The 5 Infallible Ways To Fail Upward

Of all the Fine Arts of Management, there are few tactics as useful as failing upward. Unfortunately almost nothing is written about this technique, leaving it to be passed by word-of-mouth amongst the ethically challenged of the business world.

With that in mind, here are the five classic ways that companies come out smelling like a rose when their product stinks to high heaven:

I’ve frequently seen companies put out a press release on their quarterly or yearly financials that are labeled “non-GAAP.” Usually that already-obscure label is so inconspicuous that even the green-eye-shader wearers don’t notice.

Well, it turns out that GAAP stands for “Generally Accepted Accounting Principles” as defined by the Financial Accounting Standards Board (FASB) under the aegis of the SEC. So, if you translate “non-GAAP” into plain English, it means “we made up a way to measure our financials that doesn’t make us look like spendthrift dolts.”

Amazingly, this actually works.

Companies that have non-GAAPed the public–and successful hidden huge losses effectively enough to still tell a “we’re winning big” story–include General Electric, Uber, and (for a while at least) WeWork.

Nearly every industry and industry segment has one or more “research” firms that sell “market reports,” either by subscription or as one-time purchase, and who also do privately-funded research.

If you’re willing to pay them enough (and often it’s not all that much), market research firms will twist themselves into a Moebius pretzel in order to say something positive about your product, regardless of how big a bowser it is IRL.

Example: I worked in a marketing organization that paid an analyst upwards of $125,000 a year to create reports saying that the company was a major market share leader in a market where they had no presence whatsoever. 

That marketing group secured upwards of $5 million a year, for five years, to “leverage” the company’s “success” in this entirely fictional business.

I kid you not, this really happened.

Not that you have to spend that kind of money. In my experience there are very few market research firms that can’t be convinced by some cash on the side to say something nice about you. They are truly the street-hookers of the business world.

One of the most effective ways to lie is to tell a truth that’s designed to be misinterpreted. That way, should somebody let Schrödinger’s cat out of the bag, you can not only claim you told the truth but blame the other person for being stupid.

Here’s a example from real life.

Back in the dot-com heyday, there was a company named “VerticalNet” hawking a eponymous site, supposedly consisting of “industry communities.” It was a Potemkin website with no real traffic but VerticalNet also owned a “brick and mortar” business that they pushed into the background.

When presenting to investors and the press, VerticalNet’s management quoted a hefty $250 million in “Net Exchange Revenue” to show how successful they were, without explaining that they were talking about revenue from the brick and mortar business. The actual revenue from the website was, at most, $1 million and probably less.

In other words, company’s management were using the term “Net” in such a way that it seemed like they were talking about “Internet” rather than “net” as in “net profit.”

Did the misdirection work? Oh, mai oui!

Based upon this insanely egregious bullsh*t, none other than BusinessWeek (!) gave VerticalNet a big thumbs-up, after which Microsoft invested $100 million, at which point VerticalNet achieved a market cap of $10.89 billion.

Take out the dead-end brick-and-mortar business, and the company had a price to sales ratio of 10,890,000. Just so you know, any company with a price to sales ratio of more than 4 is generally considered a poor investment.

That exact scam might not work today (but it probably would, because people are, if anything, dumber today than back then). The lesson here is if you can tell a half-truth with conviction, you can not only get away with it, but still rake in the big bucks.

If you’re getting your metaphorical jackass on market share, you can make yourself look brilliant by simply redefining the market so that your results are proportionately more impressive.

For example, I worked with a software vendor selling CRM, a market segment totally dominated by Salesforce.com. Rather than look like a flea next to an elephant, the vendor created a new category “Sales Enablement Platform” defined in such a way that Salesforce.com could be excluded from measurement.

Now, you’d think something as ridiculous as this would fall completely flat. However, I seem to recall that the company in question promptly landed another round of funding.

This is the most time-honored technique of all. If your original idea flops, rather than admit “we blew all the money on something stupid” you say “we built a great team and gained invaluable experience and now we’re pivoting to… [shiny object.]”