Have you ever noticed how an ordinary person or company has one “lucky” random opportunity and then becomes increasingly successful over time, starting with that one opportunity?
The success continues for the lucky one as their former peers continue to plod along without much to show. No one could have forecasted the lucky success at the beginning.
The recipient of that lucky break is often mediocre. That mediocrity may never disappear but the success continues. As things compound to the extreme, great wealth and prestige may accumulate as a result.
What is happening is that the first random success compounds on itself. The positives multiply off that initial incident. The following success wouldn’t have happened with that initial luck.
Let’s put it another way. The winners of a single lucky incident advance at an accelerating rate because of one incident and success explodes upward far more rapidly than in a linear progression. Their not-as-lucky peers just continue in a linear fashion.
Talent/skill in the lucky one may or may not exist and that person could have been anyone with some minimal talent/skill that was well positioned.
There are so many examples, in so many industries and circumstances.
Here are a few well-known business origination stories that started with a single lucky break.
There are many tech startup stories involving large doses of “luck.” Apple, Google, Facebook, Instagram, Slack, and many more. Often, startup luck is tightly correlated to timing. Without that first stroke of random luck, the compounding success would not have happened.
Consider Jeff Bezos. He first accumulates wealth and power due to the providence of good timing. He said at the beginning “There’s nothing about our model that can’t be copied over time.” That early enhanced position then gave him opportunities for even further enrichment. His company showed a great appetite for risk-taking after that initial success which certainly helped. But there are many risk-takers. He is now one of the world’s most powerful people and Amazon is a worldwide phenomenon.
Phil Knight of Nike in his autobiography Shoe Dog readily admits that some of the factors that lead to great success were not the result of his efforts. Rather, they accrued because of Nike’s early positioning, which occurred because of luck. I do believe that Knight’s leadership and persistence in the face of adversity was also a major contributing factor but not necessarily the determining one. There are many with leadership qualities and persistence that did not have any success.
Sir James Goldsmith had “true” luck. He was a famous British early buyout entrepreneur who bought a supermarket chain. As the supermarket chain was doing poorly, he was on the way to meet with a bank and declare bankruptcy. He could not make the payment on a loan that was immediately due. But luck struck! There was a bank strike that broke out early on that very day lasting two weeks. If you’ve ever done business in the UK, you know about British spot strikes. That gave Goldsmith just enough time for him to collect enough receivables to have the cash to pay the loan and keep the business going.
Perhaps luck plays a role most obviously in the Private Equity and Venture Capital industries. Here, a small number of firms take the most returns. The successful early firms in Silicon Valley had very lopsided returns, and it continues. Only a few make most of the money. Kleiner Perkins, Sequoia, and others come to mind. Most others have trouble just breaking-even.
There are certainly talented investing partners in the few successful firms, but the similarities between their backgrounds and those of less successful firms are so close that it does not explain the discrepancy.
A 2018 paper published by the National Bureau of Economic Research confirmed the compounding effect in the venture capital industry. Early wins for venture firms boost the odds of later wins. The authors found that each additional IPO among a VC firm’s first ten investments predicts a 1.6% overall higher IPO rate for subsequent investments.
The 2018 researchers concluded that success leads to more success because of reputational effects. Because of one large initial success, a VC’s brand becomes strong enough to win access to the most attractive deals and management teams. Successful firms were given increased access to attractive later-stage deals, where a startup is already doing well and the investment is less risky. The researchers pointed out that those initial successes seem not to reflect skill. Rather, they result from “being in the right place at the right time” or from good fortune.
It is worth repeating that the early luck of those successful firms attracted more investor capital, better management, and the best deals resulting in yet more returns. There was compounding off the initial success.
The pattern is repeated in academia.
In the academy, scientists publish the results of their research in peer-reviewed journals. The goal is to get attention for results, attract funding, and thereby obtain tenure. Widespread publicity helps but most scientists care more about their reputation among their peers, the other scientists. The results may or may not be ground-breaking, but acknowledgment by the peers is what counts.
There are exceptions to the above, particularly with “superstar” professors at highly prestigious universities. In those limited cases, it may be possible to make significant amounts of money. But that’s the exception.
A way to assess the impact of an academic study among peer scientists is through the number of citations. The more a scientific paper is cited by other studies, the more likely it is to attract further citations resulting in a compounding effect. The scientist then gets funding and tenure, plus an academic reputation that attracts the brightest grad students and post-docs. This all results in yet even further breakthrough research with citations and reputation. The initial success compounds itself.
