1. Entrepreneurial decision-makers and the use of biasesand
heuristics
2. Objectives Examine negative biases that canemerge in
entrepreneurs and inentrepreneurial teams Best practices for
managing therepresentativeness &overconfidence 3. Entrepreneurs
are more likely to use biasesand heuristics Why do entrepreneurs
more so than companymanagers use: personal judgment, cognitive
mechanisms, and subjective opinions? 4. Benefits of using biases
and heuristics? Working with incomplete data Need to make faster
and cheaper decisions Less time spent = fewer opportunities missed
Less money spent = need to efficiently manage limitedfinancial
resources Need to take decisive action Capitalized on near-term
opportunities Lessen likelihood of missing opportunities 5.
Minimize the total time through the loopThe Lean Startup, Eric Ries
6. Example: Software Development 7. Dangers of using biases and
heuristics? Hasty decisions Incomplete analysis Squander resources
New biases 8. Negative biases that can emerge inentrepreneurs and
in entrepreneurial teams Representativeness Decision-making short
cut by generalizing abouta person or an event based on only a
fewattributes of that person or only a fewobservations of similar
events Overconfidence Decision-making bias of over optimism in
aninitial solution and slowness to incorporateadditional
information about a situation into thesolution because of initial
confidence 9. Why are entrepreneurs subject torepresentativeness
heuristic? Not enough resources (time, money, knowledge, etc.)to
systematically collect data Not enough resources to analyze data
Fear is missing opportunities Sense of urgency to make a decision
10. Passion and belief that the favored outcomeis the likely
outcome Overestimation of ones own knowledgemay be necessary to
pursue innovative,uncertain opportunities If the entrepreneur is
not confident, theteam, investors, etc. will not be confidentWhy
are entrepreneurs subject tooverconfidence bias? 11. Best practices
for managing therepresentativeness & overconfidence Actively
search for information Define assumptions Consider alternatives
Estimate the consequences Work as a team Ask for advice 12.
Customer discovery and validation is centralto the decision to
launch the firm.The Lean Startup, Eric Ries 13. Summary Negative
biases can emerge inentrepreneurs and in entrepreneurialteams Use
best practices for managingrepresentativeness overconfidence
Customer discovery and validation iscentral to the decision to
launch the firm
