All Entrepreneurs & Investors are cursed by “Value Attribution”!

Value attribution is a basic innate human behavioral tenet  that superimposes characteristics and qualities of an individual or thing when we  are assessing the “objective” value of the individual or thing. In other words we tend to stick with the “perceived value” of a thing or individual over its “objective value”. Our perceptions from our own culture, past experiences, diagnostic biases take over and trump our ability to assess based on the real objective values.

Value attribution phenomenon was demonstrated by Joshua Bell – one of the finest violinists and Washington Post in 2010 in Washington D.C. at a Subway station where over a 1000 people walked by without paying attention when Joshua Bell – one of the best known violinists in the world played for over 45 mins on his $3.5 Million worth violin – at a busy Subway stations in D.C. Metro.

Value attribution is all around us – every time you try to interact with someone who is more accomplished than you or in a different social strata …..some of this is very much reflected in our Zombie relationships we have built around us via social networks.

Our media industry also plays into “value attribution”. We see this in typical headlines and trade journals as well – where if someone famous or accomplished gives a sound bite, that gets more visibility and credibility than someone who is nobody although both of them concluded the same thing. Specifically when I was a research analyst early 2000s anything I said was picked up as a quote and listed here and here but no one cares two hoots even if I had said something more profound via my blogs or otherwise without such a credible “qualification”.

How is “value attribution” related to startups, entrepreneurs and investors?

Well, let me tell you that its spread intravenously through out the entire industry – for worse.

Entrepreneurs:

Whether you are a first time entrepreneur or serial entrepreneur, you do face negative and positive biases respectively that adversely affect you, regardless of the bias.

For first time entrepreneurs, most investors – angels and VCs alike have a negative bias for the inexperienced and lack of credibility. The mentality is if you didn’t do this before why would we invest in you and take a bigger risk.

Where as for a seasoned or more than once entrepreneur – angels & VCs – especially those who have already invested or saw the entrepreneur execute in the past – give a positive bias – and are lot more inclined to invest. Most investors are ignorant of the fact that success is not fungible and every startup would have similar as well as unique challenges. Millions of investor dollars go in the gutter because of positive bias towards serial entrepreneurs.

Investors:

For one of my previous startups, many investors have told me that they would only invest in entrepreneurs with whom they have worked in the past.

While taking the “known devil is better than the unknown god” approach works in most cases, I am willing to bet that statistically investors might lose “more” on startups that they have not invested but should have than the startups they have invested based on the “value attributions”. 

 

Investors – angels as well as VCs alike give higher weight towards existing relationships, past experiences & emotionally charged biases when they deal with known entrepreneurs. On the flip side, they go the other extreme when they deal with first time entrepreneurs with perceived biases.

Investor or entrepreneur or just about anyone – approach all your interactions with people (strangers or friends) around you as if its a privilege for you to interact with them!

Especially first time entrepreneurs should create interesting avenues and opportunities to overshadow “value attribution” that they will inevitably face when they want to build their startup and do fund raising. There is no check list I can provide but will tell you that its your mind set and perspective that will help you overcome this dogma.

 

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