Entrepreneurship and Mindfulness

How Survivorship Bias Colors Our World and Causes Dissatisfaction and Frustration

An overview of the impact on budding startups and how to overcome this less-spoken cognitive bias

What’s the shared thread among these startups: Theranos (once valued at $9 billion), Quilbi (the mobile-first streaming platform that snagged $1.2 billion in funds), Juicero (the $400 juice-squeezing machine that pulled in $120 million), pets.com (famous for those Super Bowl ads), Powa Tech (the fintech firm that reached a staggering $2.7 billion valuation), and Segway (the epitome of cool personal mobility)?

Drawing from my insights gained over 25 years of analyzing and strategizing, supporting over 200 startup clients across six countries, I conclude that each experienced a spectacular crash and burn within the unpredictable realm of startup venturing.

However, these names rarely surface in conversations about successful entrepreneurs such as Elon Musk, Mark Zuckerberg, Sergey Brin, and Larry Page or in discussions about garage startups that evolved into billion-dollar corporations.

The euphoric tone of success always crowds out the whimpers and wails of failure, although the odds frightfully favor failures.

This serves as an illustration of a widespread cognitive fallacy known as ‘Survivorship bias,’ a central theme in my narrative.

Survivorship bias is a cognitive bias that occurs when we focuse only on the entities (people, products, ideas, etc.) that “survived” a specific process and inadvertently overlooks those that didn’t because of their lack of visibility.

This bias can lead to a false representation of reality and incorrect conclusions. There are several cognitive biases we unconsciously take on in our lives—confirmation bias, survivorship bias, optimism bias, negativity bias, etc.

For a comprehensive reading on this topic, I suggest an insightful piece documented by postdoctoral researcher Dr Mehmet Yildiz explaining cognitive biases and offering practical tips to handling them.

First, I’d like to paint a historical backdrop, setting the stage for a clearer understanding of the survival bias in my forthcoming explanation.

When a Statistician called the bug on Strategy

Step into the intriguing realm of “lies, damn lies, and statistics” — a quote often attributed to Mark Twain or a mysterious British PM. Its elusive origin notwithstanding, the various interpretations have subtly eroded the credibility of statistics as a discipline and those who wield its power.

Dive into a pivotal historical moment where a statistician played a crucial role in averting a strategic error by the US Air Force during World War II — an illuminating tale that serves as a prime example of survivorship bias. Let me offer a concise exploration of this textbook case, revealing its profound implications.

Abraham Wald was a Romanian mathematician and statistician who worked for the US Air Force during World War II. He was tasked with helping the Air Force to develop strategies for reducing the number of bombers that were being shot down by enemy fire.

The Air Force had initially planned to reinforce the areas of the bombers that were most heavily damaged by enemy fire. But Wald argued that this would be a mistake.

He pointed out that the bomber aircraft that were returning from missions were the ones that had survived the enemy fire. The bombers that were shot down were not studied, so the Air Force did not have data on the damage they had sustained.

Wald argued that the Air Force should focus on reinforcing the areas of the bombers that were not damaged by enemy fire. This is because these areas were most likely to be hit in the future. The Air Force followed Wald’s advice, and as a result, the number of bombers that were shot down decreased significantly.

Wald’s contribution to the illustration of survivorship bias is that he showed that it is crucial to consider the data that is not available and the available data.

In the case of the bombers, the Air Force only had data on the bombers that had survived. Wald realized it was essential to infer the data about the bombers that had been shot down to develop a more effective strategy for reducing bomber losses.

For a fantastic graphical representation of this, you may visit this long-form tweet on X by Sahil Bloom here.

Wald went on to make several significant contributions in the areas of economics and military decision-making and eventually died in an air crash himself.

What is survivorship bias exactly, and why does it matter?

Survivorship bias is a cognitive trap where attention is disproportionately given to entities or cases that have succeeded while overlooking those that did not endure or achieve success.

