Tag Archives: startup risk

Don’t Believe the Research Until You’ve Read Steve’s Post

Posting on his Small Business Labs blog, Steve King wrote: Don’t Quit Your Job Until You’ve Talked to a Small Business Failure. Amen. Everybody even thinking about starting a business should 1.) Read that post; and 2.) do what it says, talk to a small business failure.

Steve cites a couple posts he’s done recently on research showing small business owners feel relatively safe in their jobs. But then he adds:

Several people have asked me does this data mean that small business ownership is less risky than traditional employment?  The quick answer is yes, but only if your small businesses is successful. (emphasis is mine).

I love the irony: the polltakers ruled out failures by asking existing business – which, by definition, aren’t failures – about risk. Steve’s a professional researcher, so he quickly identifies the problem as survivor bias, which he says turns up often in research. He adds:

My favorite example of survivor bias is surveying existing customers to develop satisfaction ratings.  I was once asked to figure out why a company was losing so many customers despite having stellar customer satisfaction ratings.

It turned out they didn’t include customers that left prior to the annual customer satisfaction survey.  After all, they explained, they weren’t customers anymore.

So, as Steve suggests, if you want to explore the dark side of small business, talk to the losers instead of the winners.

(Photo credit: el lobo/shutterstock.com)