26.01.2020

Biases during company start-up and expansion

team members in office laughing

Starting up or expanding a business means making many decisions. Our unconscious side is of course highly active and easily leads us on the wrong track - here are the most important biases that have also accompanied me intensively in the recent months.


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Overconfidence

Self-confidence is good and necessary in Business life. This thinking error, however, lies in seeing one's own abilities and judgements much better than they are. This also includes being able to assess the personal influence on a result.

It has been proven in many studies that the confidence in one's own assessments and prognoses is significantly higher than the corresponding accuracy. In addition, the role of chance is often seen as too small.

What can become problematic?

Reality does not necessarily stick to how we believe we can influence it. Especially in the phase of business plan preparation, in forecasting the demand for our own products in general and in customer acquisition in particular, Major errors can occur due to this bias.

The combination with excessive optimism (see December newsletter) can lead to risks being overlooked (and therefore not taken into account) and generally positive aspects being weighted too heavily and disruptive factors being hidden.

 

Confirmation Bias

This bias allows statements and information that support our existing opinion to be given greater weight than those that speak against it. In addition, it easily leads to selective perception and leaves important information hidden.

The effect is strongly influenced by how our environment is structured (conform vs. diverse), which sources of information we consume or how the opinion-forming process works.

What can happen?

During business foundation or expansion we invest a lot in our idea - emotions, time and money - and have relatively few facts that give us certainty. The challenge is to objectively assess the constantly new information coming in over time, therefore to interpret both positive and negative signals correctly.

Not every plan or part of the company will be successful, the confirmation error can easily lead to following an idea for too long and not changing track in time (there is a close connection to sunk cost fallacy).

 

Self serving bias

This is the tendency to blame external factors for failures (customers, competitors, partners,...) and to attribute success to one's own competencies, skills and decisions. This easily leads to an intensification of the overconfidence bias discussed above.

Why? The overconfidence bias is based on the distorted assessment of one's own influence on the outside world. If we now refer to positive events as an effect of our own competence, we believe in them more and more firmly and distance ourselves further from reality.

Which effects might follow?

Assessing business success as realistically as possible is a major challenge, since the next decisions as well as corporate management are based on it. Small units in particular can easily draw the wrong conclusions here, provided they do not involve people who relativize the perspective by looking at it from the outside.

Important decisions need a good foundation and are ideally illuminated from different perspectives. Feedback, questions and sparring need not take long (the "stupid" questions can be the best) - to refrain from this certainly poses a risk.

 

How can I take the topic further?

In addition to these 3 biases, there are more that are relevant in the start-up phase as well as in the reorientation of the existing business - feel free to contact me for further information.

We develop concrete measures against these and other biases in workshops and webinars.