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Thank you for reading the Brainwaves newsletter. I’m Drew Jackson, your content curator, and today I’m writing about the concept of luck as it pertains to success. Let’s dive in.

Before we explore today's topic, a quick reminder: Brainwaves is published every Wednesday, covering a range of subjects including venture capital, economics, space, energy, intellectual property, philosophy, and more.

I'm not an expert, but rather an eager learner sharing thoughts along the way. I welcome feedback, differing viewpoints, and healthy discussions that expand our horizons. If I make mistakes, please feel free to politely clarify or correct me.

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If you haven’t read my Venture Capital Primer, I’d highly recommend it before reading this article as some of the terminology associated with this subject may be difficult to understand.

Success

A common thread over the venture capital-focused blogs I’ve written so far has been the idea that success can come in a variety of different shapes and sizes.

Yet, there are some critical intangible factors to the success of a company, factors which aren’t easy to predict, model, or strategize for or against.

These factors are luck and timing.

Thesis: The difference between a good company and a great company isn’t operational characteristics, business model specifics, or even management teams, it’s simply luck and timing.

Today we’re doing something different. I have no idea if this claim I’ve just made is even close to accurate. So more accurately, today’s thesis may be more like a hypothesis—a statement put forward to be proved.

But, before we dive into the meat and potatoes, we first have to define success and how it relates to companies.

Success (at least for our purposes today) can be defined in several different facets:

• Market Share and Dominance: In our case, I’ll define market share/dominance success as a leading or majority market share position, meaning the company controls the biggest portion of the market compared to all of its competitors.
• Innovation and Industry Impact: In our case, I’ll define innovation and industry impact as the company’s ability to be the main driver of innovation or disruption in their industry. In other words, has the company significantly changed the industry it is in, shaping market and consumer behavior?
• Brand Recognition/Reputation: In our case, I’ll define brand recognition success as having strong brand equity, positive brand association, and a solid reputation among all stakeholders.

If a company has achieved any of the previous statements, I would consider them “successful” for our purposes today. I understand that this definition of success is extremely narrow, limiting the companies deemed “successful” to be only the elite of the elite.

For our purposes today, that will be more than enough, although the tenants discussed will apply to almost every company (I say almost every company because there are always niche exceptions to everything).

And with that, let’s dive into the ideas of luck and timing and their impacts and criticality to the success of elitist companies.

Credit Clarity Counseling Center

Timing

A quick Google search about timing relating to the success of businesses brings up the following headlines:

• Why Timing Is the Difference Between Success or Failure
• Successful Entrepreneurship: It’s All About Timing
• In Business, Timing is Everything.
• The Key to Startup Success: Unlocking the Power of Timing

It seems as though many people think that timing is integral to the success of a business.

Why? What rationale do they have?

There were approximately 5.5 million new businesses started in 2023. According to the Bureau of Labor Statistics, 20% of new businesses fail during the first 2 years, 45% within the first 5 years, 65% during the first 10 years, and 75% during the first 15 years.

So, if you take the 5.5 million new businesses started in 2023, 4.4 million will be alive by 2025, 3 million will be alive by 2028, 1.9 million will be alive by 2033, and only 1.3 million will be alive by 2038.

That’s not a great success rate. But, what determines survival and how much does timing play into this success or failure rate?

Let’s start with the story of two companies:

Company A: Business Model - Online retailer of pet food

Company B: Business Model - Online retailer of pet food

Company A: Product/Service - Wide selection with a free shipping feature, relying on e-commerce platforms and logistics/distribution networks

Company B: Product/Service - Wide selection with a free shipping feature, relying on e-commerce platforms and logistics/distribution networks

Company A: Value Add - Leverage online shopping trends to offer further convenience to consumers

Company B: Value Add - Leverage online shopping trends to offer further convenience to consumers

Company A: Achieved notoriety, including having marketing featured in the Macy’s Thanksgiving Parade and the Super Bowl

Company B: Achieved notoriety, including having marketing featured in the Macy’s Thanksgiving Parade and the Super Bowl

Company A: Value Add - Emphasis on quality customer service, making online pet shipping easy

Company B: Value Add - Emphasis on quality customer service, making online pet shipping easy

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One of these businesses was started in 1998, had a mediocre rise, and then failed during the dot-com crash in 2000.

One of these businesses was started in 2011, grew exponentially, then was eventually sold for $3.35 billion.

Now you tell me which one is Company A and which one is Company B.

The point of this exercise was to explain how a company with a soon-to-be-proven successful business model could fail purely because the timing wasn’t right.

