An essential skill for innovators and entrepreneurs is the ability to turn success into failure. That’s not a typo. There’s plenty of material about how important it is for entrepreneurs to learn from their mistakes, to be resilient, to bounce or to make it to Plan B.

But the converse of turning failure into success is just as important, perhaps even more important. And it’s one that is sorely lacking in the field of social entrepreneurship.
Microcredit provides a perfect example of the danger of not turning success into failure. Before the innovation of group lending, the world believed that it was impossible to lend to the poor. The prevailing assumptions were that the poor a) didn’t have useful investment opportunities, b) couldn’t pay back a loan, and c) were so desperate for cash that even if they could repay, they wouldn’t.

The group lending model was a huge breakthrough, one of the biggest social innovations of our time. But the problem that the innovation was solving (delivering cost-effective loans that would be repaid) was not the problem that the innovators were actually trying to solve: helping the poor escape from poverty.

The original microcredit model was a breakthrough. But it turns out, it was the worst possible product (in terms of helping the poor build wealth) that worked (in terms of affordability for funders). The rigid rules of group microcredit (joint liability, immediate weekly repayment) keeps repayment rates high, but discourages productive investment. High return business investments are generally risky and take time to generate returns.

Unfortunately, that small first step was declared a success. No one was willing to turn that success into a failure and get on with the process of innovating a better product. Now we’ve wasted 30 years with very little innovation. Not until the limitations of microcredit became abundantly clear via a combination of research and multiple crises in India and elsewhere, did we get momentum for a new round of innovation. Think about where we would be now if the innovators of group lending had started thinking of that initial success as a promising failure.

Turning success into failure—a failure to produce something even better—is a tremendous driver for innovation. It’s one of the secrets of Toyota’s incredible 50-year record of continuous improvement. Within Toyota, everyone understands that the goal (referred to internally as “True North”) is perfection: zero defects, zero waste. Thus every improvement project—even ones that exceed the target—are immediately turned into failures. Energy is redirected to improving the improvement rather than being satisfied with being better than before.

Turning success into failure by constantly refocusing on the ultimate goal is particularly a problem for social entrepreneurs, for a variety of reasons. Often they are tackling tough problems that have defied solutions for decades, if not generations. It’s very easy to view a successful first step as “enough.” The indirect feedback loops common in the social sector also impede recognizing the difference between a working business model and a solved social problem.

All the more reason why leaders of social enterprises have to become adept at celebrating successes—and immediately helping their teams view yesterday’s success as today’s failure.

Read more stories by Timothy Ogden.

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