The Survivorship Bias and the Reality of Business Failures

There are people who espouse the idea of entrepreneurship for everyone. Organizations such as Go Negosyo whose main objective it is to make people independent by going into business.

It’s a noble idea. One that recognizes the lack of opportunities for people to get a decent job in this country. It is even made more appealing by its promise of prosperity. In a country where poverty is prevalent, the idea of business success is too good to pass up.

Entrepreneurship TV shows are no different. They feature success in business that one would think it’s a very common occurrence. There are all kinds of people who succeed and if they can do it, why can’t you?

Awareness of Reality

But if we are clear-headed, we would consider what statistics say about how difficult it is to succeed in business. It’s not about discouraging people. It’s about knowing what the real score is so that entrepreneurs would know the seriousness of the challenge they would have to face.

If you read the 50 successful entrepreneurs compiled in one book (such as what Go Negosyo did), you would get a little hyped. Page after page you see evidence of success. You would probably tell yourself that with enough determination, you can do it too.

But this sort of thing is why we overestimate our ability to succeed. We do not have the whole picture of what actually is happening. We see a single side of the story and it’s not even half of it.

For every successful entrepreneur, there are more than 100 who failed. That is the reality. But that’s not what we are learning. It’s because no one would bother to interview all those who went under much less write about them for a book.

Overestimating our Chances

There’s probably nothing that we can do to change this. But we need to be aware of our own survivorship bias. Yes, there’s a name for it. We’ve managed to acquire this bias because we are being fed the wrong information.

But does it mean that we should never ever go for something that is very unlikely to happen? I don’t believe so. If that was the case, many successful businesses wouldn’t have happened and we would have all been worse for it.

What we need to understand is that there are realities that we need to consider. Do not be blind to the other side of the story. It will make you humble and may even make you wiser.

Effective Learning

A good tip for someone who is about to undertake a business, career or project is not to look at successful businesses for the secret formula. He or she may see some pattern and wrongly conclude that it’s the key to success.

What’s more effective is to study many of those who failed in what they set out to do and analyze how they came up short. There are many failures to study and avoiding the mistakes that they made will increase your odds of success.

*Photo Credit: Jeff Kubina (Creative Commons)

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