Jack Ma has been an icon for a lot of entrepreneurs. He is rich and confident. A lot of people in China now call him ‘Daddy Ma”.
Btw, who does not get rich? I guess nobody.
Recently, I read an article written by Tren Griffin and found it was very insightful and like to share. Here is the some parts extracted from the article that I enjoyed the author’s points. You can also read the full article through the link over here:
- “I am just lucky to do the right things at the right time. We are just the lucky ones in this time. Like all successful people, we are not more capable or energetic.”
The story of how Ma was introduced to the internet represents an interesting example of the role that luck plays in determining outcomes in life. Part of Ma’s success can be traced to a series of events that happened in 1995. Geekwire tells the story in this way:
“Ma tried the Internet in Seattle in a building called U.S. Bank. His friend encouraged him to try searching the Internet for the first time. Initially, he hesitated since he knew that computers were expensive, and if he broke it, he wouldn’t be able to afford to replace it. ‘He said ‘just search it,’ so I searched the first word ‘beer,’ Ma said. ‘I don’t know why, but maybe because it was easy to spell? I see beers from Germany, U.S.A. and Japan, but I don’t see any from China, so I searched for the second word ‘China,’ and there was nothing.’ So, he recalls that they made a small, ‘ugly-looking” page, and three hours after launching it, I got a phone call from my friend who said, ‘Jack, you have five emails, and I said ‘What is email?’” Based on the number of responses, he said, ‘This is something interesting, so we should do it.’”
An article in Science describes the relationship between luck and skill:
“Although success is likely determined to some extent by intrinsic factors such as quality or skill, it also likely depends to some (potentially large) extent on extrinsic factors such as luck and cumulative advantage. Depending on the balance between these two sets of factors, any explanation for why a particular person, product, or idea succeeded when other similar entities did not will be limited, not because we lack the appropriate model of success, but rather because success itself is in part random.”
Skill clearly played a role in what Ma accomplished in addition to luck. What sort of skills were important? Discussion that question fully would require a couple of blog posts. But it can be said one skill in this case was Ma’s ability to spot and act on the new business opportunity he saw emerging. He recognized the optionality associated with the new business and aggressively acted to capitalize on that opportunity. Most people would not have seen the potential of the new business or acted to profit from it even if they did. Ma also has a range of skill that enabled him to build the business. For example, Ma has said about himself:
“At first, I knew nothing about technology. I knew nothing about management. But the thing is, you don’t have to know a lot of things. You have to find the people who are smarter than you are. For so many years, I always tried to find the people smarter than I and when you find so many smart people, my job is to make sure the smart people can work together.” “There’s an examination for young people to go to university. I failed it three times. I failed a lot. So I applied to 30 different jobs and got rejected. I went for a job with the police; they said, ‘You’re no good.’ I even went to KFC when it came to my city. Twenty-four people went for the job. Twenty-three were accepted.”
My go to resource on all questions related to skill and luck is Michael Mauboussin:
“One of the ways I like to think about this is as a continuum of activities from pure luck and no skill on one end to pure skill and no luck on the other end. Obviously, most things reside somewhere between the extremes, and where an activity sits can be very important…. Not surprisingly, when you look out into the world, whether it’s business, investing or your favorite sports team, both skill and luck are contributing. The real question is, in what proportion?”
What Ma created at Alibaba is clearly a positive outlier which is part of a power law distribution of success. In a February 2018 paper Michael Golosovsky writes: “Power-law distributions were brought to attention of scientific community about a century ago and they made sharp contrast with previously known Gaussians. The intriguing question arose- what is the generative mechanism of these weird distributions…theoretical studies indicate that the preferential attachment mechanism is plausibly robust. Namely, it generates complex networks with the power law degree distribution.” Understanding a power law phenomenon would be simple if power laws had a single simple explanation. Unfortunately, there are many models that generate power laws that may or may not be accurate reflections of any real process in the world. Proving that any given factor or a combination of factors generated the power law distribution of outcomes is often impossible to specify with certainty.
