Are You Guilty Of These 3 Biases That Kill Most Startups?
It’s no secret that startups have a high failure rate. In fact, according to CB Insights, the average startup has just a 1 in 10 chance of success.
There are many factors that contribute to this statistic, but one of the biggest is bias.
Bias is defined as “a tendency or inclination, especially one that prevents impartial consideration of an issue.”
In other words, it’s when our own personal beliefs and judgments influence our decision-making.
And when it comes to startups, there are three specific biases that can be particularly deadly: survivorship bias, confirmation bias, and sunk cost fallacy.
Let’s take a closer look at each one.
Survivorship bias is the tendency to focus on the successes while ignoring the failures.
For example, when a new startup launches, we tend to hear about the ones that become unicorns (companies with billion-dollar valuations). But we don’t hear nearly as much about the 99% that don’t make it.
This bias can lead us to believe that success is more common than it actually is, which can in turn make us more likely to take unnecessary risks.
Confirmation bias is our propensity to seek out information that supports our existing beliefs while ignoring evidence to the contrary.
For example, let’s say you’re starting a business in the fitness industry. It’s likely that you’ll only seek out information that confirms your belief that this is a good idea (e.g., articles about the booming health and wellness industry, stories of successful fitness entrepreneurs, etc.).
Meanwhile, you’ll ignore any information that contradicts your beliefs (e.g., data on the high failure rate of fitness startups, statistics on how few people actually stick to their New Year’s resolutions, etc.).
This bias can lead us to make poor decisions because we’re not seeing the full picture.
Sunk Cost Fallacy
The sunk cost fallacy is our tendency to continue investing in something as long as we’ve already invested a lot of time or money, even if it’s not rational to do so.
For example, let’s say you’ve been working on a startup for two years and you’re not seeing any progress. It would be irrational to continue investing time and money into something that’s not working. But because of the sunk cost fallacy, you might be tempted to do just that.
This bias can lead us to throw good money after bad, which is obviously not ideal for startups that are already operating on thin margins.
How To Overcome These Biases
The good news is that there are ways to overcome these biases. Here are a few tips:
Acknowledge that you have bias. The first step is to simply acknowledge that you’re not immune to bias. We all have it, so there’s no need to beat yourself up about it. Just be aware of it and try to take steps to mitigate its impact.
Be open-minded. When you’re making decisions, try to be as open-minded as possible. Consider all of the evidence, even if it contradicts your existing beliefs.
Seek out different perspectives. When you’re gathering information, make sure to seek out different perspectives.
Talk to people who have different opinions than you do and read articles from a variety of sources (not just the ones that confirm your beliefs).
Get input from others. When making decisions, don’t go it alone. Get input from others who can help you see things from a different perspective.
By taking these steps, you can reduce the impact of bias and make better decisions for your startup.
The Bottom Line
Startups are risky enough as it is. There’s no need to make things worse by letting bias get in the way of good decision-making.
So, if you’re working on a startup, be sure to watch out for these three deadly biases. A little self-awareness can go a long way towards increasing your chances of success.
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