CHAPTER 1
In the Beginning
First, What Do I Mean by Failure?
"Fail early, fail often." That's the new mantra of Silicon Valley. Many venture capitalists won't finance an entrepreneur who hasn't failed at least once. So, why do I position failure so negatively? First, my singular focus is on decision making. I define a decision as taking actions (or not acting) to bring a situation from the current state to some desired state. Not achieving that desired state is failure. It's that simple. Now, let's get on with the book.
My Story — My Failure
My first significant failure happened when I was just hitting my stride. Up to that point, failure happened to other people, not me. Fail was a four-letter word. I didn't get where I was by failing, and I certainly wouldn't get where I was going by failing.
I had taken a new job running a subsidiary of Citibank, aka Citigroup, based in Bogota, Colombia. It put me in the vortex of a shotgun wedding between my company and local investors. We had been forced to sell majority ownership to local investors by a government decree called Colombianizacion or "Colombianization" in English. We had to sell 51 percent, giving the local investors control.
As further background, these were the days of the "wild, wild west" in Colombia ('83–'86). All heads of major multinationals lived as if we were kidnapping targets because, in principle — at any moment in time — we could be. So, I had armed guards, 24/7 at our fenced-in home and a safe haven built in the house with a short-wave radio to Citibank's security arm. I generally had no preset schedule, two offices and, unannounced, I would occasionally work from home.
I rotated cars, drivers, and routes to work, sat in the front with the driver, and sometimes drove while he sat beside me. I did everything except have lead and follow cars (conspicuous and costly), and I would not allow my driver to carry a gun. First, because in a kidnapping, the driver is the first one to be taken out, and second, I would rather have been kidnapped than shot.
Citibank paid for two security consultants, Mike Ackerman and Lou Polombo. They were ex-CIA and based in Miami. The core strategy we followed at their recommendation was to be a harder target than my colleagues who were high-profile heads of other multinationals. The theory was that, when a kidnapping was being planned, the kidnappers would stake out two or three targets and then choose the one who was the softest target. Ackerman and Polombo maintained that nobody was bulletproof. You just needed to be harder to hit than others around you. The head of Coca-Cola, who did have armed lead and chase cars, said he felt safer in Bogota than he did when he visited Coke headquarters in Atlanta, unaccompanied by his private army.
While I was living in Colombia, kidnapping touched my life twice. First, the father of the woman who ran operations for me, Ana de Vieco, was kidnapped. I will never forget the day she came in to my office and burst into tears as she told me what happened.
The second was when an executive of a multinational company was kidnapped. His behavioral patterns were too predictable, the makings of a soft target. When the multinational bought dollars for the ransom, they had to use the black market. My operations folks checked the bills to ensure they weren't counterfeit.
The icing on the cake was that Citibank would not disclose whether they would pay ransom or not. The policy was to not disclose this to anyone because if the answer were yes, and the word got out, that would heighten one's risk of being kidnapped. Comforting. So that's the backdrop for this story.
The local capital market was small, and the wealth in the country was concentrated. This meant Citi had to sell the shares to wealthy families. Call it arrogance or just a strong belief in our expertise; whatever it was, we were awful partners. We had no expertise in, or patience for, dealing with an uninitiated (into banking anyway), outside board of directors.
All this joint venture stuff fundamentally meant that, deep in the organization, at the operational level, outsiders could question what our management team had decided to do. We would have to justify our decisions to outsiders. Not only that, none of our partners knew our business. We struggled to cope with these outsiders questioning our decisions. It just was not part of our DNA. We were in more than one hundred countries, and we were minority partners in only two others. In both of those, we had bought our way into the minority position because of the attractiveness of the franchise and not sold ourselves down because we were forced to as in Colombia. Even though the ownership end result is the same, how you got there makes a big difference.
In choosing our partners, we carefully selected families with the finest reputations. They were also three families who had no previous business ties and were from different cities. That gave us some sense of comfort that the three were unlikely to band together against us. We believed there would always be one of the three we could bring to our side in a dispute.
On their side, they were delighted to have the opportunity to invest with a prestigious multinational. Our organization became a substantial player in the local markets with twenty-six branches spread across the country. Our shareholders recognized their limited knowledge of our business and agreed to us having the unilateral right to appoint one of our employees as the president of the company, while they maintained a veto never exercised. On all other matters, they had control. It was an uncomfortable and complex situation.
