5 Cognitive Biases in Business Strategy I Suffered From as a CEO — and How I Help Others Avoid Them. Part 5
The better your new product, the harder it gets later.
Your innovative idea can change the world, but not in the way you expect. This strategic paradox caused trouble for many companies.
The graveyard of failed products is full of tombstones reading ‘We were first.’ Consumers never visit those graves.
How a breakthrough product nearly destroyed its creator
An entrepreneur once invited me to become his strategy advisor. His company, let’s call it XYZ, was launching a new product at the time. It helped construction companies build internal partitions several times faster.
“It will change the world,” the team members told me, eyes on fire. And alas, they were right.
The team had researched the market and discovered a sweet spot. They identified a strong need that wasn’t addressed by the existing products. They felt like a child who had found a sweet shop where everything was free – and somehow, no one else had found it yet.
Their financial projections were rosy, to say the least. Their logic was straightforward:
1. There is a gap in the market.
2. We have a product that closes the gap.
3. Everyone with this need will come to us.
They calculated the number of future customers and the expected profit.
I tried to argue that things like that happen only in business fairy tales that you can buy in any bookstore. Getting a product to market is usually a messy, winding road — even if customers love it. Flawed assumptions in strategy cause us to miss our revenue targets. Moreover, it also drives up costs, because we’re planning for massive sales.
But the XYZ team turned a deaf ear to my arguments. To those who think the game’s already in the bag, any warning sounds like cowardice.
The first months after the product launch looked promising. Early adopters adored the product. The sales curve looked like a hockey stick. The team was thrilled.
They were already picturing their faces on the cover of Forbes.
The honeymoon period lasted just three months after the launch. Other customers were hesitant to buy the solution. They asked for more options, extra services, and more flexible pricing.
The entrepreneur refused to tweak the product. He pushed the sales team to find more customers. “There’s no time for fine-tuning,” he said. “We need to grab our share of the market before it’s too late.”
But it was too late — he just chose not to see it.
It Changed The World of Cognitive Biases in Business Strategy
The product changed the market, but not the way the team hoped. This paradigm shift triggered an avalanche of consequences they hadn’t wanted to foresee:
- Legacy providers slashed prices to stay in the game — and many did.
- Cheaper, stripped-down alternatives popped up within months — less powerful, but good enough.
- Suppliers who’d ignored this category saw the opportunity — and rushed to build their own.
- Direct competitors launched their versions within a year. They covered all customer needs, offering more options, added services, and flexible pricing.
In fact, XYZ’s product launch ended up being free market research for competitors. They used customer feedback to bring better versions of the product to market.
In the end, the team — who had been counting on their carefully calculated Eden of high profits and zero competition — found themselves in an overcrowded bloody red ocean, with their product now the industry standard.
The company managed to stay afloat and even became the market leader. It was the kind of leader you become when you’re tiny — but everyone else is even smaller. The entrepreneur had to admit that he should have listened to my warnings.
Three strategic cognitive biases hit XYZ at once:
1. The Illusion of Control. XYZ’s leaders believed they would make the market play by their rules, but the market, as always, had its own plans.
2. The Optimism Bias. They were overly optimistic because they were in love with their product.
3. The Confirmation Bias. The team preferred to listen to positive customer feedback and ignore the criticism.
XYZ’s example isn’t unique. Many great businesses fell into these traps.
Conclusion
The better your new product, the more it disrupts the industry. And the market map we saw while planning disappears—and it’s all our doing. That classic logic — “See a gap, fill it, get rich” — doesn’t quite work like that.
Netscape Navigator, Myspace, and BlackBerry were revolutionary products of their time. They paved the way for the competitors—Internet Explorer, Facebook, and iPhone—but failed to capitalize on that. Their leaders also fell prey to these cognitive biases.
A few considerations may help you avoid their fate.
1. Don’t see your new product as a final version, no matter how good it looks. It’s just a prototype, and you should be ready to refine it as quickly as possible to stay ahead of the curve. Apple has been releasing new iPhones every year.
2. Don’t rely too much on your financial forecasts. Things rarely go exactly as planned.
3. Always have a plan B, and stay as flexible as possible. The changes your new product will trigger are unpredictable, so be ready for anything. Many of your initial assumptions may prove to be incorrect.
4. Don’t be afraid to kill a good product to build a better one. Netflix transitioned to streaming and Adobe shifted to cloud subscriptions (Creative Cloud) well before it became mainstream. Their older solutions were reliable and profitable, but they took the risk of launching something better, even when those decisions didn’t seem obvious at the time.
Worried you might end up in the same situation? Let’s talk (read more here).
If you want to dive deeper into strategic thinking — and you’re not afraid to face its paradoxes and provocations — read my book Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism.
Catch up on earlier articles in the series here, here, here, and here.
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I write about cognitive biases in business strategy, mental models for strategic decision making, and paradoxes in business strategy. Subscribe to get new articles delivered straight to your inbox. Prefer RSS? Subscribe here → https://sbiryulin.com/feed