imagine spending an hour with the world’s greatest traders. Imagine learning from their experiences, their successes, and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level.

Before we begin today’s conversation, remember to keep two things in mind. All the discussion we will have about investment performance is about the past, and past performance does not guarantee or even infer anything about future performance. Also understand that there’s a significant risk of financial loss with all investment strategies, and you need to request and understand the specific risks from the investment manager about their product before you make investment decisions.

Here’s your host, veteran hedge fund manager, Niels Kaastrup-Larsen.

[00:01:45] Niels

For me, the best part of my podcasting journey has been the opportunity to speak to a huge range of extraordinary people from all around the world. In this series, I have invited one of them, namely, Kevin Coldiron, to host a series of in-depth conversations to help uncover and explain new ideas to make you a better investor. In this series, Kevin will be speaking to authors of new books and research papers to better understand the global economy and the dynamics that shape it so that we can all successfully navigate the challenges within it. With that, please welcome Kevin Coldiron.

[00:02:22] Kevin

Thanks, Niels and welcome, everyone. Fail fast, fail often. If we want to innovate and thrive in the modern world, that’s what we’re told we need to do. Our guest today says that’s not the full picture. What we really need to do is learn how to fail well. That’s harder than it sounds because it means fighting against some very deep-held cultural and behavioral biases that we all have. Luckily, she’s written a book to tell us how we can do it.

Our guest is Amy Edmondson. She’s a professor at the Harvard Business School and author of the “Right Kind of Wrong: The Science of Failing Well”, which recently won the 2023 Business Book of the Year Award by the Financial Times. Amy Edmondson, Happy New Year. Thanks for joining us, and welcome to the show.

[00:03:14] Amy

Thank you so much for having me. I’m delighted to be with you.

[00:03:18] Kevin

First of all, congratulations on the FT Award. That’s a very big deal. Very stiff competition, so congratulations.

[00:03:27] Amy

Thank you. I was absolutely astounded, and particularly because of the competition, as you mentioned. It was extraordinary.

[00:03:37] Kevin

We don’t want to take any credit for that, but I would say that our first guest last year was Chris Miller, who agreed to join the show and then won the Business Book of the Year Award 2022.

[00:03:51] Amy

Incredible, how wonderful!

[00:03:52] Kevin

The same thing happened with you.

[00:03:53] Amy

Wow.

[00:03:54] Kevin

You begin the book with a really fascinating personal story and I thought that might be a good way to start our talk today. Your research career started with a failure, and one that was big enough that you say you asked yourself whether you had chosen the right path. You were studying, I believe, medication errors at hospitals, hospital teams, and you had the reasonable hypothesis that effective teams ought to make fewer mistakes, fewer errors.

You had developed a good way to measure effectiveness. You spent a lot of time collecting data. You collected the data, ran the numbers, and they showed the exact opposite of what you were expecting. How did you react to that failure and how did that really trigger the beginning of, basically, your career of investigating and understanding failure?

[00:04:52] Amy

I suppose my initial reaction I reacted badly to that failure in that I was scared of it. I thought that it really meant I wasn’t cut out for this work. With what I know about failure today, and certainly soon after that study, that was a very bad and counterproductive reaction because in research you will encounter failures. In research, by definition, you’re in new territory.

You’re trying to answer questions that haven’t been answered before. You do your homework, you have a hypothesis, but you can be wrong and that’s not shameful. That’s part of the journey. Now, this one was a little trickier. But I’ll just answer your question by saying, I don’t think I reacted as well as I would like others to react today.

[00:05:44] Kevin

How did you then go about overcoming that initial reaction, revising your hypothesis, and moving forward?

[00:05:54] Amy

Yes, and that’s of course what it’s all about. None of us like failure, but what we do have to do is get used to learning from it and must relish the opportunity to learn from it. Within a few hours, after that disappointment, I, of course, had to force myself to ask the question, well, what might this mean? How do we explain better teams with better coordination end up displaying higher not lower adverse drug events, error-based negative outcomes?

It occurred to me, all of a sudden, that the way we were collecting the data on the error rates was itself potentially flawed in that it was essentially going day by day to the units asking people what was going on, what do you see, reviewing the charts. It suddenly occurred to me that, in fact, well, this is obvious. Nobody likes to speak up about error. If an error didn’t produce something that’s impossible to hide, it’s quite human to want to hide it.

So I began to wonder whether this relationship between better teamwork and higher error rates might in fact be a reporting bias, rather than actual error rates, but rather reported error rates. Then I thought maybe reported error rates are not only not the full story, but maybe they are systematically biased in favor of better teams.

In other words, the better teams are more willing to speak up honestly and candidly about what’s really going on in part because they understand what’s at stake, in part because they genuinely want to get better, they understand that mistakes happen and only by catching and correcting them quickly can patients be given safe care. I suddenly thought, and I later thought of this as a blinding flash of the obvious, maybe the better teams are the ones who are more comfortable reporting, more honest, more candid.

I called that difference, in my own mind, interpersonal climate. Maybe interpersonal climate differs across teams even in the same organizational culture. Of course, once I had that idea, that’s a far cry from being able to prove it and I was quite biased in favor of finding such a thing. So I had to hire a research assistant who knew nothing about my findings, knew nothing about my new hypothesis, but I hired him to go spend time in these units just as an ethnographer anthropologist. What is it like to work here, what is it like to work there?

He collected lots of observational and interview data and ultimately came back and said, wow, they’re really different as places to work. I said, tell me more. He ended up saying some of them just feel very open, and others feel very, his word not mine, authoritarian, and more fear. They say if you speak up about a mistake, you get put on trial, you get made to feel like a two-year-old, those kinds of very evocative language.

That is not a definitive support for my new hypothesis, but it led me to believe that it was at least a plausible interpretation of the data. I had to then go on, later in my PhD program, to design a study where I really measured, on purpose, differences in interpersonal climate across teams, even within the same organization. I found that, yes indeed, this notion of candor and openness varied a great deal across teams and it was predictive of, ultimately, team performance.

So that failure, that initial failure, started me on, in fact, what I would argue was a more interesting research direction. If I hadn’t had the failure, I would not have probably had the subsequent academic success that I had.

[00:10:09] Kevin

I just love that story because I suspect a lot of us can point to those events that are in our own lives, our own careers. It’s just nice for someone to say, hey, you need to, as you say, cultivate or welcome to these sorts of things.

You said that in the process of revising your hypothesis, you went with your new idea to, I can’t remember if it was your research director or it was a senior person at the hospital, it might have been a senior person at the hospital, where you said hey, this is what I think’s going on, and they reacted very, very skeptically to your new hypothesis that it was a reporting issue. You say that turned out to be a gift because it forced you to double down on your research.

[00:10:57] Amy

Yeah, it was very understandable. The PI, the Principal Investigator of the larger study… You have to understand my part of the study was small. This was a big study funded by the NIH, National Institute of Health, to assess, and try to assess accurately, the actual rate of adverse drug events due to human error and not due to human error, but I was particularly interested in the error-based adverse events.

Their aim, their principal aim, was to come up with a definitive estimate of the percent of patients who are, potentially, harmed while getting care in a hospital. So, what I was saying inadvertently was you may not be getting the actual error rate, you may be getting a distorted signal of error rates and that’s not a welcome message. I was the messenger bringing something unwelcome.

To their credit, I think they didn’t have any sense of the possibility of interpersonal climate varying. These were hospitals, two hospitals, in fact, with very strong, shall we say, corporate cultures and strong training programs. The idea that you’d have pockets of learning orientation that really varied across units wasn’t something anyone expected or believed possible. I was lucky in a way.

The part where I said I was lucky because then I had to really [had to double down], if he had just said, “Oh, yeah, of course,” then I could have said, “Yeah, of course.” But instead, his skepticism made me say, okay, what data do I have already and then what data could I get to show the plausibility of this new argument. The data I was able to get was using a research assistant, again, blind to the hypothesis but just to explore and see what it was like to work in these units.

The data I already had, that I almost didn’t even think of the first time around was, in the team diagnostic survey, I had inserted, because this was a study of error, I inserted a single item that was if you make a mistake in this team, it’s held against you. I just decided, okay, let’s go look at that item, and that turned out to vary a lot across units. Some people said, yeah, it’s held against you, and other people said, no, not held against you.

Then, crossing my fingers, I correlated that single item at the team level with the error rates at the team level. Lo and behold, if your team scored high on ‘this is held against you’, your error rates were strikingly low. Again, that could be just better teams are sloppy, which doesn’t make a whole lot of sense. But, again, not definitive, but it sure was suggestive evidence that people report errors when they feel it’s not going to be held against them and that that varies across teams.

Later, much later in the subsequent study, I called that climate variable ‘psychological safety’. It really took off in the academic literature because it had such predictive value. That one item is still in the measure today, but it has six other items as well that capture ‘it’s easy to ask for help if you are in over your head’, things like that, that people just feel more able to be candid and open with their teammates when psychological safety is high.

It just turns out to be a variable that really is good at predicting team performance in various other things like job satisfaction and learning behavior, and so forth.

[00:15:04] Kevin

I thought that was a great way to start the book. You say later on that if you want to understand, if you want to get to a point where you can cultivate the ability of failing well, you have to start with a clear-eyed diagnosis of different types of failure. Let’s take step back, tell us what the different types of failure are.

