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3 Cognitive Biases Holding You Back as a Startup Founder

Laura MacPherson March 28, 2019

Getting a startup off the ground and running successfully requires clear thinking. As a founder, you have to make decisions that will significantly impact the health of your business long-term. If your decision-making process is flawed, your decisions will be faulty, and could lead to serious problems down the road.

Thanks to psychology and neuroscience, we know that the human brain is always trying to simplify information processing. This was essential for our survival as a species — we’ve needed to make decisions quickly to address threats and take action. But although our brains are trying to do us a favor, this autopilot processing sometimes leads to mental shortcuts that can get us into trouble. These errors in thinking, cognitive biases, are subtle and influence us without our awareness if we’re not alert.

Three specific cognitive biases are especially dangerous for startup founders. Let’s look at what they are, why they’re so problematic, and how we can overcome them.

1. Confirmation Bias

Confirmation bias describes the tendency to interpret data in a way that confirms existing beliefs. We tend to seek out and remember the data that matches what we think is right. And we ignore data that proves us wrong. It’s why, after listening to a political debate, we will likely support our candidate even more strongly — regardless of what happened in the debate.

When you combine this bias with another common one, the false consensus effect, it can be especially misleading. The false consensus effect describes our inclination to overestimate how much other people agree with our own beliefs. If you fall into this trap, you’ll be blinded by thinking that most everyone else shares your perspective.

The danger to startup founders is apparent. If you want to see a market need, you’ll see a market need — whether or not it actually exists. If you want to believe you can make it without cash reserves, you’ll act accordingly — regardless of what the data reveals about startups failing due to lack of cash. Or if you value a high base salary over flex time and other benefits, you’ll believe your employees do too — and you might lose a few key people before you realize otherwise.

How to Overcome It: To break through confirmation bias, actively seek out information and research that proves your thinking wrong. Also, when you come across something that reinforces your thinking, consider factors that introduce complexity, such as who did the research and what their motivations were, how thorough the research was, how recent the data is, etc.

2. Anchoring Bias

As an entrepreneur, you may be familiar with price anchoring — by introducing your prospect to a high price initially (either as an undiscounted price or as a different, higher-priced product or service), the prospect is likely to judge all future price information relative to the first pricing heard. It’s why the ubiquitous 3-tiered SaaS pricing model exists.

Price anchoring takes advantage of a type of anchoring bias. The first bit of information that we hear influences us too strongly. We then evaluate all subsequent information in light of the original knowledge, even if it fails to show the full picture.

Startup founders can be led astray by anchoring bias when they start down a particular path based on limited initial research without considering other options. If one of those other options is significantly better than the original path, you’ll miss out. Even if you eventually realize another option is better, you’ll have wasted valuable time and resources pursuing the less-ideal path.

How to Overcome It: To encourage a broader perspective, brainstorm with mind mapping. Before going deep in your research, take a wide approach. Seek out all the possible solutions before narrowing down your focus.

3. Sunk Cost Fallacy

The sunk cost fallacy is one of the most prominent among startup founders, and the most dangerous. As such, you’ve probably been warned against this one. This bias describes the tendency to continue a behavior based on previously-invested time, money, or other resources. You don’t want to waste those resources, so you think that if you just invest a little more, it will pay off.

How to Overcome It: At various pre-determined junctures in your development, create a “for and against list” that will help you evaluate the factors that support moving forward and the factors that support either pivoting or abandoning the endeavor altogether.

More Minds are Better Than One

Another excellent way to combat each of these biases is to bring in other intelligent, experienced people who can share different perspectives and help you see through biases that are holding you back. These minds may take the form of a board of directors or your investors. Or, less formally, they may be other startup founders who are further along the journey than you are who can share advice. The most successful founders are always seeking a diversity of perspectives.

Want to learn how we help startups think through all the angles of their idea? Ask about our SolutionLab workshops.

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