Financial Clarity for Entrepreneurs

Luck and Success

I came across an article on about the role serendipity plays in careers called “A Pinch of Luck,” and it got me thinking about how luck influences business success.  Often, maybe even most of the time, it is a vital ingredient in creating those successes we read about in business publications.

To illustrate my point, here’s a classic thought experiment, with a twist, using a two-sided coin with a 50/50 chance of landing on heads or tails on any one flip.

Imagine that 2,097,152 people “invest” $1,000 each to enter a coin flipping contest.  The rules are simple: on each round of flipping, those who flip heads get to continue and those who flip tails are out of the contest.  This continues until one person is left – the person who has flipped all heads, however many in a row it takes. (It will take 21 rounds.)

All that money that was invested by the participants becomes the prize pool and it is awarded thusly:

  • 9th through 64th place finishers receive $10,000,000 each.
  • 2nd through 8th place finishers receive $100,000,000 each.
  • The sole survivor, and winner, receives the balance of $837,152,000.

Because of the size of the prizes, this contest would receive a great deal of publicity.  Everyone would comment on how lucky the winners were, because everyone knows that you can’t control which way a flipped coin lands.

However, let’s change the scenario from flipping coins to starting up a business. 

And, instead of heads or tails determining the winners, it’s the outcome of make-or-break decisions.  Things like identifying lucrative target markets, developing successful products or services, entering new geographic markets, hiring a VP of Sales or a Production Manager, or dozens of other decisions that will determine success.

Now the winners are celebrated for their intelligence and hard work.  The $10 million winners become minor celebrities in their hometowns and make the rounds of speaking at local Chambers of Commerce.  The $100 million winners get cover articles in Inc. magazine and the grand prize winner gets on the Forbes 400 list.

But what about all those people who were equally intelligent and worked just as hard and had luck go against them?

Granted, business decisions are rarely 50/50 propositions and there is much you can do to influence the odds in your favor.  However, think of it this way.  If the odds of flipping heads were 90% to 10% for tails, the odds of flipping 21 heads in a row are still only 10.9% (1-in-9.)  If your coin flipped heads 95% of the time, you would still only have a 1-in-3 chance of 21 in a row.  Being the best decision-maker in the world will improve the odds of, but not guarantee, success.

Being the numbers geek that I am, this is all very fascinating to me, but what are the lessons for the entrepreneur?  I can think of several:

  • Take the advice from the latest business celebrity du jour with a grain of salt.  Maybe they really are smart or maybe they’re just lucky.  You must evaluate for yourself.
  • Do your homework and move the odds on any one decision in your favor.  The higher the odds on an single event, the higher the odds of a string of successes.
  • Limit the number of make-or-break decisions.  Experiment small.  Experiment a lot.  Test, measure, rinse and repeat.  You stand a greater chance of 10 successful outcomes than 20. 
  • Stay around long enough for good odds to result in good outcomes.  Be profitable.  Be cash flow positive.  Be well capitalized (or at least well enough.) Don’t rely on the outcome of one big decision to rescue you if you’re in trouble. Make sure that you’re alive when Lady Luck comes around.

I guess the best advice I can give is do your best to improve your odds, don’t get too discouraged if it doesn’t work out, and don’t get too big a head if you hit the jackpot.

As always, comments are not only welcome, but appreciated.  Especially if you have any examples of moving the odds in your favor.  Or, the opposite if you think we can learn from them.

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