It often leads to an incomplete or skewed understanding of a situation, as the analysis is based only on the existing, successful elements, neglecting the broader context that includes failures or entities that did not endure.

This skewed view can lead decision-makers to base strategies on incomplete data, stifling innovation and prompting misguided endeavors. It blinds us to the untold stories of defeat that carry essential wisdom, limiting our ability to make well-rounded, informed decisions.

In various fields, such as business, finance, or historical analysis, survivorship bias can distort perceptions, as only the visible, surviving examples are considered, ignoring the valuable insights that can be gained from the entire dataset, including the failures or non-survivors.

Let me share my observations and perspectives from the startup world briefly.

Survivorship Bias in the Startup World

In the early phase of a new tech wave, there is a flood of new products that almost simultaneously get into product conceptualization, prototyping, development, and even release. The race is confirmed by investors who also fuel this in the belief that they are building the next big thing.

This is a natural outcome of particular new possibilities because of a breakthrough in silicon, hardware, broadband compression algorithm, or some other fundamental underlying technology whose performance scaled to a new level that was hitherto in the labs and not commercially available.

Think for a moment this insight of Nassim Nicholas Taleb, author of The Black Swan: “What we see is not necessarily all that is there. History hides its skeletons well. “

What is visible or apparent to us may not represent the entirety of a situation or historical context. Taleb implies that history can conceal its darker or less apparent aspects, often keeping hidden the less flattering or concealed elements.

In other words, there might be more to a story or historical event than what is immediately evident, and a deeper exploration is needed to uncover the hidden or overlooked aspects.

The metaphorical reference to history hiding its skeletons emphasizes that there could be unacknowledged or obscured truths beneath the surface. This is where startups need to pay attention to see the complete picture.

Most of the me-toos at the initial phase think they will all win, or at least it is a matter of staying alive long enough to make the cut.

In essence, this may not sound like survivorship bias, but the reasoning revolves around believing that since numerous companies successfully produce the same thing, we will also endure and thrive.

Few, if any, of these at this stage look at the failed early startups and what caused the failure. The thrill of early bird frenzy moves the entire bandwagon into the game powered by early-stage investors who believe this will work.

This is quite natural, and all tech waves have early-stage herds that want to make it to the top but eventually fizzle out, leaving behind the top couple or three companies who will stay the course and lead the category.

Positivity is valuable and essential, provided we remain grounded in reality, acknowledging both sides of the coin to make informed judgments for survival and prosperity.

How to Overcome Survivorship Bias with a Simple Approach

It all comes down to awareness, speaking from my long journey in the startup world. Gaining awareness amidst the chaos and locating that tranquil mental haven is essential to tackling problems objectively.

Don’t let euphoria truncate a thorough analysis of the market situation.

Success stories often gloss over failures (even in parallel niches), obscuring valuable lessons. The media, investors, and corporations may tilt the narrative, or founders might just get carried away.

Pause and analyze if you are missing something.

Always ask the uncomfortable question and paint the problematic scenario. Know that these are being asked to get clarity and not to kill a possibility.

Check to see if you are mistaking randomness for a trend and a trend for a need.

Survivorship bias can get so far that it might have colored various decisions — from hiring to technology choices to client inputs and investor feedback.

As legendary Warren Buffet says:

“In the business world, the rearview mirror is always clearer than the windshield.”

Awareness is the most important and straightforward tool to keep you in guarded territory. Awareness is usually the output of a calm mind, and calmness will not happen overnight.

A disciplined approach to mindfulness is vital. For those who can, meditation proves to be a handy tool.

So, you may spend a few minutes each day observing your breath to cultivate calmness. Soon enough, awareness becomes second nature.

The root of many problems lies in external noise and a cluttered mind that hinders us from perceiving things objectively. The mind tends to add its hues and present a distorted picture of reality.

Thank you for the time to read my story.

You can learn more about my background from my writer profile.