Skill vs. luck in making deals, running successful ventures

I recently shuttered a failed company. I had raised less than $1 million and was pretty sure we had a winner. I was dead wrong. Bad timing, bad idea, bad luck.

Huh, luck?

MIT did a study called “If you’re so smart, why aren’t you rich? Turns out it is just chance.”

There is something called the “power law” that measures the functional relationship between two quantities where a relative change in one result is a relative change in the other.

Now think about that concept with respect to current wealth distribution. Today about 10 men/women have the total wealth equivalent of the world’s poorest 3.8 billion people.

It’s not that these folks worked 10 billion times harder. Yes, they had talent, but they also happened to be the right people at the right time in the right place and got “lucky” when the stars aligned.

This “unfairness” has wide-ranging political and social implications. We think our country is a meritocracy — but only up to a point. I am deeply aware of my own good fortune, and I try to combine that with humility and grace.

Another study, this one by UC Berkeley professor Cameron Anderson, concluded you don’t have to be a jerk to succeed. “Those with selfish, combative, manipulative personalities did not gain an advantage in the competition for power.” Those 10 above must have missed that class.

But maybe power is a chicken and egg problem. Sure, “powerful people do often act like jerks.” But Anderson says this is because being powerful can turn you into a jerk, not because being a jerk will make you more powerful. Try telling that to your boss.

Think about the television show “Succession.” Jerks abound. It recently had 27 nominations and won six Emmys. Now this problem is nuanced, in that “disagreeableness” is a psychological trait often found in certain fields with heavy emphasis on creativity.

I have often written about the loudest people in the room. These are not necessarily the ones with the best ideas, but if you combine loud with disagreeable, well maybe you have a shot at unconscionable wealth, or in the alternative get thrown out on your ass.

So, back to my failure. I returned nine checks, about 21 percent of the original investment. Most of the investors were appreciative of the effort and forgiving of my failure. I got two interesting comments. From a friend of 40 years, he was outraged and felt that he had been “decapitated.” He may never speak to me again. The other said he had never told his wife about the original investment so this was just a profit distribution (albeit the last). That fellow was complimentary in that he has been in a few of my deals, and what he likes best is they all start with very low pre-money valuations. Give the investor a fighting chance.

Having looked at numerous deals, my opinion is there is a potential high correlation between unreasonable, ego-driven, high pre-money, uncapped, safe note valuation insanity and the likelihood of future failure in the company.

Maybe self-aggrandizement, a touch of jerk-itude? I recently got pitched a deal where the CEO said he would stay with the company until death — it would be his life’s work. Yikes.

When you hire for your company, you are looking for “fit,” but you are also looking for some “attitude” — a key feature of leadership, a bit of swagger, but not too much. Feels like a Goldilocks problem.

Finally, one of the indelible mantras for CEO leadership is “hope is not a strategy.” You can’t run your company with scratch-off lottery tickets.

I ride my bike on Saturday, I stop halfway to take a break and buy three lottery tickets. I promise the lady behind the counter that she will get 10 percent if I win. I have never won in 15 years. I wonder if the lady doubts my integrity.

I think I should just give her $10 one day and tell her we got lucky and won. Restore her faith in mankind?

At the end of the day, the solution is obvious. Just keep putting one foot in front of the other, avoid potholes, and look down occasionally. There might be a lucky coin right in front of you.

Rule No. 799: “ Nobody gets justice. People only get good luck or bad luck.” — Orson Welles

Senturia is a serial entrepreneur who invests in startups. Please email ideas to neil@blackbirdv.com.