10 min read · Feb 12, 2024
I’ve been thinking a lot about luck (or chance, happenstance, serendipity etc) lately and specifically how much of a role it plays in business, and specifically in startups in which founders take a disproportionately big a step into the unknown. So much success and failure seem to be the result of unpredictable or serendipitous events that can impact outcomes, for good or bad. It can come as a result of being in the right place at the right time (or wrong place at the wrong time) meeting the right person at the right time (or not meeting that person), or as a result of a host of other unexpected events.
I am constantly reminded of the difference that a chance occurrence (or lucky break) can make in life and in business: the investor that rides in to save the day; the person you meet at a conference who goes on to become your largest client; your brand taking off after a celebrity happens to wear it etc. And, of course, the opposite also applies; just think of the businesses destroyed by Covid. It’s almost inevitable in these instances that someone mentions the word ’luck’. Indeed, there are few, if any, among us who have not referenced luck at one time or another in order to make sense of events. Who among us has not used the phrases ‘good luck’, ‘bad luck’, ‘try your luck’, ‘rotten luck’, ‘as luck would have it’ etc. Most of us would say that we have had our fair share of bad and good luck, however we define it. And I think that’s the key: it’s a totally subjective.
I was initially a little reticent to write on the subject, as there is a fair amount of crossover between luck and superstition. But of course, there is quite a difference between being happy about a positive outcome due to an unforeseen or serendipitous event and actually believing that said event occurred as a result of wearing your lucky pants. When I talk about luck, I’m talking purely about unpredictable events that influence outcomes. I certainly don’t believe that there is anything magical about luck. On the contrary, I’m of the view that any event ordinarily ascribed to luck can, in the end, by explained in terms of reason. People’s attitudes to luck also vary across cultures. For many people in the ’rational’ West luck is a dirty four letter word. Go East, on the other hand, and people might even think you are strange if you don’t believe in luck, so engrained is it in the culture.
But it turns out that I’m not the only one thinking about luck. Articles on the subject are common in business publications from Forbes to Harvard Business Review. Search for ’luck’ on FT.com and you’ll find countless articles, one of which includes this great quote: “There is an unhealthy tendency to idolise “rock star” chief executives and worship their success, ignoring the macro picture and not accepting that quite often they were merely in the right place at the right time.” The articles all acknowledge that success and failure often hinge on events that are outside an individual’s control.
Mentioning luck in a business context raises eyebrows because businesses are based on numbers and evidence-based reasoning, not wishful thinking. It might be fine for a colleague to say good luck when you go into a pitch, but nobody would rely on luck to close the deal, nor indeed invest in a business that based its future success on relying on luck above sound decision-making. The business would be laughed out of town. (Although to be fair, I’ve certainly seen quite a few businesses over the years that were indeed based on wishful thinking!) And yet, as I mention below, for a business to become truly great most probably requires an element of good luck. The opposite also applies: to have a good idea, a great team and willing customers and then fail, probably requires an element of back luck.
The subject certainly divides people into two camps; those that deride it as nonsense, attributing all success to hard work (let’s call them Camp A) and those who don’t (Camp B). And for each point of view one can find a well-known advocate. Thomas Edison, Elon Musk and Peter Drucker are in in Camp A: “Working 16 hours a day, 7 days a week, 52 weeks in year and people still calling my lucky’ (Musk); “Success is no accident. It’s hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do” (Edison). “Luck never built a business. Prosperity and growth come only to the business that systematically finds and exploits its potential.” (Drucker). I guess you could also put Thomas Jefferson in this camp: “I’m a great believer luck, and I find the harder I work the more I have of it.”
In Camp B you will find the likes of Mark Zuckerbeg, Bill Gates, Steve Jobs, Richard Branson and Napoleon: “You don’t get to be successful like this just by being hard-working or having a good idea . . . you have to get lucky”. (Zuckerberg) “I was very lucky” (Bill Gates, when questioned by Malcolm Gladwell about the secret of his success). “To be successful you need to work hard, have a good team, but you also need more than a fair share of luck.” (Branson). Napoleon was clear that he valued lucky generals as much as courageous or brilliant generals.
As it turns out, there is no shortage of people that believe one can increase one’s luck without resorting to superstition. I look at a few of these concepts below.
For example, here is a link to a well-known blog post from 2007 by Marc Andreessen on the four types of luck. Referring to a book on the role of chance in the creative process, Andreessen summarizes what he considers the four types of luck. Here they are:
The Four Types of Luck
- Pure blind luck (or dumb luck, pure chance) — eg where you are born, winning the lottery etc;
- Good luck + general action / motion / hustle (being proactive/ making a concerted effort to encounter opportunities yields a network of new experiences and contacts). Winning the lottery may indeed be a result of blind luck, but it won’t happen if you don’t buy a ticket;
- Good luck + discernment / special receptivity / an intuitive grasp of its significance — being able to recognise good fortune so you can take advantage of it.
- Good luck + a specific action related to a specific opportunity.
