Entrepreneurs! Overcome Your Blind Spots

Key Takeaways

• We all miss things
• Entrepreneurs can't afford to be stuck in a cognitive decline
• They need some strategies to cope with these blind spots
• Seeking outside assistance is helpful

When entrepreneurs fail, they seldom blame their brains. They may not appreciate how the mind operates, especially in high-stress and uncertain environments. Our brain determines how we see the world and makes decisions. It's time we examine how those neural networks influence our thinking and recognise that, despite our limited understanding of brain science, we can identify and address those biases.

Story of decline

Ralph's Auto Parts (this is a true story, but the name and some details have been changed) was a successful automotive parts business. Ralph's business started in the early 1970s and rode a wave of high demand during the 1970 to 1990 period. During this period, the auto parts market initially experienced a surge from older vehicles. His firm also specialised in neglected European vehicle components, which grew exponentially with the arrival of the Audi and BMW brands.

With a boom in demand, Ralph's became a cash cow, and surplus funds were diverted to property and other luxury investments. Ralph became complacent and let the business run on autopilot.

Ralph recognised the business was declining and had no choice but to raise cash by selling properties and reducing his foreign trips. Ralph thought that all he had to do was spend more time in the business, but at 60, he neither had the energy nor the perspective to analyse what happened. His parts manager, who was a non-family member, sensed a decline in the business performance. As the saying goes, a rising tide raises all boats, but a falling tide can crash their business for those who do not see it coming. Newer vehicles meant less demand for parts.

We are susceptible to certain biases that must be recognised and strategies developed to deal with them. There are many preconceptions, but we will look at six:

1.       Overconfident bias

Frequently, success comes with a downside. High-performance entrepreneurs often have a false sense of confidence that can lead to failure. This perception arises from the sense that they think they know more than they do. In the case of Ralph, he believed that two decades of success made him more than qualified to lead the business's transformation. He was looking into the rear-view mirror (no pun intended) and trying to drive the car (organisation) in a different environment.  

2.       Confirmation bias

We tend to look for information that supports our existing beliefs. Why? We cherish our thoughts as they become part of us. Entrepreneurs often assume that the world has not changed. Ralph did not accept that the parts business was becoming more diverse, and his competitive advantage declined.

3.       Availability bias

Entrepreneurs often use information readily available and frequently rely on intuition—shortcut thinking can sometimes work without data. However, we must conduct further research to identify emerging trends and market shifts.

4.       Anchoring bias

Businesspeople tend to develop prejudices based on overvaluing the information that comes first. The recency syndrome has a downside as it prevents us from considering other perspectives and discovering new and subliminal information. A deeper dive into a problem may reveal root causes.

5.       Survivorship bias

Due to their past success, entrepreneurs tend to focus on their track record and ignore their failures. Like overconfidence bias, they ignore that situations are sometimes unique and require a different approach to problem-solving. When his parts manager resigned, Ralph did not understand that this would be a big blow to the organisation's intelligence level.

6.       Sunk cost bias

Entrepreneurs invest in businesses and projects. They may not want to cut their losses when they have invested heavily. In the automotive industry, old vehicles are often scrapped, but some retailers still have stock and are not trying to get rid of it. One retailer's son bought too many brake rotor discs, which exceeded the vehicle population. His father had to sell them cheaply to steel pan bands (used for initiating the start of music) and scrap iron dealers at a considerable loss.

Overcoming biases

Focus on continuous learning, including from your own mistakes and others. Entrepreneurs should learn from their failures and seek expert advice if they develop any cognitive blind spots. Learning new things establishes new brain connections, which means there are more pathways for creative problem-solving.

Seek feedback even when it could hurt your ego. Successful entrepreneurs often tend to have inflated egos or be narcissistic, which can make it challenging for them to consider alternative perspectives. It also hurts emotionally to admit that you made a big blunder despite your years of experience. Some entrepreneurs may become so depressed that they need to seek psychiatric intervention. 

In the early days, entrepreneurial ventures lacked formal planning systems. As the business matures, especially when family members are involved, the company should develop forecasting and scenario planning capabilities. Ralph should have seen the changes in the vehicle population and adjusted his parts inventory—demographic shifts seldom happen suddenly.

Ralph should have built a strong management team of family and non-family members. His children may have been spoiled, and his work is to transition from a solopreneur venture to an enduring family enterprise.

When you are very ill, do you seek professional assistance or try to solve the problem yourself when expertise is available? While it is possible to resolve a thorny issue internally, it may take too long and be costly—the opportunity cost can be higher than you think. Ralph should seek outside management help to address the market shifts and develop socioemotional wealth within the family firm.

Minds matter in entrepreneurship. While entrepreneurs are often perceived as flawless and might think so, they can be victims of their brain networks. Psychology and social psychology (between individuals) offer insight into why we develop psychosis and lose touch with reality. There are not enough studies on how entrepreneurs make decisions. However, we can formulate multi-dimensional views of the world through different lenses. This approach can reduce our prejudices and create a more mindful organisation.

Sajjad Hamid is an Entrepreneurship Educator who supports entrepreneurs in scaling their ventures. In his spare time in Trinidad and Tobago, he attempts to cultivate organic tropical fruits and vegetables, practising sustainable farming in his home garden.

He is the author of Build Your Legacy Business: Solopreneur To Family Business Hero. Sajjad is a Fellow of the Family Firm Institute. You can contact him at [email protected] or visit www.entrepreneurtnt.com for a complimentary mentorship session.