Don’t let your business be a casualty of survival bias
The U.S. military had a problem. It was WWII and the Americans were seeing plane after plane shot down by German forces. Naval researchers quickly went to work searching for hard data that would identify and solve the fatal flaws.
The analysts painstakingly studied, reviewed, and recorded the bullet holes and damage of the returning bomber aircraft, searching for vulnerabilities in the design. Initial findings showed a clear trend: the damage was most concentrated on the wings, fuselage, and tail.
The solution, they believed, was simple: Increase the armor to the most vulnerable areas.
But there was one issue.
The conclusion was dead wrong.
Though the returning aircraft hadn’t escaped the air assault unscathed, they HAD returned. The data only gave one part of the story, and completely missed the crux of the problem: The planes that had been shot down.
This gap in the data was critical and illuminated an issue common to many organizations: Survival Bias.
Survivor bias is the information gap created by only examining successful outcomes and overlooking the unsuccessful ones. Failing to conceptualize the full issue leads to faulty conclusions and skewed data.
Luckily for the U.S. military, Abraham Wald, a Hungarian-Jewish statistician identified this gap and recognized the analytical flaw the researchers had missed– they didn’t have any data from the planes that failed to return, and likely, the damage those aircraft sustained revealed the true, fatal vulnerabilities of the aircraft.
This paradigm shift was a game-changer.
Once they understood the survivor bias gap, military experts re-examined the data and found that surviving bombers had rarely taken any damage to the cockpit, engine, and certain parts of the tail. These areas, they realized, didn’t have any additional protection. In fact, they were some of the most vulnerable parts of the aircraft and likely the cause of so many casualties.
They went to work increasing armor strength to those critical vulnerabilities and the results were clear: Fewer casualties and more successful missions.
Mind the gap
Survival bias goes beyond military strategy. It’s a cognitive bias that affects decision-making in dozens of industries.
When you only consider success stories, it’s easy to miss the factors that lead to failure. Recognizing survival bias allows you to question what’s missing from your analysis, whether it’s data, voices, or perspectives. Doing so can empower you to make more informed, effective decisions.
A hidden trap
We love success stories. Scrappy, rags-to-riches, destiny-defying tales of triumph are inspiring!
We love hearing about the fifth-generation family business that started at the shores of Ellis Island with a dollar and a dream that eventually grew into a booming, multinational enterprise. These stories are empowering, giving hope that with hard work and perseverance, a family business can achieve similar success.
However, survival bias is the hidden trap lurking behind these awesome anecdotes.
The inspirational narrative of a successful family enterprise often glosses over the challenges, struggles, and near-failures that were part of the journey. This can create unrealistic expectations for newer family businesses and lead to a false sense of security.
Where were their vulnerabilities?
Poor succession planning?
Family conflict?
Market changes?
Poor communication?
An inability to align ownership?
Poor management?
Hidden gems of wisdom often lurk near your greatest failures.
Focusing solely on the winners is a risky game. Don’t miss out on crucial insights that can help you avoid common pitfalls.
How can I avoid survival bias?
To dodge the trap of survival bias, family-owned businesses should take a holistic approach to learning and growth. Here are some strategies:
Study failure: Seek out case studies and stories of family businesses that failed. Understand what went wrong, and learn from their mistakes. This will give you a more realistic view of the challenges ahead. Examine your own failures with a critical eye. A neutral third party, like a family business coach, can help.
Embrace flexibility: When know you better, you can do better. Listen to the data. Be willing to adapt and innovate rather than rigidly following a formula that succeeded for others.
Focus on fundamentals: While it’s inspiring to hear about the “secrets” of successful businesses, don’t be persuaded by those flashy, but ultimately empty promises. Don’t lose sight of the fundamentals: strong leadership, regular family meetings, effective communication, and a solid succession plan.
Build resilience: Setbacks are a part of every endeavor. Prepare for challenges and have contingency plans in place to navigate them. The goal is not just to survive, but to thrive (and learn!) through difficult times.
Never stop learning: A proactive approach to education is essential to the health of your family business. Have an open mind about learning new things. Embrace new skills or ideas that are unrelated to your industry. A continual pursuit of knowledge is a helpful tool for minding the information gaps that are an inevitable part of life. The old adage of ‘know better, do better’ is good. What’s best? Learn better, do better.
Don’t let survival bias cloud your judgment. Be aware of survival bias and actively seek to learn from both successes and failures. If you struggle to objectively examine the critical vulnerabilities of your business, The Family Business Coach can help. Book a free assessment today!
