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Good luck can't make you great
How luck was counted
Researchers defined a luck event as anything that meets three tests: you didn't cause it, it carries a potentially significant consequence, good or bad, and it arrived as a surprise in its timing, its form, or the fact that it happened at all. They sorted the histories of companies that ended up at least 10 times better than their industries, in turbulent fields like semiconductors, biotechnology, airlines, and medical devices, against comparison companies in the same fields. They counted good events, bad events, bigger spikes, and better timing.
Return on luck
The winners did not have more luck. If anything the comparison companies were luckier, though not by enough to make that case, so the result was a wash. What separated the two groups was return on luck: two companies could receive a comparable break, and one made far more of it.
Protecting the downside
Good luck never showed up as the cause of a great company anywhere in the research, while bad luck can end a company. Managing luck has less to do with the upside than with protecting the downside, so that bad luck never knocks you out of the game. The companies still standing when the bad stretch passes are the ones in a position to capitalize.
Why does bad luck hurt more than good luck helps?
Recovery arithmetic is lopsided: an organization that loses half its value has to double just to get back to where it started. Deep losses also drain the cash, staff, and credibility needed to try again. A company that goes bankrupt stops compounding altogether, because nothing is left to build on.
Why do success stories overstate skill?
Stories get told about the survivors, which hides everyone who tried the same thing and failed. The statistician Abraham Wald made this point during World War II, when he advised the military to armor the parts of returning planes that had no bullet holes, since planes hit there never came back. Business histories work the same way, because the failed companies rarely get a book. The result is a record that makes luck look smaller than it was.
Why do turbulent industries test luck best?
Fast-changing fields like semiconductors and biotechnology throw off a steady stream of surprises, such as new technologies, shifts in regulation, and sudden shocks to demand. That gives researchers many events to count for each company. In a stable industry there would be too few unexpected events to compare.
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