Some of the best business writers have written on the topic of luck and business, for instance, firms like Forbes, LinkedIn, Inc., Harvard Business Review, Entrepreneur, Founder Institute, the Wharton School of Business, and many more.

Here are some interesting insights I learned from these and many more.

1. Defining Timing

Timing relates to when businesses make/choose critical milestones, for instance, starting the business, building the product/service, going to market, partnerships, etc.

2. The 5 Pieces of Business Timing

Business timing occurs in a couple of different phases/key decision-making time periods:

• Market Timing - Being at the right place at the right time within your specific industry. This requires being the first to market, beating any potential competitors, but also making sure you have enough solid customer interest to make the business succeed.
• Economic Conditions - Economic conditions are out of your control, yet try to plan accordingly. Initially, keep your business as nimble as possible, enabling it to scale up or down quickly to match external market conditions. If market conditions are favorable, build in rainy-day plans and countermeasures to prolong success.
• Execution Speed - This piece of timing refers to building every part of your business as quickly and as quality as possible. If you continually exceed the capabilities of your competitors, you will have the best chance of success.
• Critical Changes - A business is only good if it stays at the forefront of the market and competitive landscape. This means knowing how to time critical modifications to the underlying product, service, or business model.
• Knowing When to Exit - A critical portion of any successful business is knowing when to sell. Sometimes, this means holding onto the business your entire life. Other times, it means selling the business right at the top of the market. Look for market trends that will help you understand whether or not the time is right.

3. Friction

Blaz Kos, writing for Spica, interestingly relates timing to the concept of friction. Kos states:

The right timing is a crucial aspect of business that allows you to achieve more in a shorter period of time due to a reduction in friction. Thus, timing is an important aspect of productivity and time management.

Business friction isn’t a new concept. It’s commonly defined as anything that prevents or dissuades customers from purchasing your product/service. In this context, however, it’s a little different, referring to encountering impediments/barriers that will hinder business success.

So, the idea Kos is referencing here is that by getting the timing of your business right, the friction (or barriers) to business success are significantly reduced.

4. Timing Is a Sliding Scale

The issue of business timing isn’t black or white, yes or no. It’s much more complicated. It isn’t simply that there is a “good time” and a “bad time” to make business decisions, and it is either one or the other.

It’s more of a sliding scale. Consider the following:

This isn’t extremely accurate, but it will suffice to facilitate discussion. Bring us back to the point above, rarely are you choosing between a 10 and a 1. That’s an easy choice.

Many times, business decision-makers have to choose between numbers closer to each other like between a 5 and a 6 or a 2 and a 3.

But where this gets harder is that most, if not all people making business decisions don’t totally know if they’re at a 7 or a 4. Furthermore, and I’ll discuss this below, there is uncertainty about the future.

So, you can see that the sliding scale makes these decisions difficult as A) It’s unclear where on the scale you are exactly at, and B) Where on the scale you will be in the future. Maybe you’re at a 4 and that’s the best it’ll ever get, but you think there is an opportunity for a 7 (even though that’s false), so you decide to not make the decision.

5. Timing is the Most Important Part of a Business

Bill Gross, an investor best known for co-founding Pacific Investment Management Co., in his 2015 TED Talk explained how he looked at 200 companies and tried to determine what factors–out of the idea, team & execution, business model, funding, and timing–are integral to a company’s success.

Out of all of those factors listed above, Gross found that timing was the most critical factor, accounting for around 42% of the difference between success and failure. Team & execution came in second and the idea–specifically the uniqueness and differentiability of the idea–came in third.

6. Most Successful Business Models Do Eventually Work

There’s an old saying in startups: “being early is the same as being wrong.” It’s the thought we’ve discussed throughout the timing section so far, the thought that even if you have a successful business model, if the timing is wrong, you will fail.

Yet, there’s more to unpack here. The statement above implies that there exists some time (let’s call it X) in which that is the very best time to start that business.

This brings us to a famous quote by Marc Andreesen, billionaire founder and investor:

Track startups over multiple decades, what you find is that most ideas do end up working. It’s much more a question of ‘when’ not ‘if’.

Bringing us full circle to the example of Pets.com (Company A) and Chewy (Company B) from above, here is a more built-out list of all of the companies founded in the dot-com bubble that were simply too early:

Credit Startups Unplugged

This is an interesting point of view as there are many things that could be taken from this example, depending on who you are or what you do.

For instance, you might see the above example and think that you’re just going to wait until you think it’s the perfect time to make a decision.

