How Biases Can Color Entrepreneurial Decision-Making
Innovation and entrepreneurship can be synonymous with uncertainty, and an environment of uncertainty is often the perfect atmosphere for biases to come into play. One of the most pivotal decisions that entrepreneurs have to face is whether or not to pivot (pun intended). Succumbing to certain cognitive biases during such decisions can be costly.
In the startup world, pivoting means shifting to a new strategy. During pivots, the ultimate goal remains the same: to solve a specific problem in society. The methodology used to ultimately address this problem, however, changes. Pivots can take a variety forms. Here are some examples:
- Changing the platform of your product. For example, moving from mobile technology to a web-based platform.
- Utilizing a different revenue model and/or moving to a different target market. For example, shifting from a B2C (Business-to-Customer) model to a B2B (Business-to-Business) model.
- Adding (or removing) a significant feature to (or from) your product.
Pivoting can help increase a business’s growth, evade large challenges, diversify market reach, and improve customer reach. Embracing the pivot is key to finding success in the world of entrepreneurship. After all, a product idea will rarely have the perfect business model or product market fit from the beginning. The flexibility to pivot is essential for any true entrepreneur.
At the same time, the decision to pivot should be backed by extensive planning. This article won’t necessarily help you determine if it is the appropriate time for your startup to pivot. Instead, it will discuss the different biases that may affect your ability to make a sound decision. Knowing these biases can help you avoid common decision-making pitfalls, and potentially protect your startup.
References
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- Forbes. [cited 19 Oct 2020]. Available: Patel, N. (2015, September 02). 90% Of Startups Fail: Here’s What You Need To Know About The 10%. Retrieved July 27, 2020, from https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/
- Availability Heuristic – Biases & Heuristics. [cited 19 Oct 2020]. Available: https://thedecisionlab.com/biases/availability-heuristic/
- The 4 Growth Frameworks You Need to Build a $100M Product — Reforge. [cited 19 Oct 2020]. Available: https://www.reforge.com/the-road-to-100m
- CB Insights. Why Startups Fail: Top 20 Reasons l CB Insights. CB Insights; 6 Nov 2019 [cited 19 Oct 2020]. Available: https://www.cbinsights.com/research/startup-failure-reasons-top/
- Domeier M, Sachse P, Schäfer B. Motivational Reasons for Biased Decisions: The Sunk-Cost Effect’s Instrumental Rationality. Front Psychol. 2018;9. doi:10.3389/fpsyg.2018.00815
- Pierce JL, Kostova T, Dirks KT. The State of Psychological Ownership: Integrating and Extending a Century of Research. Review of General Psychology. 2003. pp. 84–107. doi:10.1037/1089-2680.7.1.84
- Viswanathan VK, Linsey JS. Role of Sunk Cost in Engineering Idea Generation: An Experimental Investigation. Journal of Mechanical Design. 2013. doi:10.1115/1.4025290
- Baer M, Brown G. Blind in one eye: How psychological ownership of ideas affects the types of suggestions people adopt. Organizational Behavior and Human Decision Processes. 2012. pp. 60–71. doi:10.1016/j.obhdp.2012.01.003
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About the Author
Sanketh Andhavarapu
Sanketh is an undergraduate student at the University of Maryland: College Park studying Health Decision Sciences (individual studies degree) and Biology. He is the co-Founder and co-CEO of Vitalize, a digital wellness platform for healthcare workers, and has published research on topics related to clinical decision-making, neurology, and emergency medicine and critical care. He is also currently leading business development for a new AI innovation at PediaMetrix, a pediatric health startup, and previously founded STEPS, an education nonprofit. Sanketh is interested in the applications of behavioral and decision sciences to improve medical decision-making, and how digital health and health policy serve as a scalable channel to do so.
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