Here is an essay version of my class notes from Class 13 of CS183: Startup. Errors and omissions are mine. Credit for good stuff is Peter’s entirely.

Class 13 Notes Essay— You Are Not A Lottery Ticket

I. The Question of Luck

A. Nature of the Problem

The biggest philosophical question underlying startups is how much luck is involved when they succeed. As important as the luck vs. skill question is, however, it’s very hard to get a good handle on. Statistical tools are meaningless if you have a sample size of one. It would be great if you could run experiments. Start Facebook 1,000 times under identical conditions. If it works 1,000 out of 1,000 times, you’d conclude it was skill. If it worked just 1 time, you’d conclude it was just luck. But obviously these experiments are impossible.

The first cut at the luck vs. skill question is thus almost just a bias that one can have. Some people gravitate toward explaining things as lucky. Others are inclined to find a greater degree of skill. It depends on which narrative you buy. The internal narrative is that talented people got together, worked hard, and made things work. The external narrative chalks things up to right place, right time. You can change your mind about all this, but it’s tough to have a really principled, well-reasoned view on way or the other.

But people do tend to be extremely biased towards the luck side of things. Skill probably plays a much greater role than people typically think. We’ll talk about through some anti-luck thoughts and arguments shortly. But the first thing to understand is that there’s no straightforward way to make an airtight argument.

B. Anti-Luck

The weak argument against the luck hypothesis involves presenting scattered data points as evidence of repeatability. Several people have successfully started multiple companies that became worth more than a billion dollars. Steve Jobs did Next Computer, Pixar, and arguably both the original Apple Computer as well as the modern Apple. Jack Dorsey founded Twitter and Square. Elon Musk did PayPal, Tesla, SpaceX, and SolarCity. The counter-narrative is that these examples are just examples of one big success; the apparently distinct successes are all just linked together. But it seems very odd to argue that Jobs, Dorsey, or Musk just got lucky.

C. A Sign of The Times

It’s worth noting how much perspectives on this have changed over time. The famous Thomas Jefferson’s line is: “I’m a great believer in luck, and I find the harder I work the more I have of it.” From the 18th century all the way through the 1950s or ‘60s, luck was perceived as something to be mastered, dominated, and controlled. It was not this weird external force that couldn’t be understood.

Today’s default view is more Malcolm Gladwell than Thomas Jefferson; success, we are told, “seems to stem as much from context as from personal attributes." You can’t control your destiny. Things have to combine just right. It’s all kind of an accident.

D. Applied to Startups

The theme that luck plays a big role is also dominant in the startup community. Paul Graham has attributed a great deal of startups’ success to luck. Robert Cringely wrote a book called Accidental Empires. The point is not to pick on these people—they’re obviously very competent and quite successful. The point is that they represent the dominant ethos as to how to think about startups.

This is further illustrated by considering what would happen if a successful entrepreneur publicly stated that his success was fully attributable to skill. That entrepreneur would be perceived as ridiculous, arrogant, and wrong. The level of proof that he offered or the soundness of his arguments wouldn’t matter. When we know that someone successful is skilled, we tend to discount that or not to talk about it. There’s always a large role for luck. No one is allowed to show how he actually controlled everything.

It’s worth noting that the existence of this class—being willing to teach this class—is a structural reason in support of the anti-luck bias. A class on startups would be worthless if it simply relayed a bunch of stories about people who won lotteries. There is something very odd about a guide to playing slot machines. To the extent it’s all a matter of luck, there is no point in learning very much. But it’s not all a matter of luck. And the part of it that is can be channeled and mastered. Note that this is class 13. We are not going to be like the people who build buildings without a 13th floor and superstitiously jump from class 12 to 14. Luck isn’t something to circumvent or be afraid of. So we have class 13. We’ll dominate luck.

E. Past vs. Future

One useful division in thinking about luck is to separate it out into luck involving the past and luck involving the future. The past piece basically asks, “How did I get here?” If you’re successful, you were probably born in the right country. You won the geographic/genetic/inheritance lotteries. There’s the classic debate of whether you had to work hard and these facilitated your success or whether you’re just fooling yourself if you don’t think these things actually drove it.

It’s probably more fruitful to focus on the future side of things. Let others fight about the past. The more interesting questions are: Is the future a future that’s going to be dominated by luck, or not? Is the future determinate or indeterminate?

II. Determinate vs. Indeterminate Futures