By Lior Ronen | Founder, Finro Financial Consulting

Imagine walking into a room filled with jubilant lottery ticket holders, each flashing their winning tickets with multi-million dollar prizes.

Now, what if you thought this room represented every lottery player?

You might be tempted to rush out and buy a ticket, believing you will win. This is essentially what's happening in the world of startups.

A startup is a young company, often initiated by individual founders or entrepreneurs, aiming to bring a unique product or service to market.

Valuation is a fancy term that points to how much a company is deemed to be worth. And let's be honest, we often hear about startups getting valuations of millions or even billions of dollars. It's exciting and inspiring, and often makes for good headlines.

But here's a little secret: these success stories are not the entire story.

They're just a fraction of the larger, more complex world of startups. The entire narrative includes countless other startups that didn't strike gold, faced challenges, or even shut down.

This phenomenon, where we only see or hear about the successful ones, is called 'Survivorship Bias'.

And by the end of this article, you'll see the startup world in a different, more informed light.

A Dive into Survivorship Bias

Have you ever heard the phrase, "the winners write history"?

It captures a truth about the stories we often hear and remember: they're usually from those who came out on top.

Survivorship Bias is a similar concept, but it dives deeper, revealing how our perceptions can be skewed by focusing only on success.

Simple Definition: At its core, Survivorship Bias is about only seeing or hearing from the "survivors" — those who succeeded or made it through a particular challenge — and ignoring or forgetting those who didn't.

It's like listening to a choir where only the best singers have microphones. The overall sound might be beautiful but doesn't reflect the full range of voices.

Real-life Example: During World War II, military experts studied airplanes returning from combat missions. They noticed bullet holes everywhere except the engine area. Their initial thought?

Add armor to the places with the most bullet holes. However, a statistician pointed out a critical flaw in their thinking.

The planes they were studying were the ones that made it back. What about the ones that didn't return?

Maybe they were the ones hit in the engine. By only examining the survivors, they almost missed a crucial insight.

Translating this to the world of startups, when we only hear about the companies reaching billion-dollar valuations or getting featured on magazine covers, we might think that's the norm.

But just like those planes, there's a bigger story unfolding behind the scenes.

There are countless startups that face challenges, struggle, or ultimately don't make it. They might not make the headlines, but they're a crucial part of the story.

How Survivorship Bias Plays Out in the Startup World

Imagine you're scrolling through your social media feed, and every third post is about a friend climbing Mount Everest.

It would be easy to think, "Wow, everyone's climbing Everest these days!" But in reality, your feed isn't showing the countless others who didn't even consider the climb, let alone attempt it. This is a lot like the startup ecosystem.

The Spotlight Effect: Media loves a good success story. It's not every day we hear about a young entrepreneur in their garage creating the next big thing, but when we do, it's sensational.

From magazine covers to prime-time interviews, successful startups bask in the limelight. And while their successes are undoubtedly commendable, this constant spotlight creates a perception that such triumphs are the norm.

The Iceberg Illusion: Picture an iceberg. Above the water, you see a sizable chunk of ice, but hidden beneath is a massive foundation, often many times larger than what's visible.

The startup world is a lot like this. For every unicorn startup (those valued over a billion dollars) that we see and celebrate, numerous others are submerged in challenges, pivots, and even failures.

These 'underwater' startups may not always make headlines, but their stories are equally significant.

Real-life examples:

• Success Spotlight: Company X, which began as a college project and is now a global empire with a valuation of $5 billion.

• Underwater Reality: Company Y, which had a groundbreaking idea but faced multiple challenges, from funding issues to market competition, and eventually closed its doors after three years.

Survivorship Bias can lead us to believe that every startup is just a few steps away from being the next big sensation.

Still, the path to success is often longer, more winding, and filled with more bumps than we realize.

Recognizing this bias helps us approach the world of startups with a more balanced and realistic perspective.

The Danger of Ignoring the Failed Startups

We live in a world that celebrates winners. From sports champions to top-chart musicians, the spotlight is often on those who achieve monumental success.

But this focus can be a double-edged sword in the realm of startups.

While it's inspiring to see success stories, not understanding the whole picture can be dangerous for aspiring entrepreneurs and investors alike.

Rose-colored Glasses: When we only see success, wearing rose-colored glasses is easy. We might believe that all it takes is a groundbreaking idea and a dash of hard work, and success is guaranteed.

