Chapter 1
The Art of Failure: Lessons from a Coca-Cola Legend
What if the surest path to success was understanding exactly how to fail? In 1985, Donald Keough, then president of Coca-Cola, stood before the world to announce one of the greatest corporate blunders in history-the company was abandoning its century-old formula for "New Coke." The public outcry was immediate and overwhelming. Yet rather than destroying Coca-Cola, this spectacular failure ultimately strengthened the brand when Keough humbly admitted the mistake and brought back the original formula as "Coca-Cola Classic."
This experience forms the backbone of Keough's philosophy, distilled in his book that Warren Buffett called "priceless wisdom from a business titan." Having transformed Coca-Cola's market value from $4 billion to $145 billion during his tenure, Keough offers a refreshingly honest perspective on leadership. His commandments for failure have become required reading at business schools worldwide and continue to influence corporate leaders decades later. Even Bill Gates reportedly keeps a copy on his nightstand. Through Keough's lens, we discover that understanding failure's mechanisms might be our greatest tool for achieving lasting success.
Chapter 2
Risk Aversion: The Silent Business Killer
Throughout history, humanity's default setting has been risk aversion. Most people preferred the security of their villages to the dangers of the unknown world where ancient maps warned of "terra incognito" and "Here be dragons." America, however, was built on risk-taking-from Columbus's voyage to the Declaration of Independence, which Benjamin Franklin noted would result in everyone's hanging if unsuccessful.
We descend from resilient risk-takers who survived incredible odds. Keough's own great-grandfather Michael left Ireland at eighteen during the potato famine, crossing the "bitter bowl of tears" to work in a Massachusetts quarry before risking everything again to migrate to Iowa. His descendants continued expanding their homestead despite blizzards, dust storms, and grasshoppers-embodying the pioneering spirit that built America.
As lives grow more comfortable, the temptation to quit taking risks grows stronger-a disease of success that can strike as early as forty. Yet taking risks from positions of substantial success can be even more difficult than startup risks. At Coca-Cola, Keough regularly questioned why everything seemed so good, channeling Robert Woodruff's favorite Oscar Wilde quote: "The world belongs to the discontented."
Woodruff himself demonstrated extraordinary risk-taking during the Great Depression. While other companies slashed budgets, he circumvented his board to establish the Coca-Cola Export Corporation and raised advertising budgets to record levels. Without such risk-taking, Coca-Cola wouldn't operate in over 200 countries today, and we wouldn't have our modern image of Santa Claus, which Coca-Cola helped popularize.
The cautionary tale of Xerox demonstrates what happens when successful companies stop taking risks. After revolutionizing offices with the 914 copier, Xerox researchers at PARC invented the personal computer with graphical interface and mouse-yet corporate leadership failed to capitalize on this innovation, losing a five-year head start to Apple and Microsoft. The "box guys" at headquarters were too comfortable with their existing success to risk innovation. As Peter Drucker noted, management's major task is to prudently risk present assets to ensure future existence.
Chapter 3
Inflexibility: Clinging to Yesterday's Formula
Not taking risks and being inflexible are closely related, but with an important distinction. Truly inflexible people aren't merely avoiding risks-they're so convinced they have THE formula for success that they simply cannot see any other way of doing things.
At Coca-Cola, this manifested in the company's obsession with the iconic six-and-a-half-ounce green bottle. For decades, executives viewed the bottle and the drink as inseparable, ignoring changing consumer preferences while Pepsi gained market share with their "Twice as much for a nickel, too" twelve-ounce bottles. Only in 1955, facing sharply declining supermarket sales, did Coca-Cola finally introduce new package sizes.
Similarly, the bottling territories established in the horse-and-wagon era became increasingly problematic as chain stores expanded across multiple territories. Many bottlers, clinging to contracts granted in perpetuity, initially resisted necessary changes that would ultimately save the system.
Henry Ford provides another example of how inflexibility can cripple once-dominant businesses. After revolutionizing manufacturing with the Model T, Ford refused to adapt when General Motors began offering different colors and models. His famous statement that customers could have "any color so long as it's black" exemplified the inflexibility that cost Ford Motor Company its market leadership.