The story is the same in careers.
We’ve all noticed the mediocrity and lack of talent in so many senior executives. Not all, but many. How does this happen, over and over?
I know of one great example in the Private Equity industry. A group of young analysts was promoted at the same time to junior partners. It is unusual for an entire group would be promoted together in this way. While somewhat accomplished, there was nothing extraordinary that set the people in that group apart.
At first, they all considered themselves lucky. However, after the years passed and the benefits of the first lucky break started to compound putting them ahead of their equally competent peers and their egos grew, cognitive dissonance set in. They started to view themselves as being better and smarter than their original peers. The compounding effect went to their heads. Though several of these individuals did well as their careers progressed, some did not likely due to their initial mediocre ability and poor judgment. But all of them benefited from the initial lucky break.
It’s in sports careers too. Top-performing professional soccer players are usually born at the beginning of the year. A study of the Australian Football League (AFL), Australia’s professional league, found most players were born in the first few months of the year. Very few players had birthdays at the end of the year, with the least number born in December. The pattern was noticed in Europe also.
According to a BBC article, results from these studies are because children born at the beginning of the year fall into a younger age bracket in youth sports. The age cohorts for youth soccer leagues start on January 1 and run through December 31. Those born in January would be slightly older than the other children in their cohort giving them an advantage over the younger, smaller, less experienced players born later in the year. These older children would be more mature and get more coaching, playing time, and encouragement. The initial luck of an early birth then compounds to greater success over time.
It’s not just soccer. Malcolm Gladwell wrote about this in his book, Outliers. He studied top hockey players in Canada and discovered that 40% were born between January and March, 30% were born between April and June, 20% were born between July and September, and 10% were born between October and December. Undoubtedly they were recognized as being slightly better than their peers because of being just a little older, thereby receiving benefits associated with that.
This commonly overlooked factor is referred to as the Relative Age Effect (RAE), where athletes born at the beginning of the year have a physical, emotional, and tactical advantage over athletes born in the last few months of the year. An early birthday could result in a professional career versus being cut from the team.
Being born early in the year is one big advantage that can be considered “luck.” Being born early in the year and slightly older than peers gives benefits that compound on itself.
The lack of luck can negatively affect the earnings potential of a career. Research has shown those who graduate in a recession can take up to ten years to recover the salary they would have otherwise earned. Some never recover from graduating in a recession and suffer throughout their careers. That’s success compounding in the wrong way.
It happens in creative fields too – Maybe especially in creative endeavors.
Many books, songs, and movies are good enough to have fame, yet a tiny number reap the majority of the spoils.
J.K. Rowling’s ‘Harry Potter & The Philosopher’s Stone’ became a blockbuster despite initial rejection by twelve publishers. Finally, it was picked up by an obscure London literary agent. According to reports, the manuscript was not formatted correctly for a publisher’s review, it did not have a particularly good use of language and there were other problems. There were also many other children’s oriented stories before that similarly contained magic schools, wizards, and so on. The competition was fierce. Rowling catching the eye even of an obscure agent was quite lucky.
There is an example even in my own family. My Uncle Hal Pearl was a well-known Chicago musician from the Big Band or Swing Era. He was the most famous theater organist from Chicago of his time. Maybe any time. His talent was extraordinary and he had over 20,000 songs memorized. This talent was recognized early, at around age five. His father, my grandfather, pushed Hal to continue his musical studies and paid for private lessons. He offered encouragement and support. Without the luck of having my enlightened grandfather’s support, Hal would not have had his early success that then compounded over the years. Hal developed an early ego and confidence about his musical talent that served him well though some found it off-putting. That’s supposedly common in musicians.
Then there is Sixto Rodriguez, a talented singer-songwriter who some now compare to Bob Dylan. I first discovered Sixto when doing business in Africa.
He was born in 1942, the sixth son of Mexican immigrants. He started in music at the age of 16 and focused his songwriting on the social issues of his native city, Detroit. He started playing in local bars. In 1968 he got the attention of record producer Dennis Coffey of Motown and Sussex Records.
In the early 1970s, Rodriguez released two albums: Cold Fact and Coming From Reality. They received no attention and had no sales. The record label dropped him. Sixto stopped playing music and was reduced to working manual labor. For the next thirty years Rodriguez grew old in a derelict house that he bought for $50 in a government auction.
