Taking Risks: Aloha Edition

True or false: Our love for Hawaii makes it harder to take the risks necessary to innovate and create new businesses.

December, 2013

“Have I got enough rope to hang myself with here?”  Venture capitalist Timothy Dick jokes about the length of the microphone cord as he stands in front of 100 entrepreneurs and entrepreneurs-to-be at the Waikiki Yacht Club. Dick came to talk about failure, and who better than the founder and former chairman of Hawaii Superferry? Dick describes the $350 million scuttling of the Superferry as the biggest business crater Hawaii has ever had. “When you talk about failure, this is really about as big as it gets,” he says.

Dick, now chairman of the Entrepreneurs Foundation of Hawaii and a general partner at Palo Alto-based Startup Capital Ventures, is presenting at Fail Whale, part of a series of panels hosted by the foundation on topics important to Hawaii’s nascent – some might say perpetually nascent – entrepreneurial community.

Why would Dick, who has had many successes, including being the first investor in the dating site match.com, talk in public about something so humiliating? If you need to ask that, then he’s talking to you.

“Failure is really stigmatized here,” explains Leigh-Ann Miyasato, the foundation’s president.

“Nobody likes to talk about failure,” agrees Barry Weinman, philanthro-pist and managing director of the University of Hawaii’s Upside Fund, a venture capital fund that supports the commercialization of UH research. “People think failure (of a business venture) marks them as a failed person.”

But, in other places, it is well understood that to succeed in business, you have to risk failure. “In Silicon Valley,” says Weinman, “there is no shame associated with failure – just not every time. If you don’t fail occasionally, you are not pushing the envelope, and not taking enough risk.”

Taking risks and dealing with the fallout is also how you grow as a decision maker, says serial entrepreneur Carnet Williams, founder and former CEO of ChipIn/Sprout, which was acquired by InMobi in 2011. “That’s what nobody tells you. It’s not about the failures. It’s about the recovery. And hopefully the recovery periods get shorter and shorter and there are fewer of them,” he says.

Without crashes and recoveries, it’s hard to grow seasoned pros, says Peter Kay, CEO of CyberCom Inc. and moderator of the Fail Whale panel. “Being successful is as much about what not to do as what to do. Nothing teaches about what not to do like failure,” Kay says.

Steve Sue, creator of the startup toolkit BizGym, adds that “Entrepreneurship is an evolutionary process. You have to put one foot in front of the other. That’s just a fact of life. And you’re going to trip and fall.”

Hawaii’s Constraints

Hawaii’s business culture has an uneasy relationship with risk. At Fail Whale, when the audience was asked how many found Hawaii to be shy of potential failure, “there were a lot of hands,” Kay says. “Hawaii’s culture is risk-averse, and that hurts us as entrepreneurs.”

“In (Silicon) Valley, the whole concept is to ‘fail early, fail often,’ ” says Brian Dote, a veteran of Apple Inc. and the owner of local app developer Tapiki. “It’s almost like a badge of honor: ‘We failed seven times and we’re a billion-dollar company now.’ Here, failure is not really looked upon as a stepping-stone to success. In the Valley, it’s OK: ‘He’s learning. He’s moving.’ Here, failure is just failure. It’s ‘What’s wrong with him?’ ”

Why the contrast? “Maybe, it’s partly Asian culture,” says Miyasato, citing her own, more conservative, background. “The nail that sticks up gets pounded down.”

Kay sees it as a “geographical issue,” pointing out that any other city like Honolulu with a population of 1 million would be surrounded by a large radius of other options. “If you were to go to any other town in the United States that has a million people, if you take a thousand-mile radius from wherever that town is, you would encompass 20 to 30 million people. Whereas in Honolulu, if you encompass a thousand miles, you still get the same million people.”

So if you need to change jobs in your field, your options will be limited unless you also want to change continents. And if you stay in your field, everyone will remember what happened last time: “It is a small community. When you have a flame-out or a failure, everyone knows,” says Dote.

