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Survivorship Bias and Startup Hype

Luck plays a significant role in business success. Not just in the mere fact of success, but in the magnitude of any given company’s triumphs. We tend to overlook this reality because of a mental distortion called survivorship bias. It is a common cognitive failure, and a dangerous one because it obscures the distastefully harsh nature of the world.

We love to fantasize that emulating the habits of extraordinary entrepreneurs like Bill Gates and Elon Musk will catapult the most talented imitators to the stars. In reality, there are plenty of would-be titans of industry who simply weren’t in the right place at the right time. Even with a great product, they could have failed to make the crucial personal connection that would have accelerated their endeavor to the next level.

Survivorship bias is best summed up by a sardonic XKCD comic: “Never stop buying lottery tickets, no matter what anyone tells you,” the stick figure proclaims. “I failed again and again, but I never gave up. I took extra jobs and poured the money into tickets. And here I am, proof that if you put in the time, it pays off!”

“The hard part is pinning down the cause of a successful startup,” a pseudonymous commenter on Hacker News wisely noted. “Most people just point at highly visible things,” such as hardworking founders or a friendly office culture. “The problem is that this ignores the 5,000 other startups that did all those same things, but failed.”

Ambitious people with incisive minds may be fewer than schmucks, and certainly multi-billionaire CEOs tend to be both brilliant and driven. Yet there are scads of brilliant, driven people who will never make it onto the cover of a prestigious magazine. Or any magazine.

Consider the mythology around hoodie-wearing college dropouts. Y Combinator founder Paul Graham once joked, “I can be tricked by anyone who looks like Mark Zuckerberg.” The quip is funny because it mocks a real tendency among venture capitalists: Pattern-matching to a fault.

In the same vein, a stunning proportion of partners at VC firms graduated from a handful of tony universities, as if the seal on a person’s diploma were what indicated investing abilities. (Granted, the incidence of leveraged social connections and postgraduate degrees may amplify that trend.)

Steve Jobs, along with Zuckerberg and Bill Gates, became fantastically successful after quitting school to start a company. “How many people have followed the Jobs model and failed?” Scientific American asked rhetorically in 2014. “Who knows? No one writes books about them and their unsuccessful companies.”

The press inadvertently helps perpetuate survivorship bias. People find famous entrepreneurs fascinating and inspirational, so journalists write about them extensively. The general public is primarily interested in the fates of companies that are household names or close to that status. And of course, reporters themselves are susceptible to survivorship bias just like anyone else. This is reflected in their coverage.

So what’s the antidote? Well, it’s boring: Being careful and thorough. Make sure to look for counterexamples whenever you think you’ve identified a trend or a pattern. Resources do exist, although not always on the first page of Google results.

For example, CB Insights compiled a list of 242 startup postmortems from 2014 through 2017. The analysts wrote, “In the spirit of failure, we dug into the data on startup death and found that 70% of upstart tech companies fail — usually around 20 months after first raising financing (with around $1.3M in total funding closed).”

Most of all, don’t let the headlines rule your worldview. “The press is a lossy and biased compression of events in the actual world, and is singularly consumed with its own rituals, status games, and incentives,” as three-time SaaS founder Patrick McKenzie put it.

Listen to Walter Lippmann, in his 1922 book Public Opinion. “Looking back we can see how indirectly we know the environment in which nevertheless we live,” Lippmann wrote, reflecting on the inaccuracies of tick-tock reporting during World War I. “We can see that the news of it comes to us now fast, now slowly; but that whatever we believe to be a true picture, we treat as if it were the environment itself.”

Ambition Requires Delusion

“Psychologists say that the illusion of control can be adaptive, in the sense that it encourages a focus on problem-solving behaviors as opposed to emotional response.” — Bob Henderson, a former derivatives trader who lost and made back hundreds of millions of dollars during the 2008 financial crisis.

Photo by Robert Couse-Baker.
Photo by Robert Couse-Baker.

I think that I can control my life to a much greater degree than I probably can. Logically, I realize that most events are beyond my influence, but I’ve made the choice to ignore that. Why focus on it, right? Better to act like I can change things, because occasionally I can. For example, I pitch editors despite knowing that their inboxes are deluged by emails from people more qualified than me. Once in a while I make it through.

Here’s the equation for success: talent + hard work + perseverance + luck, usually in that order. Domain-related skill is not always a prerequisite, but you’ve got to be good at something, even if it’s just networking, in order to get ahead. Besides that, you have to create conditions for luck. It boils down to this: keep hustling, and stay ready to take any desirable opportunities that arise. In my experienced — admittedly limited, but still — this is a very effective strategy.