[00:15:28] Amy

Yes. I think this is so important because it helps navigate the, is ‘fail fast fail often’ a good idea or not. As you said at the beginning, sometimes yes, but other times no, or in other contexts, no. The three kinds of failure, I call them basic failure, complex failure, and intelligent failure.

Basic failures are single cause failures, usually human error, and they are in familiar territory. There is a recipe, and alas, we left an ingredient out by mistake, and we got a failure. Basic doesn’t mean small, they can be very large. There are plane crashes that were due to basic failure. They can be tiny. You locked your keys inside the house by mistake and you’ll have to sort that out later.

Complex failures are multi-causal failures, also usually in somewhat familiar territory. But they are the perfect storm failures. They are the failures that happen when a handful of factors line up in just the wrong way, where any one of those factors, on its own, would not cause a breakdown or failure but the way they lined up does. With complex information technology systems, with troubling weather patterns, we can easily identify that the propensity for complex failures is on the rise.

Now, I think it’s easy to see that neither of those kinds of failures are good or desirable. We don’t want them. In fact, we want to do our very best to prevent them. The third kind are the kind we need to welcome and want more of, and they are intelligent failures. They are undesired results of thoughtful experiments in new territory. They are the kinds of failures that occur because there was literally no other way to find out that information without trying it.

My first research project that we talked about was an intelligent failure. It didn’t feel great at the time, but it was a thoughtful foray into new territory, and I did not know, nor do I think I could have in advance, that the error variable, the error data might have been somewhat flawed by human behavior. So I had to deal with that failure, but it was ultimately something I learned from.

Of course, scientists have intelligent failures every day of the week probably, and inventors and people in R&D. But all of us I think have to welcome intelligent failures in our life if we want to make progress, which course we do.

[00:18:25] Kevin

The second half of the book, I want to come back to complex failures in a second, but given that we’re just talking about intelligent failures, the second half of the book is you call it ‘practicing the science of failing well’, practicing getting to those intelligent failures. You said that’s not that easy because we’re held back by a set of biases that are baked into our psyche, and you call them prepared fears; those kinds of things I think we all identify with, loud noises, sudden movements, dangerous animals.

But you said another one that I hadn’t heard before and it really resonated, basically the fear of being kicked out of the tribe, being banished. You say, well, it’s logical that we would have that fear because in our evolutionary past, if you get kicked out of the tribe, you might starve or freeze, so we’re really pre-programmed to not do anything to annoy someone who has the power to do that to us.

That manifests itself, in our modern world, in this bias against reporting mistakes or errors because that risks the wrath of your boss or your partner or whatever, and that risks banishment. I guess I hadn’t really thought of that before. That really resonated for me. Can you tell us about that?

[00:19:59] Amy

The discovery of, or idea of prepared fears comes from the field of evolutionary psychology where psychologists have looked at the things that we’re, in a sense, born with. You didn’t have to learn to be afraid of loud noise because your parents told you to be afraid of loud noise. It’s spontaneous.

Our argument, Jim Detert and I, a former PhD student, a fabulous professor at UVA, University of Virginia, we argued that this fear of rejection, this fear of ostracism had to be also a prepared fear because it is so widely felt, so widely shared across cultures, across individuals.

Again, as you said, it’s very easy to understand why that would be something that evolution would favor because you need to do things to make sure people want you around or else you really could die of starvation, exposure, etc. But it’s not terribly helpful in the modern world, the modern world that requires us to speak up openly with dissenting views or with observations of an error you’re about to make that might crash the plane.

It’s very strange, it’s so illogical to think that there could be co-pilots holding back when they see their senior officer make a dangerous error and yet the history of aviation accidents is full of such moments. It’s powerful and unhelpful. In a sense, part of being innovative, part of taking risks, part of growing and learning in your life in any realm is being willing to take interpersonal risks, being willing to do things that might not immediately earn the approval of others.

If you offer a dissenting perspective to your boss, you can imagine your boss will not, in that moment, be thrilled with you because it turns out, there’s research on this too, we like it better when people agree with us. We like them better. We even are at risk of thinking they’re smarter, which is really a problem.

So part of learning, growing, failing well is about saying yes, I can take these interpersonal risks and pausing to take a breath and realize no, I won’t die if so and so doesn’t like me in that moment. In fact, I will be contributing to the team.

[00:22:55] Kevin

I think you call that reframing, taking a step back and essentially looking at the situation in a different way. Can you explain reframing to us a little bit more?

