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4 Psychological Biases You’ll Face During Startup

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The Startup Genome Report Extra on Premature Scaling is a project coauthored by Berkeley & Stanford faculty members with Steve Blank and 10 startup accelerators as contributors. They analyzed 3,200 high growth web/mobile startups and found that within 3 years, 92% of startups failed. Of those who failed, 74%, failed due to premature scaling. Premature scaling refers to spending money on marketing, hiring etc. either before you found a working business model or in general, spending too fast while failing to secure further financing.

Why would someone rush right into spending a bunch or money before they even had a product people really wanted? Because we believe our idea is something people would actually pay for. There is clearly a gap between what we think people want and what they really want. And this is the main issue…the gap between an idea and a valuable product. The problem is never coming up with a great idea, people have ideas all the time. The problem is completely understanding what it is people need as the basis of a product rather than an idea as the basis of the product; a great idea but a useless product.

Why do we have such arrogant thoughts? It might be easy to write this off to egotistical self-importance. But it’s more fundamental than ego; it is a function of cognitive errors in neurological information processing that blind us from seeing what customers really want. And ultimately whether our idea is of value. These are referred to as psychological biases. Different lenses that obscure or alter our view of the world. These aren’t just results of messing up facts or errors in logic but real deficiencies or limitations in our thinking.

There are dozens of cognitive biases known in psychology but the ones that typically affect startups include:

  • Confirmation Bias – We listen to or focus on information that tends to back-up our own beliefs about a topic or idea. Startups need to be careful of this blind-spot given all the analytical techniques involved in growth hacking. Vanity metrics could lead startups to think they are doing better than they are since they are not measuring customer adoption or satisfaction but simply page hits and sign-ups.
  • Attentional Bias – We tend to avoid data that is inconsistent with our thoughts…almost the reverse of the confirmation bias. This is a common mis-step undisciplined entrepreneurs and investors (or anyone for that matter) have towards avoiding information that may challenge their ideas. The person using this bias is so focused on success that they fail to pay attention to data that would have signaled they were on the wrong path. People and groups who experience this tend to have sensational blowout failures rather than small failures and pivots.
  • Dream Bias – Many startups fantasize about being purchased or going public making the founders rich. Dream bias is the extremely narrow view that makes startup exits extremely exciting because that is all we hear about online and in the media. We join with the dream and don’t attend to the 99 out of 100 that did not succeed.
  • Curse of Knowledge Bias – Many founders have creative ideas that are very forward looking and have immense potential. The Curse of Knowledge Bias is the narrow filter that inhibits these people from understanding an idea from someone with less information, education, or initiation about the idea. This is often the curse of people with gifted intelligence who make such rapid connections in their mind that they are dumbfounded why others cannot see it how they see it.
  • Group Think Bias – When the entire development group is so gung-ho that they all think the same way and avoid alternative points of view.

What these biases have in common is that they are related to a sense of clinging to one’s own idea of value rather than understanding customer’s needs. What’s interesting about modern startup approaches, like Eric Ries’ Lean Startup, is the conscious and explicit priority of the customer’s needs. Entire business models should be uprooted if they fail to meet with market expectations. It is difficult to say if this philosophy is the full antidote to failing businesses but it certainly is focusing our attention on the right habits.

Here are a couple simple strategies that startup leadership can build in to their processes that will help inoculate the group from troubling biases.

  • Employing Black Hat approaches to discussions at core decision junctures in development. Thinking Hats was coined by Edward De Bono who taught that there were a number of ways of thinking (i.e., the hat one is wearing) that influences the group or team. To avoid these biases the team focuses on strategizing about a problem in stages, including the Black Hat stage, which essentially forces the group to think about why it won’t work. A trick is to hire a “Black Hat” to do the work for you as we all have proclivities to one way of the thinking (We all know that special person who can find reasons why it won’t work).
  • At specific times of the project, bring on board a thoughtful consultant or external friend of the startup who can present research that may force the group to attend to information that is contrary to the hope the group has for success.
  • Have the group present their idea, its value, and its merit to a group of consumers and experienced, successful entrepreneurs who have been able to be rational in their business development success. Listen to their perspectives of what is wrong with the idea.
  • Try to avoid saying I, me, or mine as much as possible in any conversation. You’d be surprised how much this helps you think about other’s needs, particularly potential customers.

Biases in thinking, problem-solving, or information processing are simply part of being human.[1] We cannot magically remove them from our psyche. However, we can become aware of them thus reducing their effect on our business decisions, and more importantly actively work to moderate their impact, which is essentially what the lean approach to a startup is. That is, build something small, get feedback, assess, tweak or pivot. By constantly evaluating our product through the eyes of the consumer, startup leaders close the gap between a good idea and a valuable product.

This regular reflection shouldn’t just be done on products but on our own thoughts and assumptions that build our companies, products, and relationships. When we try our best to keep on top of these things, meeting customers’ needs isn’t so hard.

These biases in thinking not only pervade our business life but also our home life. They affect product development, relationships with staff, team functioning, and life at home. So you can use these techniques at work or at home with your loved ones as well. Like asking your customer for feedback about the startup, asking your wife if she is having her needs met by you is a powerful way to avoid thinking bias with often the most important people in our lives….those who love us. And, of course, those with whom we work.

written by Bob Acton, executive coach at Obair Leadership.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef

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Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang

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Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

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