By Baniya Beast
Adapted from Collaborative Fund
We think Mark Zuckerberg is a genius for turning down a big offer to sell his company. But people criticize Groupon and Yahoo! with as much passion for turning down their big buyout offers. What is the lesson for entrepreneurs here?
It’s hard to know. I think we only judge the process by its outcome. Which is dangerous.
The hardest thing about studying businesses and investors is that many traits that fueled their success could have just as easily triggered failure. But we rarely think about it that way when learning from specific outcomes.
Those eager to learn from others tend to look at the tails. What did the big winners do right? What did the big losers do wrong? It’s often hard to find an actionable takeaway from either because winners and losers often pursued similar risky strategies, with outcomes tilted ever so slightly by chance.
My point is that big success requires bucking conventional wisdom, but conventional wisdom is usually right and worth following. We’re left with outcomes where winners are praised more than they should be, losers criticized more than they deserve.
There’s more to this than breaking laws.
The majority of Benjamin Graham’s investing success is due to owning shares of GEICO. Both his initial purchase, and subsequently holding the stock at high valuations, broke nearly every rule that Graham himself laid out in his famous texts. What are we supposed to learn from that?
Countless fortunes (and failures) owe their outcome to leverage.
The line between “inspiringly bold” and “foolishly reckless” can be a millimeter thick and only visible with hindsight. But it’s easy to view the process that led to successful outcomes as something to emulate, and the process that led to failures as something to avoid.
I don’t think there’s much we can do about this. It’s one of those things that just is. Risk is unfair and unforgiving.
But a few things are worth thinking about.
#1 Focus less on case studies and more on broad patterns
Case studies can be dangerous because we study extreme examples, and extreme examples are often the least applicable to other situations, given their complexity. You’ll get closer to something actionable by looking for broad patterns of things like how people respond to surprises, how fragile competitive advantages can be, how quickly people/businesses/economies evolve, and what makes people happy. This is also why multidisciplinary learning is so important.
#2 Accept that strategies expire
The irony of history is that it’s mostly the study of things changing, often used as a guide for what to do next. The only thing more dangerous than underestimating how risky someone else’s strategy was is not realizing that the entire strategy only worked in a different era.
When you accept that things change over time you become less interested in specific strategies used in the past and more interested in broad topics, like how people discovered the strategies to begin with.
#3 There’s more to learn from people who endured risk than those who seemingly conquered it
If success requires taking risk that could easily turn into failure, and the line between the two is nearly invisible in real time, I want to learn from people who accidentally stepped over the line and lived to tell the tale. Companies that survived deep recessions. Investors who survived bear markets. Products that flopped, were redesigned, and then worked.
In any risky endeavor, the line between success and failure is thin enough that hardly anyone can find it but never walk over it. So you’ll gain more by learning how to put up with and survive the occasional misstep than attempting to avoid them entirely. This is why room for error and humility are so important.
This article was originally published by author Baniya Beast.