Cognitive Biases? What Are They And 6 Practical Ways For Startups To Avoid Them

Much has been written about cognitive biases — below is a particularly good diagram by Jeff Desjardins summarizing some of the most common types.

There are many other related concepts, for instance:

Reality Distortion Field — A term most closely associated with Steve Jobs which describes the power to sway minds through charisma

Dunning-Kruger Effect — The tendency of people to overestimate their knowledge / abilities, captured in the picture below

The Curse Of Knowledge — Assuming that others have the same background / knowledge as you.

Groupthink — When people’s desire to confirm leads to them to consensus decisions without significant critical evaluation, with potentially harmful consequences

So how do entrepreneurs and investors avoid such mistakes? Individual mindsets translate into collective culture and at Tau Ventures we believe the key lies in both. For us half the battle is being individually aware of these biases and the other half is implementing policies at the company level such as:

1) Post Mortems — Identify what led to a failure, with the goal of understanding and managing in the future rather than assigning blame.

2) The Five Whys — Asking why five times, applying it to each subsequent answer, to understand true cause and effect

3) The Board — Posting on social media? Tag all the board members. Organizing a meeting? Send decks beforehand and notes afterwards, keeping board members accountable to go through them, so that the meetings are more about discussion and debate. Need input? Email everyone asking to reply-all to push engagement. We find small things like these actually result in a more engaged board, which is absolutely crucial for governance.

4) Weekly Reflection — Amidst the hurried pace of a startup it’s hard to find time to stop and think deeply. So we believe in actually embedding it into the very fabric of the company. Scrum mandates daily standups; we believe at the minimum startups should do a company-wide weekly standup. Some large companies go beyond by instituting weekly snippets, albeit the goal there is usually more on updates rather than reflection.

5) Books Books Books — Just some of the ways we have seen include a required reading, book clubs, a book report during weekly standup, paperbacks in the office, suggested list of reading along with comments in the company’s Intranet etc. The goal is to have case studies to constantly learn from. Case in point, if any of our entrepreneurs asked us what not to do, recent examples we would point them to would be Bad Blood (Theranos) and Billion Dollar Loser (WeWork).

6) Quarterly Activity — We think once a quarter is the right cadence for a group of people to take a step back and check upon their processes and frameworks around solving problems. Could be offsite or onsite. Could have a social component (often does). Could be hands-on or pieces of paper. The goal is to do an activity that challenges assumptions so that people gain a deeper awareness of their individual and collective mindsets.

Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.