[00:23:11] Amy

To understand reframing, first you have to understand that we’re always framing. We have frames. We look at reality through cognitive maps, through biases and expertise that lead us to pay attention to some aspects of reality and to not necessarily notice others. We’re always looking. We have the feeling of seeing reality, but we’re seeing reality through a frame and that frame is not always a helpful frame.

If you’re seeing your work team environment through a frame that says gosh, if I offer a dissenting view, that’s not good behavior or that’s not welcome around here, that’s a terribly unhelpful frame. So you need to pause and reframe. Reframing is deliberate. It’s an act of rethinking the situation saying, let’s take a more clear-eyed look at what’s really happening, what’s really so, and you could reframe.

For instance, your spontaneous frame might be that to disagree with the boss is rude or unhelpful or unwelcome and you need to reframe that as an act of contribution, an act of helping the team achieve its goals, its mission, which is both true and possible. It’s not really all that hard in the knowledge era to remind yourself that by speaking up honestly in an uncertain situation about a high-stakes issue, that that is actually a helpful, thoughtful, professional thing to do.

[00:25:04] Kevin

Does it help us to look back on situations in our past, situations where let’s say we didn’t reframe? Does it help us to look back and go through them and say, well, how could I have reframed that situation even though you didn’t do it? But is that a useful exercise in terms of getting yourself to do it more in ”real time”?’

[00:25:34] Amy

Yes, because it’s practice. It’s a kind of practice field for getting good at the skill of doing it. The more quickly and, with facility, you can do the reframe, the better off you are going forward. I think what you’re saying is that rather than just wait for the next moment of, “Oh-oh,” you could look back and use your prior experiences as practice fields where you say, “Oh, yeah, I remember that time (for example with my research failure) where I reacted badly in a way, or at least counter productively, and it took me hours to come to my senses.”

Whereas I could look back and say, “Huh.” The reaction could simply be, “Oh, that’s interesting.” People have said that the great discoveries of scientists throughout the age is they are not really heralded by, “Eureka!” They’re heralded by, “Oh, that’s interesting.” They’re heralded by, “That’s not what I expected, let me take a closer look. Let me roll up my sleeves and try to figure out what this means,” which, of course, is always the right response but not always our spontaneous response.

So I think, yes, we can practice reframing from episodes in our past that we can look back and say I didn’t really react in that moment as productively as I would have liked, maybe in an argument with a friend or maybe in a moment at work.

[00:27:05] Kevin

I have a question for you as an educator. I teach the Masters of Finance program at UC Berkeley. One thing I’ve noticed in my students, they’re great by the way if any of them are listening, but an issue that I see a lot now is that the programming skills are amazing, the access to data is amazing, the ability to generate empirical work at a fast clip is huge.

What I see is that they spend less and less time investigating the actual work. They do a lot of it, they produce results, but that’s 95%, and then only 5% is investigating the work. I was wondering, because I try to cultivate the idea of hey, don’t just show me stuff that works, show me stuff that doesn’t work.

I really haven’t gone very far in convincing them that they can do that. I don’t know if you had that issue at all with your students.

[00:28:17] Amy

Yes, I think, particularly with PhD students, as you say, it’s so much easier now to generate data. You can run the analysis like that, and then suddenly you’re just drowning in data and findings but maybe spending less time, proportionally, on thinking and thinking what might this mean, what’s really interesting here, and what might in fact move the field forward rather than okay, here’s another little brick to add?

I do wonder, when I went to graduate school, there obviously were computers and computer programs for doing the statistical analysis, but the generation before me (or 20 years earlier) were using punch cards. Before that, they had slide rules. Just think how hard it would be to collect data, whether in a lab or in the field, and then every correlation you wanted to run would be laborious, would be hard work.

So I imagine, and I’ve never thought about this before, but I imagine the ratio of thinking, and really deep thinking, to data gathering and analyzing would have been much higher. I’ve always thought that some of the profound insights that come from earlier psychologists, it’s just that they had an open terrain.

There was less prior findings so they could study anything. So they found all the interesting things and left the rest of us to find variations on these themes. But it maybe that the quality of their thinking was simply better because they were born in the habit of doing it.

[00:30:05] Kevin

Yeah, that’s kind of it just used to cost a lot more to collect data, so you didn’t want to just discard a result and start again.

You talk about this idea of a performance mindset being a detriment to learning from failures. Can you explain what that idea means?

[00:30:38] Amy

Yes, and that may simply be the wrong terminology in some people’s minds. But I put a performance mindset up against… The contrast is between a performance mindset and a learning mindset. I will argue that success in most fields today requires a learning mindset because of uncertainty, because of novelty, even because of interdependence of factors that will lead to that something is always going to be a little different.

