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The Survivorship Bias In Startups

Edition
#014

Survivorship bias is the tendency to focus on a set of survivors instead of non-survivors.

Some of my friends are die-hard rap fans and sometimes we get into discussions about the current state of rap music.

An argument that always comes back is "The golden era of hip-hop was in the 90's, all this new-school stuff is garbage".

As the decades passed, only the best songs from the 90's are remembered, replayed, and shared. So yeah, it's easy for someone like me who grew up with 90's rap to go through some of the music and agree - but was the music really better in the 90s compared to today?

To believe that is a perfect example of having survivorship bias, and it happens in the startup world as well.

But what's interesting about focusing on winners instead of losers - or on successes instead of failures - is that when you start picking them apart, you realize you're neglecting the other side of success.

That's why I loved when Lenny Rachitsky asked this question on Twitter:


Let's get into it.

The cemetery of failed startups is very silent

The reason why you hear so many startup success stories compared to failures is that we pay so much attention to the winners that the losers end up feeling like sharing their path to failure has no value to anyone.

Let's say you're thinking about starting a CRM platform because there are so many successful CRM platforms in your industry. In this thought process, it's easy to ignore the fact that only the CRM platforms that succeed survive to become the examples in your mind.

The average percent of startups that fail in their first year is ridiculously high. You can't see all those failures because when they fail they also disappear from view.

As Nassim Taleb writes in his book The Black Swan, “The cemetery of failed restaurants is very silent.”

When you first start thinking about becoming a founder, it's tempting to look up to and model yourself after the radically successful founders who came before you.

But while these successful and popular founders can offer valuable lessons all of us can learn from, our views are dangerously distorted by survivorship bias.

In fact, this bias may be leading tons of young founders down the wrong path entirely.

The most famous example of the bias is the best one.

The mathematician Abraham Wald came to the conclusion that WW2 fighter jets that survived an attack should be armored more heavily on the parts of the jets that didn't get hit.


Feature creatures

A consequence of survivorship bias in many startups is turning into a feature creature. In edition #013: Why Startups Ignore Marketing, the measuring of product stickiness was shown in this graph:


Becoming a feature creature starts with feedback collected from those who it is easiest to collect it: your early top users.

By asking them what improvements they would like to see in your product, you think that by building new features many more opportunities will soon be descending safely down your marketing and sales funnels and into the product.

This might be entirely missing the reason why those in your target market who haven't given you any data at all are not interested in your product in the first place.

What's interesting is that CB Insights compiles a list of startup postmortems every year.

Here's what they wrote:

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