A Tale of Forgotten Failures...

Let's start this newsletter with a Happy New Year to everyone reading it. May 2023 bring joy and prosperity to your life! 

Let's say you are starting a new business and you convey this good news to your friends. They will congratulate you but there is a good chance you will hear them saying, "Almost 95% of startups fail in the first 5 years of business..." Many people use this [phrase] nowadays. But this statement is absolutely true. And the sole reason for this to be true is that most entrepreneurs fail to analyze the available choices before making any critical decision. This is called Survivorship Bias... A situation where we tend to look at successful acts only and ignore the ones that failed. 

The Tale of Forgotten Failures 

Survivorship Bias happens when we focus on the successful acts in the selection process alone and ignore the ones that failed. It simply refers to the human tendency to look at success stories and individuals and ignore the failures/risks that are also involved with it. 

Without examining the entire data, there is a high chance it will result in failure. It can be said that this bias is more related to business and finance. However, there are some applications of this bias in day-to-day life. 

For every successful venture in the world, there are thousands of failures. Still, the triumph of success is celebrated and the thousands of failures are ignored and thrown in the dust. This bias emphasizes the fact that people tend to overestimate the odds of achieving success. 

Understanding the Impact of Survivorship Bias

Not every venture will be successful. Many businesses fail. Most people do not get rich or successful. Most people never achieve what they wished to achieve. 

A ton of people know that successful triumphs are outnumbered by the stories of failure. Most people know that 95% of startups fail in the first 5 years of business. And while it is true, only a handful survive to go on and become successful. However, we can learn valuable lessons from both successful and unsuccessful businesses. We can get insights on strategies that led to some companies' success; as well as from the mistakes and challenges that lead to some businesses' downfall. 

Instead of only learning from the successful stories, it would be far better to learn and analyze the failed businesses and understand what led to their collapse

Examples of Survivorship Bias in Action 

"Planes returning from battle have bullet holes everywhere except the engine and cockpit. We should put armour there"

• During WW2, allies wanted to add armour to battleplanes.

• Adding armour on the whole plane would make them less maneuverable and heavier.

• To decide, they analyzed the planes that returned from the battle.

• After analyzing, they decided to put armour on where the damage was done.

• However, Abraham Wald pointed out the fact that they haven't studied the planes that did not return back.

• The planes that returned back indicate that the damage is not that fatal.

• He insisted to put the armour where the plane was not hit, i.e. the engine and the cockpit. 

"Steve Jobs and Bill Gates dropped out of college and were successful, and so will I"

• People like them had an idea so they dropped out of college, took a leap, and got successful.

• For every successful college dropout, there are hundreds of people who weren't that lucky.

• A study showed that most successful business people completed college (94%).

• Only few who dropped out faced certain events in thier path that helped them and got lucky.

• While going to college does not make sense to everyone, it is a crucial decision that should be made wisely.

"If I read biographies of successful people, I will also know how to be successful"

• Tons of biographies of sucessful people are out there today.

• However, not one book assures that our lives will become the same as theirs after reading the book.

• We can learn from these biographies but will fail if we try to make our lives the same as theirs.

• Recreating the success of successful people won't necessarily turn out the same way.

It is pretty easy to fall for this bias as it messes with our perspective. It is easy to get caught up in shiny, successful stories and overlook the fact that many failures teach us more about making decisions. Hence, it is essential to step back for a moment and look at the whole picture before making any crucial decision. There is always more to the story than meets the eye.

Thank you for reading our newsletter.

We hope that the information and insights provided in this newsletter have been helpful and informative. If you have any questions or would like to learn more about a specific topic, please don't hesitate to reach out to us. We value your support and appreciate your interest in learning more about managing your financial well-being.

As always, we encourage you to continue to educate yourself and make informed decisions about your money and investments. Thank you for joining us on this journey towards financial success.

Until Next Time...