Evaluating that mystic probability of success…without bias
Most startups have those moments when the founders have to decide whether to kill the company or continue fighting, in the hope of eventual success. As founders, one of the critical factors that we should evaluate in these moments is the probability of that eventual success if we continue. Regardless of the priorities and constraints we might have (e.g. family, personal fame/money, employees’ livelihood, investors’ money etc.), this factor can swing the decision either way.
How do we then check if we’re evaluating this probability well? One of the key issues is to analyze the reason for being in this moment in the first place. How did we end up in this position of very possible failure? Why is this less likely to happen again? We may overlook this often becuase ‘failure is common in the world of startups’ and hence ‘It’s ok to fail’.
The trouble in analyzing the issue of why we ended up in this moment is self-serving bias. We have very powerfully seen in class how people tend to attribute their own actions to success and attribute external conditions beyond their control to failure. Checking and correcting for this bias can make a lot of difference between failing gracefully and failing destructively.
We can check for and correct self-serving bias in multiple ways:
1) Be specific about the questions asked
Don’t just ask ‘Why are we in this position?’. Instead ask ‘What did we DO that caused us to be in this position?’ and ‘What should we have done differently?’. Then ask, ‘If we decide to continue and not shut down, what should we do differently?’, ‘Why will we succed this time?’ and so on.
2) Answer five levels deeper
Even if we begin to recognize some of the wrong decisions taken that led to one of these moments, it is critical to arrive at the root cause. We should ask questions such as ‘How did we take this decision?’, ‘Who took this decision?’, ‘What data did we use?’, ‘What data did we not use?’ and so on.
3) Write all this analysis down in a word document, not PPT bullet points
Emotions can play havoc in moments like these. If we try convincing investors, employees, friends/family or even ourselves through a well-prepared speech or a long presentation, it is easy to get lost in emotions and eventually convince the wrong way (in hindsight). Instead, we should write all this analysis down, in full sentences. We should then read it not twice but thrice.
4) Wear different hats
We should wear the hats of not just co-founders of the company, but also the hats of a CEO, an employee, an investor, and perhaps even a family member. Sometimes it is easy for us as founders to charge ahead because that is what we are expected to do. But we should ask ourselves, ‘If I was an employee, what would I want to do?’, ‘If I was not a co-founder but a professional CEO of this company, what would I have done?’ and so on.
5) Show it to people who are willing to argue with you, even in such difficult times
We should have people who are willing to take an opposing point of view. This could be investors, employees, co-founders or even your family. Sometimes they can ask us the simplest questions. For example, after making an argument they might just ask ‘Really?’. While they may argue for argument’s sake, these people should also be willing to listen to logic and admit when our argument is strong.
We may eventually reach a point when we effectively say ‘Alright, I now have no self-serving bias’. But beware, that thought can be self-serving too!
Of course, in the end, the decision, to shut down or continue, is taken on a set of beliefs about the future with certain hopes and aspirations. The difference is to have clarity on why we have these beliefs. Perhaps, the analysis that leads to that clarity can play the biggest role in making that belief turn out to be true. Talk about self-serving!