The most successful industries have failure as their cornerstone

Success is transient. Failure is everywhere. As Tim Harford, better known as the Undercover Economist, writes in his new book Adapt - Why Success Starts With Failure “Failure in market economies, while endemic seems to go hand in hand with rapid progress.”

Johannes Gutenberg, the man who invented the printing press, went bankrupt. As Harford explains, “The printing press was invented by Johannes Gutenberg, a man who changed the world utterly, and produced the celebrated Guttenberg Bible in 1455. But the Gutenberg Bible was a ruinous project and put him out of business....The centre of the printing industry quickly moved Venice, where 12 companies were established by 1469. Nine of them were gone in just three years, as the industry fumbled for a profitable business model.”

The same was true for the automobile industry during its initial days. “At the dawn of the automobile industry, 2,000 firms were operating in the United States. Around 1% of them survived.” The dotcom bubble also led to many start-ups, but a few survivors.
The modern computer system, as it has evolved to this day, also is a very good example of this trend. “The industry started with failure: when transistors replaced vacuum tubes as the basic elements of the computer, vacuum tube manufacturers failed to make the switch. The likes of Hughes, Transitron and PhilCo took over, before stumbling in turn as integrated circuits replaced transistors and the baton passed to Intel and Hitachi,” writes Harford.

In fact, the same stands true for the way the personal computer industry. As Harford writes, “It fell to IBM to produce the direct ancestor of today’s personal computer - only to
unwittingly hand over control to the most valuable part of the package, the operating system to Microsoft. IBM eventually bowed out of the personal  computer business in 2005, selling its interests to a Chinese company.  Apple also lost out to
Microsoft in 1980s, despite perfecting the user-friendly computer...Microsoft was caught unawares by the internet, lost the search-engine war to Google, and may soon lose its dominant position in software altogether.”

The much maligned “microfinance” sector also started with failure. Mohammed Yunus, who had just come back to his native Bangladesh, after completing his PhD in the United States wanted to do something for  his homeland. As Harford writes “Observing the fields around the capital city were  lying idle during the dry  winter season, due to lack of money to operate irrigation pumps, he gathered together local landowners and farm workers and proposed a way of planting a winter crop: the landowners would contribute their land, the farm workers their labour, and the professor would buy high-yielding seeds, fertiliser, and fuel for the water pumps. Three parties to the deal would split the crop three ways. After some haggling, all sides agreed.”

The project turned out to be a disaster for Yunus. Despite good crops, the farmers did not bother repaying Yunus and he lost around $600, which was a substantial sum of money during those days.

But Yunus did not give up. “He noticed that craftswomen in the environs of Chittagong University had to borrow from local money lenders to buy their raw materials, and the local money lenders charged up to 10% interest per day; at such rates, a debt of single cent would balloon to the size of the US economy in just over a year,” writes Harford.

Yunus decided to help these women and started to lend to them. The first group of 42 families received less than a dollar each. This was far less than the amounts he had lent to the farmers. This was the start of what would become the Grameen Bank. As Harford writes, “Few people realise that the world’s most famous development success story began with trial and error.”

The writer works in the financial services industry and can be reached at chandniburman@yahoo.com