Newsletter 61: Luck vs hard work
Mental models
Welcome to another edition of the Struggle.
The Struggle is a bi-weekly newsletter where I share my thoughts and learnings from running a startup in Southeast Asia.
“I am a great believer in luck, and I find the harder I work, the more I have of it.”
Thomas Jefferson
The quote above captures a viewpoint that was quite popular when I was growing up back in Bulgaria.
I was raised in a family and system that glorifies hard work. Perhaps that was a legacy from the Soviet Union.
Yet, the older I get, the more I question the importance of hard work and how luck actually plays a role in one’s success.
A few weeks ago, I stumbled on a story by Warren Buffett which builds on that.
The story is believed to have been shared for the first time in his 1997 Berkshire Hathaway annual shareholders meeting:1
“Imagine that it is 24 hours before you are going to be born,” Buffet said, “and a genie comes to you.”
“The genie says you can determine the rules of the society you are about to enter, and you can design anything you want. You get to design the social rules, the economic rules, the governmental rules. And those rules are going to prevail for your lifetime and your children’s lifetime and your grandchildren’s lifetime.”
“But there is a catch,” he said.
“You don’t know whether you’re going to be born rich or poor, male or female, infirm or able-bodied, in the United States or Afghanistan. All you know is that you get to take one ball out of a barrel with 7 billion balls in it. And that’s you.”
“In other words,” Buffett continues, “you’re going to participate in what I call the Ovarian Lottery. And that is the most important thing that’s ever going to happen to you in your life. It’s going to determine way more than what school you go to, how hard you work, all kinds of things.”
Warren Buffett has long advocated the role of luck in success. Many years later, in a 2014 annual letter, he wrote:
“Through dumb luck, [my business partner] Charlie and I were born in the United States, and we are forever grateful for the staggering advantages this accident of birth has given us.”
In fact, both Charlie Munger and Warren Buffett, two of the smartest people of their time, were born in pretty much the same location - Omaha, Nebraska. Moreover, as a teenager, Charlie Munger worked at Buffet & Son, a grocery store owned by Warren Buffett’s grandfather. One cannot deny that there are quite a few coincidences, which led to building the eighth largest public company in the world with a market capitalization of $600B.
Yet, luck has many facets; I find James Clear’s breakdown of absolute success vs. relative success a simple yet powerful way to think of when hard work is important and when luck takes over.
Absolute Success vs. Relative Success
Absolute success considers your level of success compared to everyone else across geographies, upbringing, and work lines. Such success can be attributed to luck, as it’s tough to understand all factors that cause a world-class phenomenon. For example, were Bill Gates or Steve Jobs the smartest or most experienced people in their field? Most probably not. There were so many external and internal factors at play, which led them to become so successful, building two of the world’s most successful companies.
“As a general rule, the wilder the success, the more extreme and unlikely the circumstances that caused it.”
On the other hand, relative success considers your success compared to the success of very similar people. People who got the same education, had a very similar upbringing, and household income early on.
“The more local the comparison becomes, the more success is determined by hard work.“
Once you start comparing yourself to people who have similar upbringings and circumstances, you realize that the difference between you and them is an outcome of habits and choices.
Hence, James Clear argues that “absolute success is luck. Relative success is choices and habits.”
Relative success and the four types of luck
Following that chain of thoughts, the only thing you need to focus on is the pursuit of relative success as that seems to be within your control. Spending time reassessing your habits, choices, and objectives, then working hard to improve them, would most certainly result in relative success.
But then the question becomes, how do you engineer relative success?
Sometime back, Marc Andreessen wrote an article called “Luck and the Entrepreneur, Part 1: The four kinds of luck.”
According to the article, there are four kinds of luck:
Blind luck - completely accidental. It is pure blind luck that comes with no effort on our part. Imagine walking down the street and finding a dollar bill. That’s blind luck.
Motion - A certain level of action “stirs up the pot,” brings in random ideas that will collide and stick together in fresh combinations, lets chance operate. As Marc wrote:
“I have never heard of anyone stumbling on something sitting down.”
Recognizing good fortune - Louis Pasteur characterized it well when he said, “Chance favors the prepared mind.” Such luck involves a special receptivity and intuitive grasp of significance unique to one particular person.
Directed motion
“Directed motion favors the individualized action.
This is the fourth element in good luck — an active, but unintentional, subtle individualized prompting of it.
Direct motion is the kind of luck that develops during a probing action which has a distinctive personal flavor.
The English Prime Minister, Benjamin Disraeli, summed up the principle underlying the four type of luck when he noted: “We make our fortunes and we call them fate.”
Type four luck comes to you, unsought, because of who you are and how you behave.”
Marc Andreesen, “Luck and the Entrepreneur, Part 1: The four kinds of luck
Many people (rightfully) struggle to understand the difference between type luck #3 and #4. Consider the following, “directed motion” enables you to encounter a good fortune, specifically because of the direction you have chosen to move toward. You have a hunch, so you pursue it, and luck appears.
