#blahonbusiness: Survivorship Bias and Confirmation Bias… Why Founder Mode versus Manager Mode is a pointless debate.

 I am guessing most of you have read Paul Graham’s viral piece on Founder mode versus Manager mode. I can’t say I agree with all of what he says especially when it comes to delegation and building team capacity.

But I strongly believe that there’s a big difference between founders and managers/CEOs. The biggest difference I have found is that managers often seem to operate from a place of loss aversion or risk mitigation. They seek continual improvement through linear interventions. How do you improve margins? How do you tweak distribution? What’s the process to evaluate the probability of success of a new initiative? 

For all the claims that this approach leads to atrophy, there is nothing wrong with this approach. In fact with the right execution this sort of marginal gains approach creates winning machines like the famous Ineos juggernaut in cycling under Dave Brailsford. Improving everything by 1% leads to extraordinary success over time thanks to the power of exponential math. 

The challenge with this approach however is that it stifles the big bets that can be transformative to a business. Some decisions just don’t make sense from a marginal gains framework. Zomato buying Grofers when both companies were bleeding was an objectively crazy decision, but one that led to Blinkit/Zomato becoming the hottest tech company in India. Or Steve Jobs betting the house on iMac. These are the sort of decisions that can transform a company when done right and deliver the kind of growth a linear approach can never imagine. 

The problem with recommending this method though is the classic psychological error called survivorship bias. These sort of bets have high risk reward ratios. Which means by definition that the probability of failure is high. We talk about Jobs and Zomato. But we don’t talk about Byjus. But they are essentially the same thing. It’s easy to sit and create a narrative post facto. But at the time when Zomato bought Grofers and Byjus bought White Hat, there wasn’t a single expert that predicted the radically divergent pathways of these two companies. Replace Steve Jobs with Elizabeth Holmes or Adam Neumann and you have the same problem. 

While there are clear differences between Founder mode and Manager mode, the truth is these differences don’t mean that either approach is better than the other. It just comes down to what you as a personality type (whether as an investor or reader) are drawn to. If you believe in steady, safe growth you’ll prefer the Manager mode and think of Founder  mode as gambling and dangerous. If you believe in the glory of “all in” and “the hero’s journey” and the books of Ayn Rand, you’ll see the Manager mode as a pathway to mediocrity  and Founder mode as the only way to create meaningful value. 

That brings us to the other psychological error driving this spurious debate. Human beings are wired to think in terms of narratives, even about ourselves. We all have a self image. The way we see the world and the narratives we create to make sense of it are an attempt to validate and reinforce the sense of self that we have created. This is why we are drawn to the narratives that validate our worldview and tend to devalue the narratives that don’t, the psychological fallacy known as confirmation bias. 

So instead of trying to participate in this spurious founder mode versus manager mode debate here’s my advice:

• Spend some time understanding your psychological biases. 
• Introduce yourself to the subject of behavioural economics so you see the correlation between psychological biases and economic decisions. “The Art of Thinking Clearly” by Rolf Dobelli is an excellent introductory book. “Thinking, Fast and Slow” by the Nobel Prize winning Daniel Kahneman is a more meaningful deep dive. 
• Train yourself to follow data when making decisions rather than anecdotes.
• Accept that in most cases there are no right or wrong decisions, just assigned probabilities for potential outcomes. Decisions are only right or wrong in hindsight.