Then Australians and South Africans discovered his albums and went crazy for them. It all happened organically, by word of mouth without promotion by a music company. An Australian label produced a compilation of his songs. A bootlegged version went platinum in South Africa. One of his tracks became a leading anti-apartheid anthem. It was the coming-of-age soundtrack of a generation in Africa. But nobody knew who he was.
Originally, somehow, one of the albums he made in Detroit found its way to South Africa many years earlier. The legend is that it was played at a party. Then people started copying and playing it repeatedly. The rest is history.
Rodriguez was unaware of this until 1997. Stories vary as to how he found out. One is his daughter discovered a website dedicated to him by accident. Another is that a record store owner from South Africa called. In 1997 Rodriquez had not made music in decades.
It is particularly moving to watch the video of his first concert in South Africa in 1998. The crowd cheered so loudly for 5-10 minutes when he first walked on stage that the band couldn’t play.
Sixto was such a good and humble person that he gave away all of the money he made in his later years, millions of dollars, to his family and charities. He never moved away from the $50 house in Detroit.
An initial lucky random break on another continent compounded and turned someone who had been rejected in America and given up on music into an overseas legend.
You can conclude that a similar pattern is almost everywhere – one lucky success that compounds. So what is going on?
A doctoral student at Columbia University in 2005, sociologist Matthew Salganik, examined the Rodriquez phenomenon. Salganik noticed versions of the Rodriguez story repeatedly in the creative fields.
With some co-researchers, he designed an experiment. They created a website where people listened to songs by unknown artists. They could then choose which to download. Participants were randomly assigned to different groups.
The researchers found that participants were more likely to choose songs that others had already downloaded in their group. Individuals responded to the social influence of the particular group. As the initial popularity of a song compounded each group created a song so much more popular than the others that its popularity seemed inevitable.
This appearance of inevitability was misleading. In the diverse groups, different songs were the ones that became popular. For example, one song that came in first in one group was ranked forty-eight in another, even though it was the same song competing against the same music.
The research team concluded that the chance of a song becoming a megahit is random. Some initial lucky factor creates a beginning level of interest and that popularity compounds.
What to make of Luck?
Is that initial lucky break completely random? Or do people make their own luck?
I believe there can be some element of skill in creating the circumstances where the original luck may be more likely to happen. The talent of the lucky one may otherwise only be minimal.
There are many examples of someone who had that initial lucky break but was not able to keep the compounding going. They do not know how to take advantage of the compounding opportunities presented to them. The above example of the Private Equity partner group promoted together as partners has a few examples of that. A couple of them fizzled out, with a general lack of talent, hubris, and lack of foresight being noticeable causes.
However, everyone is usually better off after the lucky event and the majority of their future success comes from compounding on that one initial factor.
A way to look at life is it is more likely that some things will happen than others. Life is just a bunch of possible outcomes with probabilities of occurrence. Nothing is certain, just more or less likely to occur. The most a person can do is take actions that change the probabilities more in their favor. A person’s skill is to make it more likely that good things will happen and then compound.
This type of thinking is similar to Bayesian Mathematics (subjective probabilities, expected value calculations, and all that) and could also even be related to quantum physics. I started thinking this way when studying Bayesian theory in grad school statistics, years ago.
Since life is about probabilities, there are no guarantees – just chances. A positive outcome is never assured despite the aware person’s best efforts to change the odds. But, as in gambling, having the odds in your favor is the best you can do. Shift the odds in your favor if possible. Making it more likely that an opportunity will present itself is a skill.
Generally, it seems that much of “luck” is related to timing. Sometimes all that is required is recognizing that the timing is right and moving on it. Knowing when to act and when not to act is a skill too.
Consider startup founders. They may study a situation and the best path for success. Successful founders are not rigid but are often flexible. This is sometimes called the entrepreneurial “pivot.” Instead of adhering to an unwavering plan based on past likelihoods, they adapt to changing circumstances. They are open to recognizing unexpected opportunities and then react with near-immediacy.
The fact remains that many people are ready to react, aware, and keenly observant, but do not have any luck. There is a significant randomness factor in “Luck.”
Finally, an odd thing is that people might recognize the role initial luck plays in their compounding success for perhaps only a few years. Then as the positive effects start accumulating they feel a cognitive dissonance about why they are doing better than their peers from all those years ago. They rationalize away the dissonance by thinking the compounding is due to something intrinsic to themselves from the beginning. That they were somehow special and superior to their peers, though in actuality they were not. Human nature is what it is and the ego takes over.
Such is the nature of luck.