When I’m talking about a performance mindset, I’m talking about a mindset that is more focused on the result, on I must perform well, I need to perform well, I want to perform well, than on the processes and activities you need to be attentive to actually perform well. I care about performance, but my view is that the path toward performing well is through learning. There has to be this tremendous curiosity and openness and willingness to be wrong along the way.

Our egos will make that feel painful and frightening. We don’t want to be wrong with the result that we can miss signals that might indicate that we are wrong. With a performance mindset, we don’t want to be wrong, full stop. With a learning mindset, in fact, it would be good to be wrong because then I’d get further. I’d be able to contribute that next bit of knowledge or achievement that would otherwise have been out of reach for me because of the way I was approaching or thinking about a situation.

So you have this willingness to be wrong because of ultimately what’s at stake, which is the performance.

[00:32:40] Kevin

How do we integrate that with feedback? I read a lot, particularly with athletics, but also just more generally that getting better at something isn’t just about doing it a lot. Because if you’ve got bad form or whatever, if you’ve got a bad backhand slice like I do, just doing it 1000 times isn’t going to improve it. You need to practice well, and for that, you really need feedback from an expert. That makes sense.

But then you also say in your book that we don’t like negative feedback. We react badly when people say hey, you’re doing it wrong. So how do you integrate feedback but avoid falling into this performance mindset where you’re like, oh, I’m failing to achieve my goal, see, someone else is telling me I’m not good? Is it that the feedback needs to be about process rather than results?

[00:33:46] Amy

Well, I think that does help. I think high quality feedback is concrete and if it’s about process, that probably makes it easier to apply it. I think high quality feedback is the kind that we can put to use. If you tell me, you came up short, it’s like, yeah, I already knew that. That’s not really very high-quality feedback. If you tell me, the way you, whatever, twisted your arm in that serve seems to have let the ball go the wrong way, then, okay, I can try twisting it differently.

I think this goes back to the same basic idea of reframing. I think we instinctively don’t like criticism. We don’t like critical feedback, but we need to like it. We need to learn to like it if we are desiring to get better at anything. Whether that’s having a better relationship with your partner or playing a better tennis game or doing better at work. If we value getting better, if we value performance, we have to learn, we have to train our little amygdala brains to say, yes, thank you, thank you for that feedback. Just internally, it has to become a way of thinking.

There are two kinds of feedback that I think are valuable. One is as you say from experts. Experts can see things that you miss and hopefully provide helpful, concrete feedback that you can try and see how it goes. The other feedback is just feedback from the activity itself. If you train yourself to pay attention, you can see how, let’s say with teaching, you can see how something lands.

If you’re just focused on yourself and delivering your message, you might miss it. But if you’re focused on okay, I’m trying this, I’m thinking about it this way, I’m speaking about it this way, I’m asking a question that way, and then I am deeply interested in what happens as a result of my doing it that way, and I can see that wasn’t quite the enthusiasm I wanted, or that wasn’t quite the insightful response that I was looking for, and say I wonder how I could do that differently.

[00:36:16] Kevin

You have a trick that you talk about which is stop, challenge, and choose. Is that a tool that you’ve used, personally, to get better at reframing? Is that how you developed it? Where does that come from?

[00:36:32] Amy

Yes, it is. Credit where credit is due, it comes from Larry Wilson who was a mentor of mine in the late ‘80s. He was a wonderfully creative visionary thinker about management and personal growth as well. He essentially, Larry Wilson essentially boiled down the work and the advice of a cognitive behavioral psychiatrist named Maxie Maultsby who had a six-step process for helping your self-talk to be more healthy, more rational.

Larry took a look at that, spent a lot of time with Maxie, and he took a look at it, and he said, really, it boils down to this – stop, challenge, choose, where stop is just learning and forcing yourself to learn that moment of pause. Try to interrupt the flow of thinking, that flow that is saying, I’m going to drop out of graduate school because the data didn’t do what I wanted them to do and I’m never going to hold a job, whatever.

Pause, breathe, and challenge. Take a look at your initial self-talk and challenge it for its validity. Is that really true? Does that really me, I’ll never be a good researcher? No, it’s quite obvious, when you even pause long enough to challenge or take a close look at your own thinking.

Choose is about reframe. Choose is about picking the healthier but still accurate, in fact, more accurate, more rational, and more accurate way to think about the situation. Okay, this was disappointing. What does it mean? Let me spend some time thinking it through.

[00:38:31] Kevin

I know you talked about your initial research. Can you give us another example from your own life or from your research where the stop, challenge, choose has led to a different result than it might have?

[00:38:43] Amy

I’m thinking, one very powerful domain is the domain of personal relationships, whether those are friendships or spouses, where your partner does something that you really either didn’t expect or didn’t like or both. Where does your brain go? It instantly attributes motive to the other person. They did this thing, they were late for this event that they knew was really important to me, ergo they don’t care about me, ergo they’re a selfish jerk.

