Startups and Survivor Bias

Startups are sexy. There is no doubt about it. Just take a sneak peek into any of national or international business magazines and you'll see  a blurb or story about new startups  which seems to be ubiquitously mushrooming every  right and left. Everywhere you see the glossy magazines cover where smiling faces shows the new cool kids in town with their new shiny product with promise of changing the world that we live in. Just talk to your neighbors, your childhood friend or your office colleagues and you'll find each one is currently  being involved in one way or the other in  some form of startup ideas that ranges from new App that helps you to get rid of your dog fleas or an aerosol to clean your toilet. Or social entrepreneurship venture that promise to sale grandmother's chutney online or an environmental initiative to explore adventure agriculture (growing weeds). The list goes on and on. Who knows your idea might become next big thing akin to Wello or  Barefoot power or even bigger Uber someday. Who knows perhaps Peter Theil himself is watching your every move and may surprise you with lucrative Term Sheet during your next venture round.

So  the question is are these start ups really a new phenomena. Of course not.  On the contrary it is just a term representing different flavor of entrepreneurship which fueled by promising engineering graduates and smart fresh MBAs  have recently entered into what Carl Jung defines as our Collective Unconscious.   Borrowing word from Nicolas Nassim Taleb startups are indeed a black swan or a form of Schumpeterian creative destruction that drives the wedge on status quo. They put innovation into driving seat and is a leading barometer of changing products and taste

However, this startup culture whether good or bad has undoubtedly done one thing and that is create a dilemma, something right out of Shakespearian soliloquy "To be or not to be" . A question that seem to plague everyone - should they give up everything they are doing right now and jump into startup bandwagon? Will it be more fun and more productive? Will they make more money and have bigger impact on society?    Honestly there is no clear cut answer to this. Everyone has their one view. Meanwhile, having been involved in three startups during past ten years under different capacity from software developer to solution architect to CTO,   I personally would say   "Good Luck" (Aside Note : All three had been utter failure otherwise you would have been reading my success story in Quora rather than my own lamentation in my personal blog page).  And yes luck is the huge factor. For any startup to succeed you should have right product, at right time at right place. Otherwise no matter how smart or innovative your product is at the end of the day  you will be swimming in a cesspool of misery.

Now you might ask why don't we hear about this? Why aren't  any broadsheets and  magazines covering these stories of failures? Why success story only make front news?  Well the answer is  because our judgment is simply clouded by a phenomenon well known in statistics called Survivor Bias. In terms of pure math it is blandly defined as the difference between  average risk associated with  success rate  and the average risk of all ventures.  And as usual, my dear readers, math again fails miserably to put things into a lucid  human perspective. So let me explain it by paraphrasing one famous anecdote. The story goes like this:

" During the time of second world war, a certain Navy general was worried about the bombers getting hit by an anti-aircraft artillery gun. So he convened a study for proper armoring of all aircraft. The Center of Naval Analysis then summoned statistician Abraham Wald to inspect all the carriers that returned from mission with bullet holes and asked for his expert opinion.  Most of the planes were hit in the propellers and wings and very few in body. Apparently navy was planning to armor the wings and propellers and overlook the body part. But to everyone's utter surprise Mr. Wald recommended that body be  better armored than the wings and propellers. And his explanation was this, since they were simply inspecting only the planes that had returned safely meaning those planes that were hit on body were likely have never returned and lost in Atlantic. This means the planes had more likelihood to withstand the shots to  wings and propellers while their body was highly vulnerable Therefore upon Mr wald 's recommendation, which though sounded counter intuitive, Navy decided to reinforce the armor on those part of plane which were unscathed upon the return from their mission."

This anecdote thud describe what survivor bias does to our world view. We have this cognitive dissonance of looking at only success side or surviving side and not the failure side at all. And this rule applies for startup as well. For every Facebook there will be hi5 and For every What's app there will be Kincast. So before you take a leap of faith on any startup don't forget to learn lesson from the previous failures. Because believe me when your startup fails it is as painful as losing your own child.