The Failure Award
Reward the biggest monthly good-faith mistake to build initiative and ownership
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 92%
Newsom describes running a Lake Tahoe motel where a night clerk introduced catfish into nearby ponds to eat mosquito larvae, only for raccoons to overrun the property chasing the fish. Instead of firing the clerk, Newsom created a monthly bonus for the most inventive good-faith screw-up, later renamed the Magical Moment Award by his sister. The mechanism converts mistakes into visible proof that initiative is wanted: staff experiment, the founder narrates what was learned, and the bonus signals that ownership of the outcome matters more than clean execution. He links the practice to his dyslexia and credits it with helping the business survive and then thrive. The reusable rule is the bonus-plus-story loop, not the catfish incident itself.
Origin
Extracted from The Diary of a CEO
Core principles
- 01Recognizing honest mistakes visibly rewards the behavior you want repeated
- 02Frontline employees see problems managers never reach; their unsanctioned experiments are data
- 03Psychological safety is built by celebrating attempts, not only successes
- 04Ownership is a practice that recurring rituals can teach, not a title
How to run it
- 1
Define good-faith failure
Separate creative problem-solving from recklessness, negligence, or repeated avoidable errors. Only the first earns the award.
Pro tip Make the boundary a written team rule so people do not have to guess.
Watch out A bonus for negligence converts the program into a license for sloppiness.
- 2
Set a recurring bonus
Choose a small monthly amount and a larger year-end prize. The dollar value matters less than the visibility and regularity of the award.
Pro tip Award it at a regular team moment so people anticipate it.
Watch out Inconsistent timing erodes the signal.
- 3
Require a story
The recipient explains what they tried, what happened, and what the team learned. Narrative turns the award from a payoff into culture.
Pro tip Keep the story to two minutes.
Watch out A bonus without a story is just cash.
- 4
Protect the recipient
Shield the winner from disciplinary or peer backlash when the attempt was in good faith. Visible protection is what makes the next attempt possible.
Pro tip Pair the award with a clear postmortem so the system captures the lesson.
Watch out If the same mistake recurs without new learning, the program is incentivizing repetition, not iteration.
- 5
Review at year end
Compile the monthly winners and extract patterns. Keep the rules that produced useful experiments; retire those that produced only damage.
Pro tip Invite the team to rename or reframe the award as the culture matures.
Watch out An award that never evolves becomes ceremony.
In the wild
A Lake Tahoe motel night clerk bought catfish to eat mosquito larvae around the property; raccoons then ran through the open-doored motel with fish in their mouths. Newsom says he laughed, met the clerk the next morning, and instituted a monthly bonus for the biggest good-faith screw-up, later renamed the Magical Moment Award by his sister.
→ Newsom says the practice helped the business survive and thrive by signaling that initiative was wanted; the episode does not quantify the impact.
A hotel group runs a monthly $300 'brave attempt' bonus where any employee can nominate a failed experiment, a manager retells it, and the team votes. Recurring identical mistakes are excluded; the rest become training material at year end.
→ The business builds a documented library of frontline experiments without punishing early tries.
Common mistakes
Rewarding recklessness as failure
Ignoring the good-faith boundary turns a culture-building tool into a license for carelessness.
Bonus without story
Cash alone does not teach what was learned; the narrative is what scales the lesson.
Awards that freeze in place
An annual ritual that never reviews itself stops producing new experiments.
Is it for you?
Best for
It is best for small-to-midsize service businesses where frontline staff face variable problems the founder cannot see.
Not ideal for
It is not ideal in safety-critical or regulated environments where the cost of a mistake is irreversible harm.
From the transcript
“We created the failure award and I gave the biggest screw-up every single month a bonus.”
“It's about initiative, taking responsibility, taking ownership, trying new things, seeing what works, iteration, entrepreneurial mindset.”
“I love failure. I'm good at it. Dyslexics are the best at it.”
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