Survivorship bias is a phenomenon that affects the way we perceive the success of startups and tech companies. It refers to the tendency to focus on successful companies that have survived and thrived in the market, while overlooking the numerous failures and challenges faced by other companies that did not make it. In this article, we will explore the concept of survivorship bias and its impact on the startup and tech industry.

What is survivorship bias?

Survivorship bias is a cognitive bias that occurs when we focus on successful examples or outcomes and ignore the failures that occurred along the way. It is the idea that we tend to only look at those who have “survived” a particular event or scenario, and use their success as a model for what we should do moving forward.

In the context of startups and tech companies, survivorship bias can be particularly problematic. Investors, entrepreneurs, and even the media often focus on the success stories of companies that have made it big, such as Facebook, Apple, or Google. They analyze their strategies, products, and business models, and try to replicate their success. However, by focusing on these companies alone, they may be missing out on the countless other startups and tech companies that failed, despite having similar strategies or products.

Why does survivorship bias occur?

Survivorship bias occurs for several reasons. One of the main reasons is the availability heuristic, which is the idea that we tend to rely on the most readily available information when making decisions. In the context of startups and tech companies, this means that we focus on the companies that have made the news, gained attention, or have become successful, rather than the ones that have failed.

Another reason is the confirmation bias, which is the tendency to seek out and interpret information that confirms our existing beliefs or biases. In the context of startups and tech companies, this means that investors and entrepreneurs may be biased towards believing that success is achievable and that they have the necessary skills and resources to achieve it. This bias may lead them to ignore or dismiss the failures or challenges faced by other companies, or to attribute them to external factors rather than their own strategies or decisions.

The impact of survivorship bias on startups and tech companies

Survivorship bias can have several negative impacts on startups and tech companies. One of the main impacts is that it can lead to unrealistic expectations of success. By focusing only on the success stories of companies that have made it big, investors and entrepreneurs may underestimate the risks and challenges involved in starting and running a business. They may believe that success is more achievable than it actually is, and as a result, take on more risks or invest more resources than they can afford.

Another impact of survivorship bias is that it can lead to a lack of diversity and innovation. By focusing on the strategies or products of successful companies, investors and entrepreneurs may overlook alternative approaches or ideas that may have potential. They may also underestimate the importance of experimentation and failure in the process of innovation, and instead focus on trying to replicate the success of others.

Furthermore, survivorship bias can lead to a lack of support for struggling startups and tech companies. Investors and entrepreneurs may be less willing to invest in or provide resources to companies that are struggling or have failed, believing that they do not have the potential for success. This lack of support can be detrimental to the overall ecosystem of startups and tech companies, as it may discourage innovation and discourage new entrepreneurs from entering the market.

Examples of survivorship bias in the tech industry

There are several examples of survivorship bias in the tech industry. One of the most well-known examples is the story of Apple and Microsoft. Apple and Microsoft both emerged in the 1970s as leaders in the personal computer industry, with Apple pioneering the Macintosh computer and Microsoft developing the Windows operating system. However, despite facing similar challenges and competition, Apple and Microsoft had vastly different outcomes.

Apple struggled to maintain market share and profitability throughout the 1990s, and many people believed the company was on the verge of collapse. However, in the late 1990s, Apple introduced a series of successful products, including the iPod, iPhone, and iPad, that propelled the company to new heights of success. Today, Apple is one of the most valuable companies in the world.

Meanwhile, Microsoft remained successful throughout the 1990s and 2000s, but faced increasing competition from companies like Google and Apple in the smartphone and tablet markets. Microsoft struggled to keep up, and its attempts to enter these markets with products like the Zune and Windows Phone were largely unsuccessful. Today, Microsoft is still a successful company, but it has been overshadowed by newer players in the tech industry.

The story of Apple and Microsoft illustrates how survivorship bias can distort our perception of success in the tech industry. While both companies faced similar challenges and competition, Apple's success has often been attributed to its innovative products and business strategies, while Microsoft's relative decline has been attributed to its inability to keep up with changing market trends. However, these explanations overlook the many factors that contributed to both companies' outcomes, including luck, timing, and external factors such as the global economic climate.

Another example of survivorship bias in the tech industry is the proliferation of "unicorn" startups. Unicorn startups are private companies valued at over $1 billion, and they have become a symbol of success and achievement in the startup world. However, the focus on unicorn startups can obscure the reality that the vast majority of startups fail.

According to a study by CB Insights, only 1% of startups that raise venture capital funding eventually become unicorns. The majority of startups fail, and even those that are successful often face challenges and setbacks along the way. However, the focus on unicorn startups can create unrealistic expectations of success and lead investors and entrepreneurs to overlook the importance of failure and learning in the startup process.

How to avoid survivorship bias in the tech industry

To avoid survivorship bias in the tech industry, it is important to take a more holistic and nuanced approach to evaluating success and failure. This can involve several strategies, including:

• Recognizing the role of luck and timing in success: While strategy and execution are important factors in the success of startups and tech companies, luck and timing also play a significant role. By recognizing this, investors and entrepreneurs can avoid over-attributing success to individual factors and instead focus on creating conditions that maximize their chances of success.
• Learning from failure: Failure is an inevitable part of the startup process, and learning from failure is essential for growth and success. By acknowledging and learning from failures, investors and entrepreneurs can develop a more realistic and nuanced understanding of the startup process and avoid the trap of survivorship bias.
• Seeking out diverse perspectives: By seeking out diverse perspectives and experiences, investors and entrepreneurs can broaden their understanding of the challenges and opportunities in the tech industry. This can involve seeking out mentors, networking with peers, and engaging with communities that are outside of their immediate circle.
• Emphasizing experimentation and innovation: Experimentation and innovation are essential for success in the tech industry, and embracing failure as a part of the innovation process can help overcome survivorship bias. By encouraging experimentation and innovation, investors and entrepreneurs can create a culture that values learning and growth, rather than simply replicating the strategies of successful companies.

Conclusion

Survivorship bias is a pervasive phenomenon that affects the way we perceive success in the tech industry. By focusing only on the success stories of companies that have made it big, we may overlook the challenges and failures faced by other startups and tech companies. To avoid survivorship bias, it is important to take a more nuanced and holistic approach to evaluating success and failure, and to recognize the role of luck and timing in the process.

By learning from failure, seeking out diverse perspectives, emphasizing experimentation and innovation, and avoiding over-attributing success to individual factors, investors and entrepreneurs can create a more realistic and nuanced understanding of the startup process. This can help foster a culture that values learning, growth, and innovation, and ultimately lead to a more vibrant and successful tech industry.

In conclusion, survivorship bias is a cognitive bias that can distort our perception of success in the tech industry. By recognizing the role of luck and timing, learning from failure, seeking out diverse perspectives, and emphasizing experimentation and innovation, we can avoid the trap of survivorship bias and create a more dynamic and inclusive tech ecosystem.