The Narrative Fallacy: Why No Startup Success is Inevitable

by: Paddy Padmanabhan

Some years ago, Nassem Nicholas Taleb, a Wall Street trader who made a fortune betting against highly improbable events called “Black Swans,” introduced the notion of narrative fallacies that shape the way we think. We model the future mostly on a narrative of the past – and the notion of narrative fallacy suggests that our narrative of the past is, more often than not, flawed.

Everyone knows Google was destined for inevitably fantastic success – right? Then consider this: the story goes that very early on, the founders wanted to sell their company for a mere $ 1 million, and they couldn’t because the potential buyer thought the price was too high. The details of this failed transaction are not important; what is important is understanding that there was nothing inevitable about Google’s success. Sure, they had all of the right ingredients for the recipe: brilliant and technically proficient founders, the Stanford and Silicon Valley ecosystem that enabled serendipitous encounters with like-minded technologists and financiers, and so on.  So did countless other startups at the time whose names are lost to history. The popular narrative of Google’s success focuses on the inevitability of that success and we use that as our template for the future.

Consider these examples:

  • A friend of mine started developing an internet browser in the nineties, and abandoned the project when Netscape exploded onto the scene. How might history look (at least for my friend) if Netscape had not come along (the story of how Internet Explorer took over the market later is an entirely different narrative)?
  • Or, to look at more current events like the election, who stops to think about the fact that the U.S. presidential election in 2000 was decided by a margin of around 500 votes in Florida (the Hanging Chads), and how that altered the course of history forever?
  • And my favorite: who would have guessed that pop culture would be changed forever by four teenagers from a gritty town in northern England who were given a thumbs-down by Decca Records before being signed on by EMI?

In all of these cases, pundits have erudite explanations for why these events happened and even how they were destined to happen, which is perverse because no one could have known (by the way,  I have been to Liverpool: no one there has an explanation for why The Beatles became as big as they did).

Why should we pay attention to narrative fallacies?

Most businesses succeed or fail based on factors that were anything but inevitable, and for the most part, did not conform to historical narratives that could have predicted success. We substitute “knowability” of success with things like: a.) being in a startup hotspot like Silicon Valley, b.) raising money from highly successful VC’s (who presumably “know” that your business is going to be successful because they are putting money into it), and c.) hiring the smartest technologists to build your product (after all, you “know” that the smartest coders will ensure that the product you have developed is the best it can be). However, these assumptions are based on flawed narratives of success that can serve as poor guides for your business.

I am not about to suggest an alternate worldview that might improve the chances of success. This is more about shining the light a little bit on biases and illusions that are guided by historical narratives – ones that we then proceed to try and fulfill with actions that historically seem to have delivered proven results.

Here are a few humble recommendations for consideration:

1.You don’t have to construct a narrative for your business that mimics some other successful business.

Understand the limitations of the human mind when it comes to reconstructing the past, and construct your view of the future accordingly. At the same time, just because the past is not a template for the future doesn’t mean you have to go about building a template for the future that is deliberately different from the past. Don’t succumb to flawed narratives of the past, is all.

2. Many things about business are actually knowable.

If a client signs a contract to buy something from you, chances are he or she will. And for the most part, the client will pay you on time as well. The wheels of day-to-day business run on certain narratives of the past that we can comfortably count on.

3. Focus on the here and now.

Events that are very transactional and near-term, may be more “knowable” than events that determine long term success or the survival of an enterprise. The further back you need to go to find markers that show you the future, the less knowable the future becomes. As a former boss said to me once, “the long-term is just a long series of short terms.”

I want to close with a couple of concepts in one of the most thought-provoking books I have read recently: Thinking, Fast and Slow by Daniel Kahneman.

The Hindsight Bias: “I knew it.” From a possible set of equally likely outcomes, the outcome that turns out to be reality is something we fit our narratives into, and hence, we think we could have predicted the outcome all along. The reality is that history could have picked any one of a series of likely outcomes. History is written by victors, so be careful about the narrative you attach to the victory.

The Outcome Bias: If you were a successful entrepreneur or CEO in the past, a lot of that success is likely attributed to your leadership, risk-taking ability, and so on. While these are all necessary ingredients for success, the role of chance – and indeed even the role of poor decisions – along the way tends to be overlooked. Hence, the inevitability of success is anything but foretold. Many smart and successful entrepreneurs decide to forego a second attempt at entrepreneurship because they understand this very well.

As a startup CEO, the only thing you will know for certain is that nothing is known with certainty. So make it up as you go along and embrace the happy accidents along the road to success. Know that it’s what successful people have done before and will continue to do in the future.

About the author Paddy Padmanabhan @Technori
Paddy is a keen observer of technology-led business model innovation. During the week, he runs a healthcare analytics business. During the weekends, he plays guitar and sings in a classic rock and blues band. You can find him on www.linkedin.com/in/paddypadmanabhan99/, or follow him @paddypadmanabha.

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