Will anyone admit that their success was (at least partially) based on luck?
Overconfident experts will not only disagree, but they might also throw a pen at you (like it happened to Taleb): “Who are you to tell me that my success was due to some random event?”
Our minds simply can’t deal with randomness, according to psychologist and Nobel Prize winner Daniel Kahnemann.
We would rather give ourselves a pat on our backs for a carefully planned and executed business strategy than admit that we were plain lucky by catching a new market trend.
I sold our first product to an aerospace company — a remarkable but totally unexpected order. This deal caught the attention of an investor we met by accident on a trade show, where we were also selected as a winner for a competition. A few months later, we ended up with a few million in our bank account.
Did I plan for all of this when I started my company? Of course not.
Unexpected deals, chance meetings with patent lawyers, sudden product ideas — these are unpredictable events that are impossible to forecast.
Successful people who ignore luck and attribute all their success solely to their skills are sending dangerous signals. Overconfidence in their abilities makes them believe they can predict the unpredictable and control the uncontrollable.
On the other hand, trustworthy experts will clearly distinguish between things you can control (your actions) and things you can’t control or predict (markets, customers, trends).
Great mentors remain humble in the randomness-laden profession of an entrepreneur.
Every time I have made a mistake, my mother likes to tell me: “I knew this would happen. You should have listened to me.”
But in hindsight, we all feel like prophets. Psychologists call it “hindsight bias.” When we think back, we have an illusion that we were right all along. We like to do that even if the facts speak that we were wrong.
The truth is: experts cannot be right all the time because so many things are unpredictable when we build a business.
“People overvalue their knowledge and underestimate the probability of their being wrong.” — Nassim N. Taleb.
So most experts will never admit their advice was wrong.
Instead, they will always find a reasonable explanation or someone else to blame. Explanations are easy to fit retrospectively. So, most likely, they will say it was our own fault: we didn’t follow their advice to the word.
Some experts are particularly sensitive to hindsight bias. And this is the type you want to avoid. Experts who never admit their mistakes and who aren’t critical of their own thinking will never be able to learn. Ergo, their advice is useless.
But even humble experts realize that admitting mistakes undermines their reputation — it is bad for their business. So only a very few will ever say out loud that they were wrong.
Luckily, trustworthy experts learned to admit a mistake in a subtle form: For example, a consultant can go the extra mile and put in the extra hours without charging you extra — as long as they make it right for you.
If an “expert” charges you extra for correcting his own mistakes and provides dubious explanations that he was right all along (happened to me too many times) — dump them and look for someone else.
As entrepreneurs, we are exposed to more risks than “stable” professionals like dentists or dermatologists. So we should think more about risk management because we have more “skin” in the game.
Over the past 10 years, as I built my company, I hired several agencies, consultants, and advisors to help me build my business.
I remember my discussions with some of them. They provided reasonable advice in marketing, product development, and sales, but some of it felt too risky.
So I often asked them how I could protect the company if their advice didn’t work out.
But they kept saying: “Ok, let’s consider all scenarios that can go wrong — and see how we can mitigate them.” This is one of the most dangerous approaches to managing risk. The problem is: you can’t.
Even if you think really hard, you cannot come up with all things that can go wrong. This is the whole point of unpredictable events— you cannot predict them. Shit does happen.
In stock trading, there is a great method to manage unpredictable events called a “stop-loss.”
The stock price can fall because of an unforeseen event: a malicious tweet from a celebrity, or even a full-blown market crash. But if you have a stop-loss, your broker will automatically sell your position, preventing further losses before it is too late.
It is surprising to see that so few traders use stop-loss in their trading strategies. Most believe in knowing how the market moves, so they claim that they don’t need it. These are usually the traders that get wiped out in a few years when luck leaves them.
A risk-aware expert will tell you: “We don’t know of all the things that can go wrong, but here are smart ways to limit our losses no matter what happens….”
An expert who tries to convince you that you don’t need a stop-loss is delusional and probably in love with his own solution — blind to the unpredictability of the real world.
Remember: No one can think of everything that can go wrong. And sometimes, you need a stop-loss.