How to Avoid 4 Common Sense Scams That Are Hurting Your Business

If you’re an entrepreneur, critical thinking isn’t just an academic exercise, it’s an important tool for making sharp decisions. Whether you’re a month into your first venture or a decade into your business, mastering the art of logical reasoning can have a huge impact on your success.

For this reason, understanding lies is an overlooked and underrated business skill. Deception can cause unexpected damage to your performance and even your mind. A seemingly small error in thinking has led to death in the worst case scenario.

Here are four common thinking traps that I’ve experienced firsthand in over 20 years as an entrepreneur and how they can affect your business.

1. Apply to the authorities

Consulting with experts and consultants can provide you with valuable information, but relying too much on their opinions without considering the context of your business can lead to Untrustworthiness. Just because someone is an authority doesn’t mean their advice fits your unique situation.

At my company, Vungle, we had a board full of veteran investors with deep experience in ad technology. Their advice was to break away from games, which was our main market, and focus more on product advertisers. In retrospect, this was a mistake. While their authority and knowledge was undeniable, the direction didn’t match the reality of our business — 90% of our revenue comes from gaming companies. Unfortunately, we spread ourselves too thin in both markets. In contrast, a competitor called AppLovin got it by staying completely focused on sports. They eventually went public and are now worth over $40 billion, while Vungle sold for $780 million. I still consider our exit a great success, but this is still a very frustrating lesson for me in the dangers of following authority without question.

Bottom line: You should always check whether professional advice is appropriate for your particular situation. Combine external information with your own data and information to ensure balanced, informed decision making.

Related: 3 Key Qualities to Look for in a Great Counselor

2. Green timber

The Green Lumber Fallacy, coined by Nassim Taleb at Antifragile, warns against overemphasizing unimportant details at the expense of the most important aspects. At the beginning of my angel investment journey, I fell into this trap by focusing too much on startups with impressive products, ignoring critical aspects like sales, distribution and market size. Although the products themselves were better, the lack of strong distribution channels meant that these companies struggled to gain traction and eventually failed.

Focus on the important things that directly impact the success of your business rather than getting lost in technical details. Make sure your product information is relevant to market needs and customer needs.

3. False cause

Consider the increase in sales during the holiday season. It may seem counterintuitive to increase productivity for the next holiday. However, this is a classic example of the False Cause Fallacy, where you assume a direct cause-and-effect relationship between two related events without hard evidence.

To avoid this pitfall, always question the reasons behind the observed patterns. Analyze the data carefully to ensure that you are not distorting the causal relationship. Test hypotheses in a controlled manner before making significant contributions.

4. The gambler’s illusion

The Gambler’s Fallacy is the mistaken belief that past success guarantees future results. After Vungle’s $17M Series B round, we’ve raised our projections significantly, thinking the momentum will continue. However, even though we aimed to grow by 50%, we managed to increase by 15% the following year. Our rapid scaling presented challenges we did not fully anticipate, and this led to disappointing results.

Although the following years saw our growth double, this experience taught me an important lesson: past performance does not mean future results. Always base your assumptions on solid analysis, not just on recent success, and always be ready to adapt to changing circumstances.

Related: 16 Traits of Critical Thinkers

Avoiding lies to make better decisions

In the whirlwind of business, where every decision matters, avoiding logical fallacies can be your secret weapon for success. Don’t let faulty thinking trip you up—arm yourself with strategies that sharpen your decision-making and keep your business on track. Here’s how to turn potential pitfalls into powerful opportunities:

• Focus on the data. Don’t give up on gut feelings; instead, use A/B testing, market research and financial modeling to make solid and evidence-based decisions. Before diving in, test your ideas on a small scale to confirm their potential and minimize risk.
• Ask for guesses and don’t take advice personally, even from investors or authority figures. Make sure their information is relevant to your daily activities. Challenge yourself by working in an automatic position and seek diverse opinions from your team and stakeholders who are more focused on operational details.
• Use decision-making frameworks. Use tools such as SWOT analysis or cost-benefit analysis to ensure that your choice is based on a thorough analysis of all relevant factors.
• Stay informed. Keep your edge sharp by learning about bias and documenting your decision-making process for future reflection and growth.

Adopting these habits not only increases your decision-making power but also changes the way you approach challenges. With these tools in your business arsenal, you’ll turn a lie into a stepping stone to success, guide your business to amazing successes and avoid costly mistakes.