5 Deadly Decision Making Bias and Mental Traps That Kill Startups – Lessons from the Trenches

The status-quo trap is a common decision-making bias that often leads otherwise smart and accomplished business people, fearless startup founders, and decision makers of all stripes to making a decision that perpetuates the status quo, whether on the team, product, or company level.

Decision makers who are trapped in the status quo mentality (they are often not aware of it) tend to make “safe” decisions and will only consider alternatives that don’t violate the status quo.

Consider the example of Kodak, a once prominent maker of optical zoom cameras, that refused to see digital cameras as an emerging and disruptive technology and an alternative to the status quo. Refusing to embrace this new technology has resulted in a great missed opportunity for Kodak and ultimately lead to bankruptcy protection filing for the company.

As a former founder of a promising technology startup that has failed in-spite of attaining some early milestones and attaining an impressive audience, my personal bias towards preserving the status quo was my Achilles heel.

Although, it was fairly clear to me at the time that my co-founder was dragging his feet with the development of the product, while missing critical meetings and failing to adhere to the promised timelines, making excuses and wasting the precious financial resources on outsourcing, I made a mistake of choosing to stick with the status quo by continuing to work with the co-founder who clearly wasn’t playing fair, in hopes of gradually righting the ship eventually, rather than ripping off the band-aid and having a difficult conversation with the co-founder right away and parting ways if need be sooner rather than later.

In hind-sight, I should have confronted and fired that co-founder as soon as it became clear that he is not willing to do the actual work and only wants to waste money on outsourcing, while playing mind games and refusing to hold the outsourced team responsible for quality and timelines they’ve committed to.

The sunk-cost trap is another common decision making trap whereby decision makers tend to make decision that justify past decisions. Throwing good money after bad investments to justify past decisions is a common way the sunk cost trap manifests in the real world.

In retrospect, I can now see that I found it excruciatingly difficult to cut my losses and walk away, when it was amply clear that I’ve picked the wrong co-founder.

In fairness, I did try to buy out the co-founder, but when that failed, I should have simply walked away rather than continuing throwing good money after bad.

The confirming-evidence trap leads decision makers to seek information that confirms the view they have already formed, while avoiding or discounting information that may support alternative view.

Many business people and startup founders are subject to this common cognitive trap and it’s important to be aware of it, especially when the stakes are high and ignoring important information that doesn’t confirm to the preconceived view of the world can have dire consequences.

For instance, many founders fail to realign their initial believes and vision for the product with what the target users ultimately want, in spite of contradicting evidence in the wild. A lean startup model is one way to avoid the confirmation bias trap.

The framing trap is a dangerous psychological trap whereby the way a problem is framed can greatly influence the decision maker’s ability to make rational and objective decisions. For example, with respect to framing a problem, people tend to be risk averse when a problem is framed in terms of potential gains (opportunities to capitalize on) and risk-seeking when a problem is framed in terms of avoiding losses.

The estimating and forecasting trap is a common trap where founders make deeply-flawed forecasts, leading to poor investment of financial resources.

This trap can be further exacerbated by the overconfidence trap, whereby a decision maker has too much confidence in their ability to make good decisions and accurate forecasts, especially in an uncertain environment.

It’s especially important for startup founders to be aware of the potential negative consequences of the forecasting trap, since the estimates of an overly-optimistic founder can often be greatly skewed or even completely wrong due to an uncertain environment in which startups operate, lack of experience and data.

Then there is the misuse of the worst possible case trap and making associated decisions in situations that don’t warrant it, as well as the prudence or erring on the side of caution trap. – These biases can exacerbate the objective decision making, especially in the face of uncertainty.

Did you know? A core component of Lean Startup methodology is the build-measure-learn feedback loop.

The feedback loop can help avoid the inherent problems with overestimating and forecasting.

The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible.

Once the MVP is established, a startup can work on tuning the engine. This will involve measurement and learning and must include actionable metrics that can demonstrate and answer the cause and effect question.

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