In August 2004, Thomas Schlegel, vice-president for product development at toymaker Radio Flyer, and Robert Pasin, the company's chief executive and grandson of its founder, made a difficult decision. The two stood together looking over the latest model of its Fold 2 Go Wagon, a collapsible version of the iconic red toy that made the company famous, which was due to ship the next month—and they killed it.
The privately held company, which posted $96 million in revenues in 2008, had already poured hundreds of thousands of dollars into development and production. But as Schlegel and Pasin reviewed the latest sample, its shortcomings were clear. "It didn't live up to the Radio Flyer standard," says Schlegel, 42. "I'd only been at the company for a year, and this was the most important innovation I'd brought, so I really saw this as my failure."
Few executives talk about failure, but it is part of every company's story. And a willingness to risk failure and learn from it is the hallmark of an innovative company. Since 2004, Chicago-based Radio Flyer has adopted methods to kill projects earlier and take lessons from its mistakes. And it shows: From 2005 through 2008, sales have grown 57%, while product introductions jumped from seven in 2004 to 20 this year. Recent hit products include the Ultimate Family Wagon, with an adjustable storage compartment and accessories such as a sun canopy, and a foldable three-wheeled scooter that became the leading three-wheeler on the market.
How to learn from failure The inspiration for the collapsible wagon was a folding utility cart that Schlegel and Pasin saw at a trade show in August 2003. The following weekend, Schlegel bought some carts, hacked them into pieces, and cobbled together a prototype in his garage.
By October, Schlegel had something to show—a prototype wagon with fold-down plastic ends, fabric sides, and wheels that retracted like airplane landing gear. One of five toys Radio Flyer previewed for retailers at its New York showroom that month, "it was a magical product," Schlegel recalls. "Toys "R" Us hadn't seen anything like it. They loved it."
It's easy to see why: A foldable wagon that could be easily stored in a closet and tossed into the back of a minivan was a promising concept.
Enchanted by the idea and its promise, the Radio Flyer team saw potential problems as engineering challenges rather than warning signs. "One of the biggest challenges was developing safety latches to prevent the wagon from folding up while a child was in it," says Schlegel.
And when the wagon did fold, Schlegel's team had to worry about "pinch points," places where a kid's fingers could be hurt. The more complex the product got, the more expensive it got, rising to $140. Schlegel and his assistants figured the company would just make the wagon bigger to justify the higher price.
Listening to the KidsSchlegel, a designer and engineer, drew on his nine years at the Marketing Store, an ad agency in nearby Oakbrook Terrace, Ill., and his four years as an engineer at Unilever. He also drew on his experience as a father (at the time he had two boys, though now he has four children at home). But having only joined the company in May 2003, he says his attitude then was that "failure was not an option."
He changed his mind after the project was killed, and CEO Pasin didn't blame him. Instead, Schlegel's boss told him that the failure was O.K. as long as the company learned from it. "We then quickly came up with an innovative new tricycle called the Twist Trike," says Schlegel. "We also took the learnings from the Fold 2 Go Wagon project to create the Ultimate Family Wagon."
Based on that experience, the 92-year-old company has made changes to its culture, strategy, and process.
Pasin, 40, now holds a regular breakfast for new employees at which he impresses upon them the idea that failure is inevitable if you want to innovate and valuable if you can learn from it. (India's Tata Group, another company highlighted in our How to Innovate series, even gives Dare to Try awards to the teams behind ambitious failed projects.)
To make up for duds and boost its success rate, the company is taking more shots at new products. A folding tricycle, launched the same year the Fold 2 Go wagon failed, sold well, "making up for lost sales," says Schlegel.
The new strategy is evident in the company's four-stage product-development process. Schlegel puts 40 to 50 product ideas into the development funnel, and at every stage, the weakest are eliminated, with no individual or team branded with a scarlet F. Ultimately Radio Flyer presents 15 to 20 new products to retail buyers like Toys "R" Us, Target (TGT), Wal-Mart Stores (WMT), and Kmart (SHLD).
And after every project ends—whether the product has shipped or been killed—Radio Flyer is developing what Schlegel describes as an "autopsy without blame," in which everyone involved in the development of a product discusses four questions: What went well on the project? What didn't go well on the project? What did we learn? What are we going to do next?
Radio Flyer's 2008 revenues are impressive, says toy industry analyst Christopher Byrne of the ToyGuy.com. "There are more than 600 toy companies in the U.S., but I don't think there is any one that is such a part of our culture that is still independent."
What executives can learn from Radio Flyer
It's never too late to pull the plug. It's always better to kill a project than to ship a faulty product to retailers or customers. Even a good brand can be devastated by one bad product.
Construct prototypes to find problems early, and deal with them early, too. Start with quick-and-dirty models; as a project evolves, make prototypes that are accurate in terms of size and weight. Once design or engineering problems are uncovered, address them immediately. They will only grow bigger.
A failed project shouldn't be a career ender. Managers and teams alike can learn an extraordinary amount from failed projects. Smart companies will capitalize on that knowledge rather than punishing those involved.
Teach failure. Make managers and new employees alike know that failure is acceptable—and perhaps even expected. Otherwise, too many will play it safe, and the company might stagnate.