Digital Equipment Corporation's Ken Olsen similarly dismissed the personal computer market, declaring "there is no reason for any individual to have a computer in their home." This inflexibility prevented DEC from pivoting toward the future, despite having the resources and talent to compete in the emerging PC market.
Even IBM, once the epitome of corporate success, nearly collapsed in the early 1990s because it couldn't adapt quickly enough to the shift from mainframes to personal computers. Only when Lou Gerstner arrived as CEO and declared "the last thing IBM needs is a vision" did the company begin its remarkable transformation into a services-focused business.
Chapter 4
Isolation: The Executive Bubble
Want to fail spectacularly? Create your own executive bubble by building a physically isolated fortress-a grand office in a remote corner with heavy doors and guards. Never leave this bubble except to visit others in similar bubbles. Don't answer your own phone, learn where copy machines are, or wander around talking to employees. Avoid learning names of employees-they might leave, wasting your effort.
This approach contradicts successful business builders like Dwayne Wallace of Cessna, who knew thousands of employees by name and details about their families. The isolationist diet requires eating only with close staff in executive dining rooms, filtering all information through trusted advisers who tell you what you want to hear, and surrounding yourself with cowed directors who won't challenge your thinking.
Leaders who isolate themselves create environments where only good news reaches them. Adolf Hitler's secretary Martin Bormann learned to bring only pleasant tidings to the fuhrer. This contrasts with Charles Kettering of General Motors who said, "Don't bring me anything but trouble. Good news weakens me."
When visiting Coca-Cola operations worldwide, Keough would avoid the carefully planned tours of successful stores, instead jumping out at random locations and having direct conversations with employees. During World War II, Churchill created a special office solely to bring him bad news-he wanted unvarnished truth-while Hitler remained delusionally confident until late in the war. As John le Carre noted, "A desk is a dangerous place from which to view the world."
Isolation breeds fear-fear that permeates organizations and stifles creativity and honesty. Even without intending to, leaders create climates of fear simply by virtue of their position. At Butternut Coffee, Keough had a talented salesman who always avoided coming to Omaha, making excuses about illness or customer emergencies. Only later did Keough realize the man was terrified of him despite having no rational reason for this fear.
Isolation ultimately leads to revolt-a perfect strategy for failure. When leaders lose touch with frontline realities, they make decisions based on fantasies rather than facts. The resulting disconnect between leadership and workers creates resentment, disengagement, and eventually rebellion-either through unionization, mass exodus of talent, or simple malicious compliance that slowly erodes the business from within.
Chapter 5
The Illusion of Infallibility
Assuming infallibility guarantees business failure. The truly destructive leader never admits problems, covers up mistakes, and blames external forces when things go wrong. Annual reports often showcase this artful finger-pointing, using phrases like "mistakes were made" to avoid personal responsibility.
By contrast, Warren Buffett openly acknowledges his errors in Berkshire Hathaway shareholder letters, explaining what went wrong and what he learned. This transparency builds trust and creates a culture where mistakes become learning opportunities rather than career-ending disasters.
Coca-Cola's 1999 Belgian crisis demonstrates the danger of infallibility. When schoolchildren reported illness after drinking Coke products, executives thousands of miles away insisted nothing was wrong despite doctors confirming symptoms. This slow response led to the largest product recall in company history and severely damaged the brand in Europe.
Similarly, Schlitz beer's management believed themselves too sophisticated to follow traditional brewing methods, cutting corners on ingredients and aging time until consumers abandoned the brand completely. General Motors damaged their reputation by fighting Ralph Nader's safety concerns rather than addressing them.
Personal experience taught Keough this lesson when he initially rejected a major East German investment proposal. Only after visiting personally at his colleague's insistence did he see the opportunity, leading to a billion-dollar investment that became a turning point for Coca-Cola's global growth.
The antidote to infallibility is intellectual humility-recognizing that no matter how smart or experienced you are, you don't have all the answers. As Justice Holmes noted, "Certitude is not the test of certainty." Leaders who remain open to new information, willing to change course when evidence demands it, and humble enough to admit mistakes create organizations capable of continuous learning and adaptation.
