The Luck Factor in Great Decisions

Bill Gates made a bad decision early in his career. In fact, if it weren’t for the fact that some other people made even worse mistakes, we might not ever have heard of him.

Yes, Gates was and is brilliant, and he worked hard. Malcolm Gladwell, author of Outliers, attributes his success to the 10,000 hours he spent mastering computer programming at an early age. Like star athletes and musical prodigies, Gates invested serious time and effort to deepen his knowledge and hone his skills. Gladwell also acknowledges that Gates had the benefit of good education. He went to a private school with a computer lab long before such facilities were commonplace.

There is more to Gates’ success, however, than his talent, hard work, and education. It might be that we know his name only because of his amazing luck as a negotiator. The flip of the coin came up heads for him three times in a row at a critical point in his business life.

In 1980, Gates and a few fellow programmers had a small company in Seattle. IBM approached them about developing an operating system for personal computers that it was about to launch. Gates had never built an OS, however, so he referred them to Gary Kildall, a much better known programmer at Digital Research.

Luckily for Gates, though, those talks went poorly. Digital Research hesitated about signing a non-disclosure agreement. They later relented, but then wouldn’t budge in their demand for royalties instead of the $250,000 lump sum that IBM offered. It was only because of that deadlock that IBM came back to Gates.

There was a second twist after that. Both IBM and Gates knew of another operating system that had been developed by Seattle Computer Products. With IBM’s secret backing, Gates cheaply acquired the software — then called QDOS, an acronym for quick-and-dirty-operating system. Again luck came into play: SCP didn’t discover who was really behind the deal; otherwise the price could have been far higher. Microsoft then tweaked the program and rechristened it DOS: Disc Operating System.

Then Gates was lucky a third time in negotiating the licensing agreement with IBM. On the surface Big Blue got great terms, par for the course when a corporate behemoth is dealing with a start-up. IBM agreed to pay a modest royalty on each copy that would be sold with its new machines. (It’s just a guess, but IBM might have become more amenable to a royalty arrangement after their lump sum offer killed the deal with Kildall.)  But the critical point was that IBM’s rights were non-exclusive: Gates and his friends kept ownership of the DOS program.

Kudos to Gates and his pals, of course, for seeing that the real money would be in software, not hardware. But let’s also acknowledge the great luck that those they were dealing with were blind to that fact. Had IBM insisted on exclusive rights, it might have forced Gates to concede — or they might have sought out another developer. Who knows what would have happened to Gates and Microsoft if they hadn’t been able to keep DOS, which became the cornerstone of their business?  He and his partners still might have been successful, but the odds are not nearly so spectacular.

So it is with any decision: the chain of events that brings you to a choice point will be shaped by luck, good or bad. Prior circumstances may determine whether you’re in a position of power or relative weakness. (For that matter, luck governs whether rain or sun that day will make your mood sour or buoyant.) And the same is equally true for everyone with whom you deal.

Philosophers, political theorists, and strategists have long acknowledged the large role that luck plays in every aspect of our lives. Even Nicolo Machiavelli, the cataloger of each and every lever that a prince can pull in the pursuit of power, acknowledged that “I believe that it is probably true that fortune is the arbiter of half the things we do, leaving the other half to be controlled by ourselves.” What was true in Italian politics centuries ago is just as true in management today.

So, why does acknowledging this help business decision makers in any way? Once we acknowledge how much depends on luck, we do two things differently, I think.  First, we study decision making differently, no longer assigning brilliance to every decision that, viewed retrospectively, worked out well. Second, we might focus on different skills as important to important decision points, such as the flexibility to capitalize on changes in luck versus the ability to predict in advance how things will play out.

For better or worse, the intelligence, values, and needs of whomever you interact with impact your success as much as your own resources. Throw in external circumstances that are beyond your control (whether other deals for them fall through, as they did for IBM), and it’s obvious that your destiny isn’t entirely in your hands. Understand this and you act differently, knowing that your own skill will be tested by how well you play the cards you are dealt.

Harvard Business Review