Whereas in type #3, you have reached a point where you can recognize luck, type #4 is about developing specific knowledge, experience, and perspective that guides you towards luck.
In my early twenties, I was doing my best to create luck through motion, type #2 luck. I was getting involved in every possible event, organization, startup, project, and community I could think of, even if I did not get compensated. The more I steered the pot, the more opportunities came my way, converging as job offers, invitations to speak at events, and relationships with great people.
As time passed, I started shifting to the “recognizing a good fortune” type of luck (#3). Meaning it was no longer about doing as many activities as possible; it was about focusing on one vertical and building specific knowledge. That’s how I decided to do a pivot in my career, drop distractions and focus on tech.
The more time I spent building specific knowledge, the more opportunities came my way. That’s how I could get my first tech job as Head of Marketing at a venture-backed startup, straight out of uni.
As I am working hard towards getting better at “recognizing good fortunes,” the quality of my life has increased considerably in the course of the past five years. I am better focused. In turn, fortunate enough to work on challenging problems that excite me continuously.
To get there, I have surrounded myself with smart and kind people, leading to compounded trust, learnings, and growth.
But it took me nearly ten years of motion (age 15 to 25) to discover how to recognize good fortunes - #3. Steering the pot for a decade was important to understand what I love doing, and over time, what I am good at, ultimately leading to specific knowledge.
As I am writing this essay, I reflect on what needs to happen so that I move from level #3 to #4. While I have not cracked the answer yet, it seems like, it all boils down once again to focus.
The next step would be to double down on my learnings, focus on getting even better at what I do, and have a laser focus when designing my career trajectory. Once again, work hard and focus (theoretically) should bring me to “directed motion.”
“…hone your craft constantly. It's extremely important to be obsessive about understanding everything you possibly can about your craft. Consider it an obligation. Hold yourself accountable. That requires you to keep learning over time. Study the history, know the pioneers. It's the bedrock foundation for what you're going to build upon, and it will help you in networking that you're able to talk the language of the people that came before you.
Bill Gurley in a talk he gave at the McCombs School at the University of Texas
Systematically moving from one level of luck to another leads to a high degree of relative success. A high degree of relative success, in turn, leads to a better probability of absolute success in the long term. Such a thought process allows me to make deliberate choices and consciously develop good habits over a very long period of time.
How location impacts luck?
As I write my thoughts here, I can’t stop thinking of the importance of one’s location and how that could serve you as a head/tail-wind.
Imagine that you live in a small city, say 300,000 people. After a few years of hard work, you become the go-to person for a certain type of work thanks to your steadily built reputation. Going back to the 4 types of luck, such a scenario should be equivalent to #3 luck.
Now consider what will happen if you decide to move to a larger city, where the ecosystem in your field of work is better developed. Most probably, such a decision would push you back to level #2. You won’t be one of the best people in your field any longer. Now you are competing with people who have handled much larger projects, have a better network, and in general, have a more stunning track record. You are suddenly competing with some of the world’s best.
That’s exactly what happened to me when I was living in Denmark. While I was based in Aalborg, I was on my way to level #3 luck. Hard work and a consistent career trajectory started giving results; people were reaching out whenever they wanted to start a business, launch an event on startups, or even kick off a government program to support a new venture creation. Yet, the moment I moved to Jakarta, Indonesia, nearly all that evaporated. I needed to build again. The small city of 300,000 population transformed into one of the world’s largest megacities with more than 30,000,000 people. The market was huge, attracting considerable capital and, in turn, great talent.
Nowadays, I am in the process of transitioning to Singapore, and it feels similar.
Every time you pick a larger ecosystem, you need to steer the pot, build a reputation, prove you are capable and develop a network of like-minded people who trust you. The more attractive the ecosystem, the more competitive it will be to reach level #4. You are simply competing with the world’s best.
On the other hand, more attractive ecosystems have a higher probability of helping you reach absolute success because there is plenty of room for serendipitous events. When you are surrounded by the world’s best, serendipity is what can take you from level #3 all the way to level #4 in a short period of time.
For example, if you are located in a smaller city, you might be the most trusted person to go to for startup advice, be invited as a co-founder, or even run a VC fund. But the size of those projects and the opportunity to become a massive success is proportionate to the size of the ecosystem where you operate.
In a much larger and better-developed ecosystem, you will have the chance to work for the world’s fastest-growing startups, have access to plenty of capital, and meet some of the smartest people on the planet. That gives you the chance to stumble on opportunities that are not terribly accessible outside the ecosystem, ultimately leading to absolute success.
“…depending on what it is that you're chasing, you might want to go to where the epicenter is. The reason is there's just more networking available there if that's where the great people are.”
Bill Gurley in a talk he gave at the McCombs School at the University of Texas
The quotes have been edited for clarity, and I would like to thank James Clear as I originally discovered this story through his article: Absolute Success is Luck. Relative Success is Hard Work.