Perseverance Bias
As a founder, I can’t help but find myself resonating deeply with the systemic challenges founders face. I’m not talking about the challenges of scaling a business. Sure, that’s hard, but scaling one’s own internal fortitude is what resonates most with me.
Founders, unless they are deeply fortunate, must eventually navigate some amount of skepticism. Some might even have to do this multiple times. This skepticism is a natural function of capital markets; it’s a force that resists change and weeds out risky ideas. This is arguably why venture capital (also called risk capital) exists: to back founders that the market deems as too risky.
The system, however, is unfortunate. It’s unfortunate because risk capital — and by proxy, founders — seem not to be so risky after all. Venture capital as an asset class has outperformed the public markets, averaging back to the mid 1980's. This is, of course, despite the market’s high risk assessment of the asset class.
Perhaps even more interesting, is that venture firms perform even better when one considers only the funds attributable to new and developing managers, i.e. those managers who are managing a fund for the first time. Founding managers backing founders tend to do well, what an idea!
Even on a fund-by-fund basis, while most individual investments will fail, very few firms ultimately fail to return capital at the fund-level (see Harris et. al.). In short, investing in founders — and the emerging managers who back them — hardly appears to be as risky as convention makes the idea out to be. Indeed, there’s a difference in reality versus the conventional wisdom, and this difference creates real problems for entrepreneurs.
For example, imagine you were a founder, or perhaps you already are one (welcome!). Now imagine finding a market opportunity that you are well positioned and excited to take on. Now imagine being told “no”, “it’s too risky” or “I am not excited about this” hundreds (if not thousands) of times. It doesn’t take a large imagination to understand the effect of this rejection. I suspect that this is why we, in the United States, value the character traits of grit and tenacity. Without grit, most founders would just give up.
And, because grit is rare, many do.
Again, this is unfortunate, because the system limits the amount of ideas that can go to market. Not every entrepreneur has the innate tenacity, or explicit luxury, to survive skepticism long enough to see their vision through to market. The system leaves would-be entrepreneurs demotivated, and stuck in dead-end cycles. As a climate-conscious consumer, I also strongly feel it leaves us in an unsustainable status quo. Without founders, we can not innovate. Without innovation, we’re screwed.
Thus, risk capital and emerging fund managers clearly have important roles to play. However, for those founders who have not connected with their capital partners yet, we would fare well to encourage them to not to give up. Playing my part, I’ll offer one such encouragement tool I use myself: Perseverance Bias.
Stated simply: Perseverance Bias is the conscious indulgence in confirmation bias as a mechanism to survive skepticism.
Let’s break that down.
First of all, aren’t biases bad? Well, sort of. Biases are reflections of our default, or learned, preferences. Unfortunately for human progress, biases often work against society’s best interests. As a manager and leader, I had to undergo a fair amount of training and self-education to become aware of, and develop strategies to combat, my harmful unconscious biases.
In learning about biases, I came to appreciate one particular type of bias: confirmation bias. Confirmation bias is the instinctual urge to seek out information that agrees with (i.e. confirms) one’s point of view, and discount information that challenges the same point of view. The careful reader might even notice that I might have a small confirmation bias towards information that supports emerging fund managers (guilty as charged).
Others might recognize this bias as the same preference that Facebook exploits to keep users engaged. So, yes, bias tends to work against us and confirmation bias can be weaponized to sell ads and inadvertently sow division. However, much as nuclear fusion gave humanity a terrible bomb despite producing a durable source of energy, confirmation bias can hurt humanity despite also giving it a a valuable survival tool.
In a twist of existentialism, I found that knowing about confirmation bias allowed me to leverage it when I needed support. Almost like having that extra bit of chocolate even though I consciously know it to be indulging. When I face rejection, I seek the confirmation of other founders overcoming skepticism to remind me that the journey is long.
When the sting is gone, I can focus again on learning, improving and — importantly — trying again. With enough practice, this starts to look like grit. If you were not born gritty (I don’t think I was, particularly), this can get you pretty far.
So, if you’re a founder, don’t give up. Trick the social algorithms to think you’re obsessed with perseverance. Then go pitch, fail, indulge, recharge — and do it all over again. With enough time, you will get to write your own perseverance story.
You might even look back and even realize you were quite gritty, after all.
