We tell ourselves stories rather than look for luck
Consider these stories of success, and ask yourself, was the success due more to competence and expertise…or luck?
Consider Bill Gates, Adam Neumann, Jack Welch, Michael Lewis and Henry Ford.
Bill Gates dropped out of Harvard University and started Microsoft, which became one of the largest and most successful firms in the world. Was his success in leading the development and marketing of MS-DOS, Windows, Word, Excel and all the other software that we have relied on due to his brainpower and expertise?
Adam Neumann saw the opportunity to create a commercial real estate company that provided shared workspaces for start-ups and sought to build an office space community. He secured a $4 billion-plus investment from Masayoshi Son, the head of the Japanese investment firm Softbank. Was the success of Neumann’s pitch for WeWork due to his business, communication, and financial skills?
For several decades, Jack Welch was revered in business circles for leading the sensational growth of General Electric. During his tenure as CEO, GE shares returned 5,200%. To what extent did GE’s success accrue to Welch’s leadership?
Michael Lewis had a successful career on Wall Street before pivoting to writing business non-fiction books, the first being the best seller Liar’s Poker, about trends transforming Wall Street. Was his success due to his financial and writing skills?
Henry Ford, an engineer who was enamored with the gasoline engine, perfected and marketed the Model T automobile, which transformed transportation and dominated the automobile market for years. To what extent was Ford Motor Company’s success due to the insight, brilliance, and hard work of its founder?
What the research shows
Three studies ask us to look hard for luck in the success of leaders and organizations.
Three professors from the University of Catania in Italy — Alessandro Pluchino, Alessio Emanuele Biondo, and Andrea Rapisarda — teamed up to quantify the role of luck and talent in successful careers. They defined talent as personal characteristics that enable a person to exploit lucky opportunities. The researchers ran multiple simulations to track the success of 1,000 hypothetical individuals over lucky and unlucky events over 40-year careers. The result of the 40-year simulation? Talent was normally distributed while success was not. The 20 most successful individuals – 2% of the total – had 44% of the success. The simulations showed that talent wasn't irrelevant to success, but, in general, the more talented individuals “had a higher probability of increasing their success by exploiting the possibilities offered by luck.” 1 The researchers concluded: “If it is true that some degree of talent is necessary to be successful in life, almost never [do] the most talented people reach the highest peaks of success, being overtaken by mediocre but sensibly luckier individuals.” 2
Renee Adams at the University of New South Wales, Matti Keloharju at Harvard Business School, and Samuli Knupfer at BI Norwegian Business School looked at the extent to which ability helps individuals become CEOs. They used data from the Swedish military to compare Swedish men who became CEOs to those who didn’t. They showed that the CEOs, on average, are smarter than most people, “but they’re hardly exceptional.” Other evidence suggests that CEOs are talented, but not much more so than other skilled professionals and executives. The researchers conclude, “While a favorable mix of traits may make it easier to climb on the corporate ladder, it by no means assures a position as a chief executive of a major company.” Instead, one should look to luck is the single biggest factor. 3
In a 2014 study of CEO success, Markus Fitza from Texas A&M concludes that the 2% to 22% of firm performance that studies have attributed to CEOs could be mostly due to luck. 4
So what of Gates, Neumann, Welch, Lewis, and Ford?
