High performers will tell you luck is irrelevant. This post will do the opposite. It will tell you luck is important. It will explain how luck affects startups. It will guide you to be lucky. In the process you will experience the extinction of the dinosaurs, meet a different Netflix and learn about Swans. Luck is power. Use it.
A famous technologist and investor stepped on stage. He reflected and told stories from a long life in Silicon Valley. After spellbinding two hours, he concluded on everything he had learned. He spoke a single elegant sentence.
But what he said, left everyone in disbelief. Confusion spread. Was that it? Had they misunderstood? I couldn’t be.
The Narrative Fallacy
Imagine this famous experiment. A room with one million people. Everyone pairs up to play the game of heads and tails. Coins are flipped. Losers leave. Winners stay. Now half the people are left. New pairs are formed. And so it continues. In the end, one person is left. The winner. He has been right unbelievable 19 times in a row.
Let’s imagine we celebrate him. We give him awards. We label him genius. We study his technique. His fingers are rather long. We study his childhood. He used to play heads and tails with his brother to decide TV channels.
Let’s imagine we interview him. We ask him what makes him successful. What would he say? I suspect he would pause and think. And then he would do what most people do. He would fall victim to the Narrative Fallacy.
Good storytellers got many children
In pre-modern times survival wasn’t given. So humans strived for safety. Being safe was a matter of control. Control is understanding connections between Cause and Effect.
Humans achieved understanding of Cause and Effect through experience. Those who had eaten many berries knew which types caused stomach ache. Experienced people had high social status. They provided safety. The group made them Elders, Chiefs and Priests.
The experienced people were asked for advice. On all matters. Sometimes on things they didn’t really know. But they liked the role. It had benefits. Food and wives. The products of high social status.
So they started giving advice on everything. They made up Cause and Effect explanations. Like: Thunder is created by a hammer swinging angry god. Sickness is caused by evil deeds. Mermaids make sailors disappear.
The best storytellers had the most children. And so it happened. The ability to make up explanations spread. Today, it’s in all of us. The Narrative Fallacy.
Luck is real. Also for startups
Back to our winner of the coin toss contest. He gives the reporter what she wants. What everyone wants. The explanation for his outstanding performance. The Causes that lead to the Effect. The things he did to win. And people like the answer. It provides a recipe. We understand what caused his success. The story is created.
No need to explain the ridiculous nature of the heads and tails example. We understand that in a such experiment, someone will eventually win. We also understand that the winner was just lucky. But in the game of startups we do the same. We celebrate successful founders. We interview them. We study them. We make up stories about them. We identify Cause and Effect. But we rarely talk about luck. Its role is not well understood. In fact, it’s taboo.
The problem is this. We are afraid of luck. Afraid that attributing luck will harm us. Successful founders wouldn’t harvest social status. Authors wouldn’t sell books. Venture capitalists couldn’t raise funds. Accelerators and advisors couldn’t justify value. Like our heads and tails winner. We would never celebrate him in real life. Luck is not welcomed. But luck is undeniable real.
Every week someone wins the Lottery. Every day a child is adopted and gets a chance of a happy childhood. Most scientists believe that life and the birth of the universe are results of extraordinary coincidence. In other words: luck.
But if luck is (also) true for startups. How should we approach it?
Birds of serendipity
There is a phenomenon called a Black Swan. It’s an event that has no predecessor. It catches everyone off guard. It’s random.
Black Swans define our existence. The extinction of the dinosaurs. Birth of Jesus. The First World War. The iPhone. A Black Swan can happen today. Or tomorrow. Or next year. We don’t know. But we know it will define our future. And it will impact your startup. And your life.
The Black Swan has a cousin. The Grey Swan. It’s more frequent. But It will still surprise and impact you. Like Hip Hop, Snapchat and CrossFit. Together, these Swans are catalysts for change. And the change can be either: Good or Bad.
When Apple sent a Black Swan flying in 2007, it was bad news for many people. Namely for everyone that made Java apps. Not to mention Nokia managers.
But the iPhone was good news to others. Like a tiny startup called Unity. They had made it easy to build games for Apple devices. Two years after their founding, Apple revealed the iPhone. Then the App store. The iPhone became the world’s biggest gaming device. Unity benefitted. Today, it’s a unicorn.
How to be lucky
Luck is when a good Swan appears. But they hit randomly. And they are blind. They don’t know who they benefit. And they don’t care. Both good and bad Swans are random.
Because Swans appear randomly, the chance of getting hit is a function of time. That’s true for any random game. The more you play, the bigger the chance of winning. Our coin toss winner had to show up. Imagine Unity had folded before the launch of the iPhone. To be lucky is a matter how long you play the game.
But the risk of being unlucky is also a function of time. The longer you play, the bigger the risk of unlucky events. But there is a trick. The key to luck. And it’s simple, but hard. The hard part is the reason why we should acknowledge luck. Why it shouldn’t be taboo.
The trick is this: Don’t let the bad Swans kill you.
Not everything died in the mass extinction of the dinosaurs. Some animals and plants survived. Those that were versatile and scrappy. Like Amazon during the dot-com crash. Or Netflix ten years ago. They sent DVDs back and forth in envelopes. Internet enabled streaming was a really bad Swan. But they adapted.
If you can outlive a bad Swan you stay in the game. Richard Branson calls it protecting the downside. Fund managers call it hedging. Your mother calls it not putting all the eggs in one basket. They all understand that losing everything means game over. Your chances to be lucky goes to zero. But if you survive. Your chance of luck returns to random. You can be lucky.
The ultimate guide to luck
Here it comes. The ultimate guide to luck:
Guide for startups: Expose yourself to luck by staying on the market for as long as possible. Keep lean and protect your runway. Pivot if unlucky events occur.
Guide for people: Expose yourself to luck by staying alive as long as possible. Go out every day and interact with the world. Get up every time you fall.
Tomorrow a good Swan may come
Conclusion made:
- Humans hate coincidence because it introduces uncertainty
- Humans make up stories to downplay coincidence
- Luck is taboo in entrepreneurship, but it’s very real
- Luck comes as good Swans
- The key to luck is to stay in the game and get up when you fall
David Ventzel 