What happens when bold innovators make mistakes?

Some people consider a big miss in business a mistake. I take a different view. A big miss because a company bets on innovation is rarely a mistake. My “Best Mistake” is definitely an innovative play I don’t regret even though the outcome wasn’t what we expected.

My company, Kabam, is a first-mover in the mobile games industry. We started in 2009 and have grown at a remarkable pace with revenues rocketing to $400 million last year and profitability since 2012. Our growth is attributed to betting on big innovation at pivotal moments. These include: developing strategy games for core players on Facebook when the industry was focused on casual titles; investing in mobile gaming in 2010 when the entire App Store market was barely $1B; and partnering with Hollywood studios to create games based on such popular franchises as The Hobbit and The Godfather when Angry Birds, Farmville and Temple Run were topping the charts.

Fast forward to 2013. We launched a third-party publishing business to focus on importing popular games from the hotbed of free-to-play games, Asia. The free-to-play business model was invented in Asia and games have remained peoples’ entertainment of choice there since the turn of the millennium. Asian Web and mobile games are uniquely different than Western games, but few Americans or Europeans are willing to get past the unfamiliar art and poor translations. We believed we could localize Asian games and give them the right thematic rework so Kabam could be the first company to successfully import fundamentally new types of games to the Western market.

We acted quickly. We appointed the fastest-rising star on our executive team to lead the initiative. We built a team of analysts, artists, developers, marketers, producers, and translators. We launched a $50 million Worldwide Developers Fund in China, Japan and Korea to attract the hot developers there. We would use the Fund to localize games, which often meant changing the gameplay from the crowded screens and multiple action sequences popular in Asia to simpler graphics and sequential action preferred by Western players. We would refine the art to be more appealing to Western audiences — changing a Chinese Three Kingdoms theme to an Arthurian Legend theme, for example. We would translate the games from Chinese or Japanese or Korean to English or German, Spanish, French or several other languages. We would modify the engineering in the games to run on Western platforms. We would localize the payment systems. We would provide customer service for players in Western markets. We would do it all from our headquarters in San Francisco, with staff contributing from our office in Beijing.

The reception from Asian developers was favorable and business was brisk. In 12 months, we signed publishing deals with more than 20 developers to launch 30 games across six genres. Revenue trickled in at first, and then streamed in. We recouped our initial investment in year one with margins in the black.

Year two was a different story. Operationally, we were on fine footing. Cultural, structural and technical issues mounted but we had contingencies for each. We were patient and diligent with nagging contractual concerns over intellectual property (IP) — issues that plague virtually all Western companies doing business in Asia. Our multi-lingual staff was able to deal with the complexity of operating games in the West when live operations were controlled in Asia. Team members worked on non-traditional schedules to overcome the fatigue of many trans-Pacific flights and working Beijing hours while in California (5 p.m.-3 a.m.).

The third-party publishing business was running smoothly. But the division missed its aggressive 2014 revenue forecast. Badly. Growth was stunted by the speed of change in our industry. Whereas growth of legacy free-to-play games on the Web and mobile devices was modest, consumer demand for a new wave of AAA console-quality games on mobile was soaring.

We anticipated this trend in our first-party business and moved in late 2014 to exclusively develop AAA fidelity mobile games. To achieve our Fewer Bigger Bolder strategy, we divested our Web games unit and canceled or delayed games in the pipeline. We would no longer invest in first-party legacy games or new projects that at best could achieve only a modest chart position. Suddenly, our third-party publishing group, with its focus on many games at various levels of fidelity on both the Web and mobile, was in conflict with our core business strategy.

We had to make a tough decision: Keep a business that was profitable and doing industry-first work or shrink a business whose low margins were in conflict with our overall business strategy. We decided on the latter, keeping the most popular titles running but not pursuing new partnerships and discontinuing modestly performing games.

Cleaning up the aftermath of a big bet that doesn’t materialize can be difficult. It’s hard to tell business partners you’re breaking up and harder still to say goodbye to valued employees. (Reducing staff is the least desirable part of my job.) But the employees who built Kabam’s third-party publishing business did something that had never been tried before and they learned valuable skills along the way.

Given the opportunity, I would launch the third-party publishing business again. I’m convinced it’s a viable business model with interesting potential for the right scale company. Just not right now for Kabam.

Strong leaders are not deterred when big innovative bets don’t work. Elon Musk, a personal inspiration to me for innovation leadership, didn’t close shop when his Falcon 1 rocket crashed for the third time. Nor did he despair when the company’s Falcon 9 crashed on its landing barge. Instead, he released the video and a self-deprecating tweet. Reed Hastings didn’t retire when his Netflix streaming-DVD split flopped in 2011. Rather, he knuckled down and now look at how right Reed was. Most famously, the late Steve Jobs never abandoned his zeal to broaden Apple from its computer-maker roots. Eight hundred million iTunes accounts and 700 million iPhones later, Steve’s legacy continues to shine.

Mistakes are something for which you apologize. Innovations that don’t work out are anything but a mistake. They’re something every forward-leaning leader should embrace.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Kevin Chou is CEO, co-founder at Kabam.

Image: A trader reacts after the closing bell of the New York Stock Exchange.  REUTERS/Lucas Jackson