Survivorship Bias
In one of my posts last week, the term survivorship bias was used and I made a note to discuss the term in its own post. It’s an important concept for startup leaders to understand and can influence decision making, particularly for product management, market analysis, and setting business direction.
Survivorship bias basically is a reminder that you should not ignore the failures (especially the early failures) when computing statistics or likelihoods that a certain action will cause a certain result.
For example, mutual fund companies may report the success rate of all their existing funds to attract new clients. The problem is their exiting funds have on average better returns than all their historic funds because the company has shutdown the poor performing funds of the past and does not include those numbers in the tally of existing funds.
In startups, it is easy to toss aside the things that failed and ignore them in estimations of the future. This post is a reminder that it is best to remember, not ignore, failures so that better decision-making can occur.
How have you seen survivorship bias in your startup or market?