Survival Bias

During World War II, researchers from the Center for Naval Analyses conducted a study of the damage done to aircraft that had returned from missions, and had recommended that armor be added to the areas that showed the most damage.

Shortly after, a mathematician called Abraham Wald noted that the study only considered the aircraft that had survived their missions—the bombers that had been shot down were not present for the damage assessment. The holes in the returning aircraft, then, represented areas where a bomber could take damage and still return home safely.

Wald proposed that the Navy instead reinforce the areas where the returning aircraft were unscathed, since those were the areas that, if hit, would cause the plane to be lost.

And by following this advice, the Navy managed to minimize aircraft loss in the last years of World War II.

Focusing on “survivors” when analyzing some process leads to false conclusions, and I was about to make this exact mistake when I started writing this post.

A Nine Years Survival

A few weeks ago my business turned 9, and I asked myself what was the biggest mistake I had done during those years.

But when I started making a ranking of mistakes, I realized that this wouldn’t be very useful to publish such the list without first talking about the mistakes I didn’t make.

Just as an aircraft returning to base after a WW2 mission, my business had avoided the seminal mistakes that kill so many short-lived ventures.
Therefore, for a reader willing to take my advice, the pitfalls that I had managed to avoid would be the most important to consider.

I’m leaving this ranking of mistakes for my next post and I’m focusing in this post on things I got right.

1. Make Something People Want

The main reason I got a few things right when I created Treasured is that it wasn’t my first take at creating a product. In the previous years I had published a couple of “hobby products” and learnt a few lessons the hard way.

The first lesson is that without a painful, unsolved problem, that you can solve and charge money for, there is no future.

And that’s really counter-intuitive, because media coverage is always about twenty years old drop-outs that create an app that does a few trivial things, become an overnight planetary success, make no money but end up selling to Google or Facebook for a few hundred millions after a couple of years.

There’s no doubt that this is the story people wants to read, the success that startup founders want to experience. But for founders that’s like playing lottery and picking the winning ticket. For each such success they will be thousands of failures that nobody will talk about.

On the opposite, I prefer to bet on low risk ventures where my chances to win become acceptable. Granted, I won’t become super-rich, low risk brings lower reward. But the fact is that most innovative businesses that stick around for nine years have the same DNA: building a low key, niche, uncool product, but that solves a real, painful problem that people is willing to pay money for.

That’s true in the Internet age, and even now when free mobile apps are all the rage.

Now, how do you discover a painful, unsolved problem? Easy:
Just hang around in places where people with problems go, and ask them!

Forums in specialized websites are a perfect place to start hunting for a business idea.

One day in 2007 in a video forum, I stumbled upon a school teacher that needed to repair a surveillance video to figure out who had stolen the classroom computer. Luckily, the computer was recording live video to a hard disk in a locked case, that the thief had left behind. Classroom footage was available on the disk, but the MOV file been corrupted when the computer was taken by the thief.

That day, I repaired my first video (but unfortunately the thief was wearing a hoody and the teacher could not identify him) and decided that this could be a business idea worth investigating. The whole episode was captured in this blog a few days laters and is still a fresh read!

Once I knew that some people badly wanted to repair corrupt MOV files, the next step was to discover what the market would look like.
Through a market survey? No, by offering directly my expertise (which at this point was all but non-existent)

During a few weeks I requested corrupt MOV videos through my website, claiming that I would repair them for free.

I was contacted by around 20 persons, and discovered a surprising diversity of customers, situations, video formats and technical problems to solve. I managed to decently repair most of the videos, and the feedback was great.

This gave me confidence about feasibility and helped me take the seminal decisions about product and marketing, those that you can’t get wrong:

  • Target Video Professionals, on Mac platform
  • Deliver as a Service

Creating a “universal video repair program” was immediately ruled out: Diversity of situations, of formats, and quality required by professionals require specialized solutions and personalized support. Only a service can provide that.

The moment of truth is when I started to charge for the service.
Everyone is enthusiastic when you give away free repairs, but when there is money in the equation, everything changes.
You suddenly become liable. You quickly understand that unless you build trust and give solid proofs of repair, no customer will send you money.

Therefore, the service was shaped first and foremost to build confidence:

  • Providing a diagnostics and price quote free of charge, using a sample of the damaged video provided by the customer
  • Providing a short sample of repaired video
  • By developing a customized Repair Kit that the customer can use on his Mac, to produce watermarked video out of the damaged MOV file and take the purchase decision
  • Finally, give a refund guarantee in case expectations are not met

The first payment soon arrived. For sure, for the first months the service was still 100% craftsmanship, every customer being a new challenge, but the business was born. A minimal product (Treasured was still one year away) but a viable one.

To be continued…