In these unprecedented times of (using the word unprecedented) uncertainty, many of us are contemplating taking the leap of faith and becoming a fulltime entrepreneur. In this edition of the Zymurgist Diaries, let’s aim to understand how various biases trick founders and why founders continue to succumb to them, and what they can do about it.
But first: parti pris
parti pris is French for bias, a disproportionate weight in favour of or against an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair.
Humans tend to see their reality differently through a built-in set of “cognitive biases”, which are typically based on their own unique background of a combination of upbringing, mental state, experiences, training, and other parameters.
175 known biases
Biases come in all shapes and sizes – on last count, circa 175 biases! And biases are often the solution to the vagaries of existence namely information overload and the need to respond swiftly; sparse datasets and the need to connect the dots; taking decisions in the face of uncertainty; the limits of storage of the human brain and the needs to store important information. A great cheat sheet with the list of all these biases can be found here.
Founders, Investors and Biases
Given that founders are always juggling multiple activities and are engaged in high-risk decision-making on a day-to-day basis, they tend to be more susceptible to certain cognitive biases than others. These biases become particularly dangerous when they’re based on erroneous inferences or assumptions and can lead to ineffective decision-making and in many cases, become startup killing.
In this edition, lets take a deep-dive into Survivorship bias.
parti pris: Survivorship bias
Survivorship Bias is a ubiquitous cognitive bias, which can be ascribed to a fundamental misinterpretation of cause and effect, i.e. the notion of correlations versus causation. Simply put, survivorship bias describes our tendency to focus on people or events that have passed some kind of selection process, while conveniently ignoring or forgetting other important factors that contributed to the selection process. This can lead to some false conclusions in several different ways.
The biggest problem with succumbing to survivorship bias is that it clouds your judgment, makes you see what you want to see and eventually distracts you from discovering to the root cause of the problem you’re looking to solve within your team startup, your product, your team or for that matter even your personal life. It conflates correlation with causation.
Survivorship Bias about “successful founders”
One of the most common questions I am asked is – “I have this really incredible idea… What do you think of it; should I take the leap of faith? I will take 6 months to build the product, and then can get funded to scale it up”. Am sorry to disappoint you darling, but entrepreneurship is bloody hard. For every wealthy start-up founder, there are a hundred others who end up as a car wreck.
By constantly focusing on successful founders, we systematically overestimate the chances of our own success by imagining ourselves to be in a similar situation. However, it is only when we delve a little deeper into the lives of both – successful and the not-so-successful founders, we can gain an appreciation of how a unique combination of hidden factors, often play a critical role in creating the extraordinary opportunities.
The world (and the media) advertises successes more than the failures. It focuses on the success of the iPhone and the iPod, but never discusses Jobs’ failures with the Mac. It focuses on Bezos’ success with Amazon, but never bother discussing the billions burnt in unsuccessful acquisitions and the innumerable failures. Don’t let motivational speakers fool you into taking that dramatic leap of faith. If you’re more passionate about “founding a business” than the actual business itself, then it’s a classic facepalm moment.
The most famous example of survivorship bias
The term “survivorship bias” was first coined by Abraham Wald, a famous Hungarian statistician known for studying World War II war-airplanes on how they could be better protected. Abraham’s group’s initial approach was to assess which parts of war-airplanes had incurred the most damage. Once the worst-hit areas were identified, they would then reinforce the aircrafts with more protection in those parts. When they plotted out the damage, it was spread out and was concentrated around the tail, body and wings.
However, Abraham Wald noted that the military had only considered the aircrafts that had survived their missions; and that any aircrafts that had been shot down were unavailable for assessment. He also noted that the aircrafts that were most heavily damaged were the ones that had not returned from battle; ergo – the bullet holes in the returning aircraft, then, represented areas where an aircraft could take damage and still fly well enough to return safely to base.
Beyond survivorship bias: How can founders overcome some of these biases?
Ideally, every founder needs to be on the constant lookout for early warning signs of biases and traps that signal that they are undercutting their odds of startup success.
Founding a business is hard work! But founders make it even harder on themselves when they let their personal biases have too much influence on the company. Survivorship bias is pretty much everywhere we look. We mostly get away with it and if we succeed, we attribute it to hard work, else it is a learning experience.
So, founders: to counter-balance the biases, look beyond your own views and actively listen to the true needs of your customers. Also, make sure that your team has people from diverse backgrounds (experience, skills, gender, ethnicity, age) and listen.
Like Abraham Wald, who saved hundreds of soldiers’ lives based on his simple observation; as a founder, you should work on taking your blinders off. This could be all you need to do to save yourself the ensuing frustration and prevent your startup from failing.
The importance of the Devil’s Advocate
The mediaeval church knew these biases and they realised that all sorts of people were being selected as Saints and then found themselves embarrassed after they had been canonised realising they had not done their due diligence properly. Consequently, the Pope created the role of the Devil’s Advocate – someone to thoroughly test the assumptions, look for alternative explanations, independently and critically evaluate the reasoning, evidence and judgements so as to improve the quality of the decisions.
And so it is in business. To improve your chances of making wise decisions and implementing successful new ventures and investments, it makes sense to thoroughly test and optimise your decision, pitch, strategy, deal, plan or acquisition before launch or investment.
As a founder (or investor), it is good to have a Devil’s Advocate’s view of your situation before making important decisions.
When was the last time you really, truly listened?
Need I say more?
Parting thoughts till the next blog:
“If you do not change direction, you may end up where you are heading.“
– Lao Tzu
Pause, reflect, act.
About the author:
24x Founder, 3x Success, 2x VCExit, 19x Failure, 100x Resilient, 14x Sectors, 6x Continents, $2+bn deals originated and advised.
Chennakeshav Adya (Keshav) is an eclectic value creator for mid-sized firms and PE/VC funds on Fund-raising, M&A, growth, corporate strategy and deal-making (currently, as co-founder of Adan Corporate). He is a resourceful entrepreneur with 20+ years of global experience in building businesses from a concept and growing global teams from 2 to 200+.
A deca-lingual, multi-talented zymurgist, Keshav is skilled at using the founder’s mentality and thrives in uncertainty and chaos, directing teams through the “Unknown” in the initial 1-2 years of setting up any type of new venture.
As an Entrepreneur Mentor in Residence (EMiR), Keshav is associated with London Business School’s experiential entrepreneurship activities supporting students and alumni who are interested in pursuing a career in entrepreneurship, whether launching or growing their own ventures.