Don’t trust statistics. Trust the underlying distribution.

For every trader who had a killer year, there are many who lost fortunes. For every successful startup, there are dozens that failed. For every great product, there are thousands of poorly designed ones.

These are the statistics that we normally get and these are real numbers. When people look at them, they often get discouraged. For example, it’s probably not very inspiring for somebody to want to start a business if they know that they have a ~90% chance of failing. The problem is that these numbers need to be looked at in depth to understand who exactly failed and why.

Let’s take starting a business as an example. When we look at the ~10% startup success rate, we assume that most of company founders knew what they were doing and did a great job executing. This is wrong. I’ve been paying attention to (and consulting) startups for many years now and from my experience I can confidently say that at least half of them have no clue. Want proof? Go to producthunt.com and take a look at the products people are building. You’ll scrap 50–75% for various reasons (i.e. no real need for the product, flawed business model, zero competitive advantage in an over saturated market, etc.). Based on the above, you can easily take at least 50% out of the original statistics and now your chances to succeed are all of a sudden ~20%.

If you dig deeper into the remaining 50%, you may find that a certain percentage of these companies had a promising future and were actually selling a lot of product but they failed to secure financing in time and ran out of money to fund production. You may also find that some companies that became successful relatively quickly also got greedy and started doing some shady stuff to fool investors, avoid taxes, etc. And so on.

Bottom line is — if you have access to the underlying data of any statistics and you’re willing to invest enough time to study and understand most of the cases, you will find that things don’t look too bad at all. If your business idea is solid and your business model is sustainable long term (and that you won’t be doing any shady things), your chances to succeed might be as high as 50/50, if not more.

Published on 1/19/2019

< Back to blog