4 Cognitive Biases That Stop You From Scaling Your Business

Andy Cook
January 27, 2020
4 Cognitive Biases That Stop You From Scaling Your Business

If there’s one lesson to learn about the human mind from the hit children’s show, SpongeBob SquarePants, it’s buried in an episode where Patrick Star explains why he can’t reveal the object hiding inside his secret box to SpongeBob:

“You may be an open book SpongeBob, but I’m a bit more complicated than that. The inner machinations of my mind are an enigma.”

Patrick Star

Of course in true Patrick form, we then go on to learn that what’s actually happening in Patrick’s mind just a carton of milk spilling over.

You may be an open book SpongeBob, but I’m a bit more complicated than that. The inner machinations of my mind are an enigma.

Even if you’re not a cartoon fan, it’s funny to think that someone with spilled milk for brains thinks he’s as complicated as a 10,000-piece puzzle. But Patrick’s poetic monologue about the complexity of the mind is spot on.

Do we really know what’s going on up there?

The human brain evolved to make quick decisions. In fact, according to researchers at Cornell University, we make over 200 decisions on what food to eat per day alone.

In order to avoid analysis paralysis on what to eat, we’ve developed psychological tendencies that subconsciously expedite our decision-making processes. But even though these tendencies help us seamlessly decide what to consume and not starve, they also rarely steer us toward the most rational, healthy choices.

The same principle applies in business contexts. If you don’t learn how to recognize and wrangle your psychological tendencies, they could stunt your company’s growth.

These 4 Cognitive Biases Could Stop You from Scaling Your Business

Check out these four common psychological biases that could stop you from scaling your business — and learn how to overcome them using the power of documentation.

Not invented here: causes people to discount the value of any ideas that originate outside of your in-group, such as your company, your department, or even your team.

NOT INVENTED HERE

“Not invented here“ is a cognitive bias that causes you to discount the value of any ideas that originate outside of your in-group, such as your company, your department, or even your team. 

When people don’t want to use others’ work as a model of inspiration, they usually don’t want to challenge their own beliefs, don’t understand the work, or don’t want to acknowledge its value due to ill will or jealousy. 

Being this close-minded can seriously hamper your company’s, department’s, or team’s innovation. Neuroscience proves that people crave novelty and variety, so if you fail to innovate your strategy, products, or content, they’ll go stale.

Additionally, in 2016, two management professors from the Rotterdam School of Management, in the Netherlands, discovered that domain experts created better solutions within their area of expertise when they expanded their research across a broad range of knowledge domains, rather than homing in on their own. 

These domain experts produced better results because they had more cognitive diversity than their counterparts. Varying their intellectual backgrounds enabled them to connect more dots, view things from many perspectives, and, in turn, craft solutions that were truly creative and useful. 

To combat the not-invented-here mind-set, consider asking all of your teams to document their approach to experiments and projects in your internal wiki. It’ll build a huge bank of diverse knowledge that everyone, regardless of their area of expertise, can take inspiration from and use to fuel their team’s innovation.

Doing this will also help your new employees learn what experiments your business has already conducted. In turn, they can use their different backgrounds and perspectives to make an informed case for why your company should try a certain experiment again, iterate its design, and retry it from a different angle. As a result, no one can shut them down with the dreaded “we tried that, it didn’t work” excuse.

Surrogation causes people to conflate the measurement of a goal as the goal itself.

SURROGATION

Surrogation is cognitive bias that causes people to conflate the measurement of a goal as the goal itself. When people fall victim to surrogation, they tend to solely focus on the numbers (like page views) instead of the thing that produces the numbers (like resonance). 

This strategy might juice your business’s performance in the short term, but it ravages its long-term health. People read your content, buy your products, and advocate for your brand because they’re worth reading, buying, and advocating for.

However, when you’re only focused on hitting your numbers, you’re incentivized to try to game the system instead of crafting the best possible experience for your customers. 

