The Dunning Kruger Effect & Failed Startups

Published on:

Some founders tend to overrate themselves & underrate more experienced people. This (Dunning Kruger) effect is one of the reasons why startups tend to fail. Find out more!

An ignorant person is often found with arrogance, escapism or unrealistic expectations. However, it’s not so simple as you might think from the very beginning. A person with an ignorant mind is full of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge. Hence, there is some sense in statement:

“In many cases, incompetence does not leave people disoriented, perplexed, or cautious. Instead, the incompetent are often blessed with an inappropriate confidence, buoyed by something that feels to them like knowledge.” by David Dunning.

Startup Opportunities

Let’s have a look at startup opportunities identification. (1) If the entrepreneur is currently working in a company, he can find out how to improve the business process or to solve its discrepancy common for other market players. (2) Otherwise, the entrepreneur looks at the industry/market from outside and detects an opportunity in unexpected failures/successes, industry/market changes and consolidates that in new knowledge.
The second option sounds great for non-industry insiders and let us believe that we can become the new Mark Zuckerberg or Steve Jobs even though we don’t have a relevant market expertise. Here is one of the common stories relevant to the second option:

After half a year of toiling days and nights, the startup team built a product/software from the scratch, spent other people’s (family/friends/angel investors) money and suddenly understood that nobody or a very limited number of people would buy it. The startup got doomed. How could that have happened?
At first, the founders understood that they didn’t want to work for anybody or got bored with their PhD thesis or the job they did. They started searching for self-employment opportunities or some startup ideas. As profound smartphone users they hated obtrusive ads popping up on the screen all the time. The more they investigated what irritated them, the more they understood that they were not alone, almost 95% of all smartphone users are irritated and got ad-blind.

Then the opportunity validation started. The founders participated in different industry-specific conferences, talked with marketers, explored how much they suffer from consumer ad blindness. The more the founders talked with marketers and advertisers, the clearer the idea became. They decided to build the platform, which will make advertising pleasant, gamified and non-obtrusive to users. If users are so well-satisfied, the advertisers and app providers will be happy too.

The vision was exhilarating. The team was ready to toil, build a first prototype like crazy and deploy it in less than one month. Founders transmitted the confidence. They won the startup competitions, got some pre-seed angel investors money and headed to the Alma Mater for incubation.
With the first prototype, the market testing was deployed. The advertiser was happy with the outcomes. Investors were happy too. A startup accelerator got interested in such a cool team and the outcomes it delivered. Life looked like a bed of roses.

Until it was not. The customers truly suffered from the problem but the suppliers had hidden internal problems, which stopped them from implementing the startup product. If the suppliers don’t implement, the customers can’t buy the product. It’s a classical chicken-and-egg problem. Then a deathly spiral of pivots started. Finally, the startup was dead.

The Dunning Kruger Effect

Does this story sound familiar to you? For me, it’s very familiar. The striking mistake I see is that the startup founders and the whole team were neither experts nor target users of the product that they built. When you are new at something, you give yourself the famous Dunning Kruger pass on your decisions. Nevertheless, you can be humble in your opinion, you know how important it is to test the minimal viable product before building anything feasible, you have some knowledge about innovation BUT still you have no expertise in the sphere/market/industry.

The Dunning Kruger Effect & Failed Startups

Summing up, before you get a strong desire to solve a problem for somebody, get into his shoes, live his life and maybe you will figure out what the real problem is, whether to solve it costs less than to bear it.



Sharing is caring so please share this post. Thank you!