This article explores fail fast and risk management in innovation, and why clear risk boundaries are essential for effective experimentation.
Working with innovation means accepting that it is virtually impossible to get everything right from the start. In many cases you will need to pivot along the way – reality reveals what actually meets a real need in the market. Of course, it would be ideal to get everything right from day one, but there is no intrinsic value in failing.
More and more organizations now embrace the mantra “fail fast” or “dare to fail.” At its core, this is very positive. It opens the door to experimentation and speed.
But why do we still see far less innovation than we would expect?
Because “fail fast” is often misunderstood when it becomes a simplified truth.
One common misunderstanding is that it’s about making mistakes, when in fact it’s about maintaining pace and learning quickly. For “fail fast” to work, an organization must have processes for acting when mistakes occur and learning from them.
Another misconception, especially among those who haven’t yet embraced to work with experimentation, is the belief that allowing failure will lead to lower quality and a careless or sloppy organization. But high-performing organizations do not accept sloppiness, half-hearted analysis, lack of follow-up, or repeated mistakes.
A further issue is that most organizations have not defined how big a failure is acceptable. This lack of clarity creates a paradox: people still don’t dare to test new ideas because they don’t know “how big” a mistake they are allowed to make. A first important step is therefore to define how much risk a project is actually allowed to take if something goes wrong, in other words, what the “error margin” or fail-space is. Without a clear risk frame, it’s difficult for people to know what they can safely experiment with.
Another way to look at this is to define what you are willing to risk in order to grow and learn. Saras Sarasvathy, whose research focuses on entrepreneurship, describes “affordable loss” as a key principle for successful innovation. We also need to distinguish between risks that must never materialize and risks that are part of the learning process. Affordable loss refers to the latter – what we are willing to risk in order to discover what works.
Once the boundaries are clear, you can break down the project into meaningful parts and identify the risks, since different components almost always carry different levels of risk. Only then can you see where it makes sense to start testing, and where greater caution is needed. These questions are useful to ask and should be revisited after each update to, for example, a business model:
- What risk does each part of the case/project carry?
- Which risks must be secured so they never materialize?
- Which risks are acceptable to take?
- Which risk is largest and most important to mitigate first?
This capability, the ability to manage risk, will become increasingly important as uncertainty in the world grows, driven by multiple simultaneous trends and trajectories.
With clear boundaries, learning processes, and a defined affordable loss, innovation capacity is strengthened (yes, there are more parameters, but we’ll save those for a future post). It creates space to explore, learn and adjust – until you discover what actually works best.
Do you recognize this? Have you experienced “fail fast” being misunderstood in your organization?
You can read more about innovation and complexity in my earlier article here (both in Swedish and English): Blogs