I don’t think that’s a completely outlandish experience in modern lives. Stop, pause. What’s the data here? Person is late. I wonder why they’re late. But it’s almost forcing yourself just to have enough curiosity, human curiosity, to instead of just assume I know they’re late because they don’t care. Instead, the question is I wonder why. Who knows? Who knows what has happened?

Certainly, one possibility is they don’t care, they didn’t prioritize it. Many other possibilities can immediately occur to our listeners about why your spouse was late for something that was important to you. So just challenging; being willing to take a look at yourself, where I just went which didn’t help me, didn’t help them, and certainly didn’t help the relationship.

The question is, is there an alternative path? Well, yes. The path would be to ask, to inquire, to listen, to prioritize the relationship over the ego, fundamentally, and choose that path; choose the path of other orientations of learning, of hoping to understand better, of building mutual understanding, rather than digging into our respective perspectives.

[00:41:02] Kevin

I’m going to make sure my wife listens to this little snippet of the podcast. Actually, while you are talking about this, toward the end of the book you say a key aspect of failing well is actually learning to apologize well. I don’t know, I sort of didn’t expect to see that in this type of book. Why is that so important and how do we do it well?

[00:41:35] Amy

Well, this is not something I was thinking about when I set out to write the book. One of the great things about writing a book like this is that I’ve got my research, but it forced me to look at other relevant research to see what I could learn. Certainly, as soon as we start talking about failure, the potential is there just as much in personal life as in business situations.

But the potential, or at least the opportunity, to apologize is not far behind. It’s always there and it’s not always easy. I started looking at people who actually study apologies, what did they find out? What did they learn? One takeaway I got from that was that they think about this as an apology is about repairing a relationship.

When you let someone else down, or when something goes awry that you’d hoped didn’t, some failure, first of all, our own brains immediately see all of the causes outside of ourselves. We don’t immediately see, “Ah, I wonder what my contribution was, or where I contributed to that.” No, we very quickly look at forces outside our control and this is also studied in research.

We don’t like to apologize because, at a deep level, it feels we are taking the blame, which in fact, we are, but not for the whole world, just for our contribution, small or large, to that failure, to that breakdown. The point or the purpose of an apology and how it actually works is it’s about repairing the relationship. You cannot do it well and won’t do it well unless you are, at least in that moment, prioritizing the relationship over your own ego, and that’s not easy for us to do.

But if we are prioritizing the relationship over our ego, then we are better able to muster what is thought of as a good apology, which is one that does, in fact, take accountability for your part in it. You’re not the designer of the whole universe, but you do know, honestly, the things that you did or didn’t do that contributed to this outcome. You acknowledge those.

You cleanly and clearly, hopefully without making too many excuses or explanations, offer to make amends. That may be things you can think of easily yourself or it may be that you ask them what they need to go forward productively. But the essence of a productive apology, an apology that works, is simply that it acknowledges the harm, it takes responsibility for your smaller or larger contribution to that harm, and it offers to make amends.

[00:44:43] Kevin

Yeah, I thought that was a really nice framework and an important one. I want to circle back, just in the last few minutes, and talk about some of the things we can do to, as you say, cultivate intelligent failure. One thing you say is that it’s important to identify obviously the stakes. When the stakes are low, then hey, let’s have fun with this, let’s experiment. That’s, I guess, the fail fast, fail often situation, which I think is intuitive.

But you also say, hey, even when the stakes are high, we can accept failure, we just have to make sure that the outcomes aren’t catastrophic. You say when the stakes are high, what we want to do is run pilots, run lots of little experiments, controlled experiments. Can you elaborate a little bit on that, maybe give an example of a high-stakes situation?

The reason I asked that because most of our listeners, or a lot of our listeners are investors. I’m a former investor. So the stakes are important. You’re managing other people’s money. I think that resonates with a lot of people out there.

[00:46:07] Amy

Yeah. I think investors, either intuitively or through their skill and expertise, understand this point that you don’t invest an amount that’s greater than you can afford to lose in a highly uncertain investment. If you do, you may come to regret that and realize that was a failure that was larger than you’re comfortable with and so you promise to do better next time.

But I realized, as you were just asking this question, that the stakes being high is a bit ambiguous out of context, because in some sense, the stakes are always high. It’s my career or it’s our planet or what have you. It’s more concrete than that. It’s like what are the stakes in this moment for this decision or action?

Let’s say, for example, I saw the movie Oppenheimer over the holiday break and the stakes were enormously high for the development of the atomic bomb. Truly, before they detonated the first pilot, no one knew what would happen, and there was even a possibility that it could have been catastrophic. But they went out of their way to have this experiment in a remote place where there are no people, where they put themselves, the scientists, a mile away from the pilot, the first test.

