Maybe You’re Just Not Lucky

I just finished reading Fooled By Randomness, by Nassim Taleb. I loved the book, and if you’re interested in financial markets, behavioral finance, probabilities and statistics I think you’ll really enjoy it. Check it out if you haven’t already. Nassim has a section that talks about survivor bias and it got me thinking about how it related to startups.

I was recently at a conference for startups in San Francisco, a day-long chance to learn from people who had built and run massively successful businesses. The speakers were gracious, humble and offered the best advice they could for the young operators in the crowd. But I was particularly struck by one CEO, who was the only one to attribute much of his success to luck. When asked a question about what he would have done differently, he said that you can’t ignore the massive role luck plays in the success of most startups, and he tried to keep that in mind while he was going through growing pains at the company.

I looked out over the 400 people in attendance and noticed how young everyone was, and I thought about how few of them would still be coming back to these conferences after five years.

One problem with taking to heart advice from successful startup founders is that we run the risk of mistaking correlation for causation, and we ignore survivor bias when we internalize this information. Of 100 startup founders, maybe 10-20% will be truly successful at operating their company from an idea to an M&A transaction or IPO that generates a return for everyone involved. Of the 80% plus who fail, most of them will be exceptional entrepreneurs and operators who picked the wrong market, the wrong product strategy or just had bad luck along the way.

Venture investors place very few bets in a given year, and all of them are on top notch people who are vetted and have the potential to become great leaders. Of those 100 theoretical startups, 100% of them are founded by credible people who have already proven their potential, and often have a previous track record of success – they are already winners on paper or they wouldn’t be able to raise capital.

I don’t think the community likes talking about this very much. We like to put successful startup leaders on pedestals and assume that they’re successful because of the decisions they made. Success rates in early stage, venture-backed startups are very, very low. The cemetery of failed startups is filled with entrepreneurs who did literally everything right, but were just unlucky. I was reminded to keep this in mind, not only when looking at failed startups, but also when looking at successes. Operating advice can be invaluable, but keep in mind that for every successful founder you see on a stage, there are probably 80 others who are just as talented, just as smart, and just as good at operating, who were just a little less lucky.


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