Seven years ago my team had just shut down the first of our two concept stores that we were running for consumer electronics retailer Best Buy.  My team had spent the last two years operating these concept stores in an attempt to understand more about the opportunities in “small box” retail.  During that time we had learned a ton and as a leadership team we were adamant that we needed to share what we had learned with the rest of the company.

Quickly we had discovered how valuable our insights were when we helped to launch the first wave of Best Buy Mobile stores in New York City.  Because of our previous failures we knew what we would do different the next time.  For example, we knew how important our decision in IT point of sale (POS) systems would be to the future success of these next stores.

In the early 2000’s Best Buy was growing rapidly and they were willing to try many new business ventures.  As with most corporate ventures a majority of them would end up failing (see the post Connecting the Dots).  But at the time the company lacked the discipline to ensure that these failures were documented and shared throughout the organization.

Without that process few employees inside the company would have the chance to learn from them.  The fact that failures weren’t shared is completely understandable though.  At Best Buy, as with almost every other company, failures were seen as a negative mark on a leader’s reputation.  Many leaders would have preferred that their failures just went away.

Fortunately my team and I had an example of what good could look like in documenting an internal failure.  A few years earlier JJ Schaidler, a vice president in our Entertainment group, had written an internal whitepaper on Best Buy’s failed entertainment media label – Redline Entertainment.  By demonstrating personal courage in sharing her team’s journey JJ had paved the way for me and my team to share the lessons from our failures.

This article was originally published on November 15^th in Innovation Excellence:

Failure Forums: Learning from Best Buy Media Label ‘Redline Entertainment’

In the early 2000s Best Buy launched their first entertainment media label Redline Entertainment.  The goal was to help grow the organization vertically into the entertainment industry.

As an entertainment label Best Buy would sign artists to create new material, produce the content, and provided distribution of the final products into retail outlets – Best Buy stores and others.  This was a new area for Best Buy but it was tangent to their core business of selling electronics, appliances, and media.  Coming off of a successful national expansion Best Buy had strong momentum and it was hungry for opportunities to continue to grow their business.

Jennifer “JJ” Schaidler had unknowingly altered her career when she took the lead role in building out Redline Entertainment.  As with many innovation projects the team had a good plan in place but without all of the pieces together it would be almost impossible to test individual hypothesis.  Redline’s success didn’t hinge on just one element but on a series of organizational errors that JJ documented for the company in what came to be known as the Redline Whitepaper.

What makes JJ’s story unique is that she not only was willing to own her mistakes but she was willing to document them and share them with others inside the organization.  Many executives would cower from this idea as career suicide but not JJ.  During my tenure at Best Buy, JJ’s Redline Whitepaper had provided an example of what good innovation work should look like: build your hypothesis, test your hypothesis, and share the results of your tests – good or bad.  This is JJ’s story.

1. So Redline Entertainment was going to be Best Buy’s entertainment media label.  How did that idea come about?

Our Senior Vice President of Entertainment, Gary Arnold, had the idea of growing our business by creating our own label and developing our own content.  This was right around the time that Best Buy had purchased Musicland (including Sam Goody) and Future Shop in Canada.  The idea had come from two concepts:  1) that the combined entities offered a huge distribution channel and 2) the artists were becoming increasingly frustrated with their labels and their binding contracts.  The plan was that Best Buy could go straight to the artists and offer distribution but allow them to own their masters.

At that same time, Best Buy was defining the ecosystems that they wanted to grow and expand into diverse businesses –even non-retail businesses.  Entertainment was one of those ecosystems.  Starting a label seemed like an adjacent idea where we could bring the leverage of the enterprise with all of the storefront assets.  We had been developing direct relationships with the artists and had connections within the manager community.

A critical piece to the puzzle was that Redline also had a distribution relationship with RED distribution (no affiliation).  RED was the independent arm of SONY distribution and they were in theory able to get Redline products into Target, Wal-Mart and all the rest of the music retailers.  That foot print would allow us to offer the same distribution as a major label.  The advantage would come from additional marketing and advertising from the Best Buy entities.

Ultimately the competitive nature of the other retailers was the undoing of Redline.  They knew that the products from Redline came from Best Buy and they didn’t want to support a competitor.

2. When you committed to the project did you consider what would happen if you failed?  What kind of odds were you giving yourself for success?

I actually thought there was a likelihood of failure but it didn’t concern me.  My perspective was that the company was growing so fast that it would find a place for me.  In retrospect, I should have been more concerned.  Only after I had taken this new role was it clear to me that going back to my old role as Vice President of Advertising wasn’t an option.

3. Where there ever expectations set by the company for what would happen if things didn’t work out?

No.  Truthfully we had never done these types of innovation projects before so it wasn’t discussed.

4. How long did the project last?  What was the ratio of the time spent planning vs. executing?

Around two years.  The planning phase was really getting the business plan approved and that took 3-6 months.  Execution or “signing” of artists and projects were started before the plan had full approval.

5. Was there ever a clear indication that they project wasn’t going to succeed?

Yes, there were several factors that popped up where we knew that we had problems: 1) our inability to get significant radio air play for our artists – radio was still a driving force behind sales, 2) the resistance/refusal from Target / Wal-Mart to buy Redline products, and 3) the lack of incoming revenue while signing on new projects.  If we were starting our own external company we would expect there to be a lag while building the portfolio of business but within a corporation there quickly needed to be something that was showing a positive return.

6. What was the most difficult task in shutting the business down?

For me the most difficult task was letting go of our people.  The truth was that they didn’t do anything wrong.  It wasn’t their fault.  Many people did find other roles at Best Buy so we were pretty successful at transitioning but for those that didn’t make the transition it was painful.

7. After you had shutdown Redline you did something that had never been done before at Best Buy, you wrote a formal whitepaper on what had been learned through the project.  Can you explain why and how that happened?

In a budget presentation with the President, he commented that “I’d be happy to lose $7m dollars on Redline if we really learned something from it.”  In addition, he was always referencing the Clay Christensen book – Innovator’s Dilemma.  I read the book and believed that Best Buy was exactly in that classic problem.  So I wrote the white paper as a way of illustrating to the company that we would need to change how we do innovation if we wanted to succeed.  At that same time Best Buy had hired the consulting firm Strategos to help build out an innovation process.  I participated in that work and witnessed many of the same problems repeating themselves.  When Best Buy hired Kal Patel, he read the white paper and encouraged others who were trying to innovate read it.  It ended up taking on a life of its own.  That was good because in one sense – it was a $7m white paper.  Too bad I didn’t get any royalty payments on it!

8. Have you used the lessons from Redline’s failure in your work since then?

I still get emails from time-to-time from people asking me to send it to them.  The frequent comments are that not much has changed since it was written in 2002.  The bottom-line is that innovation inside of large organizations is very difficult.  It takes people that are willing to take risks and willing to fail.  When a company is growing and has the funds to support innovation it makes it less risky.  Public corporations that need to report quarterly profits are also extremely tough.  When the numbers aren’t looking good, new ideas that just haven’t had enough time to turn a profit are the easiest to cut.  In our estimation Redline needed five years.  It only had two.  There was no appetite to wait that long.

Following her role with Redline, JJ went on to lead many other strategic initiatives at Best Buy, including the initial launch of the Best Buy & Carphone Warehouse joint venture – Best Buy Mobile.  She continues to take risks in order to drive innovation in her work and in her career by continually defining new opportunities.  JJ is currently General Manager for Brightstar – the world’s largest specialized wireless distributor and mobile service company.