I think that makes total sense. You can’t meet people and new opportunities by sitting home and watching Netflix. And I love his suggestions about things that can increase one’s luck, which involve curiosity, a bias to action (over overthinking things) and the ability to be able to link together, and therefore benefit from, multiple, disparate, apparently unrelated experiences. He also calls a spade a spade: “Luck is something that every successful entrepreneur will tell you plays a huge role in the difference between success and failure. Many of those successful entrepreneurs will only admit this under duress, though, because if luck does indeed play such a huge role, then that seriously dents the image of the successful entrepreneur as an omniscient business genius.”
The Luck Surface Area — how to influence / improve your luck
I also like the concept of the ‘Luck Surface Area’ which equates to the amount of serendipity that will occur in one’s life. The concept here is that you can create the conditions under which good luck can find you through your actions and choices i.e. the more you get out there, the more opportunities you will come across. In other words, we can all make our own luck. The person who coined this expression believes that your Luck Surface Area is directly proportional to the degree to which you do something you’re passionate about combined with the total number of people to whom this is effectively communicated. But this implies that you need a passion to increase your luck surface area, and many people do not, yet can probably increase their luck just by getting out there and mixing with different people and coming across new ideas. Maybe ‘opportunity surface area’ is a more apt term.
Relative v. Absolute Success
Then there is the concept of relative success v absolute success. A number of people believe that the difference between moderate success and great success is principally down to luck. Hard work and talent will get you so far (unless you are a sportsman or sportswoman perhaps, where skill plays an outsized role), but you need a lot of luck to have great success. The author of this HBR article (Don’t Underestimate the Power of Luck When It Comes to Success in Business) agrees. Hard work and preparation is important in order to move from poor to good performance, he says, but moving from good to great requires luck and depends more on being in the right place at the right time, which can be so important that it overwhelms merit and grit. The author goes on to offer an interesting example from the music industry to back up his point, suggesting that music labels should not sign up one hit wonders, and would have more success signing those musicians charting at between 22 and 30 as their less exceptional performances suggest that their successes depend less on luck. One to bear in mind if you work in the music industry! The author Nassim Taleb concurs: Solid financial success is largely the result of skills, hard work and wisdom, he claims, but “wild success is more likely to be the result of reckless betting, extreme luck, and the opposite of wisdom: folly”.
Luck in investing?
One can apply the same logic to picking companies to invest in. There are plenty of examples of founders of very successful companies that go on to start companies that go nowhere i.e. luck may have played a significant role in their success. If you believe in the concept of relative v. absolute success, then it makes more sense as an investor to invest in a founder who has successfully grown and exited multiple businesses over the one investor who has built a unicorn, as in all likelihood this removes luck from the equation. That’s why investors pay a premium for repeat founders.
According to The Persistent Effect Of Initial Success: Evidence From Venture Capital by researchers from HBS, IESE and Yale, picking winners appears to be a matter of luck: “Our results suggest that the early success of VC firms depends almost entirely on having been ‘in the right place at the right time’ — that is, investing in industries and in regions that did particularly well in a given year,” they write. I won’t dwell on this, as I don’t want anyone to think I rely on luck as an investment strategy — which for the record I don’t! In fact, no serious investor relies on luck or chance or serendipity, as indeed no serious founder does. What I can say, having been investing in early-stage companies for several years, is that we all know that everything can change on a sixpence; you may have a company in the portfolio that is shooting the lights out and then loses a principle client and runs out of cash. Then there is the opposite: when a company is running out of cash and it looks like all hope is lost but then suddenly finds that killer customer that changes everything.
So what’s the conclusion from my reading on the subject?
The obvious one. without reading any literature. is that opportunities don’t just end up falling into your lap, or if they do, then it’s exceptionally rare. If you make an effort to increase your luck surface area or luck quotient, then more opportunities will find you. This makes intuitive sense. You can do this by having a mindset that incorporates being:
· proactive and open-minded about new experiences — don’t do the same thing and hang out with the same people all the time; expand your circle of friends (if you can!); do things you would not normally do, pick up random magazines / books in areas that you know nothing about, mix with different people, visit new places, make an effort to say ‘yes’ more than ‘no’;
· curious / invest in your knowledge and skills. Adopt a mindset of perpetual learning. The more curious you are, the greater your knowledge and the more likely it is that you will spot relevant opportunities. Wage war on complacency;
· optimistic — hold positive expectations; hang out with people who encourage you to dream big.
It’s not just about having a positive mindset of course, or there would be many more unicorns; founders are some of the most positive people out there. They have to be, as so much rides on their success or failure. It’s also about hard work and preparation, as per the old adage that luck is the dividend of hard work and luck is when preparation meets opportunity.
In case the subject interests you, below are some good articles I read on the subject:
Why And How Businesses Should Rethink They’re Understanding Of Luck (forbes.com)
How Successful People Increase Their ‘Luck Surface Area’ — Calculated Self
Unlocking the Secret to Enhancing Your Luck: Understanding the “Luck Surface Area” | by Gabe Araujo, M.Sc. | Medium
Don’t Underestimate the Power of Luck When It Comes to Success in Business (hbr.org)
The Role of Luck in Life Success Is Far Greater Than We Realized — Scientific American Blog Network
Huge success in business is largely based on luck — (theconversation.com)
The most successful companies are also the luckiest — BBC Worklife
How to Maximize Serendipity — David Perell
Luck and Reputation Matter in Venture Capital. Skill Doesn’t. (institutionalinvestor.com)
