There is no magic formula for starting a business. There is always risk and things that might not work. But our brain–or maybe our lack of confidence–tries to see patterns and extract fail-safe recipes whenever possible.
The problem with books about successful companies, successful founders, or CEOs is that sometimes readers take what worked in a specific case as the way you should do things, or a step-by-step roadmap.
For example, consider Tony Fadell. He is known for leading the teams that invented the iPod, the iPhone. He was the CEO/Co-founder of Nest, which was later sold to Google. In a review of Tony Fadell’s book Build, Evan Armstrong argues that survivorship bias1 in Fadell’s story can lead you to false conclusions2:
There are roughly 769 public tech companies in the world. You can give or take a few hundred depending on how you define the tech sector, but regardless of how you slice the number, it is relatively small. If you were to perform a universal study on all of these companies to determine patterns of behavior, at a 95% confidence level and confidence interval of 5, you would need to sample 295 of these companies to find a pattern that was statistically significant.
Fadell has been employed at 2 highly successful companies (Apple and Nest) while personally boasting a portfolio of over 200 companies where he would expect that roughly 80% of them would fail. His experience does not pass the bar of statistical significance. And to be fair, nobody’s career gives them the experience necessary to authoritatively say “this is how you win.”
This math is a little silly, but it illustrates a point: it is easy to sound smart when you are a part of a select few winners. We tend to overemphasize the success stories, because, well, they succeed. People who work at these rocket ships tend to ascribe more value to their methods, because, well, they made them rich! This is flawed logic, but it does create deeply appealing heuristics.
Most of the time, what we need is not a formula. Maybe we are in search of reassurance or are afraid to fail? Don’t overanalyze. Try things and see what works.
“Survivorship bias, survival bias or immortal time bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to incorrect conclusions regarding that which (or those who) didn’t make it.” (cfr Wikipedia, Survivorship Bias.) ↩︎
That’s why Jim Collins’ book Good to Great is so appealing. He works hard to avoid survivorship bias by tracking companies that have been successful for a very long time. ↩︎