Others may be average, just not you

I’ve spent my career studying one basic (but controversial) question: how do people predict if a business will survive or fail? What methods do they use and how accurate are they?  What can we learn about such predictions and, perhaps most importantly, how can we improve?

One of the first things I learned when starting down this path was that people tend to be pretty optimistic – at least about themselves. We like to cast ourselves in the best possible light.  We think we’re special. This is especially the case with innovators.  When it comes to launching a new business, the statistical odds of success can be downright horrific. We all know the odds, yet sill we march forward in confidence that our wits will defy probability. Innovators proceed in an on-going mission: to explore strange new worlds, to seek out new life forms and new civilizations, to boldly go where no man has gone before… or something like that.

Throughout this research we’ve administered experiments to thousands of innovators. We sit them down and ask them to look at business plans. Next we ask them to predict which businesses will survive and which will fail. This lets us test their methodologies and accuracies. The results have been consistent: everyone’s random. Most groups are between 42% – 48% accurate (close to 50/50) given binary predictive models (survive/fail), regardless of experience, education, industry, nationality or other factors. From the glass tower CEO to the valet who parks their car, nobody’s better than random. Ouch!

However if you ask people what they think about their predictive abilities you get starkly different results. In a recent survey we found people to be around 5 times more likely to believe they were better than average at predicting business survival or failure as opposed to worse than average.

Of course, if you don’t like my suggestion, rest assured. I’m sure your predictions really are better than random. Your driving is superb. You’re extremely good looking and your kisses move mountains. Others may be average, just not you.