Or, counterintuitively, you might begin making the decision right away, with the thought that if it is the truly correct decision, then you potentially didn’t get the timing right. But, then if you make the decision now, you can also make the same decision in 2 years, 4 years, etc. and hopefully trial and error will get you to the right timing.

7. 10 Drivers of Correct Timing

Paul Orlando, author of Why Now: How Good Timing Makes Great Products, explains 10 drivers or areas to understand whether or not the timing of your business is correct or optimal.

• Technological - Technological drivers improve the ability to build products. What may have been too slow, too expensive, or impossible instead becomes fast, cheap, or possible.
• Social/Behavioral - Drivers of consumer behavior are always changing. Things become fads, things go out of style, come back into style, etc. Understanding consumer behavior drivers helps understand who your employees or target customers may be and what’s happening in their lives.
• Regulatory/Legal - Regulatory and legal drivers affect whether or not businesses are allowed to offer specific products or services. For most businesses, these may not be an issue or driving force for decision timing, but for others, changing regulation (e.g., legalization of medical marijuana) may be critical.
• Installed Base - There are businesses in which their product relies on the popularity of another product. For instance, if your idea is to build an Uber-like rideshare app, you would have to wait for mobile GPS systems to become popular and good enough that you could integrate one into your app. For these drivers, timing may be reliant on external market factors.
• Networks/Infrastructure - Similar to the comments above, network and infrastructure drivers are key to many businesses. In order for a business to survive and/or thrive, pieces of infrastructure may need to have been built. For instance, for Google to have survived, widespread internet access and physical infrastructure needed to be built.
• Economic - See above “5 Pieces of Business Timing Section”
• Distribution - For more product-based businesses, especially those founded recently in the age of e-commerce, distribution networks, and capabilities are extremely important. They are where businesses attract and are able to service customers. If your business is going to be reliant on distribution, timing may be critical in determining whether to build the infrastructure yourself or wait for someone else to deploy it.
• Access to Capital - Capital is what allows businesses to grow and develop. Unless you have a personal source of extreme wealth, odds are that you will be working with external partners to facilitate the capital necessary to run your business. But, capital isn’t always available at the terms you want, meaning critical timing is necessary.
• Available Talent - Macro trends and other trends can influence the availability of talent necessary for your business. Choosing when to hire/fire is critical in the scheme of things as talent is often a make or break part of business success.
• Crisis - Sometimes abnormal events happen (such as a global pandemic) that directly influence the timing of business decisions. This may make a business choose to go out of business or a business choose to engage in layoffs, etc.

Understanding the interplay between all of these drivers will enable businesses to understand whether the timing of certain decisions is better or worse than it could be (again relating back to the sliding scale concept above–it’s unclear truly what the timing benefits/downfalls are until you actually make the decision).

8. Hype Cycle

If you’ve been around the business world at all in the last decade or two, you’ve probably seen a hype cycle graph like shown below.

Credit Introba

This idea of hype cycles was introduced by research firm Gartner to represent the maturity, adoption, and application of specific technologies.

The graph goes through 5 key places in the lifecycle of a technology, business model, or industry:

• Trigger - A potential breakthrough kicks things off. Early proof-of-concept stories trigger significant publicity and “hype” around the new idea. At this point, product market fit is not achieved and commercial viability is unproven.
• Peak of Inflated Expectations - Early publicity produces a few success stories, yet there are large-scale failures across the board.
• Trough of Disillusionment - Interest wanes as experiments and implementation fail to deliver stellar results. Many companies go out of business and people become disinterested in the space.
• Slope of Enlightenment - More practical instances of the space and benefits start to crystallize and become more widely understood. More investment enters the space, but some companies remain cautious.
• Plateau of Productivity - Mainstream adoption begins. The space’s broad market applicability and relevance are clearly understood.

Now that we have a basis for hype cycle discussion, let’s relate this back to our key concept–timing.

As you can see in the graph above and each of the phase explanations, timing is present throughout the hype cycle.

Depending on your business, industry, and market, you could be at any place along the hype cycle curve. But, just because you are at a certain part of the hype cycle doesn’t mean the timing isn’t right. Maybe you’re better as an early adopter, or maybe you’re better as a late challenger. That’s for you to understand.

Note: See criticisms for the hype cycle methodology here.

Credit CFR Group

Luck

As discussed in the previous section, timing is a tricky beast. You could have literally everything going for you as a company, but if you get the timing wrong, it doesn’t work. That’s fascinating.