The stakes were high in a grand sense, the war, the scientific stakes, but you don’t do this the first time in real life. You go behind closed doors and you conduct the smallest possible test that you can conduct to learn more. This would be true in investment, this would be true in science, in R&D.

I have many stories in the book about companies with new product introductions that either were colossal, not very smart failures, maybe even basic failures in some cases, and others that were beautifully managed intelligent failures along the way to, finally, a successful launch. It’s pretty straightforward. The logic of this is very straightforward. What gets in the way?

Part of it is the emotional desire to be right the first time. Part of it is organizational politics and who has power and who has what at stake that will often lead organizations as organizations to make rather stupid mistakes; create failures that not just in retrospect but even leading into them were preventable and not smart. The science of failing well is about sizing up the context or designing the context to be one where it’s going to be okay if this fails as it very well might because we’re in an uncertain domain.

When there’s uncertainty, there’s the very real possibility of failure. So let’s assume this might fail. We hope it doesn’t. But let’s assume it does and let’s make sure that the consequences of the failure are ones we’re willing to bear.

[00:49:36] Kevin

It kind of loops back to this notion of psychological safety that you said, right at the beginning, that you need to create an environment where failure is acceptable. I think you call it blameless reporting. It’s like you’re rewarded for reporting failure, there’s no blame associated with it, it’s contributing to improving the process.

[00:50:03] Amy

That wouldn’t intuitively make sense if you were talking about something utterly straightforward, utterly problematic, something for which there is a clear recipe, and you fail to follow it. We still want to hear from you. But if you take as a given that there’s a lot of uncertainty, and it makes so much sense to hear about things quickly not slowly, then a policy of blame for your reporting is just plain logical.

[00:50:36] Kevin

One objection that you hear a lot to that is okay, but people have to be accountable for their mistakes. You have to take ownership, responsibility. So how can we beat our competitors if we’re creating this environment of thanks for reporting the mistake? You say that’s a false dichotomy. Can you explain that a little bit?

[00:51:01] Amy

Yeah, that’s conflating honesty with laziness, in a sense. That’s saying that we don’t want to have an environment where people don’t do their best. If we have an environment where people know it’s okay to speak the truth when something doesn’t work out, that somehow means they aren’t doing their best. Well, that could make sense on an assembly line and even there, I’ll challenge that idea.

But just in the most predictable, certain, knowable contexts, you could make that equation. But as soon as we deviate from that context and get anywhere in the direction of volatile, uncertain, complex, ambiguous territory, then the relationship falls apart pretty quickly. Then you realize that excellence is going to come from, in part, candor about what’s really happening.

If we want to beat those competitors, which we do, we’re going to have to be the place where people speak up quickly and openly and experiment smartly and they don’t experiment with things without checking it out with other experts. Like hey, I’m thinking of trying this, no one’s ever done it before. What do you think?

Well, you immediately see something, a flaw in that idea that I missed and then you’ve made my idea better because now I can tweak it and try again, and that’s a team sport. It’s really about understanding, at a very deep level, that excellence today, yes, involves doing our very best to avoid basic mistakes and the failures they produce.

In known territory, through training, through speaking up quickly, through checklists, and all the rest, we can produce excellence by just following the rules. But in more uncertain, more variable contexts, the only way to produce excellence is by a genuine commitment to ongoing honesty, learning, experimenting, and pivoting as soon as more is learned. So it’s just understanding, it’s being able to conceptualize excellence in a new way.

[00:53:21] Kevin

I think that that’s such an important point, especially for people who are in investing because that totally describes the environment that we’re facing. One last question I wanted to ask, in that spirit of openness and talking about mistakes and ideas is, you talk about 3M, in the book, and the history of the Post-It notes. I think a lot of people are, at least on the surface, familiar with that story.

But you say that it’s not just a ”accidental discovery”. They only took the discovery of the adhesive with certain properties to a product that became ubiquitous because they had an open culture of sharing ideas and they would have these forums where people said what they were working on. That reminded me of a situation where, before I started my own firm, I worked at a large bank, and we used to have these global research off-sites where people would present stuff they’re working on, an attempt to cultivate that openness.

But then, every year, a few people would leave and go somewhere else. I was thinking to myself, hold on, I just explained all the stuff that I’m working on to 50 people, five of which are now no longer at the firm, and then next year, another five people will leave. I’m making the numbers up, but you know what I’m saying. So how, as a company, do you encourage openness, at the same time, protect your intellectual property?

