Why Studying Your Business Heroes Isn't Really Helping You Succeed
We humans are plagued by many cognitive biases. Our brains are remarkably good at some things, like pattern-matching, and we certainly do have a capacity for logic and reason. But our minds aren’t perfect, and often we make assumptions without a valid basis. Cognitive bias are misleading quirks of thought -- mental tendencies that are part of human nature.
So, why should you care? You should care because cognitive bias can affect the decisions that will make or break your company. For example, one of the most famous cognitive biases in the business world is the sunk-cost fallacy. People have a tendency to “throw good money after bad” -- meaning we feel attached to bad investments because of the money we’ve already spent on them, and therefore we’re reluctant to write off our losses and move on to better ventures.
Survivorship bias doesn’t get talked about as much, in part because it benefits whoever is currently popular or powerful. But it’s a very important concept for startup entrepreneurs and investors to understand. Basically, we tend to think that we can figure out what leads to success by looking at people and companies that are successful. That seems intuitive, right? For example, you might ask yourself, “What do Google, Facebook and Netflix all have in common?” And then you might copy them.
However, when we focus on companies that are on top of the world, we’re not examining a full dataset. We can’t identify how the successes are different from the people and companies that failed or are simply mediocre. As the acclaimed blog You Are Not So Smart put it, “When failure becomes invisible, the difference between failure and success may also become invisible.”
You can’t 100 percent eliminate survivorship bias from your mind. Like I said in the beginning, cognitive biases are part of human nature. But you can watch out for your own mental weaknesses and guard against them. Rely on data instead of your gut feelings whenever possible -- just know it won’t be possible 100 percent of the time.
Think critically. Always ask yourself what you might be missing, and try to falsify your assumptions. Don’t assume that everything your competitors are doing is something you should do too. Don’t remodel your office to match Uber’s unless that actually makes strategic sense. Consider all the startups with fabulous offices whose founders had to shut them down.
“The core idea of Five Whys is to tie investments directly to the prevention of the most problematic symptoms. The system takes its name from the investigative method of asking the question ‘Why?’ five times to understand what has happened (the root cause). If you’ve ever had to answer a precocious child who wants to know ‘Why is the sky blue?’ and keeps asking ‘Why?’ after each answer, you’re familiar with it.”
Asking “Why?” repeatedly will help you figure out your priors, the basic ideas that you usually take for granted. Once you know what those are, you can reevaluate them and see if they still fit the reality you have to navigate. I also use the “five whys” when interviewing potential employees. I want to truly understand why they want the job and why the want the role. I want to get past the usual surface level answers and dig in a few layers deeper than anybody has ever gotten with them in a job interview. What truly drives them?
In fact, survivorship bias is something to consider before founding or joining a startup in the first place. What happened to the entrepreneurs who had this idea before? (Ideas are very rarely unique.) How will you be different from them? How will your company be different from other countless failed startups? Don’t rely on being similar to the successful ones, especially since the traits you choose to copy may not be the important ones.