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Source: The Unexpected 49

shown both the house as it was standing—that is, the “basic house”—and
a model of the same house in which future additions such as an extra
bathroom, one or two more bedrooms, and a basement “family den” had
been built. Indeed, the builder had already obtained the necessary city
permits for conversion of the “basic house” to a “permanent home.”
Furthermore, the builder guaranteed the young couple a fixed resale price
for their first house, to be credited against their purchase from his firm of
a second, bigger, “permanent” home within five to seven years. “This
entailed practically no risk,” he explained. “The demographics were
such, after all, as to guarantee a steady increase in the demand for ‘first
houses’until the late 1980s or 1990s, during which time the babies of the
‘baby bust’ of 1961 will have become twenty-five themselves and will
start forming their own families.”
Before this homebuilder transformed failure into innovation, he
had operated in only one metropolitan area and was a small factor in
it. Five years later, the firm was operating in seven metropolitan areas
and was either number one or a strong number two in each of them.
Even during the building recession of 1981–82—a recession so
severe that some of the largest American builders did not sell one sin-
gle new house during an entire season—this innovative homebuilder
continued to grow. “One reason,” the firm’s founder explained, “was
something even I had not seen when I decided to offer first-time
homebuyers a repurchase guarantee. It gave us a steady supply of
well-built and still fairly new houses that needed only a little fixing
up and could then be resold at a very decent profit to the next crop of
first-home buyers.”
Faced with unexpected failure, executives, especially in large
organizations, tend to call for more study and more analysis. But as
both the padlock story and the “basic house” story show, this is the
wrong response. The unexpected failure demands that you go out,
look around, and listen. Failure should always be considered a symp-
tom of an innovative opportunity, and taken seriously as such.
It is equally important to watch out for the unexpected event
in a supplier’s business, and among the customers. McDonald’s,
for instance, started because the company’s founder, Ray Kroc,
paid attention to the unexpected success of one of his cus-
tomers. At that time Kroc was selling milkshake machines to
hamburger joints. He noticed that one of his customers, a small
hamburger stand in a remote California town, bought several
times the number of milkshake machines its location