Too often in the business world, setting a goal means shooting for the numbers instead of the aspirations that inspired the goal in the first place. So before you set your next goal, don’t just document what you’re going to measure. Write down why you want to achieve it and how you’re going to do it. And make sure those two elements guide you toward the actual finish line — not just the numbers. 

For example, here’s how a retail brand could set a goal to improve their site search function:  

  • Why: The majority of our customers prefer using our website to purchase our products, but it’s hard for them to find the products they’re looking for during their first search.
  • How: Let’s improve our website’s search function’s speed, relevancy, and personalization.
  • What: Decrease searches per visitor by 25%.

Notice how, in conjunction with setting a “what,” setting a “why” and a “how” helps this retail brand simultaneously prioritize their customers and hit their numbers? That’s because putting your customers first enables you to achieve your goals. And setting a why and a how enables you to prioritize your customers.

The framing effect causes people to base decisions on whether their options are presented as a loss or a gain.

THE FRAMING EFFECT

The framing effect is a cognitive bias that causes people to base decisions on whether their options are presented as a loss or a gain. Humans are irrationally loss-averse.

In fact, we’re so loss-averse that we actually take risks to avoid a loss, even though we’re risk-averse when seeking a gain. That’s why a loss (lose $100) emotionally impacts you more than a gain of the same value (earn $100). It’s also why we’re more willing to take action to prevent a loss than to secure a gain. 

Your team is most likely to succumb to the framing effect when deciding the direction of your business. By tapping into your team’s natural aversion to loss, some of your teammates’ arguments could seem more compelling than they actually are. And they could take your business down a risky path.

To overcome the framing effect, make sure everyone documents their thoughts in a narrative-driven memo instead of presenting their ideas with a slide deck. Jeff Bezos, Amazon’s founder and CEO, is famous for sparking this movement. In 2004, he banned his leadership team from using PowerPoint to present their ideas. Instead, he asked them to submit four-page, narrative-driven memos. 

In his email that banned PowerPoint presentations, Bezos wrote, “The reason writing a good 4 page memo is harder than ‘writing’ a 20 page powerpoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related. Powerpoint-style presentations somehow give permission to gloss over ideas, flatten out any sense of relative importance, and ignore the interconnectedness of ideas.” 

In your own company, you can minimize the framing effect with an internal wiki. Documenting arguments in an internal wiki for everyone to read and analyze forces your teammates to think more clearly. It also prevents them from glossing over crucial bits of information that don’t fit their agenda. As a result, your team will be able to run with its best ideas — not just the most persuasive ones. 

Curse of knowledge affects subject matter experts where they have a hard time communicating because they unknowingly assume others have the same background knowledge.

THE CURSE OF KNOWLEDGE

The curse of knowledge is a cognitive bias that can affect subject matter experts. When they fall under the curse, they can’t empathize with people who don’t know as much about their domain of expertise and struggle to communicate their knowledge in a simple, digestible way. 

As a leader of your team, you’re most likely an expert on whatever you do. But as a subject-matter expert, you’re also prone to the curse of knowledge. And if you’re under the curse, it’s challenging to clarify your vision for projects to people who don’t possess your level of knowledge. This leaves your employees with little sense of direction and a lot of opportunities for failure.

Fortunately, creating a culture of documentation can help you lift the curse of knowledge — constantly writing or recording videos about your domain of expertise will allow your employees to learn about its subject matter, understand its purpose within your company, apply this knowledge to their job whenever needed, and, in turn, produce better, more efficient work. After you write each post, you should also ask your employees whether they can understand your writing or whether you need to clarify it. 

Another way to break the curse of knowledge is to document your insights about a certain subject as you learn about it. That way, your teammates can grasp your understanding of the topic when you were a beginner, then as an intermediate, and finally as an expert, which guides them along the path of comprehending a complex matter. 

Channeling Your Inner Psychologist

Psychology might’ve just been a prerequisite when you were a college student, but today, as one of your company’s leaders, it must guide your decision-making. Otherwise, you could fall victim to these psychological biases and steer your business down the path of minimal growth.