On Survivorship Bias In Business

Survivorship bias is a pervasive fallacy that exists in business, where people focus on the few survived players, in any given market, without realizing that most initial players in that given market are dead, or went into oblivion. In short, survivorship bias transforms the past into a linear story, by removing uncertainty from it.

Understanding survivorship bias

When I saw this on Twitter, I had to comment on it!

It is true that when you take a very long-term view (at least 10-15 years) of markets, it’s easy to argue that you’ll win.

But that misses a few key points about how the real world works:

1. When we analyze the past, the survivorship bias is extreme.

We tend to see only the very few players that made it when most initial players were either wiped out, bought at a discount, or went into oblivion.

2. Markets might rebound in the very long term. But they also might not.

In short, during the dot-com bubble, Amazon crashed by more than 90%, and yet, it took Amazon the stock made it back to new all-time highs by late 2009, all the while the company faced tough times.

The crisis eventually changed the business playbook, yet survival was not a guarantee!

3. When markets turn bad, priorities change.

When there is a lot of liquidity, investors prioritize growth at all costs.

When markets turn red, they look for profit margins and viable business models.

Therefore, having the runaway, to stand for at least a few quarters, becomes critical, and cutting the unnecessary costs becomes key.

4. Many failures during market downturns don’t mean they were terrible ideas.

In many cases, they simply had the wrong timing or execution strategy.

Take how companies like Webvan (grocery online) failed miserably, and yet how, today, this is one of the hottest industries around.

5. Over time, especially in the tech world, things tend to consolidate in the hands of a few winners.

Picking them up is like winning the lottery.

Imagine a game where you start with a thousand potential winners, but after ten years, you only have 3-5.

You might have been correct in guessing the Internet was the future, and yet you might have missed it, in terms of investing, altogether.

In short, placing bets on the future isn’t an easy game. I wish all it took were a long-term perspective.

6. A long-term perspective does help, indeed!

As markets are mostly tied to liquidity and macroeconomics in short.

On the other hand, they align (or at least the chances to align) with fundamentals in the long term.

7. As a business person, you want to focus on building valuable stuff.

So whether markets go up or down is relatively significant.

Of course, it matters because you might be navigating in stormy waters if you need funding.

And in addition, revenues and profitability might slow down independently of how good is the product.

But this is also an opportunity to reduce the noise and focus on what works.

Indeed, there is much less noise during downturns, and builders can concentrate on the product

Key takeaways

  • There is a spread survivorship bias when looking at business history, which focuses on the very few survived companies. Looking back, it was apparent they were supposed to thrive. Yet, placing a bet on those companies back in the day was as tricky as an understanding today which companies are worth betting on! Things look linear and straightforward only in hindsight. 
  • The survivorship bias is very pervasive, and it starts from the assumption that if you were to hold your position for long enough, you would get rewarded. Yet while this might be true in some cases, many other companies cease to exist altogether when a crisis strike. 
  • Downturns are great opportunities to revise a business playbook, shift focus on product, and build valuable stuff. Noise reduction in downturns is incredible, and this becomes the best time to make valuable stuff!

Keep these things in mind!


With ♥️ Gennaro, FourWeekMBA

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Connected Business Concepts


As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Bounded Rationality

Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Second-Order Thinking

Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Moonshot Thinking

Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.


The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Dunning-Kruger Effect

The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Mandela Effect

The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What is marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

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