"My primary asset is a near-nonsensical belief in my ability to force personal success from the world. As in, extract my own personal success from the world. I just keep trying because I'm convinced it'll work soon."
Sonya Mann (that’s me) on Twitter.

Short Book Review: Scott Adams’ Success Secrets

Dilbert visits the park. Photo by Ol.v!er [H2vPk].
Dilbert visits the park. Photo by Ol.v!er [H2vPk].
Scott Adams, the cartoonist who created Dilbert, is a weird dude. No surprise to anyone familiar with the comic strip. I just finished reading Adams’ autobiographical self-help book How to Fail at Almost Everything and Still Win Big. I don’t agree with all of his advice — do I really need to state that caveat? — but some of Adams’ concepts are interesting and even spot-on.

How to Fail at Almost Everything and Still Win Big by Scott Adams, creator of Dilbert

For instance, Adams asserts that systems are superior to goals. What he means is that it’s smarter, for example, to always be looking for a better job instead of following a five-year plan to attain a certain position. He lays out a bunch of principles along these lines that in his view should lead to success. His through-line is the idea that you should optimize yourself to take advantage of luck when it strikes.

The book is certainly interesting, and I think particularly useful to people starting their professional lives. Here are the two quotes I liked enough to write down:

“Good ideas have no value because the world already has too many of them. The market rewards execution, not ideas. [After realizing that] I concentrated on ideas I could execute.”

“Reality is overrated and impossible to understand with any degree of certainty. What you do know for sure is that some ways of looking at the world work better than others. Pick the way that works, even if you don’t know why.”

I particularly agree with the second suggestion, that you should shape your paradigm to be productive rather than accurate. (This is basically what my therapist wants me to do.) If I dwell on the rottenness and chaos of the world, my realistic perception harms me; I become miserable and can’t get anything done. Far more effective to be an optimist without justification than a pessimist with plenty of proof.

(I like to call myself a cynical optimist. Is that annoying? It’s such a good phrase, and a decent representation of my personality.)

Dilbert visits the beach. Photo by Ol.v!er [H2vPk].
Dilbert visits the beach. Photo by Ol.v!er [H2vPk].

Medium-Term Goals

“Success is the ability to move from one failure to another without loss of enthusiasm.” — Winston Churchill (or maybe not)

I am quite ambitious, but on a relatively small scale. I don’t want to be famous — “well-known in certain circles” will suffice. I won’t turn down riches if they pop up in my bank account, but my financial aspiration is middle-class comfort rather than stunning wealth. Hopefully that’s not asking too much of my own professional ability or of the economic context I live in.

Hell yeah, from now on I'm only shopping at Success Deli! Photo by Bruce Berrien.
Hell yeah, from now on I’m only shopping at Success Deli! Photo by Bruce Berrien.

There is value in stating goals. As a writer I subscribe to the idea that words have power, and articulating a desire makes it more likely to become an accomplishment. You could argue that I’m counting chickens before they hatch — luckily, the only consequence of predictive failure is embarrassment. The stakes are not that high. So here’s what I want to do, in roughly the order I expect things to happen:

Get more sleep.

Self-explanatory. I really need eight or nine hours; currently I’m making do with seven. Not healthy; not wise.

Start and run a sustainable lifestyle business.

I have an idea and I’m working on it! More on that soon, I’m sure. Anyway, I want to be able to support myself by running a small business within a couple of years and support both myself and my partner after ten years. (It’s okay if it happens faster! But I’m wary of over-optimism, since I’m interested in editorial entertainment, which is a saturated market.)

Cover of Liberty magazine in May, 1925.
Liberty magazine in May, 1925. Via Retrogasm.

Get married.

Even more self-explanatory than better sleep habits.

Write a full-length nonfiction book.

I’ve written and published various longish works of nonfiction, but nothing in the fifty-thousand-plus range that constitutes a full book. Someday! Fifty or a hundred thousand words is a lot, but I’m convinced that I can do it. The first book will probably be an essay collection, sort of a one-person anthology.

Write a novella or novel.

Fiction baffles me, but I’m still determined to tackle it. The books I have loved most have all been fiction, and I want to do for readers what authors have done for me.

Adopt a child.

Age is negotiable!

At some point I also want to start collecting art… but I could do that right now if I budgeted for it. Therefore it seems silly to put on the list.

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