What’s Luck Got to Do With It?
By Jim Collins and Morten T. Hansen, NY Times
Recently, we completed a nine-year research study of some of the most
extreme business successes of modern times. We examined entrepreneurs who built
small enterprises into companies that outperformed their industries by a factor
of 10 in highly turbulent environments. We call them 10Xers, for “10 times
success.”
The very nature of this study—how some people thrive in uncertainty,
lead in chaos, deal with a world full of big, disruptive forces that we cannot
predict or control—led us to smack into the question, “Just what is the role of
luck?”
Could it be that leaders’ skills account for the difference between just
meeting their industry’s average performance (1X success) and doubling it (2X)?
But that luck accounts for all the difference between 2X and 10X?
Maybe, or maybe not.
But how on Earth could we go about quantifying something as elusive as
“luck”? The breakthrough came in seeing luck as an event, not as some
indefinable aura. We defined a “luck event” as one that meets three tests.
First, some significant aspect of the event occurs largely or entirely
independent of the actions of the enterprise’s main actors. Second, the event
has a potentially significant consequence—good or bad. And, third, it has some
element of unpredictability.
We systematically found 230 significant luck events across the history
of our study’s subjects. We considered good luck, bad luck, the timing of luck
and the size of “luck spikes.” Adding up the evidence, we found that the 10X
cases weren’t generally “luckier” than the comparison cases. (We compared the
10X companies with a control group of companies that failed to become great in
the same extreme environments.)
The 10X cases and the control group both had luck, good and bad, in
comparable amounts, so the evidence leads us to conclude that luck doesn’t
cause 10X success. The crucial question is not, “Are you lucky?” but “Do you
get a high return on luck?”
Return on luck: We call it ROL.
SO why did Bill Gates become a 10Xer, building a great software company
in the personal computer revolution? Through one lens, you might see Mr. Gates
as incredibly lucky. He just happened to have been born into an
upper-middle-class American family that had the resources to send him to a
private school. His family happened to enroll him at Lakeside School in
Seattle, which had a Teletype connection to a computer upon which he could
learn to program—something that was unusual for schools in the late 1960s and early
’70s.
He also just happened to have been born at the right time, coming of age
as the advancement of microelectronics made the PC inevitable. Had he been born
10 years later, or even just five years later, he would have missed the moment.
Mr. Gates’s friend Paul Allen just happened to see a cover article in
the January 1975 issue of Popular Electronics, titled “World’s First
Microcomputer Kit to Rival Commercial Models.” It was about the Altair,
designed by a small company in Albuquerque. Mr. Gates and Mr. Allen had the
idea to convert the programming language Basic into a product that could be
used on the Altair, which would put them in position to be the first to sell
such a product for a personal computer. Mr. Gates went to college at Harvard,
which just happened to have a PDP-10 computer upon which he could develop and
test his ideas.
Wow, Bill Gates was really lucky, right?
Yes, he was. But luck is not why Bill Gates became a 10Xer. Consider
these questions:
• Was Bill Gates the only person of his era who grew up in an upper
middle-class American family?
• Was he the only person born in the mid-1950s who attended a secondary
school with access to computing?
• Was he the only person who went to a college with computer resources
in the mid-’70s? The only one who read the Popular Electronics article? The
only one who knew how to program in Basic?
No, no,
no, no and no.
Lakeside may have been one of the first schools to have a computer that
students could use during those years, but it wasn’t the only such school.
Mr. Gates may have been a math and computer whiz kid at a top college
that had computers in 1975, but he wasn’t the only math and computer whiz kid
at Harvard, Stanford, Princeton, Yale, M.I.T., Caltech, Carnegie Mellon,
Berkeley, U.C.L.A., the University of Chicago, Georgia Tech, Cornell,
Dartmouth, Southern Cal, Columbia, Northwestern, Penn, Michigan or any number
of other top colleges with comparable or even better computer resources.
Mr. Gates wasn’t the only person who knew how to program in Basic; the
language was developed a decade earlier by Dartmouth professors, and it was
widely known by 1975, used in academics and industry. And what about all the
master’s and Ph.D. students in electrical engineering and computer science who
had even more computer expertise than Mr. Gates on the day the Popular
Electronics article appeared? Any could have decided to abandon their studies
and start a personal computer software company. And computer experts already
working in industry and academia could have done the same.
But how many of them changed their life plans—and cut their sleep to
near zero, essentially inhaling food so as not to let eating interfere with
work—to throw themselves into writing Basic for the Altair? How many defied
their parents, dropped out of college and moved to Albuquerque to work with the
Altair? How many had Basic for the Altair written, debugged and ready to ship
before anyone else?
Thousands of people could have done the same thing that Mr. Gates did,
at the same time. But they didn’t.
The difference between Mr. Gates and similarly advantaged people is not
luck. Mr. Gates went further, taking a confluence of lucky circumstances and
creating a huge return on his luck. And this is the important difference.
Luck, good and bad, happens to everyone, whether we like it or not. But
when we look at the 10Xers, we see people like Mr. Gates who recognize luck and
seize it, leaders who grab luck events and make much more of them.
This ability to achieve a high ROL at pivotal moments has a huge
multiplicative effect for 10Xers. They zoom out to recognize when a luck event
has happened and to consider whether they should let it disrupt their plans.
