Survivorship Bias is a term used in the investment analysis community to describe the potential overstatement of success for a set of investments due to only looking at the investments that have ‘survived’ the observed period of time for the data set. When looking for average performance, survivorship bias ends up overstating the success of the data set by not including the investments that failed completely in the time period. A recent study showed that survivorship bias overstated investment outperformance by 50% compared to the adjusted performance that included failed investments.
We see survivorship bias play out in the business world in a similar manner, perhaps in an even more extreme way. When is the last time you read a book by a business person who failed? Not one that failed and then found success, but one that just failed? I certainly haven’t read one of those recently! Or how about the last time you went to an event where the speaker was a failure? Nope, haven’t seen that either.
The reality is that survivorship bias in business can send us into the comparison trap.
If you are a driven, achievement-oriented individual, the comparison trap must be fought off constantly. You see who is ahead of you in the ‘success ladder’ and benchmark your own achievements to them. You can end up being driven by comparison, living towards a set of values that are not your own and always having another rung of the ladder to climb. The folks we read books from and listen to speeches by are the most successful 0.0000001% of people on this planet. Benchmarking to them is not going to get you where you want to go. Stick to your values, your goals, and your markers of success, not those of the 0.0000001%.
Survivorship bias can also lead us to believe that business success can be achieved by following a formula laid out by a successful individual. Certainly, there are many lessons and principles that can be learned from these individuals, but it is not a formula. Circumstance, opportunity, luck and timing are all factors in business success, whether we like to admit it or not. This highlights the importance of sticking to time-tested principles in the running of your business, and not being too focused on the short-term results. Consistency and intentionality and two principles that over time, will generally lead to solid outcomes.
Learn from those who have succeeded and those who have failed. Rely on the process while measuring the result. Conform to your benchmarks and goals, not someone else’s. Don’t get caught in the trap of survivorship bias.