One of the biggest traps entrepreneurs (and their investors and Boards) commonly fall into is the recency bias, aka the tendency to overweight the most recent information received. It's easy to see how this happens to entrepreneurs and how it has enormous impact on long-term outcomes, as they're typically using horribly imperfect information to make hugely important strategic decisions. As a Board member, the telltale signs usually reveal themselves over time, as the entrepreneur spends way too much time articulating the latest great idea (sparked by a customer meeting) and the company's focus whipsaws from one idea to the next.
Since nearly all of us suffer from recency bias to one degree or another, it's important to have some safeguards against it. Here are a few:
- Data-driven strategy. Make assumptions explicit and collect data wherever possible. One B2B entrepreneur I admire requires all employees to use a common template to document all customer/partner-facing meetings and then post it internally within 24 hours of a meeting. While it seems easier to collect data on the B2C side, you would be surprised by how many businesses fail to design their databases to yield all the data and insights they'll need once the product is launched (and it's hard to catch up once you have customers/bugs/revenue targets/salespeople)
- Formally documented and broadly communicated strategy. There's nothing like the permanence of a PDF to force more rigorous analysis
- Product management process. Entrepreneurs who dominate product strategy and unilaterally go to engineers to discuss prioritization of feature requests are the ones most susceptible to recency bias. Instituting a formalized process where requests are collected and prioritized and feature/function decisions are made by a team is the key. Entrepreneurs/CEOs can have the final vote - in many cases they are the ones with the best product instincts - but forcing the public debate improves the analysis and, ultimately, the decision-making. Does a lot for institutional trust and culture as well...
- Two modes. The best entrepeneurs I've worked with have both a strategic mode and and execution mode, and they're able to toggle back and forth. In the early days, the strategic mode is dominant, but as the business and team grows, the execution mode becomes dominant. Entrepreneurs that are unable to successfully scale along with the business often fail in this area. It takes tremendous self-awareness to both understand one's strengths and weaknesses across both modes AND be able to switch between them as required.
Most entrepreneurs are long on creativity, energy, and strategic insight - it's what gives them the confidence to start a company in the first place. But by using only these "dominant muscles", entrepreneurs will distract their teams. The truly special entrepreneurs are able to throttle up and down their strategic impulses and ideas while keeping a steady hand on the wheel and keeping the company fixed on a clear, long-term objective.