Chapter 6
Ethical Compromises: Playing Close to the Foul Line
Trust forms the essential foundation of any business. Keough's father Leo, a cattle broker during the Depression, built his success on an absolutely sterling reputation for honesty. Ranchers trusted him implicitly to "get the best price" for their herds. This taught Keough that being trusted-not feared or loved-but trusted to be forthright, honest, and fair was the most valuable quality in business.
Playing close to the foul line destroys this trust, leading inevitably to failure. In recent years, many executives developed fuzzy views of right and wrong. As our social environment became less civil, corruption spread-what Senator Moynihan called "defining deviancy downward." The Stanford "broken windows" experiment demonstrated how ignored ethical breaches invite more serious violations.
Meanwhile, companies began catering excessively to Wall Street analysts, letting them from the front yard gradually into the bedroom. CFOs transformed from truth-telling guardians into profit-generating "rock stars" pressured to deliver short-term results at any cost. The question shifted from "Is it right?" to "Is it legal?" to "Can we get away with it?"-leading to disgrace and prison for many executives who believed themselves immune from moral obligations.
The obsession with celebrity has become one of modern life's unhealthiest aspects. Some executives go to extreme lengths for magazine covers, spending fortunes on lavish entertaining and gaudy homes. Coming from the Midwest, where even prosperous farmers hide their status, Keough learned to be wary of media portrayals that either praised him to the heavens or portrayed him as incompetent. Everyone likes recognition, but being seduced by our cult of celebrity tempts ethical boundary-crossing.
From the panic of 1792 to the subprime mortgage crisis, business scandals spawn new regulations, yet we can never legislate ethics. At Coca-Cola, when they discovered migrant workers in terrible conditions, CEO Paul Austin implemented comprehensive reforms-establishing clinics, social service centers with child care and education, increasing wages and benefits, and creating worker-governed community organizations. This wasn't just public relations-it was the right thing to do.
To maintain public confidence in capitalism, we need honorable leadership. As Peter Drucker said, there's no such thing as business ethics-just ethics. It's not separate from your life.
Chapter 7
Information Overload: The Thinking Deficit
Our technologically obsessed society brings remarkable innovations, but doing something just because we can doesn't mean we should. We've added complexity without advantage, living in a data age rather than an information age. With trillions of emails and endless communication, we've lost the ability to reflect quietly and think deeply.
The average corporate worker faces 133 emails daily plus multiple communications across different channels, creating "In-box Shock." While tech geniuses like Bill Gates can manage three synchronized monitors, most humans aren't built to process information at this speed and volume. Studies show academics feel increasingly stressed and unfocused due to information technologies.
Even simple consumer choices become overwhelming with too many options-from toothpaste varieties to technical gadgets. Research shows handicappers made worse predictions with forty pieces of information than with just five. In many situations, less truly is more.
Raw data without thoughtful analysis often masks reality. The New Coke debacle perfectly illustrates this problem-two hundred thousand taste tests showed people preferred sweeter soda, but completely missed the cultural context and iconic status of Coca-Cola. Budget planning similarly suffers from data overload, with specialists drowning in raw numbers while missing the big picture.
Failing to pause and think leads to disaster, like the Light Brigade charging into the Valley of Death. Time to think isn't a luxury but a necessity. In business, particularly mergers and acquisitions, emotional momentum often overtakes rational analysis. Billion-dollar deals proceed despite questionable fundamentals because egos, rivalries and dreams of headlines drive decisions rather than sound reasoning.
Failed mergers like Daimler-Chrysler and Time Warner-AOL were predictable disasters where no one thought through long-term consequences. To fail, avoid analyzing mistakes. To succeed, study failures objectively like hospitals do in mortality sessions.
Chapter 8
The Consultant Trap: Outsourcing Your Thinking
Outsourcing your thinking to experts and consultants is a sure path to failure. They often address the wrong questions with definitive-sounding answers and flashy presentations.
