Friday, April 3, 2009
Strategic Planning Analogy #251: Exploit Your Luck
Back in the late 1960s, when Nicholas Charney was getting his Ph.D., he loved to read articles about psychology. Unfortunately, other than the occasional article in Scientific American, he couldn’t find much of interest to read on the subject. Therefore, even though Nicholas Charney was not formally trained in psychology nor had any experience in publishing, he started a magazine in 1967. He called it Psychology Today.
In a short period of time, Psychology Today became a huge cult hit. It captured the turbulence of the times and put a new countercultural spin on it. Readership was high and so were the profits. Businesses waved a bunch of money in front of Charney, so he eventually sold the magazine for a huge profit.
Well, that all seemed easy enough, so Charney decided to do it again. This time he started a magazine called Careers Today. It failed miserably in a short period of time.
Later, Charney bought the Saturday Review. He had the notion of converting the weekly magazine into four different monthly magazines. In the process, he destroyed the Saturday Review, which had to be resurrected by the old publisher.
During the thirty years or so after he sold Psychology Today, Nicholas Charney tried a number of different business ideas but never really hit upon another success.
And what happened to the magazine Psychology Today? Well, once it got into the hands of professional publishers, they destroyed the original counter-culture freedom that drove the business. Instead of the old days, when the magazine was created out of a beach house in California by a bunch of free spirits, it was moved into offices in Manhattan to be run by the professional “suits.”
Every few years, the magazine would be sold to yet another publisher. Each time, Psychology Today became an even bigger losing money pit. At one point, it was owned by a psychological association, who tried to make this counterculture classic into a dull academic journal where its members could get published. Eventually the magazine went totally bust. Now, it has been resurrected, but it is a shadow of its former self.
There’s an old saying that it is better to be lucky than to be good. Nicholas Charney was not a good publisher. He had more failures in publishing than successes. But Charney was very lucky in that his personal interests and personal style were exactly the right blend of magic for creating a successful counter-culture psychology magazine in the culture of the late 1960s.
This lucky magic of success for Psychology Today depended upon a lot of particular events all converging at the same time—Charney’s interests, Charney’s unconventional approach to publishing (more like how dotcoms were run in the 1990s), the emotionally charged environment of the 1960s, and so on. Without the serendipity of these chance events coming together, Psychology Today would never have been a successful launch.
The problem was that people did not realize how much lucky happenstance was behind that success. Charney thought he was good enough at publishing to create a whole string of successful publications. He was wrong. He was never able to pull together enough lucky serendipity to create another success.
The publishers got it wrong as well. They thought that since they were smarter publishers than Charney, they could make Psychology Today an even more successful magazine. What they failed to understand was that the success was based on a lot of intangibles that had nothing to do with publishing—the corporate culture of the magazine, the culture of the 1960s, the unusual interests and desires of Charney, etc. When they destroyed this magic formula, there was no more magic in the magazine. The luck was sucked out of the venture.
So Charney was lucky, but not good, and the publishers were good, but not lucky. And as we said earlier, it is better to be lucky than good.
This is not the only time that this type of event has happened in the business world. Remember all those successful dotcom “geniuses” in the 1990s who sold their little start-ups for huge sums of money? They all thought they could do it again, over and over. The media called it “serial entrepreneurship.” The idea was to sell your little start-up for a fortune and then do another start-up to sell for a fortune, and then do another one, and so on.
Unfortunately, the pattern of Psychology Today was often repeated. Most of these so-called geniuses never had another blockbuster startup after their first. They had been lucky. And many times the companies who bought these startups ended up having to write them off as big failures.
Therefore, if we want to avoid these outcomes, we need to understand the role of luck in a successful strategy.
The principle here is to exploit the luck that comes your way. Many years ago, I knew a business consultant who said, “Great business ventures come along very rarely. If you are lucky enough to find one, exploit it for all it is worth, because you may never get another such opportunity.” His point was that when the luck of good fortune comes your way, don’t squander it. Don’t treat it lightly. Instead, maximize its potential, because you may never get another chance.
This is the third blog in a row on luck. It all started with a statistical study by Deloitte stating that the majority of successful companies are where they are because of luck rather than skill. In the first blog, I stated that perhaps we should focus more on positioning than on skill. In the second blog, I stated that there are ways to increase your luckiness. In this blog, we will look at how to exploit the luck you have.
1) Understand the Lucky Factors and Hold Them Together
If it is true that success less to do with skill, and more to do with a lucky confluence of little serendipitous events, then it behooves one to understand what factors caused that luck. Otherwise, you will not know how to keep the luck alive.
In the Psychology Today example, the big publishers did not understand what caused the luck. Therefore, they reinvented the magazine in a manner which took many of the lucky factors away (Charney, counter-culture work environment, etc.). They thought they were smart enough and skillful enough to succeed. Their smarts and skills were less powerful than then lucky confluence of factors they got rid of.
So dissect the lucky success to see what odd mix of factors created the magic for that success. Then do whatever you can to keep that magic alive as long as you can. Rely on that magic formula more than you rely on your skills.
2) Build up the Business as Big and as Fast as you Can
This may be the only really lucky break you will have in your lifetime. Therefore, don’t squander it. Try to squeeze as much out of it as you can. Grow it large and grow it fast (provided that doesn’t break the magic formula).
Microsoft got lucky when IBM licensed its MS-DOS program. Bill Gates had a pretty good idea of what made him lucky and he build a huge business called Microsoft to exploit that lucky break as much and as long as possible. At the same time, he built as many barriers as possible to protect that lucky break for as long as possible.
3) Look for the Next Lucky Confluence Instead of the Next Repetition
Times change. The next magic formula for luck may look entirely different from an earlier version. In the late 1960s, a countercultural magazine on psychology was the magic formula. Now, it might be some app for the I-phone.
Don’t blindly try to keep repeating the same formula over again (like Careers Today magazine). Lightening rarely strikes twice in the same location. Instead, look for the next odd confluence of factors, and try to figure out the new magic formula that luckily takes advantage of this new situation.
4) Quit While on Top
Some of the lucky factors may be outside your control. For example, some of the early success of Psychology Today had to do with anti-establishment, rebellious mentality of the 1960s. As society moved to a different cultural mindset in subsequent decades, the luck started to go away. If you can see that the lucky factors are starting to go away, sell out at the top to someone who naively thinks their skill can overcome your luck.
Even though the publishers lost a lot on the purchases, Charney did okay when he sold out. And when you sell out, don’t believe that the success was all because of your “genius” and that you can easily repeat your success. Then, you are throwing away your money on ventures that will probably fail (like Careers Today or Saturday Review). Just pocket the money as a lucky break.
Many times luck triumphs over skill. Therefore, when you get lucky, figure out what the magic formula is and exploit the luck for all it is worth.
Las Vegas counts on the fact that people continue to play once the luck has gone away. Don’t fall into the trap of believing you can outsmart the house. When the luck starts to go, cash in your chips.