Bill Gates
Bill Gates certainly leaned on his talent and expertise, but let’s recognize that he in part was successful because he had the luck of starting a lap or more ahead in the race for success. His parents sent him to the best schools. He grew up with role models of success who served on Boards and were leaders in the Seattle business and non-profit community. Bill benefited from their connections. When he dropped out of Harvard to start Microsoft, he had their help and support, including an invaluable connection with IBM that his mother helped establish. Lucky Bill! 5
Gates surely benefited from on-going luck as he developed Microsoft. Here’s one example: IBM could not get a meeting with the developer of an operating system called CP/M (Control Program for Microcomputers), Gary Kildall, to whom Gates had directed the company when they were looking for an operating system to use on IBM’s new PC. IBM came back to Gates and hired Microsoft to develop what became MS-DOS, the driver of the company’s early success. 6
Adam Neumann
Adam Neumann needed money to create high-end co-working spaces across the country and abroad. He brought WeWork to life using what he learned from earlier entrepreneurial ventures, combined with his background in marketing, optimism, charisma, and evangelical promulgation of his vision. What later sunk Neumann and crippled WeWork were his lack of financial knowledge and savvy and his overconfidence in his own prowess. 7 But that was after he convinced JPMorgan Chase to lend him money personally, provide equity and debt financing for WeWork, and be a corporate adviser for the firm’s failed Initial Public Offering. Neumann was lucky that JPMorgan wanted to lead the WeWork public offering so much that it lent him a pot full of money based on shares with inflated value that he posted as collateral. He was lucky that the bank at least initially ignored his obvious conflict of interest in owning stakes in Manhattan properties – secured with funds from the bank – that housed WeWork offices. He got as far as he did in large part because of JPMorgan’s seeming lack of diligence. 8
Neumann’s luck was also obvious when the investment firm Softbank invested more than $4 billion in the company. Softbank’s head, Masayoshi Son, years earlier had made a large and highly successful investment in the Chinese web firm Alibaba. In that case, Son allegedly based his investment decision on Alibaba founder Jack Ma’s “look in his eye” rather than on the company’s business model. 9 As for investing in WeWork, Son committed the funds seemingly based on only one dinner after he became enamored with Neumann at a conference in India and a 12-minute visit to WeWork’s New York office, after which he and Neuman rode together in the back of a car and signed a document hastily created on Son’s iPad. According to Neumann, “When Masa chose to invest in me for the first time, he only met me for 28 minutes. Okay?” Neumann says Son told him that he invested because “the last person I felt this with was Jack Ma.” Had Son really looked to WeWork’s business model and finances rather than relying on his intuition, very likely he would not have invested. Talk about luck! 10
Jack Welch
Bloomberg Opinion columnist Joe Nocera cast shade over Jack Welch’s reputation for brilliant leadership when he noted that GE’s share value growth was highly correlated with the bull stock market that raged from August 1982 until March 2002. He suggested that Welch was successful in large part because he was “at the right place at the right time.” Indeed, in his first 16 months of tenure as CEO, before the onset of the bull market, GE’s shares dropped 5%. And in the six months after the bull market ended (until Welch retired), GE’s stock dropped 24%. Yes, GE’s share value in the bull market rose even faster than stock indexes. According to Nocera, “During Welch’s 20-year tenure, GE’s total return was about 5,200%, more than double that of the S&P 500 Index.” Yet, Nocera pointed out, some of the company’s high valuation was based on what he suggested were “accounting games” and making risky loans through its GE Capital subsidiary, which eventually caught up with the company after Welch’s retirement. In any case, whatever extra success might be attributed to Welch’s leadership, he was clearly very lucky to be the head of GE through over such an extraordinary period for the stock market. 11
Michael Lewis
Michael Lewis majored in art history at Princeton and was told by his thesis advisor “never to try to make a living” at writing. 12 Yet he aspired to be a writer. While writing aimlessly in graduate school, he explained in his 2012 commencement address to Princeton graduates, “One night I was invited to a dinner, where I sat next to the wife of a big shot at a giant Wall Street investment bank, called Salomon Brothers. She more or less forced her husband to give me a job.” While he knew little about Salomon Brothers, “it happened to be where Wall Street was being reinvented.” At the firm, Lewis explained that he “was assigned, almost arbitrarily, to the very best job in which to observe the growing madness: they turned me into the house expert on derivatives.” A lucky break got Lewis a great seat on Wall Street.
