How survivorship bias misleads us about startup success

HostWe often spend a lot of time looking at the people who made it big. We read their books and listen to their talks, trying to find the one secret thing they did differently so we can do it too. But I have been thinking lately that we might be looking at the wrong side of the story. If we only look at the winners, are we actually learning anything useful, or are we just seeing a distorted picture?

GuestIt's a bit like looking at a map that only shows the roads that didn't have any accidents. If you only look at the winners, you're missing the most important data, which is the huge group of people who did the exact same things and still failed. There's a famous story from the second world war about this. The army wanted to know where to put more armor on their planes. They looked at the planes coming back from battle and saw they were full of bullet holes in the wings and the tail. So, the generals said, let us put more metal there.

HostThat seems like the smart move. You put the armor where the holes are.

GuestWell, that's what most people thought. But a math expert named Abraham Wald realized they were making a huge mistake. He said they should put the armor where the holes were NOT. His point was that the planes they were looking at were the ones that made it back. They could survive being shot in the wings. The planes that got shot in the engine or the fuel tank never came back at all. They were at the bottom of the sea. By only looking at the survivors, the army was about to protect the parts of the plane that didn't actually need it. We do the same thing with startups every single day.

HostSo we're looking at the holes on the planes that came back and thinking those holes are the secret to staying in the air?

GuestIn a way, yes. We see a tech founder who dropped out of college and built a billion-dollar company. We think, okay, the secret must be dropping out of school. But for every one of those famous dropouts, there are thousands of people who quit school and their business failed within a year. We just never hear about them. They're the planes that crashed. If you only study the guy who won, you might think dropping out is a great idea, when for most people, it's actually a fast track to having a very hard time finding a job.

HostI see what you mean, but I feel like I should push back a bit. Those big names, they really did work hard. They were smart. It can't just be that they were the lucky ones who didn't get hit in the engine. There has to be a reason they're the ones standing.

GuestHard work is a huge part of it, but the problem is that the people who failed worked just as hard. That's the part that's so hard to wrap our heads around. If two people work twenty hours a day and have the same great idea, but one wins and one goes broke, we tend to look at the winner and say his drive made the difference. We ignore the other person because they're not on the news. When we only study the winners, we start to think that hard work is a promise of success. In reality, hard work is just the price of getting to play the game. It doesn't guarantee you a seat at the table at the end.

HostSo if we're getting the wrong signal from the winners, does that mean all the advice from successful CEOs is basically useless? That feels a bit extreme.

GuestIt's not that it's useless, it's just that it's incomplete. A lot of that advice is like asking a person who won the lottery what their strategy was. They might say, well, I wore my lucky socks and I bought the ticket on a Tuesday. To them, it feels like the socks and the Tuesday were the reason they won. But if you look at the millions of people who lost, plenty of them were wearing lucky socks on a Tuesday too. In the startup world, a CEO might say they won because they were bold or because they moved fast. But there are countless graveyards of companies that moved fast and were bold, and they just ran off a cliff.

HostIt sounds like we should be spending a lot more time looking at the failures then. But how do we even do that if their stories aren't being told?

GuestYou have to look for the data that's not in the headlines. Instead of asking what the winners did, we should be asking what the winners and the losers both did. If both groups worked hard, then hard work isn't what separated them. If both groups moved fast, then speed isn't the secret. You start to see that things like luck, timing, and being in the right place at the right time play a much bigger role than we want to admit. We want success to be a simple math problem where A plus B equals C. But often, it's more like a roll of the dice where you can only play if you have A and B.

HostThis really changes how you look at those big success stories. It makes them feel a lot less like a map you can follow and more like a rare event that just happened to work out.

GuestExactly. When you look at the whole field, you see that the path to success isn't a straight line of good choices. It's a minefield, and the survivors are the ones who just happened to step in the right places.

HostThose planes at the bottom of the sea tell a much truer story about the war than the ones that made it home to the base.

GuestThe most important lessons are usually hidden in the stories of the people who are no longer around to tell them.

HostThe next time a magazine tells me to drop everything and follow a billionaire's lead, I'll be thinking about the engines on the planes that never made it back.