Jim Collin’s classic business book Good to Great has sold over 3 million copies since it was first published in 2001. Jim had painstakingly analysed the performance of over 1400 companies over a 40-year time span. From them, he curated eleven great companies which had out-performed the (US) stock market by a wide gap. In the book, he has discussed the characteristics of these eleven companies and what they did right so that we can replicate them ourselves. Fact-check 2021: six of Jim’s 11 great companies have heavily underperformed the stock market.

Another business classic that I had read during my MBA days was In Search of Excellence by Tom Peters. In it, Peters has discussed 8 characteristics that were common to the 35 excellent companies at that time (1982 to be precise). Since then, over 20 of these companies have either stopped operations or are underperforming. Now, in 1982 when the book was published, IBM, Microsoft and Apple were already existing but were not impressive enough to make it to the radars of Tom Peters or Jim Collins.

That brings me to Steve Jobs. There will be countless people out there who tried to follow Steve Job’s model (dropping out of college mid-way, getting obsessed with an idea, starting a start-up with a few friends in a garage until running out of funds to keep pushing on). But nobody writes books about them or their failed enterprises.

It is crucial for us to know the story (data) of these also-rans. If we visit the cemeteries and dig into the forgotten graves of these also-rans, people who went out of business and study their characteristics, we will discover that they too shared most of the characteristics that the great, excellent, and successful people or companies had. Most of the time, the unique characteristic that the successful people had which the also-rans and unsuccessful ones didn’t have was just one- ‘luck’. Some people are lucky enough to be at the right place and make the right bets at the right time. Not that I am taking away any of the credit that is due to them but the unsuccessful lot also were equally hard-working and risk-taking. I mean, even the survivors and the successful lot might have no idea how they were just lucked-up at the right time. 

My friend Dr Pankaj who guides me & my friends in investing always alerts us from being biased towards celebrity professional fund managers whose performance over a longer period of time turns out to be nothing more than ordinary (he also shows us graphical evidence). But the lesser fortunate would like to believe that these fund managers have top-notch skills and trust our hard-earned money in their hands. The fact is that they are no better than random investors with a lot of right bets that proved lucky till now. Statutory warning: What created the glorious past performance for one, will not necessarily create our future glory.

And, nothing sells like success.

Recently I came across a tweet, which was an excellent example of survivorship bias. It said that if instead of buying air tickets for a family vacation 15 years ago, you had invested Rs. 1 lac in Wipro or Infosys or Kotak or HDFC you would have earned an X % of awesome return on investment by now. Ok, but what if instead of buying Jet Airways tickets for the vacation, you had invested 1 lac in Jet Airways IPO? Your investment would be less than Rs. 5600 today, minus the lost family holiday experience. 15 years back, we never knew how would Wipro or Infosys or Jet Airways perform 15 years down the line.

Our urge to study and replicate the processes of successful people and businesses is quite understandable. Our erroneous belief underlying this urge is that the steps that brought glory to one will bring glory to me too. However, such a belief is rooted in illogical comparisons and will ultimately lead us to frustration.

The first thing is to stop expecting too much from books & videos focused on topics of any type of success. At the most, expect to get inspired but don’t expect to get cutting edge insights that will lead us to success and glory.

Also, let’s not read much into quotes from successful people. A quote from a person like Elon Musk or Richard Branson should certainly inspire us but we should also remember that there are thousands who lost everything in trying to be exact replicas of them. 

Here’s a link to a superb article by Harvard Business Review titled ‘Stop reading list of things successful people do’ https://hbr.org/2017/03/stop-reading-lists-of-things-successful-people-do. It says that successful people never read an article before breakfast titled ‘What do successful people do before breakfast?’.

Finally, I will end this series of short articles with sane advice by David McRaney in his book ‘You are not so smart’ (https://www.amazon.in/You-Are-Not-So-Smart/dp/1592407366) :

If you spend your life only learning from survivors, buying books about successful people and poring over the history of companies that shook the planet, your knowledge of the world will be strongly biased and enormously incomplete. As best I can tell, here is the trick: When looking for advice, you should look for what not to do, for what is missing, but don’t expect to find it among the quotes and biographical records of people whose signals rose above the noise. They may have no idea how or if they lucked up.

David McRaney
You are not so smart

In case you have missed out on the earlier two parts of this series, here are the links to read them (2 mins read each):

Survivorship Bias Part 1: The curious case of armouring WW2 aeroplanes

Survivorship Bias Part 2: Warren Buffet’s illustration of coin-tossing