Luck in Business Success: An Overlooked Metric

This article is an excerpt from the Shortform book guide to "Great by Choice" by Jim Collins and Morten T. Hansen. Shortform has the world's best summaries and analyses of books you should be reading.

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What role does luck play in business success? What do you think is more important when it comes to becoming massively successful in business—luck or strategy?

Some people see luck as the only explanation for massive business success; others see luck as a non-factor. But the research found that neither extreme holds true. While luck has a place in business success, whatever luck you get requires action on your part to determine the outcome.

Here is what science has to say on the role of luck in business success.

Measuring Luck

While “luck” seems like an intangible concept, the authors of Great by Choice came up with a methodology to measure it and determine what kind of role it played in business success.

Methodology and Findings

To quantify luck in business, the research team followed this methodology:

They defined luck. 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.
They pinpointed luck events and analyzed their importance in the histories of both the 10X companies and comparison companies.

Example: Finding the EPO gene and getting FDA approval was considered a good luck event of high importance for Amgen; a competitor finding their way around proprietary technology and getting their own patent for EPO was considered a bad luck event of high importance for Amgen.

They determined if 10X cases had more good-luck events than their comparisons.

Finding: On average, 10X cases had seven good-luck events versus comparison cases’ eight.

They determined if comparison cases had more bad-luck events than 10X cases.

Finding: On average, both 10X companies and their comparisons had about nine bad-luck events.

They determined if there was one big-good luck event that catapulted 10X companies to success.

Finding: No evidence to support this.

They determined if 10X companies had a lot of good luck in the beginning, giving them momentum that propelled them far ahead of their competitors right from the start.

Finding: No evidence to support this.

The research revealed that 10X companies and their comparisons had a fairly even playing field when it came to luck. What set them apart wasn’t the amount of luck that they had, but what they did with the hand they were dealt.

Making the Most of Luck

Some people see luck as the only explanation for massive success; others see luck as a non-factor. But the research found that neither extreme holds true. Some companies and some people are indeed luckier than others—people can be born into better circumstances with many more opportunities. However, luck can’t carry you all the way through to success. Whatever luck you get requires action on your part to determine the outcome.

Example: Bill Gates can be considered incredibly lucky: He was born into a well-off family, had a private school education, grew up when personal computers were on the rise, and happened to see a magazine cover story that planted the idea for a product. However, many others had the same kind of luck when it came to their background, and not a lot of people achieved Gates’s level of success. Gates set himself apart by taking an idea and running with it—he dropped out of college, uprooted himself to another state, and worked round the clock to build a company.

Put simply, 10X companies did more with the luck that they got. Whether it was good luck or bad luck, they got a higher return on their luck.

There are four possible scenarios when it comes to luck and outcomes:

1. Great return on good luck. This is when a company (or a person, like Bill Gates) has a good-luck event and uses it to their advantage. 10X companies didn’t coast on these events and instead used them to fuel growth. One of the most important types of good luck is finding the right people for your enterprise.

Example: A Taiwanese scientist named Fu-Kuen Lin responded to Amgen’s job posting in the classifieds. Lin turned out to be an incredibly hard worker, obsessively working on the EPO gene for years. His hard work paid off, leading to the first billion-dollar bioengineered product. Amgen’s good luck in finding Lin led to massive success for the company.

2. Poor return on good luck. In contrast with 10X companies, comparison companies had good luck but failed to execute and make the most of it.

Example: Intel’s comparison company, AMD, had a string of good luck: They won a court case, developed a great product, and had the market’s support. They had more good luck when Intel ran into some problems with defective chips. AMD was in the perfect position to overtake Intel, but they stumbled and were delayed for months. Then, they experienced another stroke of good luck when they acquired NexGen, a company with tech to rival Intel’s. Again, AMD failed to deliver, lagging behind in production. AMD’s series of good-luck events were all overturned by poor execution.

3. Great return on bad luck. A bad-luck event is when a 10X company gets to display its full might. As the research shows, every company has its share of bad luck, but not every company makes it out alive. Great companies are resilient and know how to use this bad luck to produce great outcomes. Instead of giving up or just chalking it up to misfortune, they ask, “How can this event make us a better company?” Then they roll up their sleeves and get to work.

Example: In 1988, California voters passed Proposition 103, which lowered auto-insurance prices by 20 percent. This was a huge blow to Progressive Insurance as 25 percent of their market was in California. Instead of panicking, CEO Peter Lewis quickly tried to figure out what was happening and learned that customers hated dealing with insurance companies due to the economic cost and hassle. Voting for the proposition was consumers’ punitive response to the difficulties car-insurance companies put them through. Lewis used this insight to greatly improve the company’s claims service. As a result, they gradually made their way up from #13 in the market to #4 by the end of the era of analysis.

4. Poor return on bad luck. This is perhaps the only true form of luck. While one big good-luck event can’t lead to sustained greatness, a single bad-luck event or series of events can kill a company. This is why it’s important to behave like a 10Xer—you need to prepare for bad-luck events because they are bound to happen. Your company needs to have the means to survive long enough until the next good-luck event.

Example: Both Southwest and PSA faced a number of bad-luck events: oil shock, labor strikes, a recession. While Southwest was prepared to weather the long season of bad luck, PSA was not. PSA kept trying to manage their bad luck by making self-destructive moves like raising prices and increasing debt. Their poor return on bad luck meant that they were perpetually behind Southwest.

Behaving like a 10Xer who exercises fanatic discipline, empirical creativity, and productive paranoia can give you the best outcome, no matter what kind of luck you have. With good luck, these core behaviors can propel you to greatness; with bad luck, these behaviors can help you survive or even push you to thrive.

Life is uncertain and unpredictable. Whether something good or bad happens is out of your control, but what you do with what you get is entirely up to you. If you rely purely on luck, then your fate changes as you swing from a good-luck event to a bad one. If you rely on yourself—20 Mile Marching, firing bullets before cannonballs, managing risk, and sticking to your SMaC recipe—you can turn good or bad luck into something amazing. You are the master of your fate; you can make the decision to become something great.

Exercise: Make the Most of Your Luck

It’s not what happens to you that matters—it’s what you do with it that counts.

List all significant luck events that you’ve had in the past five years. Assess whether each one was a good-luck event or a bad-luck event, and if it was of medium or high importance.

How did you respond to each luck event and what were the outcomes?

What could you have done differently to get a higher return on luck?

Luck in Business Success: An Overlooked Metric