Smart Answers

How Survivorship Bias Tricks Entrepreneurs


How Survivorship Bias Tricks Entrepreneurs

Photograph by Thomas J. Peterson/Getty Images

Last month, Bill Gates revealed his favorite business book. Business Adventures, a formerly out-of-print collection of New Yorker essays by the late journalist John Brooks, chronicles business lessons learned, including Ford Motor’s (F) Edsel flop and Xerox’s (XRX) failure to capitalize on its own research and development. “Brooks didn’t boil his work down into pat how-to lessons or simplistic explanations for success,” Gates noted.

The book is unusual in part because inspirational memoirs and “12 Easy Steps to Success” drive the business-publishing market and lecture circuit. After all, what entrepreneur risking everything on a startup wants to read a cautionary tale—let alone an outright downer?

The problem with the overwhelming focus on success is that valuable insights from failure are drowned out. This tendency is called “survivorship bias,” says author David McRaney, who writes and speaks about cognitive biases. “The advice business is a monopoly run by survivors. When something becomes a non-survivor, it is either completely eliminated, or whatever voice it has is muted to zero,” he says.

What makes survivorship bias so insidious is that winners may not really know why they came out on top. In fact, luck and timing probably played larger roles than most realize or will admit, especially those busy trumpeting their incisive strategy and bold leadership. “A stupid decision that works out well becomes a brilliant decision in hindsight,” McRaney says. “If you bet everything on this one hunch and it works out, you succeed.”

When entrepreneurs ask me for book recommendations, I always start with Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years. The title often elicits puzzled reactions. I explain that I interviewed co-author Paul B. Carroll, co-founder of the Devil’s Advocate Group, when the book came out, because a systematic study of failure was long overdue.

But Carroll told me that it wasn’t easy to get the book published, and, despite great reviews, Billion Dollar Lessons didn’t exactly fly off the shelves. “I’d say the general reaction was: ‘Great idea. High time someone looked at the lessons to be learned from failures. I’d love to read that book.’ But not enough did,” Carroll wrote in an e-mail.

Having witnessed a few devastating business flameouts up close, I wish more people would get the full picture before they take the leap into business ownership. McRaney tells people to correct for the natural human bias toward happy stories by seeking out examples of failure and learning from them. “Really, always think to yourself: What is missing from this story? When you’re looking for advice from a person who’s only telling you what to do—but never saying what not to do—you’re getting a biased view of the world.”

When I wrote a column about failure stories a few years ago, it wasn’t easy to get entrepreneurs on the record. Those who did talk to me were more eager to discuss their current business successes than to dissect their previous failures.

Yet a new study suggests that people who try and fail at business are far more likely to succeed if they pick themselves up and start over again. Maybe if more entrepreneurs fessed up to failure—and more would-be entrepreneurs listened to them instead of succumbing to survivorship bias—the pitfalls of startup ventures could be avoided more often.

McRaney applauds Silicon Valley’s failure culture and says he hopes it will catch on outside the tech industry. Success, as he defines it, is “serially avoiding catastrophic failure while routinely absorbing manageable damage.”

Now, if only he could turn that into “Nine Easy Steps,” he just might have something.

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

Your Small Business Questions, Answered

Send us your questions on challenges you face in your business. Journalist Karen E. Klein will interview experts and distill their insights into answers.

(500 characters max)

The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • F
    (Ford Motor Co)
    • $15.45 USD
    • 0.15
    • 0.97%
  • XRX
    (Xerox Corp)
    • $14.14 USD
    • 0.06
    • 0.42%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus