Could many wealthy entrepreneurs repeat their success? How much luck is involved?

Great Debates
21

Compaq greatly overpaid for Zip2, giving Musk a lot of capital to work with.

Without being friends with a guy named Woz, there is no Apple.

Had it not been for the unexpected success of Tubular Bells, as well as the fact that his parents had money when he got in early trouble, who knows what would have happened.

Had his early marketing position been anywhere other than O’Reilly, he might simply be a mid-level marketing manager today.

Look, I have great admiration for many of the above, but luck frequently plays a huge part of success. Even my life and pretty successful career have been largely driven by luck. I do believe that the argument that some are better able to take advantage of such luck has merit, but luck is still a huge factor.

22

Can you elabourate, or link me to something about this? I am intrigued.

23

Some can, but the circumstances the second time around are going to be different from those of the first time, by definition.

Example: Antonio Catalán.

Antonio Catalán comes from a family which was in the hotel business. He wanted to build a different model of hotel, though. He was able to start his business thanks to family contacts but mostly thanks to family loans. Eventually and even before his NH chain of hotels became huge, it revolutionized the way hotels work: many little details which are now taken for granted were done by him first. His competition realized either they started doing it as well or he’d just elbow them out of the market. (Sorry, I didn’t write that webpage so I’m not responsible for the horrible choice of color for the letters).

Once the chain became large enough, it was petty much running itself. Buy another hotel, refit it to meet corporate standards, whatever. Dude was bored out of his gourd. So he sold his part to his partners and started a new chain, AC. The philosophy is different (they’re mostly historical buildings they buy and turn into ultra-modern hotels, with very large rooms and upscale restaurants) and he’s specifically keeping it at a scale that lets him make sure things are Just So (dude must be a pain in the ass to work for, unless you happen to think along the same lines he does), but also something very different is that this time he had investors fighting over who’d give him any money he asked for. (And the English version of the webpage doesn’t seem to be working).

24

DMC: The problem with your argument is that everyone’s story is unique, so you can always find something they did or didn’t do that you can claim was responsible for their success, then chalk it up to ‘luck’. For instance, you’re giving Richard Branson the ‘luck’ label by claiming that the success of Tubular Bells was what made him. But by definition, some song had to be popular for a record company to succeed, so you can make that claim for just about any of them. And besides, your claim is unfalsifiable in the sense that we’ll never know if Branson would have made it anyway with another song, or an entirely different line of business.

Part of the point of recognizing serial entrepreneurs is that it shows that there’s more to it than luck. Even if you’re right about Jobs lucking into being friends with Woz, the fact that he succeeded with multiple other ventures after Apple would suggest that maybe he had more than luck going for him. But on the other hand, maybe part of Jobs’ genius was spotting genius in others and working with them.

The same is true of Elon Musk. You’re chalking his success up to being paid too much for Zip2? That’s quite a stretch. How do you know how much capital he needed? For that matter, I didn’t even mention Zip2, so that’s another successful venture the guy can add to his resume. And for all you know, Compaq overpaid (if it did) because Musk is a very good salesman.

If you really want to figure out whether these people were just ‘lucky’, you have to dive more deeply into their bios. Musk is a fascinating guy - incredibly driven, and incredibly smart. He didn’t just start Tesla and SpaceX, he did a lot of the engineering himself. Steve Jobs clearly had a brilliant mind for products and design, despite having almost no formal training. If you ask me, Apple is showing signs of mediocrity again now that Jobs is gone.

One thing you’ll see as a constant in all these people is that they work their bloody tails off. Even when they’re playing, they play hard. You won’t catch many of them just sitting around watching TV all night. Some of them race cars, some of them set aviation records, some of them start still more companies for fun or get involved in philanthropy.

In my opinion we all get our shot at ‘lucky’ breaks. Some people are just better prepared to take advantage of them when they come along. Others make their luck by standing out from the crowd. It’s amazing how ‘lucky’ you can get when you work your ass off.

25

By coincidence yesterday I was reading this piece about survivorship bias. It has plenty of fascinating things to say about how we interpret success.

As the psychologist Daniel Kahneman writes in his book Thinking Fast and Slow, “A stupid decision that works out well becomes a brilliant decision in hindsight.” The things a great company like Microsoft or Google or Apple did right are like the planes with bullet holes in the wings. The companies that burned all the way to the ground after taking massive damage fade from memory. Before you emulate the history of a famous company, Kahneman says, you should imagine going back in time when that company was just getting by and ask yourself if the outcome of its decisions were in any way predictable. If not, you are probably seeing patterns in hindsight where there was only chaos in the moment. He sums it up like so, “If you group successes together and look for what makes them similar, the only real answer will be luck.”

26

Nice post.

As the man once said, “Luck is what happens when preparation meets opportunity.”

Another said, “The harder I worked, the luckier I got.”

And as Wynton Marsalis famously said to a young musician who asked him how to get a ‘break’ in the music industry, Marsalis replied “Break into a practice room.”

Most of these entrepreneurs also benefited from (relatively) free-market economies, with access to capital, secure property rights and the rule of law. Good, wholesome libertarian stuff. This wishy-washy libertarian would even throw in a desire for national investment in primary education to create a thriving, competitive workforce.

But as you may have guessed from the tone of the posts Sam, the other posters have no real desire to debate this. It’s a strawman to rationalize their own victimization tendencies and contempt for people who are better-off than themselves, as well as to justify the ever-expanding take of private-sector wealth by the government…the “You didn’t build that” syndrome.

If the thread hasn’t gotten there yet, don’t worry. It will come.

27

We should differentiate from the great business magnates and regular entrepreneurs. Talking small business, and lets just use the SBA definition of small business and also assume said business was founded by the entrepreneur in question and not inherited–there is virtually no way to stay in business for years without extreme amounts of hard work and good execution.

Without those two things, while even occasional luck can keep the doors open, the business just will not last. Sometimes even the best run small business, part of staying open is just avoiding bad luck. There was a doper couple that started a deli/sandwich business. It seemed like it got good reviews, and I think they were actually making money. Then their land lord wanted higher rent, it was more than they were comfortable with paying. Faced with the prospect of having to relocate they ultimately decided to close up shop. For a small business just getting started, one that is doing okay but not making tons of money, just little stuff like a disagreement with your land lord about the rent price and be the little shove needed to knock the entrepreneur out.

Sometimes city sidewalk or street construction can put a business out for the count, it interrupts customer flow and by the time the construction is done your loyal customers have found other places for their business–and they never come back.

The biggest part luck has to play in a small business, is you have to be lucky to not have any number of hundreds of unlucky things happen to your business that can put you out for the count. The difference between Microsoft and some small, profitable but unheard of software company is certainly luck in part. Same way the difference between Warren Buffet and Wallace Weitz is partially luck and timing. But that’s where good luck is a key part of going from “successful business” to “massive business where the owner enters the hall of great business magnates like Rockefeller and Carnegie.” For a small business I don’t personally know of any that have stayed in business more than 5+ years based on luck. I know many that have gone out of business because of bad luck, but all the ones that are in business have good operational standards, have/had picked smart locations for their business, and typically the owner had a lot of skill at the business they’re involved in. I’m speaking a bit from direct experience here, as a partner in a real estate development/property company our primary business is leasing real estate to businesses. We have a few national chains but mostly we rent to small businesses because we own smaller properties, the places you’d expect small dental practices, lawyers, and hair salons and etc to rent out. We’ve seen the businesses that succeed and fail and the ones that succeed all have very talented, hard working owners.

28

I think he’s trying to make a distinction between a Jeff Bezos or Elon Musk who rode the internet wave, so to speak, and worked a good idea into a spectacular company by being at the right place and the right time; and a Mark Cuban, who literally got a billion dollar windfall by being in the right place at the right time and selling.

Had Mark Cuban NOT sold Broadcast.com to Yahoo! for a billion dollars when he did, I doubt we’d even know who he is today. We’d still know who Bezos and Musk are however.

There’s luck, and then there’s LUCK. Bezos and Musk’s luck are more in the category of taking advantage of luck and then building on it, while Cuban’s billionaire status is more akin to winning the lottery.

29

Sure, but this is selection bias at play.

What about the people who work their asses off, are just as talented, but never get that one lucky break they need to not just have modest successes but become more successful than all but a handful of people around the globe?

The point isn’t that it’s all luck but that luck is just as necessary a component as hard work and skill to become not merely successful (however you define that) but so successful you are within the top 0.1% in terms of wealth and/or income. Sometimes, just hard work and talent will do it alone. But usually not for the vast majority of people. Sometimes, just luck will do it alone. But usually not for the vast majority of people.

For whatever reason, some people consider the idea that even hinting that a bit of good fortune is involved somehow negates years of effort and simply lays it all on the luck. They’re almost insulted by it.

If you’ve actually read the thread, you’ll see that few posters lay every bit of success on luck. They add it to the list of traits usually associated with success (which do include hard work, skill, talent, etc) and few, if any, have claimed luck alone is the determining factor. Denying that luck never has any part to do with success is nonsensical when there are clear examples of just such a thing. Worse, snidely claiming posters have or will yet claim such a thing is the worst sort of strawmanning.

30

I’m familiar with a few of these silicon valley guys. Making tens or hundreds of millions for a company they started a year or two ago. They could not replicate that success ever again (and several ruined themselves trying). It was just right place right time sort of stuff.

Other guys I know become obscenely wealthy because they took large risks that paid off. That might be replicable enough that you would could consistently get an above average return on capital if you diversified your risk but that diversification would leave you with simply above average returns. These guys are good at finding opportunities where the risks are small compared to the expected returns but they can’t bat 1.000 or anything close to it.

Other guys I know can run a supermarket or dry cleaner well and can make a good living for themselves. This is entirely replicable and as a banker I would probably lend them money for any business they wanted to start. There are a lot of these people but they tend to remain small businessmen.

If you are talking about the engines of industry that are the heroes of Ayn Rand novels, then the population of people that fit this description are vanishingly small. There simply are not that many Hank Reardons and Dagny Taggarts. The number of businesses that will fail if the hero of industry leading them should mover to Galt’s Gulch, is vanishingly small.

How far did Apple fall when Steve Jobs (undeniably the architect of its success) passed away? Perhaps Berkshire Hathaway will wither without Buffett, perhaps Microsoft will collapse without Bill gates, but I doubt it. I also agree that Bershire Hathaway and Microsoft would not exist without their founders but are we to believe that there would be a vaccuum in the economy where these two companies would have been?

Hell, we hardly even notice when the CEO of Goldman Sachs or Exxon changes.

We need to have the right incentives in society but we don’t need to worship these guys or lavish them with privelege any more than what their wealth already gets them. We certainly don’t need to bribe them to stick around and make more money.

31

A vacuum? No. Berkshire Hathaway is unique in that not many other large companies operate the way it does. It’s almost like a mutual fund that is organized as a regular corporation, and generates a large amount of insurance income that it invests in a huge array of various businesses. But the nature of competitive business is that if one “winner” goes away you can assume a different winner would have been in its place. It may not have taken the unique form of an entity like Berkshire, but it might be several companies or other conglomerates etc owning those assets.

Even companies that got their start off of novel inventions–AT&T and Alexander Graham Bell, GE and Thomas Edison, would not leave a vacuum. In the last 150 years or so most major inventions have been achieved with a second place inventor forgotten to history very close on the heels, so if not Edison and Bell others would have been in that space.

But it is possible Edison couldn’t have been so easily replaced. His inventions, yes, but not his approach to industrial engineering and having a professional R&D staff. That was a pretty unique to Edison thing, and without him pioneering that sort of setup it’s possible corporate-driven research would have been a few decades behind versus our timeline.

Henry Ford is potentially in that same mold, we actually saw for example Germany which maintained a “craft workshop” style assembly paradigm even into WWII was far less productive than the United States with its standardized assembly line. Without Henry Ford there isn’t an immediate guarantee someone would have materialized with the same ideas on assembly–so while we’d eventually get there it may have put us a few decades back in terms of productivity.

Most of the 80s/90s IT companies are pretty replaceable. Especially because many of them, like Microsoft, were just taking concepts that had already been developed on mainframes and bringing them to the consumer market. Once we had the production and development of desktop-scale machines going it was obvious to most people that those machines would need all the same software that mainframes used. It was just a race to see who got their software onto the most machines fastest, in the OS space Microsoft won that battle but that’s just competitive performance. If not them, another OS would have probably won and probably won just as spectacularly. I think the desktop PC Market from the mid-80s up through the early aughts was basically inevitably going to be dominated by one big player in terms of the OS.

32

So while competitive markets themselves are important to innovation and economic growth, the “great man” theory of econmic growth is really limited to a very small handful of men and almost everyone who considers themselves to be Hank Reardon/Dagny Taggart/John Galt types are really not the engines of the world that they imagine themselves to be.

33

That’s what I would think, yes. I think there are some great men of history, but often times much of it (and this includes the history of businesses and corporations) is just ebbing and flowing with larger forces. If not for Jim Smith, John Smith would have done what Jim had done etc.

34

Facebook is a superior product to MySpace in every way.

No one can replicate the success of Harry Potter with the kind of book Rowling wrote as “Robert Gailbraith.” It’s two difference niches and kids fantasy has always been popular in a way that stodgy British mysteries haven’t. That said, she got it published without anyone having any knowledge it was written by her. The book was published on its merits, not her name, which is a huge accomplishment all the same.

35

Her publishers, agents, and lawyers knew and agreed at her request to keep it secret.

Considering the reviews before she was outed, it was a decent enough novel on its own merits, but that’s a far cry from a random unknown novelist getting published. Her access to the publishers alone would be impossible for most novelists, much less the attention the publishers would likely devote to an incredibly successful client.

36

He can probably tell you in his own words better than I can.

http://evhead.com/2007/11/where-should-you-be.asp

37

Microsoft and Gates were wildly successful for a decade before they dabbled in any technologies Xerox and Apple failed to patent. (Ignoring for the moment the fact that at the time there was a lot of question whether those software concepts could be patented in the US.)

38

Branson himself agrees with me. Read it all here or just the important part below if you wish.
[QUOTE=Richard Branson]
We’ve named one of our Virgin aircraft Tubular Belle and we are going into space this year. I doubt any of that would have happened without Tubular Bells.
[/QUOTE]

As for everything else, the one thing they had in common is that they had plenty of money, due, in large part, to luck they had the first time around. Give a few dozen million to any random number of people, and many of them would become successful.

Again, I’m not saying they were blubbering idiots who happened to find black gold on their property, but that a large number of people who happened to have similar breaks would be similarly successful. As noted, even I owe much of my current state to good fortune. I also say this as someone who admires the shit out of many of those on your list.

39

Yes, people often forget Microsoft was a profitable software company long before Windows 95 or even Windows 3.1. In the 80s they made a lot of money primarily selling operating system software to IBM (first MS-DOS and later OS/2), and also had several successful application suites at the time as well. The Windows 95 era and their domination of the operating system market that happened at the same time everyone and their grandmother bought PCs made them a household name but they were profitable almost from the beginning. Even before the IBM deal of the early 80s they were selling software profitably to Altair–Gates has actually noted the founder of Altair Computer was key to his company’s success because they never would have made it past the first year or so without their business.

Interestingly, while Gates was the driving force for the company from the beginning, and obviously the guy who is responsible for Windows capturing something like 95% of market share at its height, a lot of credit goes to the co-founder Paul Allen.

Allen is the quiet Microsoft billionaire in the sense that you don’t hear peep from him on issues relating to his industry. (He’s heavily involved in the world otherwise, owns sports teams and has participated heavily in philanthropy.) Windows and to a lesser extent Office made Microsoft famous, but what made it a highly successful business was MS-DOS.

When Microsoft won the contract to supply IBM PCs with an operating system, Allen was largely involved in that effort and it was Allen who actually ran the effort to go buy Tim Paterson’s “Quick and Dirty Operating System” (QDOS.) Allen basically was “the guy” on that watershed deal with IBM, he did apparently the core negotiating and was the guy who actually got the product delivered to IBM. By 1982 Allen had been diagnosed with cancer and hasn’t been actively involved with Microsoft since, but in his relatively short time with the company he was instrumental in making Microsoft a very successful company–and himself worth many millions even then. I don’t know that he became a billionaire until the early 90s when Microsoft’s stock exploded, but he had a lot to do with Microsoft’s success as a company.

40

That is a good list. I think Jared Polis would qualify too. He started an online greeting card company with his parents, then sold it for almost a billion. He then started an online flower retailer shop that he eventually sold for half a billion. He wasn’t ‘super rich’ but he started two separate companies and sold them for a combined value of about 1.3 billion.

He then helped start a funding group designed to promote progressive ideas and policies in government (democracy alliance) and got himself elected to the US house.