[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 nostalgy, 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 part 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, can alone bend an entire industry to its feet. 12 uninterrupted years of success.

I also love this story — it has fascinated me since the 90s. I’ve known this whole story since it began in 1976, the Macintosh in 1984, Pixar in 1995, the great return in 1999, the iPod of 2001, iTunes of 2003, the iPhone of 2007. But I can’t help trying to imagine how much of it was pure luck, and when tomorrow will be the day of the great turn for bad luck — of course, I hope it doesn’t happen, but history shows it’s a question of time.

The Magic Recipes

The funniest thing is how many “analysts,” “specialists,” “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 ranging from psychologists, MBAs, Ph.D.s, economists, etc., with tons of books, analyses, tracing the routes of great people or successful companies, trying to find what they have in common and from there delivering procedures that “guaranteed” will lead you to success.

It’s an easy task: if it works, the formula works; if it doesn’t work, 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 XXX, of great success, is doing it.” Little do they know that much of it can be pure luck. And luck is uncontrollable, totally dependent on the situation where it happened, and impossible to replicate at will.

In a chaotic world, it’s impossible to replicate 100% of all the millions of variables that led to a phenomenon. We can see, in retrospect, many of the macro factors, but we will never know all the micro-factors that influenced the result, so it’s futile to try. We can, yes, learn from mistakes, but I find it very hard to learn from successes, especially the kind of success that takes an Apple from near-bankruptcy in 1997 to stardom in 2009. Not even all 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 or to review our points of view, and in that I find a healthy exercise.

But it’s stupid to quote or try to imitate others. “Let’s do X because this successful guru said so.” That’s blindness, it’s not knowing what you’re doing, it’s not understanding that just because someone is successful, it wasn’t due to pure luck. Regardless of what many may think: that it was from sweat, from personal effort, from merit 100% of their perspicacity and intelligence. As Taleb says, it may sound like heresy given our “sweat = success” culture, but unfortunately that’s how things work in the world. Animal species evolve or become extinct based on pure randomness. Homo Sapiens is here by pure chance. It’s a fact to accept.

And more: retrospective analyses are very dangerous. After the fact it’s extremely simple to trace a path backward and see most of the steps that were taken. But the trick is that in the past, at the moment when the decision needed to be taken, we can’t know the unfolding of the story. So we can’t compare today’s critic saying “oh, but you should have done Y” with yesterday’s decision-maker, who didn’t hold the future knowledge. Even worse: retrospective analyses don’t serve 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 recommend taking a look if you haven’t read it.

Given all this, one of the dangers is good old analysis paralysis, where we want to evaluate as many variables as we can before making any decision. Accept that you’ll never have all of them, and regardless of the volume of variables you manage to analyze, your chances of hitting 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.”

All of that said, what should a person or company do? “Satisfy customers?” No, that’s just one aspect of business. “Deliver good products?” Also no, that’s just another aspect. What you do along the way will give you or not sustainability, 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 will tell you the purpose is “increasing productivity,” an investor will tell you the objective is “increasing the value of your company,” a computer scientist will tell you the objective is “creating innovative technologies,” a sociologist will tell you it’s “making a difference in the world,” etc.

The purpose of a company is “making money sustainably.” Just that.

Note: I’m not stating that everything is derived only from luck — of course not. I’m saying it’s useless to try to discern this from past cases, and especially worse to try to use it as a model for the future, precisely because of that uncertainty.