What You Miss Could Kill Your Business

During World War II, the Royal Singapore Air Force commissioned a task force to figure out how to install armor on their planes so that they wouldn’t get shot down as much. The task force was provided with a layout of the aircraft, along with the recorded bullet wounds as red dots. Naturally, most people elected to install more armor where there were significantly more bullet wounds. And they would have proceeded with this plan if not for an Abraham Wald. He pointed out that there was a bias that was unaccounted for.

In The Black Swan, Nassim Taleb calls this bias the “survivorship bias”. Basically, the information that you do get has passed through certain filters, and sometimes it is the information that got filtered away that can be the most important to know. This means that the advice from successful entrepreneurs may not be that useful, because they might have simply gotten lucky, and it might be more useful to study those who failed, but their stories fade into obscurity silently, thus leading to a distorted view of how success works.

Abraham pointed out that these bullet holes were from planes that made it back from the battlefront, and not from those that never made it back. Thus, the bullet holes were actually an indication of where bullets COULD hit and still allow the aircraft to make it back! With this new insight, the task force instead focused their efforts on designing armor around the areas which had the fewest bullet holes instead of the most.

In your own companies, when you ask how satisfied your employees are, you are likely to get positive reviews. But that is likely because those who stay are those who were satisfied to begin with! Instead, you might need to focus instead on why your ex-employees left, but getting that information might be difficult due to lying by deceit or omission! So when it comes to your own products and services, it is all well and good to want to know why your customers and clients are happy. But have you properly asked those who were unhappy why they were unhappy? If not, your company might have fallen prey to survivorship bias, and are highly likely to protect the wrong part of your business, leading to your business continuing to get shot down in the places that actually mattered. Speaking of protecting your business, financial management is a critical component to any successful business. Those who do not manage their finances well end up financially crashing. Have you made sure to protect your financial management of your company? If you’d like us to help you installing this armor for your business so your business can stay flying, contact us at info@cfosg.sg so we can protect your business!


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