How to Avoid Survivorship Bias and Know What Consumers Want Next

November 01, 2017

Would you take advice from a lottery winner on how to pick winning numbers?

Probably not.

Yet there’s a good chance your approach to innovation, New Product Development and strategic planning is akin to following the advice of lottery winners.

To understand why, we need to talk about survivorship bias; and then we’ll look at a better process for figuring out what consumers want next, so you can be the company that delivers it to them first.

What is survivorship bias?

Let’s start with a Wikipedia definition:

“Survivorship bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to false conclusions in several different ways.

Survivorship bias can lead to overly optimistic beliefs because failures are ignored, such as when companies that no longer exist are excluded from analyses of financial performance. It can also lead to the false belief that the successes in a group have some special property, rather than just coincidence.”

In a nutshell, survivorship bias happens when too many people focus on (or listen to) the person (or company) that has success, believing they have some exceptional quality that explains their success...and that provides a template for others to follow.

The reality is frequently less eloquent or easy to explain, and involves a mixture of favourable timing, luck, and other external influences nobody could control.

A really great way to understand the power of survivorship bias is by watching Derren Brown’s ‘The System’, where he claimed to have created a 100% guaranteed system for winning on the horses.

Of course, the truth was less straightforward, and essentially boiled down to only focusing on the person who was lucky enough to bet on the correct horse several times in a row, out of a very large number of participants.

He then edited the footage to focus only on the one consistent winner, making it seem like they had a bulletproof system.

How does it apply to innovation?

When it comes to survivorship bias and innovation, the two worst offenders are these two quotes:

steve jobs survivorship bias quote.jpg

henry ford survivorship bias quote.jpg

I genuinely shudder to contemplate how many businesses have gone bust or lost millions because they choose to follow their examples.

Yes, they both built incredibly valuable business (Apple is the most valuable company in the world), but does that mean they laid out a template of success that others can follow? Absolutely not.

Any time you go to a conference, read a blog post or hear a colleague go on about some incredible success and the lessons you should take from their achievement, picture this cartoon.

survivorship bias

You should not base your innovation process, investment decisions or future strategy based on what’s worked well for another company in your space.

At least not unless you can comprehensively understand all the reasons they achieved their success, controlling for external influences that nobody can influence.

So how should you approach innovation, New Product Development (NPD) and understanding what customers want next, so you can steal a march on the competition?

We’ll look at that in a moment, but first, let’s really understand the issue with survivorship bias when it comes to innovation and guessing what customers want, based on following the Steve Jobs/Henry Ford template for success.

Why does guessing what customers want hurt companies?

Because they go out of business.

what consumers want determines market need

It doesn’t get much simpler than that.

Companies who think they know better than consumers; who think they can spot a gap in the market and don’t take the time to validate their idea with real people; they tend to go out of business. Or they lose a ton of money, market share, brand equity and credibility.

No market need = no market research.

Falling for the survivorship bias that goes in lionising Jobs’ and Ford’s approach to innovation - by ignoring consumers - could actually kill your entire business.

How you should approach NPD and innovation

Don’t aim to be a maverick, aim to derisk your investments and optimise your chances of success by testing your intuition and ‘gut feel’ with real consumers - the consumers in your target market that you hope to turn into customers.

Don’t ignore your years of expertise and market knowledge, but don’t rely 100% on it either.

Take a balanced approach.

“Ok, that’s all very well,” you might be thinking “But how do we really own a market? How do we create category defining products and services when customers haven’t seen them yet?”

In other words, how do you skate where the puck is going?

Quotation-Wayne-Gretzky-I-skate-to-where-the-puck-is-going-to-be-11-73-11-1.jpg

Here are four approaches you can take to achieve radical innovations, launch disruptive products and systemically figure out what customers want before they know...while still involving them in the process.

#1: Look beyond your customers

“You have to stop building for the users you already have, and start building for that next hundred million users.” - General Partner, Benchmark Capital (formerly Product Manager at Pinterest) - read the full post here.

The single best way to take big leaps in innovation is to look outside your company. Not just your own team, but your existing customers too.

They are the most likely to ask for incremental improvements (faster horses), because they anchor their responses to their existing perception of what you can offer.

To break out from that, and bring in disruptive thinking, you need to reach out beyond your database to non-customers, who represent the next way of revenue. These are the future.

It's improtant to always respect and listen to your existing customers (they helped you get to where you are today), you also have to know when to cast your net wider, and focus on a bigger vision, to build for tomorrow, not yesterday.

#2: Focus on Jobs To Be Done

Jobs and Ford were correct in one respect: you can’t expect consumers to design the finished product.

But that doesn’t mean they don’t know what they want.

If you ask the right questions, in the right way, consumers will take you exactly what they want...then it’s your job to design the right products or services to meet their needs.

This is called the ‘Jobs To Be Done’ approach to product innovation.

Understand what it is people want to achieve, what their big frustrations and problem are, what benefits and value they’re looking for, and you’ll have a very clear idea about what your solution should look like.

For example, people may not have known they wanted a car (because they might not have known this was possible), but they could have expressed their need to get from A to B much faster, in more comfort and safety, and without any of the drawbacks of owning a horse and carriage.

#3: Understand the ecosystem

Your product doesn’t exist in a silo, and people won’t use it that way.

You need to understand how people are currently behaving, and the infrastructure and ecosystem that supports this behaviour.

Just look at the explosion in mattress startups. It had long been assumed that consumers wouldn’t buy a mattress online, because they’d want to try it in store.

Only part of that assumption was true. Yes, they needed to try it...but they are happy to try it in their own homes, with guaranteed free pick-up and returns if they don’t like it. The ‘in store’ part was unnecessary.

This insight has led to several hundred million dollar businesses emerging in a few short years.

So ask people more about their purchase process, likes/dislikes and use of other related products to paint a picture of the customer journey, and get a sense of where consumer sentiment is heading, meaning you can preempt the next big shift.

#4: Keep people their comfort zone

It may seem counterintuitive, but often radical leaps forward are only successful if people can contextualise them with something familiar.

This is the concept behind an approach to design called Skeuomorphism, which essentially refers to designing new products to appear similar to other, more familiar products, even if they have no actual function.

There’s a great article from the BBC that looks at the concept in more detail here.

What’s interesting is that cars are an example of this. While people embraced the speed and efficiency of this new mode of transport, they also wanted to comforting familiarity of a carriage. This is has influenced the design of cars ever since.

The point is, when you’re talking to consumers about innovation, you need to understand the things they really value from existing solutions.

Some of these may be non-negotiable, and you’ll therefore need to include aspects of them in your new products and services in order for people to be willing to try them.

How Attest can help you understand what consumers want

Attest’s Market and Brand Intelligence platform has been designed specifically to help connect businesses with up to 70 million consumers across 80 countries, so you can make the right decisions based on real feedback.

This helps you break out of your own database, leading to greater innovations; it minimises risk helps you to avoid the Ford/Jobs survivorship bias. This bias is the reason 42% of new businesses fail; and we can get you the answers you need to figure out ‘Jobs To Be Done,’ understand customer journeys and what existing product features are a ‘must have’ in new launches.

You can get started today with our specially crafted Jobs To Be Done survey template; or speak to one of our team about working with you on your innovation and NPD strategy.

 

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