He explained more about his luck: “A year and a half later Salomon Brothers was handing me a check for hundreds of thousands of dollars to give advice about derivatives to professional investors. Now I had something to write about: Salomon Brothers.” Lewis wryly observed, “Wall Street had become so unhinged that it was paying recent Princeton graduates who knew nothing about money small fortunes to pretend to be experts about money.” Clearly it took insight to realize the greater opportunity at hand: He wrote the book ‘Liar’s Poker,’ which sold a million copies. The bigger result? “I was 28 years old. I had a career, a little fame, a small fortune and a new life narrative.” Certainly Lewis aspired to write and, despite his thesis advisor’s assessment, could write. But luck put him in a unique situation in which he had an opportunity that few others had.
Lewis concluded, “…I could see there was [a] narrative, with luck as its theme. What were the odds of being seated at that dinner next to that Salomon Brothers lady? Of landing inside the best Wall Street firm from which to write the story of an age? Of landing in the seat with the best view of the business? Of having parents who didn’t disinherit me but instead sighed and said ‘do it if you must?’ Of having had that sense of must kindled inside me by a professor of art history at Princeton? Of having been let into Princeton in the first place?”
Henry Ford
At the same time Henry Ford was developing his gasoline engine powered automobile, many other inventors and engineers were working on different versions of the automobile. David A. Kirsch of the University of Maryland's Robert H. Smith School of Business offers this example: “Studebaker, a horse carriage firm, initially chose to produce electric cars in 1900. This was a reasonable option as internal combustion technology was immature and unimpressive at that time.” 13 Yet internal combustion soon proved to be the winning technology for powering automobiles. Kirsch’s collaborator, Brent Goldfarb, observes, “Studebaker was unlucky. We remember the name Studebaker because of their eventual pivot to internal combustion, which was only possible due to their very deep pockets.” He adds, “The best strategies are often discovered by chance and not necessarily by design.” Kirsch wants us to see “that a lot of what we view as great decision making also involved a great deal of luck.” Indeed, Ford just as likely could have been Studebaker, but without the deep pockets, which could have relegated him to obscurity.
We underestimate luck
These cases and research studies underscore our inherently human flaw of underestimating the importance of luck. We too often don’t recognize or deny the importance of luck in our lives and in the outcomes of our decisions.
Nobel Prize-winning psychologist Daniel Kahneman famously put forth these formulas, “Success = talent + luck. Great success = a little more talent + a lot of luck.” 14
Photo credits: Welch licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License by Hamilton83. Lewis licensed under the Creative Commons Attribution 2.0 Generic license by _MG_2932, author Justin Hoch. Ford courtesy of the Library of Congress.
Notes
1 https://blogs.scientificamerican.com/beautiful-minds/the-role-of-luck-in-life-success-is-far-greater-than-we-realized/
2 https://www.strategy-business.com/blog/Lucky-you?gko=a0e6f
3 https://hbr.org/2015/11/are-successful-ceos-just-lucky
4 https://www.sciencedaily.com/releases/2015/10/151022192337.htm
5 https://www.strategy-business.com/blog/Lucky-you?gko=a0e6f
6 https://www.thoughtco.com/putting-microsoft-on-the-map-1991417
7 https://www.scu.edu/illuminate/thought-leaders/hersh-shefrin/the-rise-and-fall-of-wework.html
8 https://www.nytimes.com/2019/09/25/business/wework-jpmorgan.html
9 https://www.scu.edu/illuminate/thought-leaders/hersh-shefrin/the-rise-and-fall-of-wework.html
10 https://www.fastcompany.com/90426446/wefail-how-the-doomed-masa-son-adam-neumann-relationship-set-wework-on-the-road-to-disaster
11 https://www.bloomberg.com/opinion/articles/2020-03-02/ge-s-jack-welch-inflicted-great-damage-on-corporate-america
12 https://www.princeton.edu/news/2012/06/03/princeton-universitys-2012-baccalaureate-remarks
13 https://www.rhsmith.umd.edu/smithresearch/research/historys-top-innovators-genius-or-luck
14 https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555
