Premortem: Imagine the Failure Before It Happens

Optimism feels great. Last week I wrote about why it's a strength worth cultivating. Now, it is time for me to smash it into pieces and look at it more realistically.

Projects fail at a spectacular rate. In New Zealand, fewer than half of all new businesses survive their first five years (Stats NZ). Optimistic entrepreneurs usually think they will be among the few who succeed. But unfortunately, overconfidence is probably one of the most significant setbacks for optimists. And those cognitive biases that never go away in our minds create blindness toward hidden pitfalls, leading to countless failures of businesses.

You may feel defeated when cold water is poured into your new business dream. But please stick with me for a moment. Risk management is a skill, and it can be learned and mastered. Therefore, overconfident optimism can be overcome by training as well.

Daniel Kahneman mentioned "premortem" as a partial remedy for overconfidence. However, the practice of premortem is also straightforward. It is used as a managerial strategy. A project team imagine a project or an organisation that has failed and then work backwards to determine what can lead to the failure of the project or organisation. You can look at a more detailed explanation and execution of premortem from Harvard Business Review and McKinsey & Company Insights.

It sounds a bit technical, but it is all about making the picture clearer. Sometimes, we are so excited to work on the easy, prominent part of the puzzle and ignore the parts that look inconspicuous, but they may cause significant trouble in the end. Premortem is a way for businesses to be smart from the start and avoid troublesome situations or ultimate failure in the future.

Here, I want to emphasise some key takeaway points about premortem. It is described as "a partial remedy" for a reason. Firstly, you cannot rely on it to figure out all the potential risks and possible outcomes. The future is still unpredictable, with the premortem or without it.

Secondly, you cannot do the premortem alone. It would all be a "pause" or a "reflection" if you are the only one thinking of the possible reasons for a failure. You are still trapped in your cognitive bias. That is also why I encourage entrepreneurs to find co-founders and play the game as a team.

Thirdly, we can still be blinded to the risks as a group. As brutal as the fact is, even though we are different in many aspects, we sometimes fall into the same thinking pattern when we work on a project together for so long. Therefore, having someone outside of the project team provide an outside view can be a way to crack the dilemma.

Finally, keep on being optimistic and move on. Sometimes, the reality is harsh, but it does not mean you need to give up, or that your idea is flawed. Thomas Edison failed thousands of times until he finally invented the light bulb. Hence, patience is the remedy to everything.