Imagine if Mr. Gates had said to Paul Allen after seeing the Popular
Electronics article: “Well, Paul, I’m kind of focused on my studies here at
Harvard right now. Let’s wait a few years, and then I’ll be ready to start.”
When we examined less successful companies, we saw a generally poor
overall return on luck. Some of the comparison cases had extraordinary
sequences of good luck yet showed a spectacular ability to fritter that luck
away. When the time came to execute on their good fortune, they stumbled. They
didn’t fail for lack of good luck. They failed for lack of superb execution.
WHILE getting a high return on good luck is an essential skill for
10Xers, getting a high return on bad luck can be a truly defining moment.
Consider the 10X case of Progressive Insurance.
On Nov. 8, 1988, Peter Lewis, the chief executive, received news that
shocked the insurance industry. California voters had passed Proposition 103, a
punitive attack on car insurance companies. Prop 103 required 20 percent price
reductions and refunds to customers, plunging a huge auto insurance market into
chaos. Progressive had significant exposure, with nearly a quarter of its
entire business from that one state—bang!—severely damaged by a 51 percent vote
on a single day.
Mr. Lewis zoomed out to ask, “What the heck is going on?” He placed a
call to a former Princeton classmate, Ralph Nader. Mr. Nader had long been a
consumer rights activist, at one point leading a sort of special forces unit
nicknamed Nader’s Raiders, and he had championed Proposition 103. The message
that Mr. Lewis heard: People hate you. Or, in other words, people simply hated
dealing with insurance companies, so they revolted, screaming with their votes.
“People were saying, ‘We hate your guts. We’re going to kill you. And we
don’t give a damn,’ ” Mr. Lewis said.
Chastened by what he had heard, he called his staff together and told
everyone, “Our customers actually hate us.” He challenged his team to create a
better company.
Mr. Lewis came to see Proposition 103 as a gift, and he used it to
deepen the company’s core purpose and to reduce the economic cost and trauma
caused by auto accidents. The company would create its “immediate response”
claims service: No matter when you had an accident, Progressive would be
available—24 hours a day, 365 days a year. Claims adjusters would work from a
fleet of vans and S.U.V.’s dispatched to policy holders’ homes or even directly
to an accident scene.
By 1995, Progressive could note this achievement: in 80 percent of
cases, its adjusters would have visited the customer, ready to issue a check
within 24 hours of an accident.
In 1987, the year before Proposition 103, Progressive ranked No. 13 in
the American private-passenger auto insurance market. By 2002, it had reached
No. 4. Years later, Mr. Lewis called Proposition 103 “the best thing that ever
happened to this company.”
Progressive and Mr. Lewis illustrate how 10Xers shine when clobbered by
setbacks and misfortune, turning bad luck into good results. They use
difficulty as a catalyst to deepen purpose, recommit to values, increase
discipline, respond with creativity and heighten productive
paranoia—translating fear into extensive preparation and calm, clearheaded
action. Resilience, not luck, is the signature of greatness.
Nietzsche wrote, “What does not kill me, makes me stronger.” We all get
bad luck. The question is how to use it to turn it into “one of the best things
that ever happened,” to not let it become a psychological prison.
We came across a remarkable moment at the very start of the history of
Southwest Airlines, described by its first chief executive, Lamar Muse, in his
book, “Southwest Passage.”
“The very first Sunday morning of Southwest’s life, we narrowly escaped
a disaster,” Mr. Muse wrote. “During the takeoff run, the right thrust-reverser
deployed. Only the captain’s instantaneous reaction allowed him to recover
control and make a tight turn for an emergency landing on one engine.”
What if the jet had smashed into the ground in the first week of
building the company? Would there even be a Southwest Airlines today? If we all
have some combination of both heads (lucky flips) and tails (unlucky flips),
and if the ratio of heads to tails tends to even out over time, we need to be
skilled, strong, prepared and resilient to endure the bad luck long enough to
eventually get good luck. The Southwest pilot had to be skilled and prepared
before the thrust-reverser deployed.
There’s an interesting asymmetry between good and bad luck. A single
stroke of good luck, no matter how big, cannot by itself make a great company.
But a single stroke of extremely bad luck, or an extended sequence of bad-luck
events that creates a catastrophic outcome, can terminate the quest.
The 10Xers exercise productive paranoia, combined with empirical
creativity and fanatic discipline, to create huge margins of safety. If you
stay in the game long enough, good luck tends to return, but if you get knocked
out, you’ll never have the chance to be lucky again. Luck favors the
persistent, but you can persist only if you survive.
After finishing our luck analysis for “Great by Choice,” we realized that
getting a high ROL required a new mental muscle. There are smart decisions and
wise decisions. And one form of wisdom is the ability to judge when to let luck
disrupt our plans. Not all time in life is equal. The question is, when the
unequal moment comes, do we recognize it, or just let it slip? But, just as
important, do we have the fanatic, obsessive discipline to keep marching, to
push the opportunity to the extreme, to make the most of the chances we’re
given?
Getting a high ROL requires throwing yourself at the luck event with
ferocious intensity, disrupting your life and not letting up. Bill Gates didn’t
just get a lucky break and cash in his chips. He kept pushing, driving,
working—and sustained that effort for more than two decades. That’s not luck—that’s
return on luck.
Jim Collins is the author of the worldwide best seller “Good to Great.”
This article was adapted from “Great by Choice: Uncertainty, Chaos, and
Luck—Why Some Thrive Despite Them All,” which was written with Morten T. Hansen
and published this month.
