Page 62 - 6 Secrets to Startup Success

The Passion Trap 41

small number of observations or a few pieces of data. Entre-
preneurship researchers have concluded that startup
founders often fall victim to this bias, because they operate
in uncertain and fast-moving environments where facts can
be hard to obtain.10 The new founder who hears positive re-
views from three out of four friends and then assumes that
75 percent of the general population will react similarly is
under the spell of representativeness. It’s also in play when a
wanna-be entrepreneur reads a magazine’s worth of success
stories and assumes much higher success rates than actually
exist across the general population.

9 Overconfidence/Illusion of Control—these are actually dis-
tinct cognitive biases, and each has both positive and negative
impacts on entrepreneurial success.11 Overconfidence leads
founders to treat their assumptions as facts and see less un-
certainty and risk than actually exists. Illusion of control
causes business owners to overrate their abilities and skills
in controlling future events and outcomes. Both of these ten-
dencies drive entrepreneurs to develop rose-colored plans
and fail to prepare for inevitable bumps in the road. One
study of startup ventures across a range of industries, for in-
stance, found that more than 80 percent failed to meet con-
fidently established market share targets.12

9 Anchoring—our mind’s tendency to give excessive weight to
the first information we receive about a topic or the first idea
we think of. This bias is all about the stickiness of first ideas
and impressions. It encourages founders to cling to an orig-
inal idea or, if pressed, to consider only slight deviations from
the idea instead of more radical alternatives. An example of
anchoring is the role it plays after initial sales or cost targets
are set by a founding team. Even if the forecasts are wildly
optimistic (as they often are), they continue to serve as an-
chors for future planning processes, influencing forecasts to-
ward unrealistic levels.

American Management Association • www.amanet.org