Today I am going to stray a bit from technology in order to write about something that I think is just as important to a lot of my clients. The topic today is about cognitive bias and how it might affect the way you look at your own company or at your customers. In this case I am talking about bias that interferes with the ability to make the right business decisions. People often associate bias with prejudice, but in this case it’s something different. I’m talking about how the normal way that most entrepreneurs think can lead them to see the world differently than it really is. There are two particular kinds of bias that can be a problem for a business owner or manager – confirmation bias and what is called the curse of knowledge.
Confirmation bias is the natural tendency to interpret information in a way that confirms a person’s view of the way things work. This kind of bias is probably most easily demonstrated in politics where people tend to believe news sites and politicians from the party or political leaning that most affirms their world view. But this kind of bias is present everywhere in life and can be a huge problem for a businessperson.
I can list many examples of confirmation bias I have seen with my clients. Some examples that come to mind include:
- A company owner that believed his company was doing great because revenues were up year over year. But the increases were all due to cable rate increases and the company was losing customers and market share. He did not recognize a number of problems within the company and was not looking for any.
- A company was moving into a new market and the owner was shocked when nobody was buying his products and services. He had assumed that customers wanted what he was selling.
- A company that was convinced that Comcast had singled him out, was using unfair competition practices, and that this was why he was doing poorly. In fact Comcast was acting in that community identically as they were in surrounding communities.
In all three cases my client was seeing the world they way they thought it worked instead of seeing it the way it really is. If any business person can’t see the major problems in their own business or if they just blindly assume that assume that they can just ‘build it and they will come”, then they have let their cognitive bias overcome better judgement.
The other kind of bias is called curse of knowledge cognition which causes a better-informed person to find it difficult to see from the perspective of a lesser-informed person. I frequently see this when ISPs assume that their products are superior to their competitors and they just assume people will automatically choose their product over the competition. I often hear engineers and others declare things like, “Our broadband product is faster and has less latency. How can anybody else pick that other company’s product?”
This bias causes you to assume that other people think the way that you do, and that can be a problem in an industry where most of the people working at ISPs are technical and most of their customers are not.
Business owners need to remind themselves about such biases and there are several ways to battle against these natural tendencies. One good way is to periodically get an outside opinion. This can be done by hiring a consultant (like me), having one of your peers in to look things over, periodically having focus groups with customers or using well-designed customer surveys. But with any of these techniques an owner has to be willing to actually listen to what the outside world then tells them because the same cognitive bias that won’t let them see problems often won’t let them believe observations from outsiders.
Another good tool, which many business owners find uncomfortable, is to challenge employees to identify problems and the needed solutions. Many business owners are afraid that this cedes too much power to employees, but business owners who embrace this have found that it can energize everybody to work towards being a better company.
Whatever techniques you use, almost everybody has these biases and it’s important that you recognize your own tendency towards them and that you find a way to work around your own brain’s tendency to see the world as you want it rather than the way it really is.