Failure Forums: The Challenges of being a Corporate Innovator

Editor’s Note: The Failure Forums is a new monthly series by IX Contributor Matt Hunt focused on bringing the role of innovation failure to the forefront.  This series will intentionally bypass the innovation success stories to focus on the lessons learned from failures.  It is never easy to disclose our professional failures but these brave innovation practitioners are doing exactly that so that others can learn from their experiences.  If you have a story that you would like to share please see Matt’s contact info below. We hope you will enjoy this new angle on driving innovation.

Steve Jobs in his 2005 Stanford University commencement address challenged the audience to take risks and be ready to fail.  In fact, it is hard find a business publication or blog that has not espoused the failure mantra: fail early, fail fast, and fail often.  While risk taking and failure are essential elements to driving innovation there are often times significant consequences for those involved in the work.  What happens to their compensation?  What happens to their career?  How do they manage the process of winding down a failed initiative?

Too often we only hear the stories of the successful innovation initiatives, leaving the stories of the failures to go untold. As a Director of Innovation Development for Best Buy I knew firsthand how the lessons from my failures could help future initiatives.  While at Best Buy I had launched a series of Failure Forums to share the lessons from our failures across the entire organization.  Now I consult with many organizations to help them build out their own sustainable innovation practice.  Addressing failure and ensuring that we are learning from it is central to this work.

This article is an interview with Jeff Stratman, an innovator / intrapreneur who had left a reasonably secure position with a Fortune 100 company to follow his dreams and help launch a new corporate venture at Coinstar called Orango.  Orango was created to test the concept of selling used consumer electronics out of an automated kiosk (note: since Jeff’s departure Coinstar has been renamed to Outerwall).  In his fifteen months with the project Jeff saw the many highs and lows of launching a new corporate venture.  Eventually he was part of the team that had to shut the business down.  Like most corporate ventures, this one had failed to reach expectations.  While the initiative may have failed that doesn’t mean that those who led the work were failures.  This is Jeff’s story.

1. What was your thought process at the time in leaving a relatively stable position at Best Buy to take on a high-risk innovation initiative at a new company?

A: To be honest, my decision had nothing to do with what was going on with Best Buy at the time and everything to do with what I believed could go right at Coinstar and the Orango initiative.  I had been at Best Buy for 24 years – my entire adult life.  My time at Best Buy gave me something new and interesting to focus on every two or three years.  It was an amazing run, but I felt that I needed to address gaps in my resume to prepare for the next 15 years of my career.

Orango offered me a chance for legitimate startup experience.  It gave me a chance to learn the automated retail business, which I found very interesting.  Also, Coinstar was successful with Redbox but was a non-traditional consumer electronics (CE) player.  My team and I could quickly add legitimacy to Orango, especially within the CE vendor community. Lastly, I appreciated that the business model was so completely different from Best Buy’s business in terms of core customer, location, assortment, etc.  I could leave with a clear conscience and not compete directly with my friends and a former company I still cared about.

2. Was there a deciding factor that helped to make your decision?

A.  I have always based my job satisfaction on the intellectual, social and creative return on effort.  I would always ask myself, “Is what I am doing interesting and fun?”  I would always evaluate my answer up against any future goals.  In the move to Coinstar, I checked off the three most important things and they made me a very good offer in title, scope, and compensation that helped to de-risk leaving the Best Buy nest.

3. When you took your new role what kind of odds were you giving yourself for success?

A: I pegged it at about 50/50 I guess.  I didn’t really think about in terms of probabilities at the time.  I was just going to work as hard as I could to build Orango into something cool.  When I say it out loud now it sounds impossibly difficult but our goal was simple: “Let’s sell a female customer a refurbished $400 Apple iPad out of an automated machine located in a grocery store.” But we did it!  Our machines were state-of-the-art, our branding was cool, we sourced great deals, and we had excellent feedback from customers.  I’m proud of what our team accomplished despite the final outcome.

4. How long did the project last?  What was the ratio of the time spent planning vs. executing?

The concept had been in development for about 18 months and had gone through a business model pivot before I arrived.  When I got there, we had 8 of the version one machines in two markets.  I was there for 15 months and although there was a decent road map for scaling when I started, we were constantly tinkering with it.  Sometimes we were changing in response to a challenge and sometimes to an opportunity.

The team accomplished a lot in a short time:

• Attained proof-of-concept and go-forward plan for initial expansion
• Created and launched a new brand (from Gizmo to Orango)
• Built 100 and deployed about 40 completely redesigned version 2 machines in 3 markets
• Launched 4 new product categories – including watches, toys, mobile phones and fashion eye wear
• Deployed our social media strategy via website, Facebook and Twitter
• Started selling extended product warranties

While this was happening, we lived the “magic in the mess.”  We spent time planning, but we reacted day-to-day to what was necessary to grow the business quickly.  Frequent and disciplined planning was tempered a bit by having a great entrepreneur in charge and the fact that we were a small team based in 4 different locations – merchants in Minnesota, operations in Illinois, marketing in Washington, and information technology in California.  It was tough getting everyone together and maintaining a good plan on paper, but we did try.

5. Did you have an “end game” in mind when you took the role if things didn’t work out?

A: No, not really.  Professionally, I hoped my experience and reputation in the CE industry would offer other opportunities if Orango didn’t pan out.  I got a few nice congratulatory phone calls when I left Best Buy.  One person said: “If I knew you would have left Best Buy, I would have hired you!”  That compliment gave me a little extra dose of confidence.  Personally, I knew my family would be understanding and adapt easily if I found myself unemployed.  We live comfortably, but simply.  Any raises for the past decade have pretty much gone into the bank instead of just accumulating more stuff.  Not being overextended on your lifestyle reduces anxiety and gives you the freedom to try new things when they come along.

