My Pet Peeve: Correlation vs. Causation

People often mistakenly derive extraneous meaning out of the fact that two things are merely correlated. They will say, “A increases as B increases; if we change A, then that will affect B.”

It’s actually more than a pet peeve, a minor irritation. It’s really flawed logic.

Correlation simply doesn’t imply causation.

Just because two trends are correlated doesn’t mean one causes the other. Often, a third related factor causes both originally identified trends.

For example, just because in the past few years we’ve seen an increase in both search engine spending and the number of SEO/SEM firms, it doesn’t mean that one of these caused the other. Will increasing search engine spending directly increase the number of SEO/SEM firms, or vis-versa? Perhaps the real driver is the number of advertisers who have experimented and enjoyed successful results from these marketing efforts. Or maybe it’s a virtuous cycle in which it’s difficult to truly unmask the true cause.

Along those lines, we often see business plans here at Masthead that claim “because Factor X increases as the customer’s revenue-per-user increases, our product which affects Factor X will increase revenue even more.” Really? Maybe, but often there is a Factor Y which is the real cause of both Factor X and revenue. A company’s product offering should really get to the heart of the issue and the real driver of value.

When people present correlation graphs, I stop paying attention when they don’t know the difference between the two ideas of correlation and causation. This mistake is very dangerous, as it often leads people to chase the wrong goals.

David Beisel

David Beisel is a co-founder and Partner at NextView Ventures. He has been focused on early stage Internet startups his entire career, both as an entrepreneur and venture capitalist. As an investor in the digital media space, David was most recently a Vice President at Venrock and previously a Principal at Masthead Venture Partners. Prior to becoming a venture capitalist, David co-founded Sombasa Media, an e-mail marketing company best known for its flagship product BargainDog. Sombasa was successfully acquired by where David served as Vice President of Marketing. David holds an MBA from the Stanford Graduate School of Business and an AB in Economics, magna cum laude and Phi Beta Kappa, from Duke University. He also founded and leads the Boston Innovators Group, an organization which holds quarterly entrepreneur events drawing a thousand attendees.