The Trap of Survivorship Bias

When running a small business, one of the most alluring ways to create a marketing strategy is to ask “What did successful entrepreneur XYZ do?”

But behind this seemingly-logical way of thinking lurks something quite dangerous, the survivorship bias. In short, the survivorship bias means that when making a decision, we only consider those who have been successful with a particular strategy and overlook those who have failed.

As someone who has worked extensively with small businesses, I have seen how this type of thinking can take over. Trying to imitate successful businesses is an easy (not to mention convenient) way of running a business. However, when making a decision we need to consider the likelihood that someone has tried the exact same thing as the successful person and failed miserably.

For example, one small B2B business I worked with attempted to adopt a multi-billion dollar competitor’s strategy and entered the corrugated box market. It seemed enticing at the time because,they were so successful with it, so why couldn’t we do the same? As it turned out, the box business was a complete failure for this business. The low-margin and overestimated demand for boxes from their customers quickly ate away at any revenue brought in through this new venture. Add in the storage space required for thousands of boxes (not a problem for a billion-dollar company with enormous warehouses), and the box business generated more problems than profit. Within several months, this company promptly exited the box business.

The key takeaway from survivorship bias is to embrace complexity. Before you decide on a strategy based on someone else’s success, ask yourself “Did any of the 8 out of 10 businesses that fail try the exact same thing?”¹

Copying a successful business may seem like an easy solution to any problems, but success is always situation-dependent. It’s important for you to understand what will work for your business situation. 

Contact Sperl Marketing today for a personalized strategy designed to help your unique situation.

References

Eric Wagner – https://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/#1639b4306978