[00:54:58] Amy

It’s a tension, but life is full of tensions, businesses are full of tensions, and we can’t just wish them away. We actually have to confront them head on and say, how do we want to manage this tension. One way this particular tension is, what you really want to do is make your place the place that nobody wants to leave. Now, I know people will leave for various reasons, maybe they have to move to another city for another reason, or maybe there’s no upward potential here or they get a better offer.

But I think the best way to confront that tension is to really say, make this the kind of place where you don’t want to leave because of the kinds of colleagues – the other people you get to brainstorm with in those sessions, because of the quality of the clients you get to serve, because of even the facilities that you occupy, all the things that companies do to make their place attractive. It’s really like two markets.

There’s the market of succeeding in the customer marketplace, but there’s also the market of succeeding in wooing employees to your organization and developing them and keeping them. But you’ll never be able to have a 100% leak proof workforce, so you have to just deal with that reality by staying ahead, by doing what you do and trying to do it better than everyone else.

[00:56:33] Kevin

We’re running out of time here. I want to maybe ask you a final question which is maybe a little unusual, a philosophical one. There’s a great book called “Peak Mind” by a neuroscientist called Amishi Jha who works at the University of Miami. What I really liked about her book is it’s the neuroscience, the biology behind why meditation works.

She’s investigating the causal mechanisms and then she’s saying, based on our research, here’s the minimum practice you need to do, here’s the type of practice and here’s the biological reasons why that works. There’s this Eastern philosophy and then there’s this Western scientific backing, and that appealed to me.

As I was reading your book, I was thinking that it felt like you were doing something similar with stoicism, the stoic philosophy of any event that happens, there’s good in it. It’s not the event itself that causes distress. It’s the evaluation, the reaction to the event. In fact, you talk about Maxie Maultsby saying that it’s not the stimuli that causes the problems, it’s our evaluation of them. That to me felt a lot like stoic philosophy. Do you think about your work in that context at all?

[00:57:57] Amy

I don’t, but I think the stoic philosophy has a lot in common with cognitive psychology and clinical cognitive psychology as well. Because I think that psychologists have thought about the same issue separately. Everybody is in their little silos thinking separately, and not necessarily learning enough from each other. But the idea that things happen, there stimuli in your lives, it feels the emotion is almost instantaneous.

But their argument would be that no, the way we think about it may often be instantaneous, and that leads to the emotions, particularly the problematic ones, the painful ones. Certainly, stop, challenge, choose is about challenging that way of spontaneously thinking and saying, is there another valid, maybe even more valid way to think about it, and mastering that skill of challenging your initial thinking for better, more healthy reactions that will in fact then make you more effective in your chosen field.

It’s just true and it’s not surprising that different fields have noticed similar phenomena. I open, at Chapter 5, with a Viktor Frankl quote of between stimulus and response, there is a space and in that space is our power to choose our response, and in that choice lies our freedom. I don’t think he was a stoic philosopher. He was a psychiatrist trapped in a concentration camp. It’s a deep and profound insight.

It’s an insight that I certainly can’t practice this myself day in and day out but the more able we are to practice that, certainly the more effective we are and probably the more joyful we can be.

[01:00:09] Kevin

That’s a great way to end. When you stop challenging and choosing this year, choose to read Amy’s book. It’s called the “Right Kind of Wrong: The Science of Failing Well”. Amy, thanks for taking the time to join us and we really wish you all the best going forward.

[01:00:30] Amy

Thank you so much again for having me.

[01:00:33] Kevin

With that, I’m going to pass it back over to Niels.

[01:00:36] Niels

Thank you so much, Amy and Kevin, for an absolutely fascinating look into how we can all learn to fail well.

If you listened to Kevin’s last conversation about Ray Dalio and Bridgewater, you may like I did, while I was listening, wonder what interpersonal climate among his teams they are promoting and how safe you can be when admitting failure.

But in any event, there is a lot for all of us to take away from Amy’s work that really is a lot of tailored practices, skills, and mindsets to help us replace shame and blame with curiosity, vulnerability, and personal growth. I’m pretty sure once you’ve read the book, you’ll never look at failure the same way again.

That’s it for today. Make sure you go and follow Amy’s and Kevin’s work, as well as getting a copy of their most recent books, because as you can tell from today’s conversation, some of these ideas are topics that may not be discussed enough on mainstream media.

From Kevin and me, thanks ever so much for listening. We look forward to being back with you on the next episode, and in the meantime, take care of yourself and take care of each other.

[01:01:49] Ending

Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today’s episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you’ll be sure to get all the new episodes as they’re released.

We have some amazing guests lined up for you and to ensure our show continues to grow, please leave us an honest rating and review on iTunes. It only takes a minute and it’s the best way to show us you love the podcast. We’ll see you next time on Top Traders Unplugged.