The Chinese have a saying about parties who sleep together with different dreams: the romance is unlikely to endure. Not long after I arrived, one of the three families sold out their interests. The buyer was a self-made man in the construction industry with a reputation for corrupt practices. Just putting the facts together (self-made man, construction industry), a prima facie case was made for an undesirable shareholder and partner, to say the least. Imagine saying no to that guy in the boardroom! Was he a version of Tony Soprano or was he just James Gandolfini playing a part? To our shareholders, the answer was clear. He was an unacceptable partner. Given the backdrop of the Colombian environment at that time, this was not an unreasonable conclusion for them to reach.
What was his agenda? Was he trying to legitimize his operations? Was he trying to climb the social ladder by sitting at the table with two of the finer families of the country and our organization as well? It was likely some combination of all three together with a nose for an opportunity for "green mail," meaning the purchase of enough shares in a firm to threaten the disruption of normal operations. This could force the purchase of the green mailer's shares back at a premium to end the disruption. Whatever his agenda was, there we were, blindsided.
Our local partners were outraged. They were highly respected families who traveled in the best of local society's circles. The new entrant did not enjoy such acceptance or legitimacy.
I tried to be pragmatic about the situation and actually met face-to-face with our new "partner." That was considered by most around me to be a horrible mistake. It was. I just wasn't smart enough to see it. It was an interesting experience in that he actually appeared to be a humble, respectful person who professed to only want to make a sound investment. Nobody was going to buy that one. Our other partners were in disbelief that I had met with him.
The "guidance" from head office was "Do something about it!" Yeah, right. Like what? Before I could develop much of a strategy, our initial partners approached the new entrant to buy him out. We were totally opposed as they had become too tightly linked over the years and would hold a controlling 51 percent interest. We risked losing management control. That was an anathema, and we told them so in no uncertain terms.
Nonetheless, they responded to the prospects of green mail by buying him out at an undisclosed price. I have no doubt he left with a big smile on his face. They announced the deal after the fact. My head office was outraged. They felt I had allowed the situation to get out of control. I had just had my first big professional failure.
Fortunately, my company had a strong risk-taking culture and was tolerant of failure. You may get put in the penalty box, but you could work your way out of it and get to play again. Clearly, I was in the penalty box and had to work my way out.
There is a saying in Spanish. "Voy o van!" This translates to "I go or they go." It's sort of a "Mexican standoff." At first, we pursued the "voy" side and attempted to sell our stake. With the help of some investment bankers, I searched for purchasers for our stake to no avail. Plan B was to find another local buyer for our local partners' shares. We had shifted from "voy" to "van." The purchaser would be the local archdiocese of the Catholic Church. Yes, that's right; one of the wealthiest entities in the country outside of the federal government was looking for an investment, and they found our firm attractive. The deal was struck — "subject to" a few conditions. I told the head office the problem was solved. They were ecstatic.
It was time for my scheduled home leave, so I made my annual trek to my vacation home in Vermont, leaving the lawyers to wrap up the details. I was going to pause and reflect on what had not happened thus far. Note there had been no substantive disagreements between our partners and us. The only exception was their buying out the other partner and thus concentrating ownership. Was this a genuine threat of a board takeover or just a posturing boogeyman? Were we wasting time and energy for nothing?
Shortly after I arrived in Vermont, I was walking across the street in Woodstock when a black cat crossed my path. I couldn't avoid it. I'm not superstitious, but I don't walk under ladders unless I have to. I will confess a chill ran down my spine.
A couple of days later, I got a call from our firm's local attorney. "You need to return at once." He would give no explanation — just that I needed to get back to Bogota. So, in the middle of my vacation in Vermont, I abandoned my family and returned. The situation seemed, and was, bizarre.
When I returned, I learned Roberto Calvi, the CEO of Banco Ambrosiano, and nicknamed "God's Banker," had hung himself from Blackfriar's Bridge in London in an apparent suicide on June 17, 1982. His jacket pockets were stuffed with rocks but an article in the Economist said he would have had to be a circus acrobat to have managed to get into the position in which he was found. It was later judged to be a murder, but no one was ever convicted of the crime.
Banco Ambrosiano's main shareholder was the Vatican Bank. The scandal was huge and reached right up to Archbishop Paul Marcinkus, president of the Vatican's Bank. He was known as the "pope's banker." Banco Ambrosiano went bankrupt shortly after Calvi's death. The Catholic Church, in recognition of "moral involvement," later paid out $224 million to Ambrosiano's creditors.
The archdiocese, my counterparty, stopped returning my phone calls. Radio silence. They dropped out of sight without a word of explanation. I never heard from them even though I remained in the country for another year. My solution to the shareholder problem had failed.