But because of friends and family, or Hawaii itself, many of us choose not to change continents. Not being willing to leave Hawaii makes the stakes much higher for a risk-taker, Kay says. “If you’re going to walk a balance beam and it’s three feet above the ground, you’ll have no problem whatsoever. But if the same balance beam is over a canyon … ”

Weinman has also found local investors to be more risk-averse than those in other places, and speculates it’s because they haven’t been forced to adapt. “Most Hawaii investors have made their money by investing in land,” he says. “Hawaii only has a fixed amount of land, so over time it appreciates due to inflation and a growing population. … Hawaii investors tend to opt for safety, and land investing is safer.”

But Hawaii’s status quo may be changing. Miyashiro lists the risks of continuing to depend on tourism and the military: sequestration and other federal spending cuts, the death of Sen. Daniel Inouye and the inevitability of the next tourism downturn. “We really need to face the music here and figure out something else to do rather than just wait around for the money to come from the feds and from the tourists,” she says.

Dick cites the waves of closings and acquisitions of locally owned businesses, which “eliminate career paths that lead to management positions with higher pay.” With fewer locally owned businesses, Hawaii risks “becoming a land of shop and hotel clerks,” he says.

“We can recover from failure,” agrees Weinman, “but won’t recover from people afraid of failure.”

Changing the Culture

The best way to take the sting out of setbacks in Hawaii may be to build an ecosystem that appreciates it. In central Honolulu, startup incubators and coworking spaces now abound: You can find Blue Startups, Box Jelly, R&D, HiBEAM and the comparatively venerable Manoa Innovation Center within a three-mile radius. And it’s hard to miss what Dick calls the “unprecedented renaissance of Hawaii entrepreneurial activity, from the food trucks in Kakaako to MAO Farms.”

Communities of established en-trepreneurs, like the Entrepreneurs Foundation of Hawaii, are also focusing more on growing the startup community with events like Fail Whale, where Dick concluded with these words: “Failure is OK. So get out and do it. It’s part of success.”

Two Tools for Explorers

Mindsets primed for growth

More than three decades ago, Stanford University psychologist Carol S. Dweck proposed her theory that peoples’ attitudes to risk, failure and setbacks determined how much they grew and added to their skills. In the years since, she has been proven right again and again.

Her 2006 book, Mindset: The New Psychology of Success, describes two possible attitudes: the “fixed mindset,” in which participants believe that intelligence and ability are inherent traits that cannot be changed, and the “growth mindset,” in which participants believe that intelligence and ability can be increased through committed and focused effort.

If you have a fixed mindset, you believe your results directly reflect your innate characteristics. Every effort documents how smart or able you already are, and if something you do fails, you consider yourself more likely to fail next time. In study after study, groups who had a fixed mindset chose tasks they already knew how to do, and shied away from challenges and ambiguity. They quit while they were ahead. But it also meant they were out of the game.

Those with a growth mindset, on the other hand, didn’t feel that a setback meant they were stupid, it was just something they didn’t yet know how to do well. They relished the difficult tasks and continually chose challenges at the edge of their ability. Someone with a growth mindset feels that a setback is a chance to engage more deeply, so they are freer to fall flat on their faces on the way to a hard-to-reach goal. Not surprisingly, studies showed that those with growth mindsets consistently achieved more than those with fixed mindsets.

Design Thinking offers a road map

Design thinking originated at the global design consultancy IDEO as a protocol for solving “wicked” problems: ambiguous challenges for which there are no clear-cut solutions. This tool for designers has spread to fields as diverse as education, politics and business. It builds setbacks into its structure: criticism becomes vital feedback, and something that’s not working right becomes an opportunity to refine a solution and try again.

Design thinking describes itself as having a “bias toward action,” meaning it’s better to try something and then figure out what could be better next time, rather than to seek a perfect solution the first time.

Design thinking itself has gone through many iterations. Here’s one of the latest, from Stanford University’s Design School:

Step 1: Empathize. This is the information gathering stage. Listening is useful, but so is observation. Ask yourself, stakeholders and potential customers: What’s needed? What could be improved?

Step 2: Define. You can’t solve a problem if you don’t know what it is. Step two clarifies the problem by distilling the gathered information, identifying recurring patterns or needs, and creating a framework of questions to be answered and discreet challenges to be solved.

Step 3: Ideate. The brainstorming step generates solutions and plans of action. The goal here is not to find the right answer so much as to generate a host of possibilities, including ones that sound odd or wacky, to get past obvious approaches and move toward innovation.