As a teenage bull buyer at the Sioux City stockyards, Keough learned to "watch the bull, not the man"-focus on the product, not the presentation. This lesson proved invaluable throughout his business career. No matter how sophisticated you think you are, if you take your eyes off what matters and get distracted by flattery or charm, you'll make terrible decisions.
Consultants convinced Coca-Cola to diversify into wine, arguing their core beverage business needed hedging. Robert Woodruff, in his eighties, personally investigated this acquisition and delivered a devastating assessment: while Coca-Cola's business model was "bottle it in the morning and sell it in the afternoon," wine required years of aging, expensive infrastructure, significant evaporation loss, and faced intense retail competition. When they asked wine executives to project returns assuming perfect business decisions through 1990, they concluded returns would barely match their cost of capital.
The New Coke debacle exemplifies the danger of trusting experts over instinct. Despite gut feelings, they proceeded with the launch based on expert advice. The backlash was immediate and overwhelming. The turning point came when an 85-year-old woman called in tears: "You've taken away my Coke." Though she hadn't had a Coke in 20-25 years, she explained, "You are playing around with my youth." They realized this wasn't about taste but about deep psychological connection-Coca-Cola meant something different to every person.
Expert predictions consistently fail yet they maintain unwavering confidence. Philip Tetlock's research shows political experts were only 45% accurate despite claiming 80% confidence, and when proven wrong, they manufactured excuses rather than acknowledging failure.
The management world suffers from endless crazes-Theory X, Theory Y, matrix management, total quality management-constantly "reengineering" terminology while delivering little substance. Consider Long-Term Capital Management's collapse: Nobel Prize winners created a system that was essentially a giant roulette game, requiring Federal Reserve intervention when it collapsed.
Management is a craft, not a science. The narrow perspective of supposed genius is often the inverse of wisdom, especially when experts try to mathematize human behavior or force businesses to conform to industry averages rather than differentiate themselves.
Chapter 9
Bureaucratic Paralysis: Systems Over People
Bureaucracy can completely paralyze productivity, as Keough discovered when his secretary couldn't even obtain pencils without requisition forms that weren't available. While bureaucratic organization evolved logically for managing complex enterprises-from ancient Chinese and Roman empires to modern corporations-the machinery of organization should never impede human creativity and productivity.
The concept of an "office" in bureaucracy is brilliant-positions with defined functions that maintain continuity as different people occupy them over time. Keough's authority came from the word "President" on his card, not his name. However, while organizational structure provides necessary order, leaders must prevent rules and routines from becoming more important than their purpose.
Bureaucracies multiply like animals-put a manager in place, and within eighteen months they have an assistant who becomes a junior manager needing another assistant, perpetuating the cycle. The result? Layers of people attending endless meetings that generate more paperwork, emails and additional meetings-even meetings to plan meetings!
Large bureaucracies never say no-they simply don't do what you want when you want it. After noticing a frayed elevator carpet, Keough requested its replacement. A year later when he became division president, it still hadn't been replaced. Two years later when he moved to corporate offices, the carpet remained unchanged. The maintenance department never refused the request, but never delivered either.
Human resource experts note that replacing a middle-level manager costs at least twice their annual salary. While they fought to keep talented people at Coca-Cola, exit interviews often revealed bureaucracy as the reason for departure-not money or work difficulty, but the inability to get work done through bureaucratic obstacles.
As president, Keough described himself as a "high-priced janitor" whose job was keeping aisles clear so their brightest associates could serve customers and add shareholder value. Every expense and project had to answer one question: "Will this help create and serve customers?" Without a resounding "yes," they eliminated it.
Warren Buffett reported eliminating fifty-four committees that consumed 10,000 monthly man-hours in one acquired company. By contrast, in 2007, Berkshire Hathaway owned over 76 companies with nearly 232,000 employees generating $18+ billion in revenue, yet maintained a headquarters staff of just 19 people.
