The Survivor Bias in Business - Why We Only See Half the Story

Hey there, critical thinkers!

Welcome back to Business Hacks & Theories, where we take a close look at the forces that shape our decisions in the business world. Today, we’re diving into a cognitive trap that has shaped countless business strategies without us even realizing it:

the survivor bias.

This bias, which focuses only on successes while ignoring failures, can skew our understanding of what makes a business successful, leading to misguided decisions.

It’s a psychological pitfall that can affect anyone—from a start-up founder to a Fortune 500 CEO.

Let's explore what survivor bias is, how it impacts business thinking, and how we can navigate it for better decision-making.

What Is Survivor Bias?

Survivor bias, or survivorship bias, is a logical error that occurs when we focus only on those that have "survived" a particular process, ignoring those that have not. This often leads to overly optimistic conclusions because failures are not visible in the analysis.

The term became widely known during World War II when analysts tried to determine where to add more armor to military planes. They studied the planes that returned from combat and decided to reinforce areas with the most bullet holes. However, mathematician Abraham Wald pointed out that these planes, despite the damage, managed to return—meaning the real critical areas that needed reinforcement were the ones on planes that did not make it back.

In the business world, survivor bias manifests when we focus on successful companies, entrepreneurs, or products and use their stories as blueprints for success, while ignoring the countless failed attempts that preceded or surrounded them.

This can create a distorted understanding of what factors truly contribute to success.

Survivor bias can have a profound impact on business decisions, from product development to marketing strategies and even to hiring practices. Here are a few key ways it influences business thinking:

1. Overvaluing Success Stories We often idolize the success of companies like Apple, Amazon, or Tesla. We read about their beginnings in garages, their founders’ resilience, and the breakthrough moments that propelled them to greatness. But for every Apple or Amazon, there are countless other tech start-ups that tried the same path but failed. Survivor bias means we don’t see those failed attempts, which often had similar strategies, passionate founders, and innovative ideas. This selective view makes us believe that success is more achievable than it really is, leading entrepreneurs to underestimate the challenges they may face.

2. Ignoring Critical Failures When we look at successful businesses, we’re only seeing those that survived. Imagine analyzing the hiring practices of a successful company and concluding that they must have done everything right. However, this ignores the failures of other companies that had similar practices but failed for reasons that aren't immediately visible—like bad timing, market saturation, or external economic factors. Ignoring the failures means ignoring the lessons they provide, which are often more informative than the successes.

3. Risky Business Strategies Survivor bias can lead to risky strategies. For example, many businesses imitate the growth hacks or marketing strategies of successful start-ups without considering the context in which those strategies worked.

Take the “hyper-growth” models of some tech unicorns.

Many companies have tried to mimic these aggressive growth strategies, but only a handful have survived the fallout. By focusing only on the winners, businesses often fail to recognize the significant risks involved and end up making costly mistakes.

Case Study: The Start-up Bubble

The start-up ecosystem is a perfect breeding ground for survivor bias. Media coverage tends to glorify start-ups that made it big, like Airbnb or Uber, turning their founders into cultural icons and their stories into “how-to” manuals for success. But what about the start-ups that had similar concepts but failed to gain traction? For every successful unicorn, there are hundreds of companies that don’t make it past their Series A funding.

For instance, companies like Theranos rose to fame with bold promises, and many investors were swept up in the hype, driven by survivor bias—believing that the company was destined for success because it seemed to follow the Silicon Valley playbook of visionary leadership and disruption.

But ultimately, the company’s downfall highlighted the danger of overlooking the warning signs and focusing solely on the success narrative.

Strategies for Overcoming Survivor Bias

So, how can businesses avoid falling into the trap of survivor bias? Here are some strategies that can help:

Study Failures as Well as Successes One of the best ways to overcome survivor bias is to analyze failures along with successes. Understanding why some businesses didn’t succeed can provide valuable insights that help avoid similar mistakes. Post-mortems of failed start-ups, which are increasingly shared online, can be an excellent resource for learning about the pitfalls that aren’t as visible in success stories.

Be Critical of Anecdotal Evidence Many business strategies are based on anecdotes—stories of what worked for someone else. While these stories can be inspiring, they should not be taken at face value. Successful outcomes are often influenced by a multitude of factors, including luck, timing, and circumstances unique to the situation. It’s important to question whether these factors apply to your own business before replicating a strategy.

Embrace Data-Driven Decision-Making A data-driven approach can help mitigate survivor bias. Instead of relying on a few high-profile examples, look at broader trends and statistical evidence. For instance, instead of assuming that a particular marketing strategy is successful because it worked for one company, examine its success rate across a wide range of similar businesses. This approach provides a more balanced view and helps you make more informed decisions.

Why It Matters

Survivor bias isn’t just an academic concept—it has real consequences for how we approach business.

By focusing only on success stories, we create a skewed perspective that underestimates the challenges and overestimates the likelihood of success. This can lead to poor planning, unrealistic expectations, and ultimately, failure. To build a successful business, it's crucial to look at the whole picture—not just the planes that made it back, but also the ones that didn’t.

If we want to create resilient businesses, we need to value the lessons learned from failure just as much as, if not more than, the lessons from success.

In a landscape where the majority of start-ups do not succeed, understanding the reasons for failure can be the key to navigating towards a more sustainable path to success.

With a commitment to seeing the full story,

Alex

?? ?? Looking to build a resilient strategy that sees beyond the success stories?

At Kredo Marketing, we help businesses avoid common pitfalls and craft informed, data-driven strategies for success.

Let’s work together to create a well-rounded approach that leads to sustainable growth. ????