Luck, Skill, and Serendipity

Can you take the credit for your own success, or are you just a lottery ticket?

In the chapter You Are Not a Lottery Ticket from the book Zero to One, Peter Thiel makes a strong case against luck and chance: “The most contentious question in business is whether success comes from luck or skill.”

Hundreds of people have started multiple multimillion-dollar businesses. A few, like Steve Jobs, Jack Dorsey, and Elon Musk, have created several multibillion-dollar companies. Thiel claims that if success was mostly a matter of luck, these kinds of serial entrepreneurs probably wouldn’t exist.

Unfortunately, how strongly luck or chance influences the future cannot be determined empirically. A company starts in a unique set of circumstances, and one has to rewind back to its inception and create a thousand copies of the world, and start that company in each copy to see how many times it would succeed or fail. Since, such experiments aren’t possible we would have to go ahead with logical arguments. And that’s what the whole chapter is about.

Indefinite v. definite attitudes:

“Indefinite attitudes to the future explain what’s most dysfunctional in our world today. Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options. . . . By the time a student gets to college, he’s spent a decade curating a bewilderingly diverse résumé to prepare for a completely unknowable future. Come what may, he’s ready—for nothing in particular.”

“A definite view, by contrast, favours firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one.”

The general and recurring advice throughout the book is to plan and build a definite future. This involves predicting what the future would be, and then acting upon it. And that makes sense as well—if you believe your life is a matter of chance, why read this post, or any book that talks about building a better version of yourself or the world. But that is just one aspect of the story, and there’s another powerful angle to this school of thought.

Zero to One was published in 2014. But Nassim Nicholas Taleb had already turned the logic of “definite future” upon its head in his classic book The Black Swan way back in 2007.

In the chapter aptly titled How to Look for Bird Poop, Taleb says the classical model of discovery is: you search for what you know (say, a new way to reach India) and find something you didn’t know was there (America). Taleb makes a strong case about luck, chance, and especially “serendipity”: the term derived from a fairy tale, “The Three Princes of Serendip”. These princes were always making discoveries by accident or sagacity, of things which they were not in quest of.

“Almost everything of the moment is the product of serendipity,” Taleb claims.

He further illustrates this claim with the examples of modern wonders like the computer and the internet. None of them were meant for their current intended purpose. As he mentions, “Nor was the computer invented to let you chat with your friends in Siberia, but it has caused some long-distance relationships to bloom. As an essayist, I can attest that the Internet has helped me to spread my ideas by bypassing journalists. But this was not the stated purpose of its military designer.”

Charles Townes’ discovery was irrelevant as he was simply satisfying his desire to split light beams. He was often teased by his colleagues about the irrelevance of his discovery. Yet just consider the applications of laser in the world around you: compact disks, eyesight corrections, microsurgery, data storage and retrieval—all unforeseen applications of the technology. “The laser is a prime illustration of a tool made for a given purpose (actually no real purpose) that then found applications that were not even dreamed of at the time.”

These men were simply building toys. Some of those toys went on to change the world, and are now dubbed as pre-planned innovations. Research does involve a large element of serendipity, which can pay off big as long as one knows how serendipitous the business can be and structures it around that fact.

Engineers tend to develop tools for the pleasure of developing tools, not to induce nature to yield its secrets.

After establishing his points on the role of serendipity, Taleb makes a strong case about predictions, or how bad we really are at it—especially when it comes to predicting our own inventions. “When a new technology emerges, we either grossly underestimate or severely overestimate its importance. Thomas Watson, the founder of IBM, once predicted that there would be no need for more than just a handful of computers.”

Why is that so, you ask? Taleb refers to his hero Sir Karl Popper to answer this. Popper’s central argument was that in order to predict historical events you need to predict technological innovation, which is itself “fundamentally unpredictable”. In other words, if you expect to expect something at some date in the future, then you already expect that something at present.

Taleb illustrates this idea with an example:

“If you expect that you will know tomorrow with certainty that your boyfriend has been cheating on you all this time, then you know today with certainty that your boyfriend is cheating on you and will take action today, say, by grabbing a pair of scissors and angrily cutting all his Ferragamo ties in half. You won’t tell yourself, This is what I will figure out tomorrow, but today is different so I will ignore the information and have a pleasant dinner.”

In our context, “to understand the future to the point of being able to predict it, you need to incorporate elements from this future itself.” In other words, if you know about the discovery you are about to make in the future, then you have almost made it. The corollary explains our current predicament: we are not easily able to conceive of future inventions, because if we were, they would have already been invented.

Prediction requires knowing about technologies that will be discovered in the future. But that very knowledge would almost automatically allow us to start developing those technologies right away. Ergo, we do not know what we will know.

“If you are a Stone Age historical thinker called on to predict the future in a comprehensive report for your chief tribal planner, you must project the invention of the wheel or you will miss pretty much all of the action. Now, if you can prophesy the invention of the wheel, you already know what a wheel looks like, and thus you already know how to build a wheel, so you are already on your way.”

Taleb’s philosophy is a worthy successor to Popper’s concerns about the limitations in forecasting historical events. Almost all major inventions are heavily clouded by the narrative fallacy. Narratives are much easier to read, write, and remember. Narratives give little to no importance to serendipitous discoveries, and chance encounters. Were the Facebook and Google guys really planning for world domination from their respective dorm rooms? Was Steve Jobs really born to become a great innovator?

What you have to understand is that Peter Thiel is an investor. No investor would like to claim that her portfolio companies have been random successes, and that she has become a successful investor by sheer luck. In fact, no VC in the right mind would prefer luck over planning, or entertain founders who give luck or fortune more importance over their own definitive future plans. Thiel, being a VC, by design cannot accept the role of luck or chance in building the future.

Having said that, it doesn’t mean that you simply sit at home and do nothing. Lady Fortuna wouldn’t shower her blessings upon you that way. As Louis Pasteur has said, “Luck favours the prepared,” and like all great discoverers, he knew something about accidental discovery. You have to set yourself up for positive encounters, and the best way to get maximal exposure is to keep researching. Collect opportunities.

Thiel later suggests, “To a definite optimist, the future will be better than the present if he plans and works to make it better.” It’s just that it might not exactly be the kind of future you envision. Take the Cambridge Analytica event, for example. Had Facebook known in the past that something like this would happen in the future, they would have taken the correct measures accordingly. As already stated, we do not know what we will know.

The late Rajeev Motwani, who was Page’s and Brin’s academic advisor back in the day, summarises how Google came into being:

“It wasn’t that they sat down and said, ‘Let’s build the next great search engine.’ They were trying to solve interesting problems and stumbled upon some neat ideas.”

Best,
Abhishek

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