Sunday, May 19, 2013

Reading a lesson doesn't mean you've learned it

One of the key things I encourage every entrepreneur to do is to develop a healthy sense of humility.

Many entrepreneurs (especially those of the brash, young, cocky variety) drip with self-confidence.  That's a good thing.  You need some irrational confidence to pursue a profession with a 99% failure rate in which you take on the world's biggest and most powerful companies on a shoestring budget.

But being self-confident doesn't mean being deluded.  That's why it's a good thing so many people in the startup world read things like Dan Ariely's "Predictably Irrational."  Or is it?

A recent guest post on Scientific American argues that a shallow reading can actually cause problems by generating unjustified confidence:
http://bit.ly/15Zb327
"Although we intuitively believe that we correct for biases after being exposed to them, it is impossible to truly accomplish this until we consider how the bias blind spot – the bias within the bias – distorts thinking. The ironic implication is that these books are perhaps part of the problem. The common sendoff, “now that you know about these biases, perhaps you’ll decide better,” instills a false confidence – it’s the trick we’re all failing to notice.
I first noticed this after learning about confirmation bias, overconfident bias and above-average-effects and concluding, dubiously, that I was a genius living in a world of idiots. Of course, the joke was on me, and it took many years to figure that out."
 Think your confidence is justified?  Okay, consider this line of reasoning.

1) Venture capitalists are smart people. (Most have advanced degrees, and are financially successful)

2) Venture capitalists know that spending 1 hour per month in a board meeting doesn't qualify them to run the business.

3) Venture capitalists enjoy books like "Predictably Irrational" and attending TED and other such conferences. (Entrepreneurs probably would too, but don't have the money)

Yet despite all this, many VCs still proffer advice to entrepreneurs as if they were handing tablets down to Moses.*

Don't get cocky, just because you've read a few books.  We're all dumber than we think, and developing an appropriate sense of humility can be very profitable in the long run.

* It is possible that VCs do have a subconscious realization of their limitations--after all, how many do you see leaving their partnerships to start companies?  If they really were that much better at building startups than the average entrepreneur, they could make a lot more money doing that than simply investing in flawed entrepreneurs!

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