When Golosovsky substantial research using a model based on “fitness” he found:
“Surprisingly, the two opposing assumptions underlying network growth- all nodes are born equal or different result in the same growth equation.” With respect to the power-law degree distribution in complex networks: the preferential attachment relates it to the strategy by which the new node attaches to old nodes, while the fitness model implies that this distribution is inherited from the fitness distribution. The fitness model successfully explains the first-mover advantage, degree distribution for the nodes of the same age, different trajectories of the nodes of the same age, etc. However, this model does not account for the nonlinear dynamic growth rule that is observed in some networks”.
Another February 2018 paper entitled “Talent vs Luck: the role of randomness in success and failure” reaches conclusions about the impact of how success compounds on itself:
“…although talent has a Gaussian distribution among agents, the resulting distribution of success/capital after a working life of 40 years, follows a power law which respects the “80-20” Pareto law for the distribution of wealth found in the real world. An important result of the simulations is that the most successful agents are almost never the most talented ones, but those around the average of the Gaussian talent distribution – another stylized fact often reported in the literature. The model shows the importance, very frequently underestimated, of lucky events in determining the final level of individual success. …rewards and resources are usually given to those that have already reached a high level of success, mistakenly considered as a measure of competence/talent.”
My own view on this set of issues is that people who are lucky and more talented acquire more skill as a result of being successful. In other words, it is not just success that compounds, but skill. For example, an actor not only gets more acting roles the more acting roles they get, they get more talented as a result of doing the work. If both luck and fitness “result in the same growth equation” as the Golosovsky argues, then it should be hard to tease the important of two casual factors apart. In fact, it is hard to do so. The other “Talent vs Luck” paper nicely summarizes the views of many people who have written on this topic:
“In recent years many authors, among whom the statistician and risk analyst Nassim Taleb the investment strategist Michael Mauboussin and the economist Robert Frank, have explored in several successful books the relationship between luck and skill in financial trading, business, sports, art, music, literature, science and in many other fields. They reach the conclusion that chance events play a much larger role in life than many people once imagined…. they conclude that talent and efforts are not enough: luck also matters, even if its role is almost always underestimated by successful people. This happens because randomness often plays out in subtle ways, therefore it is easy to construct narratives that portray success as having been inevitable. Taleb calls this tendency “narrative fallacy,” while the sociologist Paul Lazarsfeld adopts the terminology “hindsight bias.” In his recent book “Everything Is Obvious: Once You Know the Answer”, the sociologist and network science pioneer Duncan J. Watts, suggests that both narrative fallacy and hindsight bias operate with particular force when people observe unusually successful outcomes and consider them as the necessary product of hard work and talent, while they mainly emerge from a complex and interwoven sequence of steps, each depending on precedent ones: if any of them had been different, an entire career or life trajectory would almost surely differ too.”
Safe salary man vs. risk-taker? Which one are you taking?
- “E-commerce was so cold. Nobody believed in it, but we believed in it. We didn’t care what other people said. We thought it had a future, we thought it would help people, so we started.”
To create something valuable you must first start. Taking that first step is hard for many people to actually do. People who are accustomed to big salaries in what seem like a safe business have a hard time actually making the leap or if they do they spend so much money replicating the cushy environment that they left behind, that they fail. Talking about starting a company is easy; actually doing it is hard. If it was easy, then the creation of highly successful businesses would be much more common.
Another interest analogy in the article.
- “We know well we haven’t survived because our strategies are farsighted and brilliant, or because our execution is perfect, but because for 15 years we have persevered in our mission of ‘making it easier to do business across the world,’ because we have insisted on a ‘customer first’ value system, because we have persisted in believing in the future, and because we have insisted that normal people can do extraordinary things.”
Missionaries tend to persevere. Mercenaries often bail too easily. Do mercenaries sometimes succeed financially? Sure, but they do not do so as often or with the same impact on society as missionaries. Ma also seem to be talking about the importance of grit to being successful. The great entrepreneurs tend to be relentless about the mission of their business. For them, their business is more of calling than a job.
One thing is for sure from what we learned from Jack Ma: getting rich is not the goal at he beginning.
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