Chapter 10
Mixed Messages: Confusing Your Organization
Sending mixed or confused messages to employees or customers will jeopardize your competitive position and result in failure. When Keough joined Coca-Cola's U.S. operations in 1973, the fountain department was sending several contradictory messages, particularly around profitability and accountability. Despite losing money, the department maintained traditions like lavish sales meetings at exotic locations and refused to raise syrup prices despite rising costs.
By the 1960s and 70s, Coca-Cola faced a serious challenge of discontinuous global messaging. The company had developed as separate "baronies" around the world, each built by pioneers who created businesses suited to local conditions-high-volume, low-margin in Latin America versus low-volume, high-margin in Europe. This mosaic worked when markets were distinct, but as the world rapidly globalized through television, music, and shared culture, their fragmented approach became problematic.
When Roberto Goizueta and Keough assumed leadership in 1981, they faced the challenge of unifying their worldwide organization's direction and goals. Though risky to disrupt established fiefdoms, they needed to modernize their marketing and distribution to serve increasingly global customers. Their first priority was to eliminate mixed messages while preserving regional autonomy.
Their acquisition of Columbia Pictures initially seemed like a mistake when their stock dropped 10%, but hits like Tootsie and Gandhi quickly made it profitable. Despite its success and glamour, they ultimately sold Columbia for substantially more than they paid. The entertainment business consumed disproportionate attention while delivering modest, unpredictable revenue compared to their core beverage operations.
When IBM's John Akers invited Keough to speak at a meeting focused on his "new paradigm" of customer service, Keough noticed something telling in their promotional video: every IBM executive had a can of Pepsi in front of them. He pointed this out during his presentation, noting the irony that while discussing customer awareness, they were oblivious to having Coca-Cola, one of their biggest customers, on stage. The audience erupted in applause, understanding the mixed message.
Chapter 11
Passion: The Essential Ingredient
Passion is the essential ingredient for success. As Hegel said, "Nothing great in the world has been accomplished without passion." Keough's father admired America's audacity in including "happiness" in its founding principles. In business, happiness comes from finding what you love and doing it with unadulterated desire.
Warren Buffett "tap-dances to work"-that's been Keough's philosophy too. Real work isn't always fun; it's often hard and exhausting. But the passion to solve problems is what gets you moving. If you want to fail, lose that passion. Say "that's good enough" or "that's not my job." The gray-faced automatons in every workplace who stew in their misery are failures, even if financially successful.
Every truly successful person Keough met expressed genuine passion for their work-they couldn't imagine doing anything else. Even in today's world of short-term careers, passion remains essential-perhaps more so.
Think daily about what your customers want and expect. There are no market segments-only people with faces. Visualize specific individuals and consider what you'll do for them today. For years, Keough kept a photo in his office of a harried woman with a shopping cart and crying child captioned "This is your consumer."
Beyond statistical data from agencies, he would visit stores to hear actual customers' voices, seeking that emotional connection with those he wanted to serve. He genuinely cared about giving them a pleasant experience with their products.
Next to his family, Keough's most passionate relationships were with the brands he represented-Coca-Cola for decades, and later Allen & Company. A brand is the most powerful force in business. Without it, you're dealing in commodities anyone can replicate. With a strong brand, you have a defense and foundation for growth.
Many companies claim "people are our most important asset," but few truly believe it. Allen & Company embodies this principle with a unique culture-"a welfare state for employees, and raw capitalism for the principals." Staff receive generous salaries and bonuses, while managing directors earn percentages of the business they generate.
People leave companies because bureaucracy stifles them or they lack passion. A Towers Perrin survey found over 35% of employees worldwide feel disengaged. For good employees, more important than money or power is the opportunity to be part of something that ignites enthusiasm.
Dreams don't come true by wishing. You must internalize them, visualize success, and determine to grow into them. We're all in a state of "becoming," as Teilhard de Chardin described-striving toward an omega point where forces coalesce. Though we always fall short of perfection, the striving matters.
Think about how you want your corner of the world to look when you move on. In every job, act as if it's your last and leave it better than you found it. Don't fear criticism from cynics and "realists"-their advice sometimes discards higher, more idealistic goals that others don't yet see. As Shaw said, "All progress depends upon the unreasonable man."
