[Off-Topic] Companies, People, Success
I love the Wear Sunscreen video. I think I first saw it in 2003 or 2004 and it stuck with me as a warning, something to remember once in a while. The parts I like most:
“Be careful whose advice you buy, but be patient with those who supply it. Advice is a form of nostalgia. Dispensing it is a way of fishing the past from the disposal, wiping it off, painting over the ugly parts and recycling it for more than it’s worth.”
Another important part:
“Maybe you’ll marry, maybe you won’t. Maybe you’ll have children, maybe you won’t. Maybe you’ll divorce at 40, maybe you’ll dance the funky chicken on your 75th wedding anniversary. Whatever you do, don’t congratulate yourself too much, or berate yourself either. Your choices are half chance. So are everybody else’s.”
I was reminded of this while reading What the Dog Saw by Malcolm Gladwell, in the chapter where he talks about another author I like, Nassim Taleb, who wrote the excellent Fooled by Randomness. That chapter happens to be on Gladwell’s blog, and this is the excerpt that caught my eye:
“For Taleb, then, the question of why someone was a success in the financial marketplace was vexing. Taleb could do the math in his head. Suppose that there were ten thousand investment managers out there, which is not an outlandish number, and that every year half of them, entirely by chance, made money and half of them, entirely by chance, lost money. And suppose that every year the losers were tossed out, and the game replayed with those who remained. At the end of five years, there would be 313 people who had made money in every one of those years, and after ten years there would be nine who had made money every single year in a row, all out of pure luck. Niederhoffer, like Buffett and Soros, is a brilliant man. He has a Ph.D. in economics from the University of Chicago. He started the idea that by rigorous mathematical analysis of patterns in the market an investor could identify profitable anomalies. But who’s to say that he isn’t one of those lucky nine? And who’s to say that in the eleventh year Niederhoffer will be one of the unlucky ones, suddenly losing everything, suddenly, as they say on Wall Street, ‘blowing up’?”
The article is long, but I’ll spare you the details: Victor Niederhoffer literally ‘blew up’ in October 1997. He lost practically everything.
The Apple Miracle
In 1997, Apple was considered practically out of the market, with a bad product line, terrible image, declining market share, huge losses. That’s when Steve Jobs returned.
In 2009, Apple is one of the most admired companies in the world, its market value multiplied dozens of times, shows extraordinary profits, the brand is one of the most recognized and adored in the world, its products are envied by the whole industry.
This is the story of the CEO of the Decade, from iMac to iPod, to iPhone and now the iPad. We all love stories like this. Imagining that a great brain, a genius, a hero, alone bends an entire industry to its feet. Twelve uninterrupted years of success.
I love this story too. It has fascinated me since the 90s, and I’ve known the whole arc since it began in 1976: the Macintosh in 1984, Pixar in 1995, the great return in 1997, the iPod in 2001, iTunes in 2003, the iPhone in 2007.
But I can’t help imagining how much of it was pure luck, and when the day of the great turn to bad luck will come. I hope it doesn’t happen, of course, but history shows it’s a question of time.
The Magic Recipes
What I find funniest is how many “analysts,” “specialists,” and “gurus” like to cite stories like Apple’s, Warren Buffett’s, or the Victor Niederhoffers of the world as the keepers of “Magic Recipes for Success.”
There’s an entire industry, from psychologists to MBAs, Ph.D.s, and economists, with tons of books and analyses tracing the routes of great people and successful companies. They all try to find what those people have in common and, from there, sell procedures that “guaranteed” will lead you to success.
It’s an easy task: if it works, the formula works; if it doesn’t, it was you who didn’t follow the formula correctly. You can’t go wrong.
I’m tired of hearing: “we should follow this path, because that’s how company XYZ, of great success, does it.” Little do they know that much of it can be pure luck. And luck is uncontrollable, tied to the situation where it happened, impossible to replicate on demand.
In a chaotic world, it’s impossible to replicate the millions of variables that led to a phenomenon. In retrospect, we can see many of the macro factors, but we will never know all the micro-factors that influenced the result. So it’s futile to try.
You can learn from mistakes. Learning from successes is much harder, especially the kind of success that takes an Apple from near-bankruptcy in 1997 to stardom in 2009. Not even the largest supercomputers in the world would be enough to analyze all the variables involved.
Admiring great successes is a good exercise. It inspires us to try different things and to review our points of view, and there’s something healthy in that.
But it’s stupid to go around quoting or imitating others. “Let’s do X because this successful guru said so.” That’s blindness, it’s acting without knowing what you’re doing, it’s failing to understand that someone’s success may very well have come from pure luck. A lot of people prefer to believe it came from sweat, personal effort, and merit, 100% the fruit of their perspicacity and intelligence.
As Taleb says, this sounds like heresy in a culture that treats “sweat = success,” but that’s how the world works. Species evolve or go extinct based on pure randomness. Homo sapiens is here by pure chance. It’s a fact to accept.
There’s more: retrospective analyses are dangerous. After the fact, it’s simple to trace the path backward and see most of the steps that were taken. The trick is that in the past, at the moment of deciding, nobody knew how the story would unfold.
That’s why you can’t compare today’s critic, who says “oh, but you should have done Y,” with the decision-maker of the time, who didn’t have knowledge of the future. And retrospective analyses don’t work as recipes for the future, because the set of variables and circumstances will be totally different.
Heroic stories are part of our folklore, our culture. I already talked about this in the article The Power of Myth: Redux, and I recommend taking a look if you haven’t read it.
Given that, one of the dangers is good old analysis paralysis, when we want to evaluate every possible variable before making any decision. Accept that you’ll never have them all, and no matter how much you manage to analyze, your chances of getting it right don’t improve that much. As I said before:
“Whatever you do, don’t congratulate yourself too much, or berate yourself either. Your choices are half chance. So are everybody else’s.”
Having said all that, what should a person or company do? “Satisfy customers?” That’s just one aspect of the business. “Deliver good products?” One more aspect. What you do along the way gives you sustainability or not, but don’t confuse things: the purpose is only one.
A marketer will tell you the main thing is “satisfying the customer.” A production engineer, “increasing productivity.” An investor, “increasing the value of the company.” A computer scientist, “creating innovative technologies.” A sociologist, “making a difference in the world.” And so on.
The purpose of a company is “making money sustainably.” Just that.
Note: I’m not saying everything comes only from luck, of course not. I’m saying it’s useless to try to separate one from the other in past cases, and even worse to use it as a model for the future, precisely because of that uncertainty.