PODCASTS / E110
January 15, 2024
I have a giant chart on my office wall. It’s called the Cognitive Bias Codex. It’s exactly what you would expect a PhD nerd to have in his office. It’s a fascinating compilation of every known cognitive bias psychologists have ever surfaced. How many cognitive biases do we have, you ask?
195. Yes, that’s right, you and I have 195 different ways to completely mis-analyze just about anything.
195 different ways to act on dumb assumptions and completely face plant a major decision in our lives.
You can download this amazing chart at designhacks.co. Enjoy! I blew it up at FedEx Office to poster-size for my office wall. I have issues, I know.
The more I stare at this infuriating chart, the more I realize that no human individual can ever be trusted to make ANY decision in isolation, like ever. And yet, where do live? America. Land of freedom.
OK, seriously, most of these biases are simply short cuts to help us navigate social life efficiently without questioning every single interaction.
Look, we need to make assumptions in social life or we would go insane by 5 PM…or earlier. You do NOT want to live your life like I do (every 30 minutes I’m questioning some basic assumption somewhere in the social world).
The problem that cognitive bias creates for founders is the desire for confirmation and validation. And its ugly friend – avoiding a systematic inquiry into your business performance.
I was on a podcast guest recently and mentioned the enormous psychological sunk costs that get incurred when founders order product runs from a co-manufacturer. I’ve watched this process in real time with a few founders and it is definitely stomach-churning.
Once you’ve placed that co-man order, you’ll have to wait months to turn over that inventory before changing anything on the package or in the formulation. This is NOT the moment you want to hear anyone’s critique of your product line after that order gets placed. No way. You only want to hear – “best shit we’ve ever ordered. Unstoppable. Amazing. Boo-yah.”
In fact, even if you have moments of doubt as you’re waiting for your product to get made, you may find yourself Googling for data to confirm your packaging change or making phone calls and asking loaded questions to friends: “Don’t you think the new packaging is great?”
Oh dear. Yes, some of you have actually done that. I know.
That’s why I’m talking about one of the 195 in this episode. It’s called confirmation bias and why you need to create analytical systems to overcome it in your startup, even if it’s selling $100K a year.
To review, confirmation bias is a cognitive trap in which you cling to the desired conclusion in advance and then keep ‘finding’ data to support it again and again. Confirmation bias is great for marriages. Bad for fast-growing consumer brands.
So, what’s the solution to confirmation bias? It’s a systematic diagnosis of the business. What does this mean? Well, it means you have to do something called pressure-testing your results.
New founders may get super pumped if they hit topline goals for the year and just keep pushing. But this is actually the best time to play devil’s advocate with the data you already have.
Let’s go through how I would pressure test a good topline growth story, so you can put this thinking to work this fall.
1. Did you hit topline goals AND grow same-store velocity too? Or did you just add accounts and doors to get there? You ask this because you’re trying to understand if you grow from increased consumer demand or from pure B2B efforts. And keep your sales/broker dudes honest.
*If your velocity declined despite topline growth, you need to start with a channel-by-channel hunt for the problem
*Then, follow it with an account-by-account hunt within problematic channels
*You may even discover that you over-distributed by store location within a division that is still worth staying in
2. Did you grow topline with a new account, but SPINS data says it’s weighted velocity (i.e. $/MMACV (is actually the lowest of ANY account you’ve added? This should concern you EVEN if the buyer is not concerned. Does this retailer really have the right consumers for offering? Was there a placement screwup (on the floor)?
3. Did you grow topline but see account profitability decline? Then you need to rule out obvious trade-spending one-offs. Then see if your trade promos actually resulted in money-losing growth. This is not uncommon with BOGOs or other crazy promos only BIGCO can seriously afford because they can manage profit down to pennies at the scale they operate.
These are just a few of the questions I ask when I pressure-test clients’ growth performance. Of course, no one hires me to come and find problems. Yet, it’s my responsibility to assess the health of the business regardless. I don’t sell validation as a service. And you shouldn’t pay for it either. Get that for free from your Mom, your Board or your friend.