Fri, 5 May 2023
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
The optimism bias is defined by Wikipedia as the tendency to be over-optimistic, overestimating favorable and pleasing outcomes
Startup founders often focus solely on the opportunity while ignoring the risks.
Skeptical investors do the opposite by focusing on the risks.
Startups succumb to the optimism bias because they believe more things are under their control and they can influence outcomes by their own efforts.
To overcome the optimism bias, consider the following:
Identify the average time it takes to perform each step in a startup such as hiring the team, building the first product, onboarding the first customer, etc.
Then use those averages in building out the schedule.
By using industry averages one can overcome the optimism bias.
In addition, conduct a premortem with the team in which you ask “Pretend we are in the future and the project failed. Ask why it failed.”
Consider the negative outcomes to identify the risks in the plan.
This will reduce overconfidence in the plan and identify areas for improvement.
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