The Narrative Fallacy

Why you shouldn’t always trust startup stories

Saurav Risbud
Feb 3 · 9 min read

The Internet is full of articles analysing the factors that propelled certain startups and their founders to meteoric success. Adopting a certain strategy solved a certain problem leading to a certain result. All the dots join up perfectly in a neat linear sequence.

Take for example, the theory that the secret to the success of technology icons Steve Jobs, Jeff Bezos and Larry Ellison was the fact that they were adopted.

It makes sense. Being adopted meant that they were provided with a strong motivation to succeed and prove themselves. It meant that they were comfortable being outsiders and unafraid to challenge the status quo.

But Jobs himself outright refuted the idea that his adoption had more than a coincidental effect on his success:

There’s some notion that because I was abandoned, I worked very hard so I could do well and make my parents wish they had me back, or some such nonsense, but that’s ridiculous […] Knowing I was adopted may have made me feel more independent, but I have never felt abandoned. I’ve always felt special. My parents made me feel special- Steve Jobs

That’s the power of the narrative fallacy- our tendency to condense complex realities into oversimplified stories that neatly account for results and skate over the unnerving element of randomness in all success and failures. This concept was popularized by Nassim Taleb in his 2007 book The Black Swan,which argues that humans seek explanations to the point where we manufacture them.

Even for random processes, we conjure up stories to predict outcomes. Take for example, the gambler’s fallacy: “After five heads in a row, tails is due to come up”. This is clearly not true. There is still a 50% chance of tossing a heads. But our brains need to make sense of our chaotic world by attributing cause and effect relationships to our knowledge of the past.

Why are stories so powerful?

There is a deep biological reason for the human tendency to attach meaning to random events. Scientist Michael Shermer calls it ‘patternicity’.

We are the offspring of those that were most adept at spotting patterns in their environment. Those who responded to a rustle in the grass as if it were a dangerous predator were more likely to survive than their braver peers, even if it was merely the wind. This is because the cost of being wrong about the predator is very small, while the cost of not responding (believing it was the wind when it really was a predator) is fatal.

Thus, those who assigned meaning to potentially meaningless events were more likely to survive and pass on their genes, hardwiring the narrative fallacy into our DNA.

The dangers of a good narrative

Although storytelling helped our hunter-gatherer ancestors survive, it can lead to irrationality, bias and poor decision-making today.

As demonstrated by the adoption example above, businesspeople are heavily prone to peddling narratives, and I’ll be the first to say that I can’t get enough of them. Over the past couple of years, I’ve been hooked on the rags-to-riches stories of gritty entrepreneurs who put in all on the line to launch world-changing businesses. From Brian Chesky and Joe Gebbia taking AirBnb from their cramped apartment to the whole world, to Sarah Blakely selling fax machines while she created Spanx on the side.

Recently, I have been reading up on just how Amazon’s Jeff Bezos turned from nerdy Wall Street guy to ultra-jacked overlord of e-commerce. What exactly is his secret sauce?

1998: I sell books…..2017: I sell whatever the hell I want

But in Brad Stone’s account of Amazon’s rise, The Everything Store, Bezos himself warns against the trappings of the narrative fallacy. He suggests that there is no easy explanation for how certain products were invented, such as Amazon Web Services, the cloud-computing juggernaut that is the most profitable part of his business. There was no aha moment where they realised they could make billions off licensing the technology to other companies.

Reducing Amazon’s story to a single narrative could give the impression of clarity rather than the real thing.

Reflecting on this, I realised just how much of the startup stories I consume fall prey to this trap, particularly those written completely from an outsider’s perspective. One quick scan of business websites is all it takes:

The template is usually the same.

X startup used Y strategy to get Z result. If you have a startup all you have to do is follow this same strategy to be guaranteed success.

But such stories benefit from the power of hindsight. It’s super easy to connect the dots looking backwards. We think that in the Internet age, a crowdsourced model like Wikipedia was clearly destined for success. But if you told an economics professor in the 1980s that a free encyclopedia written by a group of volunteers would beat a paid encyclopedia written by a group of PhDs (see Encarta), they would have laughed you out of the room.

Most analyses of startup success do not reveal secrets, lessons or strategies. They describe how things happened but not why. To describe how something happened means to reconstruct the series of events that led from one point to another. To explain why means to find causal connections that account for this series of events over all others.

When we try to answer the latter question with a preconceived theory in mind, we seek out all the data that confirms our hypothesis while labelling any contradictions ‘anomalies’ or ‘outliers’. This is known as confirmation bias, a phenomenon that has also plagued the scientific community. Yes, that includes the Grade 9 science experiment you constantly tweaked until you got the results you wanted.

