Entrepreneurs Who Relish Being Wrong Usually Win

image001A version of this article previously appeared in Forbes.

During my 15-years as a startup executive, I relished being proven wrong. Knowing that I was had made a mistake empowered me to make the correct decision. Being wrong is much preferred to erroneously thinking you are right and relentlessly executing a losing strategy. Effective entrepreneurs reject dogmatism and embrace doubt.

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Human Nature Sucks

How can two otherwise intelligent and well-meaning people watch the same political debate and adamantly believe that their candidate won? Confirmation Bias.

Psychologists define confirmation bias as: “A tendency to search for or interpret information in a way that confirms one's preconceptions, leading to errors.” Not only does this proclivity cause us to seek affirming information, once we find it, we tend to value it more highly than data that refutes our beliefs and we can recall confirmatory facts long after conflicting information has been forgotten.

For instance, when the United States Postal Service recently issued a stamp of poet Maya Angelou with a quote from another woman, it reinforced my belief that the federal government is primarily comprised of incompetent, unmotivated workers. Stories which refute my belief careen by me undetected, but the Maya Angelou debacle will live on in my heart for decades to come.

Like most mental shortcuts, our tendency to seek out and believe data consistent with our beliefs fulfills an important role in our psychological makeup. If you questioned your core beliefs every time you came across a countervailing fact, your life would be rather dismal and anxiety ridden.

While this aspect of human nature can lead to mildly amusing behaviors in our friends (and ourselves), when assessing decisions at your startup, such close-minded prejudices can result in fatal mistakes.

Be Tacky

Startups survive by constantly making small mistakes and correcting them quickly. In this regard, CEOs are akin to sailboat captains. Both operate exposed to the elements, and surrounded by a handful of dedicated people who all impact on the company’s / boat’s direction.

Rather than establish an extensive strategic plan detailing how they will reach their destination, the startup crew simply aligns their sailboat with a distant point on the horizon. The startup CEO must then propel the ship forward by tacking the ship’s bow into the wind. This process results in a zigzag pattern as the Captain makes slight adjustments to address the vagaries of the breeze, waves and currents. However, as shown below, the ship’s general direction remains relatively unwavering.

image002

Confirmation bias is particularly dangerous at startups, as it slows down these vital course corrections. Rather than zigzagging in a relatively straight line, a startup stricken by confirmation bias ignores valid market signals and risks driving toward an errant point on the horizon.

For instance, if the team assumes that a higher price will result in a lower number of customers, it will have a tendency to recall those instances when a customer cancels due to price. At the same time, the team may unconsciously discount data that shows an uptick in sales beyond what could be attributable to a higher price.

I experienced this situation when we raised the price of GoToMyPC from $9.95 per month to $14.95 per month. Despite the 50% price increase, our sales exploded. When we asked our customers what motivated them to purchase GoToMyPC, many of them indicated that the higher price gave them greater comfort that our solution was a business, and not a consumer, product. This price change generated tens of millions of incremental revenue and allowed up to properly position GoToMyPC as trusted SMB solution.

Breakdowns Lead To Breakthroughs

Steven Johnson, author of Where Good Ideas Come From notes that, “Being right keeps you in place, being wrong forces you to explore.” He cites several examples of this phenomenon, including: (i) Alexander Fleming’s discovery of penicillin from a contaminated petri dish, (ii) Louis Daguerre divining analog photography after he stored some silver plates with random chemicals and images ‘magically appeared,” and (iii) Charles Goodyear noticing that sulfur and heat were the missing ingredients of vulcanization after he inadvertently warmed a sulfur-covered piece of rubber on his kitchen stove.

In all of these instances, the potential breakthroughs could have easily been overlooked as unfortunate mishaps. Fortunately, these innovators maintained an open-minded when the interpreted their counterintuitive observations. Unfortunately, most of us are not prone to such clear thinking, which leads one to ponder how many monumental breakthroughs have been thwarted by confirmation bias.

By definition, confirmation bias creates perceptual blind spots, as we only see what we expect (and often want) to see. Wily entrepreneurs proactively mitigate this perilous tendency in a variety of ways, including:

Embrace Your Bias – As with any recovery program, the first step is to admit you have a problem. Confirmation bias is not a sin, just a sign that you are human. By acknowledging its existence, you increase your odds of countering its potentially negative effects.

Seek The Truth (Ignore Who Is Right) – Strive to prove your assumptions wrong, just as a scientist tests the veracity of a hypothesis by trying to disprove it.

Separate Personalities From AnalysisPsychological studies consistently confirm that the loudest, most repeated opinions have the greatest influence on group behavior. This effect can be tempered by de-personalizing discussions so that aggressive members of your team feel less obligated to prove themselves right.

Make Cross-Disciplinary Decisions – Small teams of believers and dissenters often result in intellectually honest outcomes. It is also an effective way to mitigate the outsized influence of a forceful personality.

Discard Beliefs, Cultivate Assumptions – People tend to fight for beliefs, while assumptions are rarely personalized.

Encourage Diversity Of Thought – A heterogeneous team’s divergent backgrounds and experiences enhance its creativity and ad hoc problem-solving abilities. Such varied perspectives also reduce the overall impact of cognitive bias, as it is less likely teammates will share common preconceptions.

Cultivate (Thoughtful) Devil’s Advocates – Bad decisions are often the result of group members respecting each other. Yes, you read that correctly. Mutual respect reduces authentic dissent and increases the propensity for flawed decisions. If you have a natural cynic in your group, ensure that his or her voice is heard (to the extent it doesn’t become disruptive). If you lack a healthy dose of dissention, assign one or more people to aggressively challenge a proposed course of action.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet you about cupcakes or that killer burrito I just ate.

Image: Takao Umehara from the Noun Project

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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