Step 4: Prototype. “Build to think and test to learn” is the motto of this stage. Prototyping allows you to “fail quickly and cheaply,” says the Stanford Institute of Design’s Introduction to Design Thinking Process Guide. Failing quickly and cheaply means that you can afford to do it many times on the way to the solution.

Step 5. Test. Once you have the prototype (which can range from a series of post-it notes to a full mock-up), it’s time to offer it up to the real world. Watch how it works, and seek out experiential and verbal feedback. Here’s where the first step, empathy, joins with the last to form an iterative loop that preserves your momentum until you’re satisfied.

Then, repeat as many times as necessary until you have what you want, whether it’s a better mousetrap, a more loyal customer base or a better way to get your kid to eat vegetables.

Best Practices for Risk in our Fishbowl

“Fail early, fail cheap, fail often” is sound advice for risk-takers. Here’s another piece of advice that’s especially useful if you want to take a risk and stay in the same place: Fail well. Here’s how:

1. Communicate with stakeholders: Even “overcommunicate,” says Tim Dick. This is a tough one for the 50th state, he tells the Fail Whale audience: “In Hawaii, in general, we are not great communicators. We don’t want to talk about failure or the possibility of failure.” But the downside of not communicating is extreme, he says. “It’s those untold truths that become the elephant in the room, which eventually explodes.”

2. Tell the whole truth: Carnet Williams admits that when you have investors, “you want to tell them good news. … (But) if you communicate the mistakes you’ve made, people are all on the same page when you need to pivot the company.” If it goes under, they are already on your side, adds Dick, who credits a culture of transparency with the continued goodwill among Superferry stakeholders: “What is amazing is that there are no hard feelings among that group – as big as that failure was – because everyone talked and everything was open.”

3. Do the right thing: When things are going well, “treat everyone like you would your grandmother,” says Williams. “Be extra-courteous, say thank you, just go out of your way.” He cites a mentee who took the time to send him a personal gift of appreciation: “I have given that guy so much of my time since then.”

When things aren’t going well, it’s even more important to do the right thing. Says Peter Kay: “The same thing that prevents you from honking at the guy in front of you is the same thing that forces you to take that additional ethical step” – one you might not take if you didn’t know your investors, or could simply move cities.

“Just as Hawaii has its own fusion of foods,” says Kay, there could be “a Hawaiian style to startups: It’s OK to take a risk, but you do have to follow a very strict code of ethics. Staying in touch, being open and honest, (those) are really good things.”


 

Get ’Em Young

How do you create a person who’s unfazed by setbacks on the way to success? One way is to start early.

Punahou School has  incorporated design thinking into many of its classrooms and decision-making processes. When the school’s president, Jim Scott, visited a fourth-grade class to see how it was put into play, he says, “One of the kids told me, ‘Oh, I didn’t screw up. I’m just failing forward.’ What that does,” continues Scott, “is it says failure is OK. That there are multiple options for mutual gain, and if this one doesn’t work, let’s just keep going.”

Mark Hines is director of the Mid-Pacific Institute eXploratory program, a project-based high-school program that stands the traditional educational model on its head, replacing what Hines calls “just-in-case” learning (“When am I going to use this in real life?” “Someday.”) with “just-in-time” learning, in which students learn academic and real-world skills by designing and iterating projects that require those skills. One result, says Hines, is that it teaches students to fail forward: “Kids build. They create. They refine. They solve. And those all require higher-level thinking.”

He adds, “We have a high tolerance for risks, because we understand the payoff far outweighs the chance that if it doesn’t work we may have to backtrack. Developing that culture is a process and an art.”

Scott and Hines agree that all of this is about preparing the next generation for a future that may look nothing like the present. “We are preparing today’s kindergarteners for jobs that don’t exist yet,” says Scott. “It means that they have to be comfortable with ambiguity, with uncertainty, with open-ended questions.”

And that will be helpful, not just for the next Steve Jobs, but for professionals, managers and anyone else who wants to be employed when they graduate, says Hines. “Businesses by and large have recognized that if they don’t continually ask and innovate and create and challenge themselves, they’ll be out of business in very little time. You could make a reasonable argument: What kind of learning best suits someone to be successful in those things?”

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Lavonne Leong