What lessons could be learned from this? What were the things I could identify and never do again? Frankly, for a couple of decades, I didn't have a clue. It just seemed like I was a victim of circumstance; it was just bad luck. Sure, I deserved to be in the penalty box because it had happened on my watch. In fact, I was passed over for the next big promotion that should have been mine. But what could I learn from this? I had no idea. I got screwed, plain and simple.
As I proceed through the book, I'll keep coming back to the Colombian story to show how my concepts explain why my solutions to the shareholder problem failed. I will point out what specifically I could have — and should have — done to avoid failure. I will Monday-morning quarterback, applying the framework for analysis of failure that constitutes my thesis.
Another thing that makes learning from failure difficult is that decisions are mostly unique and different in important ways. There are times you can say, "I've seen this movie before," but those tend to be rare and, even then, the surrounding circumstances will be different simply because you are in a different time period and facing a different future. Seeing patterns that aren't real is more a risk of apparent but not real learning as will be discussed in a later chapter on instinctive decision-making.
Part of my thesis, as mentioned earlier, is to learn from failure, you must understand what causes it. What are the fundamental drivers of failure? What sort of framework will enable us to understand and learn from all failures in decision making? That's what this book is about. If you put into practice everything recommended in this book, you will still fail — but you'll make better decisions and fail less frequently. As importantly, you'll be able to learn from your failures in a way that will enable you to continuously improve the quality of your decisions. Mahatma Gandhi said, "Those who know how to think need no teachers."
The Man in the Mirror
I'm starting with the man in the mirror, I'm asking him to change his ways.
— Michael Jackson
To benefit from this book, you must be the "man in the mirror." Michael goes on to say, "If you wanna make the world a better place, take a look at yourself and then make a change." Yes, Michael's song was about making the world a better place, a laudable pursuit for sure, but we are on a much smaller mission. You want to be a better decision maker. You want to beat the odds. If you think about his words in the context of becoming a better decision maker, his message applies.
What do I mean by that — and why is it so important that I make it the subject of chapter 1? Because most of us, when confronting failure, play the blame game. Our reactions are something like: They were out to get me; my luck was bad; I depended on people who dropped the ball, etc. I once saw a bumper sticker that captured the thought well. "Errors have been made. Others will be blamed."
If one looks externally instead of internally, it mostly ends there with no internal growth or real insight. As mentioned, easy answers are quickly found: it was a bad break; I got screwed; others dropped the ball, and I took the fall; etc. These answers most often are at least partially true and so are both easy and comfortable to hold onto because the fault is external. It's a tough process to do the internal soul-searching required to identify the role we ourselves played in the failure. But therein lies the path to success and better decision-making in the future.
True introspection requires a heady combination of curiosity, courage, and inner strength. Holding oneself accountable and taking responsibility for failure is tough. It implies you could be part of the problem and that you might need to change, which are both scary prospects for most of us. We become emotional and don't consider what we might have done differently to achieve a more favorable outcome. That's the key. I repeat for emphasis, what we could have done differently to achieve a more favorable outcome. It comes down to the ability to be introspective.
Introspection is tough, but it must be practiced with great discipline to benefit from this book. To learn from failure, you need to understand what drives it — and you need to 'fess up to your role in it.
You cannot develop Marcel Proust's "new eyes" without both introspection and understanding the concepts of this book. Successfully applying the principles takes more than intelligence and understanding. It takes a lot of work and self-discipline. Many of us, because of ego, cannot master it. Dennis Waitley said, "Failure should be our teacher, not our undertaker. Failure is delay, not defeat. It is a temporary detour, not a dead end. Failure is something we can avoid only by saying nothing, doing nothing, and being nothing."
Let's Not Build the Tower of Babel
They are one people and have one language, and nothing will be withheld from them which they purpose to do. Come, let us go down and confound their speech.
— Genesis 11:5–8
It's going to be important to embrace some new language in order for you to understand the concepts underpinning my thesis. After all, in surfing, there are almost two hundred terms specific to the sport, ranging from "getting air" to "wipeout" and including catchy terms like "goofy-footed." So, I think it's fair, given the seriousness of our voyage together, to get some language straight between us.
An old friend, Doug Smith (more about Doug later in the book) taught me that in managing change (remember Marcel Proust's "new eyes" mentioned in the preface?), your two scarcest resources are language and energy. None of the words will be entirely new to you, but they are likely to be defined in a narrow and precise way, more than you're accustomed to hearing. Most of these terms will be defined along the way, but a few need to be understood up front.
