Why Survivor Bias is the enemy of strategy

Survivor Bias

Almost everything we read on the web is the birth child of the Survivor Bias. What is it? It’s that story of how Startup X dominated the world with clever Strategy Y. Therefore if you undertake Strategy Y, you too will IPO like Startup X did. Ok, here’s a more formal definition for you: Survivorship Bias is the logical error of concentrating on the people or companies that “survived” some process and inadvertently overlooking those that did not because of their lack of visibility. 

When this comes to strategy, we can conclude that the strategy of the eventual winner is ‘what works’ while other companies may have used the same method and failed, yet we don’t hear that story or study them at all.

Sometimes the story of the survivor is valid. It works, and it can work again. We ought however use it as an allegory for the type of thinking that is needed, not a template to be followed. This is why philosophy is always superior to tactics. Tactics are the story of what happened in a particular time and in a particular place in certain conditions which many and may not be present today.  The problem with tactics is that the world is not a beaker, and rarely are two ingredients in different businesses exactly the same.

For every story we hear of a business surviving and thriving, there are probably thousands who had a similar strategy and still bit the dust. If you want a strategy that works, increase your odds by placing lots of small bets with the possibility asymmetric returns.

You should totally read my book – The Great Fragmentation.