Optimism bias is a tendency to believe that things will turn out well in spite of past evidence or circumstances.

It can be extremely helpful. It allows us to attempt things that many may deem impossible. It probably helps drive entrepreneurs even when everyone is doubting them. Optimists are often healthier and happier.

But it can also undermine us. We might overestimate our chances of success because of what we want to happen rather than what's likely to happen. We may feel pressure from others to give a rosier outlook — like when you might underestimate a timeline when speaking with your boss. We might want others to succeed, or they may be paying us money and be hoping for good news. We probably think we'll get more done next week. We probably think we'll be more disciplined than we will be. We might think that this time it'll be different, or that everyone can't be wrong. Or we may be just discounting evidence without realising it.

Related: Hofstadter's Law, survivorship bias, Kitty Hawk moment

Optimism bias

The twin engines of altruism and ambition are a powerful force for positive change in the world.

They need to be balanced. Ambition without altruism and change may not be positive. Altruism without ambition may be nice without impact. But put the two together, for example with a mission-driven business like B-corps, and it can be a recipe for wonderful, positive, and meaningful change — and probably what we need to deal with the challenges of our times.

This lovely concept is from Richard Reed, co-founder of Innocent drinks, and I learned it from Holly Tucker's Conversations of Inspiration podcast.

Altruism and ambition

Starting a company isn't easy. Reid Hoffman, cofounder of LinkedIn says:

"Starting a company is like jumping off a cliff and assembling the plane on the way down."

But just because it's hard, doesn't mean you shouldn't do it. I remember receiving some advice that you shouldn't wait around for the right time to have children as you'll never find it. I suspect starting a company is similar. It reminds me of this lovely quote I have taken to heart from Hugh Laurie:

"It's a terrible thing, I think, in life to wait until you're ready. I have this feeling now that actually no one is ever ready to do anything. There is almost no such thing as ready. There is only now. And you may as well do it now. Generally speaking, now is as good a time as any."

As far as I could tell, unconsciously or separately, Reid's version relates to Ray Bradbury's earlier advice of jumping off a cliff and building your wings on the way down.

Starting a company

Pitched as the one number you need to grow your business, the Net Promoter Score (NPS) is a way to find out from your customers how many love what you’re doing enough to tell their friends vs how many are ambivalent or negative about your business. The resulting number, your NPS, ranging from +100 to -100 has been shown to be an indicator of companies’ future success.

To calculate your NPS ask your customers how likely they would be to recommend your business to a friend—or variations thereof—and give them a scale of 0 (not likely) to 10 (very likely) to answer with. Those who answer 9 or 10 are your biggest fans or Promoters. Those who answer 7 or 8 are passively satisfied—they like your business but are unlikely to shout about it. And those answering 6 or below are your Detractors. If they talk about your business it could well be negative. Your NPS is your % of Promoters minus the % of your Detractors. For example, if you received 100 responses, 35 as 9s or 10s, 37 as 7s and 8s, and 28 as 0–6s then your NPS would be 35 minus 28 = 7.

Keep track of your NPS over time and you’ll get a sense of how your business is doing. Follow up with qualitative feedback, for instance, “Why did you give this rating?”, and get a recipe for improving your business. Simple.

Learn more in the original Harvard Business Review article, “The One Number You Need to Grow” by Frederick F. Reichheld.

Net Promoter Score

Networks effects can lead to massive, rapid growth. Amazon has leveraged this little sketch by Jeff Bezos in 2001 for mega growth — Amazon calls it a virtuous cycle — and, more recently, the Uber variation, by David Sacks explains much of Uber’s wild ride.

When you build a platform that leverages network effects right it can enable growth way beyond what has historically been possible. Also, see Metcalfe’s Law.

The ‘Virtuous Cycles’ of Amazon and Uber

The value of a telecommunications network is proportional to the square of the number of users of the system.
— Robert Metcalfe

This law explains a little of the remarkable power of a growing network. Each time you add a user, or node, to the network, the number of connections increase in proportion to the square of the number of users. So, in this simple example where every new node gets a connection to each of the existing nodes, you can see that, say, adding a single node to an 11 node network creates 11 new connections.

It’s a simplified example because in most networks the value is not directly proportional to the number of connections as some connections or users may be more valuable than others, and usually adding a new user wouldn’t create a connection to all existing users — say if it was in a different country, or people spoke a different language, or just cared about different things. But nevertheless, you can see how a network quickly becomes valuable as users join.

So, Facebook has about 2 billion users…

Metcalfe was talking about telecommunications networks and the basic proposition has been modified since it was formulated including by Metcalfe himself.

Once again, just because something is called a law doesn’t mean it is one. See Fitt’s Law

Sketchplanations tagged with entrepreneurship