6. Did Coinstar ever mention what would happen if the project failed to take off?  Were expectations set?

A: In the beginning, not formally.  We had a budget, of course, but there wasn’t really a clear go/no-go mandate based on Orango’s performance for most of my time there.  Early on, leaders mentioned another venture that Coinstar had previously shut down, where everyone was offered placement elsewhere in the organization, as an example of how things might go if Orango didn’t work.  Later, when it became clear we weren’t going to move forward, a formal transition and severance package helped stabilize the team and ensure an orderly shutdown.  At the time the entire Coinstar organization was going through a lot of change in leadership.  They changed numerous executive positions over a six month period.  Any lack of clarity during this time was short-lived and quickly stabilized as the new people got settled in, but a lot happened during a crucial period in Orango’s evolution.

7. Was there ever a clear indication that the project was not going to succeed?

A: Yes and no.  On one hand, we had a rough launch during the holiday season from a technology standpoint and it hurt sales initially.  However, we had a plan to fix everything quickly.  With these sophisticated machines, you can only test so much at the factory under controlled conditions.  When they get out in the wild and customers start doing things that you didn’t expect, things will break at first.  Even still, customer feedback on the machines and assortment was very positive.

This was a great lesson in expectation setting with leaders.  I imagine that, years ago, the first Redbox machines didn’t work flawlessly.  They likely needed years of tweaking to eventually perfect them. Our IT group really worked hard under incredibly tight timelines and budgets to shore things up. I think with just a little more patience, we could have fixed everything.  Towards the end, our machine up times and sales were going in the right direction, but by then it was too late.

There was a moment, late in the game, when I realized that Coinstar was a service company at its core and Orango was a true retail venture.  The CE retail business has always been a brutal low-margin industry littered with failure.  I felt that maybe Orango was never going to be embraced fully by the company culture, but hoped I was wrong.  The purchase by Outerwall (formerly Coinstar) of ecoATM – an automated mobile phone trade-in venture – just a few months after shutting down Orango, looks like a CE play that is more in their wheelhouse in terms of experience and capabilities. It’s a good move and probably a major reason they could regrettably, but confidently, move on without Orango.  I give them a lot of credit for making the tough decision in order to keep forward momentum.

8. What was the most difficult task in shutting the business down?

A: Technically, the normal operation of the business was stopped while Coinstar tried to sell Orango – the brand, machines, IP, etc.  So, we couldn’t just shut everything off and liquidate.  Some things needed to go and other things needed to stay.  Trying to keep an already small team engaged to the very end was difficult.  Even with the transition and severance package, we lost some managers before the official last day.

Some people who quit weren’t as crucial to the draw down as others, but it got pretty lean toward the end.  Remaining staff had to pick up the ball and do their best in areas that weren’t their specialty. Understanding that everyone is at a different place in life and with their own tolerance for risk I can’t fault the people who left early, but I really have a ton of respect for the people who stayed and managed a very professional and successful shut down.

9. So what’s your next move?

Through this work I decided that I wanted to continue down the startup path.  I recently joined a Silicon Valley based startup called Gigwalk (www.gigwalk.com).  They are a mobile based temporary labor force that specializes in retail merchandising audits, consumer insight collection and digital photos.  I’m really excited about this company and its potential to reinvent our definition of work in the mobile age.

——

As Jeff’s story describes, joining a company to launch a new venture can be extremely rewarding but there are also risks.  When working with companies on building out their new venture or innovation development programs I continually reinforce the importance of deploying the systems, processes, and tools to deal with failure prior to launching the new initiatives.  Waiting until after the project arcs and it looks like it might come crashing back to Earth is too late.  Most employees will be too focused on finding their own safe landing before they focus on the work.  When questions about severance or retention bonuses are left unanswered employees will always assume the worst case scenario.

Most organizations aren’t willing to publish their own innovation failure rates but data scientist Thomas Thurston, CEO of Growth Science, has a significant data set which tracks the rate at 78%.  With a database including more than 1000 corporate ventures, Thomas has found that 78% of them will cease to exist seven to ten years after their initial funding.  When organizations recognize that most of these high risk initiatives will end in failure the imperative becomes clearer that we need to end the shame and blame game.  Rather than covering up our failures we should stop and listen to the stories if we expect to actually learn from them.

If you would like to share your story or insight from an innovation failure please reach out to me via email at matt@matthunt.co or on Twitter @huntm.  I will do my best to make sure that these stories are shared with a broad audience so that we can all learn together.

Additional Orango Media Resources:

• CE Daily: Coinstar Weighing ‘Strategic Alternatives’ for Orango CE Kiosks
• MarketWatch: Coinstar evolves as DVD’s move towards obsolete
• MarketWatch: CEO of Coinstar on automating business
• Orango YouTube Video

Wait! Before you go…

Choose how you want the latest innovation content delivered to you:

• Daily — RSS Feed — Email — Twitter — Facebook — Linkedin Today
• Weekly — Email Newsletter — Free Magazine — Linkedin Group

Matt Hunt is the CEO and founder of strategy and innovation consulting firm Stanford & Griggs, LLC. With over 20 years of business and technology experience he has a demonstrated excellence in business strategy, innovation, and leadership development with large companies, small companies and non-profit organizations. You can follow Matt on his blog MattHunt.co and Twitter @huntm