Luck in business doesn’t guarantee success

  • By James McCusker Business 101
  • Wednesday, August 29, 2012 3:20pm

Anyone who thinks that business success is based on luck really doesn’t really understand business … or luck.

Still, we cannot deny that luck exists. It is unusual to meet a successful entrepreneur who does not acknowledge that his or her company was lucky at some point in its development — sometimes very lucky. It is even more unusual, though, to meet one who believes that the company succeeded or failed because of luck.

What’s the difference between acknowledging luck and depending on it? Everything.

At the heart of capitalism and the market system is the idea that events are not determined by fate, luck or the whims of the gods, but by probabilities. And probabilities are driven by two factors. The first is the experience of the past, catalogued, tallied up and averaged. The second is our own behavior — the decisions, skills, efforts and, of course, flaws that make up our businesses and our lives.

In modern commerce, probabilities allow us to make predictions, and these form the basis of every economic decision — from investment to hiring. These predictions are never perfect, of course, but they are good enough to support a remarkable growth in human prosperity.

An entire industry, insurance, is based on the fundamental idea that the probabilities of events can be determined. In the long run, then, the risk of loss can be calculated and offset by premiums paid to the insurance company to counterbalance the risk.

Another entire industry, gambling, is also based on the fundamental idea that events — such as being dealt two pair, aces high — are predictable based on probabilities. There is no luck involved.

To individual gamblers it may seem like luck is everything, certainly at the roulette and craps table. They have lucky nights and not-so-lucky nights. And when we look at infrequent gamblers, it even seems that some people are luckier than others. But every gambler having good luck is offset by others having bad luck, and as an entire package, over time, the earnings of a casino are very predictable and, in general, are directly related to attendance.

As predictable as events are on average, it is still very difficult to forecast outcomes for individuals. The process becomes doubly difficult when part of the outcome is determined by both the efforts of the individual and by interactions with others.

Business success is notoriously difficult to predict for that reason. There are so many more variables and uncertainties that the mathematics involved in predicting the success of an individual business has more in common with odds-making on sporting events than with casino gambling.

Of course, lots of people place bets on sporting events, just as lots of entrepreneurs, investors and loan officers put their resources and efforts on the line to back business enterprises. Not knowing the outcome is part of the excitement of business, as it is in sports.

Entrepreneurs and business managers can increase the odds of success by identifying and eliminating the known sources of failure. This is what education and training programs do best, in sports and in business.

In football, for example, one frequent source of failure is physical conditioning. Fatigue slows players down enough to make a difference, particularly as the game progresses. Teams with physical conditioning issues often end up playing “three quarter football,” where they are competitive, maybe even winning, until the last 15 minutes of a game … and then they lose.

In the same way, businesses that do not pay attention to their basic skills in accounting, marketing, customer service and motivation end up “fatigued” — and reacting slowly to changes rather than recognizing and anticipating them.

Business education programs of all sorts, from business plan workshops to business schools and MBA programs, are largely based on the same principle as sports coaching: narrowing down and overcoming the known sources of failure. And businesses most often fail because of fundamentals such as under-capitalization, unrecognized profitability or cash flow issues, inadequate understanding of your customers or the market, and lack of focus. Education and training can help with these things and with that help any motivated entrepreneur or manager can virtually eliminate them as a source of failure — and recognize opportunities in time to take advantage of them.

Will that ensure the success of your business? No. One of the things that we must accept about business is that, like sports, some things are not predictable. That is the part we call luck.

What being prepared will do is enable you to deal with luck, both good and bad. In business, as in sports, the better prepared you are, the less bad luck you will have. As the legendary football coach Darrel Royal said, “Luck is what happens when preparation meets opportunity.”

James McCusker is a Bothell economist, educator and small-business consultant. He can be reached at