After I sold my company last year, I was swarmed with folks looking for me to jump to the next thing. I was amazed at the doors that opened thanks to the small victory of having my first startup acquired. I thought back to two months earlier, when I was just another dreamer with a huge credit card bill. I was the same person, with the same probability of success, but nobody wanted to chat with me about opportunities then.
The world of venture capital is obsessed with winners. Former CEOs are recycled into new positions at new companies. Profitable VC groups raise new and bigger funds. The successful CEOs hobnob with the successful VCs, and the cycle continues. But should it? I didn't acquire many new skills in the two months between being completely broke and decently flush; someone just bought my company. In truth, luck and timing had a lot to do with it.
It occurred to me that distinguishing between probability and talent is a talent in itself. Consider the following example: Eight people are backed up to the edge of a cliff, and each flips a coin three times. Heads means a step forward; tails, a step back, or utter failure. By straight probability, half the field falls off the cliff after the first flip. On the second flip, two will advance another step and two will return to the start, likely terrified to flip again knowing that the cliff is behind them once more. On the final flip, probability dictates that one will fall off the cliff, two will end up a step ahead and one will be in quite an enviable position--two full steps ahead of the nearest competitors and three ahead of the start point.
Just as I didn't experience substantive change in my two months from debt to solvency, the standout in the example had the same odds as everyone else but ended up ahead.
Probability alone would allow some people to succeed time after time. Being able to distinguish among people with talent and people just filling probability's quota is not easy. It is arguable that those who have failed bring just as much, if not more, to the table but must work much harder to get another chance. Perhaps that is why many of the greatest entrepreneurs have racked up multiple failures as well.
Nearly every investment prospectus ends with the statement, "Past performance is no guarantee of future results." Yet the entrepreneurial world ignores this maxim time after time. Clearly, not every business situation is a coin flip. But in any situation that involves luck, as those with startups and investing inevitably do, there will be people who are truly exceptional and those who are just bucking the odds. If you find you're being perceived as the former, remember you may be only one step in front of that cliff.
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This article was originally published in the February 2012 print edition of Entrepreneur with the headline: Heads or Tails?.
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Comments:
This was a good article! I love statistics, insomuch you might consider me a business-scientist. I only move where I know the odds are in my favor. The cliff example is very good, but what he overlooked is the fact that there are things you can do to improve your odds. Angel investor, and professor of entrepreneurial studies Scott Shane discusses this in his book, "The Illusions of Entrepreneurship". The moral of the book is that what it takes to succeed in business is very much pragmatic. That if you focus on a core set of items in developing an enterprise, your odds of success go way-way up. Some of these proven items were: A) Motive Entrepreneurs who had high revenue motives, outperformed those who begin simply because they hated their day job, or something parallel. B) Industry Selection This he cited as one of the most overlooked. But the industry you choose, can improve, or decrease your success odds in multiples of 100%. C) Common ground investors A black man, going to black investors, is more likely to get funded than a white man. A married couple, frequenting married investors, the studies found, were more likely to get funded than a single business person. The studies seem to suggest that one overlooked factor in being funded is having more in common with the group with whom you are requiring funds. [Talk about 'the more the merrier'] D) B2B > B2C 90% of the fastest growing companies in his study were selling to other businesses. Yet most start-ups sell to consumers. I could go on but I hate long posts and you can just get the book.
Everyone who had good "luck" had to do something to get there, whether it was making the right investment, meeting the right person, or even buying that elusive winning lottery ticket. So, I think that ACTION needs to be the magic word. Consistent positive actions will lead to results (the timing may be slower than you would like though.) So yes, we in a sense create our own luck.
Luck matter a lot for business. However, more of it matters is the decision of deciding when to step back and revise and saying no. If you can decide that, then you can prevent great fall. I have seen many people finding or accepting the fact that they need a step back!!!
That's probably the problem. Looking to just start something because you want to start something is a recipe for disaster. There must be a passion and reason beyond that or you won't make it through the lows that every start up experiences
The problem is trying to find something to start. Grrrr
Luck ~ events that are beyond control and seem subject to chance ******************************* "Your destiny shall not be allotted to you, but you shall choose it for yourselves." ~ Plato
Timing is everything.
It's always a matter of 'right place, right time'. That's why if you start a business and it fails, start another. And another and another until eventually you end up in the right place at the right time and break through.