So that’s one half of the equation. The second half deals with luck (which you could say timing is just luck but that’s an aside).

Luck is so tricky. When it comes to businesses, or life for that matter, what is luck?

Chengwei Liu, professor of strategy and behavioral science at ESMT Berlin, writing for Harvard Business Review, talks about how humans misattribute things to luck too often. Granted, luck does exist and things do happen out of luck, just not as much as we might think. We think things are lucky because they are atypical successes.

Continuing, Liu cites research on the success of exceptional companies, specifically those exceptional companies that were written about in popular books like In Search of Excellence, Good to Great, and Built to Last. Of the 50 companies featured, over the next 5 years, 16 failed. 23 underperformed the S&P 500 index. 5 firms maintained the status quo, and only 6 outperformed.

Liu writes:

“The usual explanations for these declines include the CEOs’ complacency or hubris. A simpler explanation, however, is that the CEOs were never that special in the first place. It was luck that enabled their successes and unwarranted attention. And it was (bad) luck that made many of them attract unwarranted blame after failures.”

Concluding, Liu states:

“Management research and education often focus on prescriptive theories that address how to move from “good to great.” This is problematic because being “great” in business often cannot occur without luck.“

Is this what the industry as a whole thinks about luck and company success?

Some of the best business writers have written on the topic of luck and business, for instance, firms like Inc., Harvard Business Review, the United States Chamber of Commerce, Business Insider, American Express, LinkedIn, the Economist, Forbes, and many more.

Here are some interesting insights I learned from these and many more.

1. Defining Luck

The authors of Great By Choice defined luck this way, “A “luck event” is something that happened outside of a company’s actions, that could seriously impact the company in either a good or bad way, and that was somewhat unpredictable.”

This framework allows for some measure of a company’s luck and enables naive comparison across countries.

2. 4 Types of Luck

In 1978, a neurologist named Dr. James Austin published Chase, Chance, & Creativity: The Lucky Art of Novelty. In this book, Dr. Austin proposed that there are 4 types of luck:

• Blind Luck - "The good luck that occurs is completely accidental. It is pure blind luck that comes with no effort on our part." This type of luck is pure randomness, similar to winning the lottery.
• Luck from Motion - This type of luck refers to opening yourself up to more opportunities, meaning there is more opportunity for you to have a lucky circumstance. If you stay inside all day, you’re less likely to have a lucky circumstance than someone who is extremely busy running around all day to a variety of different appointments. You create luck through your motion. This form of luck comes from activity. Just by the sheer act of doing something, you are more likely to stumble into luck.
• Luck from Awareness - Luck presents only a faint clue that an opportunity exists, but it will be overlooked except by that one person uniquely equipped to observe it and grasp its significance. This type of luck is based on awareness, seeing, and looking for opportunities for luck to present itself.
• Luck from Uniqueness - This type of luck is unique to you because of who you are and/or how you behave. This luck favors those with distinctive, if not eccentric hobbies, personal lifestyles, and behaviors. This type of luck can also be referred to as directed motion. For instance, you have a hunch, so you pursue it, and luck appears.

How can you take advantage of each of these types of luck?

1. Act - Do what you can to maximize your swings at bat. Simply putting yourself into motion opens you up to luck.
2. Be Curious - Look for opportunities, look for openings, and then act on them. This creates motion, opening up that opportunity for luck, as well as looking for opportunities to be lucky.
3. Strengthen Your Critical Thinking and Synthesis Skills - The more you synthesize past and current experiences, the more you will recognize luck when it appears.
4. Strive to Have Deep, Well-Rounded Interests - The more interests you have, the more motion you put yourself in, opening yourself up to random luck and to unique luck to yourself.

3. Life is Full of Uncertainty

Life is full of uncertainty. This is simply a fact. It’s hard to predict what happens next. For instance, take the number of professionally paid stock pickers (present in actively managed financial funds all over the United States) that consistently beat the broad market index (S&P 500).

In 2015, the New York Times analyzed over 2,862 actively managed funds over the last 5 years. Of those, only 2 funds actively outperformed the market each of the last 5 years.

Business outcomes are heavily influenced by systematic variation and unpredictable perturbations. Many factors outside of a management team’s control can influence the outcomes of the business. This uncertainty introduces a large element of randomness or luck into the success/failure of businesses.

4. Luck, If Integral to Success, Is More Impactful Earlier On

Throughout the literature, many believe that luck (if impactful on a company’s success) is more impactful earlier on in that company’s lifespan, rather than later on. To explain this further, let me segment the company lifespan/size trajectory into 5 stages.

