Short Take – Business Intuition Blind Spot

biz-intuition

This relatively short and entertaining article presents a new take on the well-known phenomenon of selection bias. We always hear about the (relatively few) successful companies and virtually nothing about the 99% of companies that failed – even when they had a great team, the same business plan and did all of the things that the successful company did.

The new twist is that we have an even worse selection bias because not only don’t we remember the failures, we don’t even recall the ‘forgettable successes’ – those companies that are truly successful but are not written up in case studies or have speakers touting them on the conference circuit.

The key points of this article are:

  • Business intuitions are shaped with an implicit selection bias that excludes lessons from forgettable failures
  • The vast majority of businesses fall into this category: 70% – 90% of businesses fail. Our intuitions are blind to the biggest section of the dataset.
  • We form our business intuitions based on companies that exist (because we run into those companies in the course of our lives) and companies that are especially memorable. Meanwhile, forgettable companies don’t easily come to mind, nor do the lessons we could learn from them. We’re also less likely to hear about failed businesses, since success has many authors but failure is an orphan

It’s a reminder for us to seek out those forgettable successes and failures for valuable lessons.

Original Article »

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