But this belief ignores the reality of startup challenges, from funding woes to fierce market competition. We might end up underprepared and overly optimistic by not acknowledging the failures.

Missing Valuable Lessons: Every failed startup has a story. These stories are reservoirs of insights and lessons about what doesn't work, which markets are tough, or how crucial timing can be. Ignoring these stories is like skipping chapters in a manual.

Sure, you might still assemble the furniture, but it might take longer, or you might miss a crucial step.

Skewed Investment Decisions: For investors, only looking at the unicorns can skew investment strategies.

If they believe every startup is the next big thing, they might make hasty decisions without a comprehensive risk assessment. Remember, high returns come with high risks, and understanding the full landscape is crucial for informed decision-making.

Real-life example: Company Z had a revolutionary product and, inspired by other success stories, quickly gained investor interest.

However, they overlooked the challenges faced by similar startups in the past. As a result, they were unprepared when they encountered unexpected regulatory hurdles, leading to significant delays and financial setbacks.

The startup world is not just about the glitz and glamor of billion-dollar valuations. It's a tapestry of successes, near-misses, challenges, and failures.

Recognizing and respecting this diversity is not just wise—it's essential for a realistic and informed approach to entrepreneurship.

How to Have a More Balanced View

In a world awash with dazzling success stories, maintaining a balanced perspective can seem like a tall order. Yet, understanding the fuller spectrum of the startup journey can make us wiser entrepreneurs, investors, and supporters. So, how can we shift our focus to get a clearer, more holistic picture?

Diversify Your Information Sources:

• Beyond the Headlines: Mainstream media often focuses on the extraordinary, but there are numerous platforms and publications dedicated to sharing the 'not-so-glamorous' tales of startups. Seek them out.

• Podcasts & Interviews: Listen to in-depth conversations with founders, especially post-mortems where entrepreneurs discuss what went wrong. These stories offer a goldmine of insights.

Network Widely:

• Engage with Different Stages: Attend events or join forums where startups at various stages gather. Engaging with early-stage or struggling startups can provide a grounded perspective.

• Mentorship & Peer Groups: Being mentored by someone experienced, or connecting with peer groups where challenges are openly discussed, can be eye-opening.

Embrace the Learning Attitude:

• Failures as Lessons: Rather than viewing failures as setbacks, consider them learning opportunities. Dive deep into case studies, ask "Why did this not work?" and absorb those lessons.

• Avoid Confirmation Bias: It's human nature to seek information that confirms our beliefs. Challenge yourself to explore contrary opinions and outcomes that defy expectations.

Conduct Comprehensive Research:

• Market Analysis: When evaluating a startup idea or investment, a thorough market analysis can reveal potential challenges, competition, and past failures in the domain.

• Feedback Loops: Regularly solicit feedback on your startup or investments. An outsider's perspective can sometimes spot pitfalls you might overlook.

Real-life example: Jane, an aspiring entrepreneur, was excited about her e-commerce idea. But rather than just studying successful e-commerce platforms, she also researched businesses that didn't take off. This helped her identify common pitfalls, refine her strategy, and avoid repeating mistakes.

In conclusion, while it's natural to be drawn to success stories, a true understanding of any field, including startups, requires recognizing both the peaks and valleys. By seeking a more balanced view, we equip ourselves with knowledge, caution, and, ultimately, a higher likelihood of informed success.

Conclusion: Seeing Beyond the Spotlight

The allure of billion-dollar valuations and the tales of startups that skyrocket to success overnight can be intoxicating.

Yet, as we've journeyed through this topic, it becomes clear that such narratives are only a sliver of the broader startup tapestry.

For every headline-grabbing success, countless others tread the challenging path of entrepreneurship, facing hurdles, making pivots, and sometimes, wrapping up their dreams.

Survivorship bias isn't just a quirky psychological phenomenon. In the startup world, it has tangible implications.

For the budding entrepreneur, it can create unrealistic expectations. For the investor, it can blur the lines between optimism and overconfidence.

For supporters and consumers, it can lead to a skewed understanding of innovation and enterprise.

By acknowledging the whole spectrum – the ups, the downs, the twists, and turns – we arm ourselves with a more realistic and nuanced understanding. It's akin to seeing the full, vibrant canvas rather than just a few brush strokes.

As we move forward, let's champion not only the success stories but also the tales of persistence, resilience, and courage.

In these narratives, we find the heart and soul of entrepreneurship, the lessons to be learned, and the inspiration to persevere.