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"when people study success stories exclusively — as many avid devourers of business self-help books do — they come away with a vastly oversimplified idea of wha
by mixmax 16y ago
"when people study success stories exclusively — as many avid devourers of business self-help books do — they come away with a vastly oversimplified idea of what it takes to succeed. This is because success is what economists refer to as a “noisy signal.” It’s chancy, fickle, and composed of so many moving parts that any one is basically meaningless in the context of the real world. By studying what successful ventures have in common (persistence, for instance), people miss the invaluable lessons contained in the far more common experience of failure. They ignore the high likelihood that a company will flop the base rate and wind up wildly overestimating the chances of success."
As an entrepreneur this is worth taking note of.
- iamwil 16y agoSo then I wonder if that makes a case for Jessica Livingston writing a book called "Founders that Failed", rather than "Founders at Work 2"?
- michael_dorfman 16y agoI would love a book like that, if there was sufficient analysis of the failures, and the interview subjects were as interesting as the crowd in "Founders at Work".
- ulf 16y agoShe could even interview the same people as in the original, because almost none succeeded with their initial venture.
- Dn_Ab 16y agoI am probably biased but I think he makes the same mistake he is arguing against. Base rate neglect is due to an inability to calculate a conditional probability properly - assuming P(A given B) = P(B given A). In a similar type of fallacy, looking at the joint probability of 95% or whatever of businesses failing and saying you only have 5% chance to succeed is nonsense. First this frequentist approach is inapplicable to the real world (Taleb's thesis actually) and secondly you have to look at it as your degree of belief of success given: team, communication ability, industry, environment, economic state, competition, potential usefulness, market saturation, skill, climate, education, timing, confidence, willingness and dozens of other variables. This will , can only be a rough estimate. So don't just look at arbitrary success stories but don't just look at arbitrary failures either. Pick a set of criteria and look at all those most similar to you, whether they be analogues or dopplegangers. Find the success rate in this smaller space. Your chance of failure might be much lower but it could also be much higher than the base rate. Basically, do your homework. Consider your situation, risk tolerance, odds, utility and act accordingly.