The confirmation bias in action

“It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”- Sherlock Holmes

Luck and randomness are crucial, but not everything

“The point is simple. If you look at all the really important breakthroughs made in any field, what you will find is that the unplanned, unintended or fortuitous connection plays just as great a role as the planned, the processed and the organised. This is why, fairly early on, Microsoft placed whiteboards along the corridors on the Redmond campus; for they found that the accidental meetings which took place in hallways were in fact more productive than the scheduled ones which happened in meeting rooms.”­- Rory Sutherland in The Wiki Man

In The Black Swan, Taleb argues that humans severely underrate the role of luck and randomness in all aspects of life. He cites the laser as an invention that changed the world based on luck rather than conscious intent; a typical ‘solution looking for a problem’. Lasers are crucial building blocks of modern society, with uses spanning across data storage, eye surgery, barcode scanners and robotics. But all Charles Townes, the inventor of the laser, wanted to do was split light beams, much to the amusement of his colleagues.

However, I believe Taleb pushes the importance of luck a bit too far. Although it may have more of a role to play than we think, attributing all your failures and successes to luck and randomness can be a dangerous trap to fall into. It can function as an excuse and a crutch to lean on when things don’t go your way. By obsessing over luck, we waste time complaining over the cards we have been dealt, rather than figuring out a way to win regardless.

Luck doesn’t create product-market fit, build websites from scratch and manage people. It’s something to take advantage of, not wait around for.

One of my absolute favourite podcasts is How I Built This, where the host Guy Raz, interviews successful entrepreneurs and discusses their business journey. I find that it suffers less from the hindsight bias that plagues external analyses of startups, as the founders themselves are more cognisant of the roads they did not take.

A question Raz asks almost everyone is “How much of your success do you attribute to your intelligence and hard work and how much do you attribute to luck?” I think the variety of responses that this question gets highlights just how divisive the notion of luck can be.

Kendra Scott, the founder of a billion-dollar jewellery and lifestyle brand with the same name, doesn’t believe that luck has any role at all to play:

“I don’t really believe in luck. This has been very hard. There were a lot of days I didn’t think that I would keep this business. I think part of it is drive, and I saw where we needed to go. Giving up was not an option.”

Meanwhile Kevin Systrom, the co-founder of Instagram believes that the world runs on luck, and you just have to be alert enough to know you’re being lucky.

I think the bottom line is: even if you do get insanely lucky, you have to be smart, motivated and hardworking enough to capitalize on the opportunities presented to you.

What to do about the narrative fallacy

So, if condensing complex events into easy to understand narratives is as dangerous as Jeff Bezos thinks, then what can we do about it? I believe engaging with and understanding the narrative fallacy is a crucial first step. Once we realise that we are subject to this way of thinking, we expose our views to a more critical self-analysis. We tend to seek out opposing arguments and truly examine why we hold the positions we do.

A great strategy is to argue the opposing side in any disagreement you are having. You’ll discover just how easy it is to weave the same facts into a completely different story.

“What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact.”- Warren Buffett

According to Taleb, we should favour experimentation over storytelling, experience over history and clinical knowledge over grand theories.

This is not to say that reading biographies and startups stories is foolish. Reading is probably one of the most productive things you can do. It’s amazing how in today’s information age, we get to inhabit the minds of the world’s most successful people for less than $10 (or once for free if you sign up for Audible). Although some of the cause-effect relationships may be stretched, the stories presented in these books are great teachers, at the very least because the narratives stick in our heads. On top of this, by laying out pitfalls and problems, such stories can help you avoid age-old mistakes or equip you with the mindset to deal with them when they arise.

“Learn from the mistakes of others. You can’t live long enough to make them all yourself.”- Eleanor Roosevelt

But place equal, if not more weight on actually trying things yourself, failing, learning and improving. This is something that I continue to struggle with and hope to build on going forward.

A final thought

This piece attempts to explain the human tendency to spot patterns and weave everything into stories. But what if the concept of the narrative fallacy is just another compelling story we are telling ourselves? But that starts getting into brain-melting territory, so I might leave that for someone smarter than me.

The Post-Grad Survival Guide

We're confused twenty-somethings. We dish on our post-grad blues, successes, failures, and everyday life right here. Featuring topics related to work, relationships, travel, finances, and so much more.

Saurav Risbud

Written by

Trying to write down my thoughts | Student at the University of Sydney

The Post-Grad Survival Guide

We're confused twenty-somethings. We dish on our post-grad blues, successes, failures, and everyday life right here. Featuring topics related to work, relationships, travel, finances, and so much more.

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