Source Census.gov

For micro- and small-sized businesses, experiencing profound luck can be the critical factor between imminent success and imminent failure or the maintenance of the status quo. For many of these businesses, growth is limited by timing and luck. In a lot of circumstances, experiencing bad luck may mean the business will fail immediately.

For medium-, large-, and enterprise-sized businesses, experiencing profound luck could help push them to the next level, but the lack of good luck does not mean these companies cannot continue to grow and maintain the status quo. And, in a lot of circumstances, experiencing bad luck doesn’t mean the business will fail immediately.

Concluding, as the company grows, the role of good luck in success shrinks. As the company grows, the threat of bad luck shrinks as well. Why? As businesses grow, bureaucracy begins to enter the scene–decisions become more and more rational, and any sudden death/health issues/etc., cannot significantly influence the streamlined processes anymore.

5. Luck Beats Out Talent For Maximum Success

Researchers A. Pluchino., A. E. Biondo, and A. Rapisarda, writing for Advances in Complex Systems in 2018, found the following conclusion:

In particular, our simple agent-based model shows that, if it is true that some degree of talent is necessary to be successful in life, almost never the most talented people reach the highest peaks of success, being overtaken by averagely talented but sensibly luckier individuals.

Their research, simplified, found that although Western culture places a high value on effort, talent, and risk-taking (similar to a meritocracy), a large portion of success can also be attributed to luck and random chance.

6. You Can Create Your Own Luck

Professor Richard Wiseman, professor of psychology at the University of Hertfordshire, in his 10-year research study of luck found the following:

7. Luck and Random Walk

Random walk is the idea of future behavior being independent of past history. How this integrates with luck is through a Deloitte study, summarized below by Claude AI:

• The document critiques popular management books and research studies that claim to identify the principles behind the success of "great" companies. It argues that most of the companies examined in these studies do not actually exhibit statistically remarkable performance that can be definitively attributed to anything other than luck or random variation.
• The authors developed a statistical method using simulations to evaluate whether a company's performance profile over time is so exceptional that it likely results from special firm-specific capabilities versus just common industry factors and randomness.
• Applying this method to analyze the "successful" companies highlighted in 11 major management studies, the authors found that only around 20% could be classified as having truly statistically remarkable performance. Many of the most famous studies like Good to Great had zero companies meet this high bar.
• The authors argue that prescriptions from these popular studies should be viewed more as inspirational "fables" rather than evidence-based advice since they are not studying companies with definitively great performance after accounting for randomness.

If that didn’t totally make sense, how about this explanation:

Here is a table of the number of companies founded from 2005 - 2015 and the number of companies with 250 or more employees (via Pitchbook):

Using 2005 - 2015 data (as it’s old enough to have large companies, but not too old or young), we can see that less than 0.1% of companies founded ever become larger than 500 or 250 employees (at least of those companies on Pitchbook). That means that, according to Pitchbook data, around 1 in every 7000 companies grows to be 500+ employees. 1 in every 3750 companies grows to be 250+ employees.

So, relating this back to random walk, if you think that there is a random chance of a company being successful with no luck involved (500+ employees) is 1 in every 10000 companies, there is some extra luck at play to increase this probability. That is how luck factors into a random walk.

_______

Overall, the resources on luck and business success are filled with wild, vague statements. However, as you’ve seen listed above, there are some truths hidden within the conjecture.

Credit Inc. Magazine

Success = Preparation + Timing + Luck

Roman philosopher Seneca said, “Luck is what happens when preparation meets opportunity.”

I think that accurately summarizes the concepts and learnings put forward above. The success of a business or business decision is based on preparation, timing, and luck.

Preparation in this case refers to understanding the “why” behind the choice. This means understanding the business, the product, the customer, etc. This is the part most businesses and most people focus almost all of their time on.

Timing refers to understanding the “why now” behind the choice. This means understanding internal and external factors/drivers that are making that decision good or bad at that point in time.

Luck refers to creating the best set of circumstances possible for a good outcome. This is extremely catered to each specific situation and decision, but looking for and understanding opportunities to attract and benefit from good luck is critical to a business’s success.

If entrepreneurs, employees, and even consumers thought about decisions as a sum of three equal factors (preparation, luck, and timing), more businesses would be successful, more value would be created and captured, and more people would positively benefit.

See you Saturday for The Saturday Morning Newsletter,

Drew Jackson

Twitter: @brainwavesdotme

Email: brainwaves.me@gmail.com

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