Hi all,
Happy almost 2023! Curious about what I read and found interesting this past year? Last week I covered BAM, my 2022 highlights of Books, Articles, and Me.
Enjoy the rest of the holidays!
—Brendan
Russ: Anyway, next thing you know, we IPO, stock triples in a day and AOL gobbles us up. All of a sudden, I'm 22 years young and I'm worth 1.2 billion. Now a couple decades later, I'm worth 1.4. You do the math.
Richard: Okay. Well, that's a gain of $200 million over 20 years. Um, 16.66 repeating. Uh, that's less than 1% return. Inflation is, like, 1.7. I think CDs are 2%. So that's less than a CD.
—Silicon Valley
One Hit Wonder
Russ Hanneman in Silicon Valley is what we sometimes call a one hit wonder. He made one excellent deal early in his career and then coasted. If he hadn’t been at the right place at the right time, it’s unlikely he would’ve been nearly as financially successful—and the show frequently highlights his foolishness to illustrate this point.
In real life, Russ’s story partially resembles the career trajectory of Sunny Balwani, the former President of Theranos and former boyfriend of Elizabeth Holmes. There are some clear differences I’ll point out, but in general, both Russ Hanneman and Sunny Balwani enjoyed lucky early career events that carried them for several years. The difference is that Sunny “reverted to the mean.” In other words, his luck eventually ran out.
Luck can be surprisingly persistent and challenging to separate from real skill. Luck can thrust incompetent people forward and hold competent people back. Luck can be beautiful and frustrating, a back-breaking straw or a life-changing lottery ticket. Let’s see what Sunny’s story teaches us about it.
Veni Vidi Vici
Long before he was secretly dating Elizabeth Holmes and serving as President of Theranos—a combination I wouldn’t recommend—Sunny Balwani was an ex-Microsoft salesperson turned entrepreneur. At the peak of the Internet bubble in 1999, he sold his startup CommerceBid.com to a company that filed for bankruptcy within a year. But Sunny cashed out with a $40 million gain just in time. He spent his life-changing money wisely, purchasing a black Lamborghini with “VDIVICI” (a reference to Caesar’s “Veni Vidi Vici”, or “I came, I saw, I conquered”) reportedly inscribed on the license plate. More importantly, the big exit was a Botox injection of surface-level credibility to Sunny’s reputation. He must have indeed appeared like Caesar when, at 37, he serendipitously met Elizabeth Holmes the summer before starting her freshman year at Stanford. He soon became her trusted business advisor to her fledgling blood testing startup, and eventually, through romantic “nepotism”, the President of Theranos in 2009.
As President of Theranos, Balwani was not known for his technical talent, business sense, or leadership ability. He often bragged to junior employees that he had written over a million lines of code while working for Microsoft. That silly boast made even less sense when employees learned he worked… in sales. As a manager, he was needlessly overbearing, paranoid, and generally ignorant of Theranos’s actual product. He would unknowingly use the nonsense term “endofactor” instead of the correct “end effector” to refer to the robotic claw within Theranos’s Edison product, a gaffe employees would often joke about behind his back. As former employee Erika Cheung recalls, “it became very clear to entire departments that he didn’t understand really what was going on.”
Sunny’s incompetence seemed to not matter for a while, but eventually things fell apart as reporters sniffed out Theranos was a fraud. At its peak, Theranos was valued at $10 billion around 2014, all while never creating a true, functioning blood test machine of its own. Suuny was aware of how far behind they were in developing a real product. He was aware that the company had only earned $100k in 2014 while reporting to investors it was $100 million. When Sunny was sentenced to 13 years in prison for defrauding investors a few weeks ago, he may have been aware that he shouldn’t have been running a blood testing company without any relevant experience. For a while, he had just been at the right place at the right time.
An Experiment
If you ask a thousand people to flip a coin 10 times in a row, about 1 person out of the thousand will flip ten heads in a row out of pure luck. Is that one person an expert at flipping a coin? Are they skilled in some way? We might be surprised or impressed, but we know that person was just lucky. Luck, both good and bad, can be surprisingly persistent.
Sunny Balwani’s career trajectory approximately resembled a series of coin flips that, for several years, continued to land on heads. He happened to be in Silicon Valley during the Internet bubble, selling shares in his company at the best possible moment. He coincidentally met the extremely well-connected, intelligent, and devious Elizabeth Holmes abroad in China. Theranos somehow avoided serious skeptics for years. A flip of tails would fall eventually. And because of survivorship bias, we don’t hear stories of the businesspeople who failed early, who never developed a “streak” like Sunny did.
To be sure, the coin flip analogy is just approximate and illustrative. I’m sure Sunny Balwani also worked extraordinarily hard. (At Theranos, he used to obsessively monitor employee working time.) And I’m sure he possessed some charisma and vision. I don’t believe his success was derived only from luck—that would be too obvious. But luck played a much bigger role than he believed, and that disconnect prevented him from recognizing the thin ice he was skating on.
At the Extreme
In general, luck plays a larger role in extreme success than people feel comfortable admitting. The delta between extreme and moderate success is often the product of some chance encounter at a party or chaotic Internet virality, not whether one put in their 10,000 hours of practice. Bill Gates fell into the operating system business by accident, after his competitor Gary Kildall missed an important meeting with IBM and IBM went to Gates instead. Without this break, Microsoft may still have been a successful business, but a trillion-dollar company? Probably not. Sam Bankman-Fried is another example of someone who, for several years, benefitted from a streak of coin flips landing on heads, disguising his ethical transgressions and incompetence.
At the extreme, luck can carry a few people very far, and it may not seem fair or make much sense. How can someone get lucky for several years? Decades? But recall the coin flip analogy. With enough players, a few are bound to hit a long streak… and we easily forget about the players who did not.
We often look up to people at the extremes because they are the most visible to us. But are they our best role models? A high proportion of their extreme success could be from luck… suggesting there may even be a subset—the Sunny’s of the world—not worth looking up to at all. Perhaps we should evaluate them by what they can control, their actions and character, and not by the outcomes they have so little dominion over. And perhaps that’s how we should evaluate our own progress in the world too.
For each Sunny Balwani in the world, whose success precedes their competence, there is a Franz Kafka, recognized years or decades after their greatest work. Or never recognized at all.
One lesson we can draw from this dichotomy is that many outcomes in life—especially at the extremes—don’t necessarily reflect underlying competence. If you think that’s obvious, try telling that to the next Sunny Balwani you run into. I’m sure they’ll disagree. Because of self-serving bias, people tend to subscribe their successes to hard work and skill and their failures to bad luck (e.g. coin flips).
Thus, the second lesson is how difficult it can be to see the first lesson applied to our own life.
Coda
If you would like to dive more into how to live in a non-deterministic world, where luck can play a beautiful and frustrating role, I’d recommend the following books:
Fooled by Randomness, Nassim Taleb
The Success Equation, Michael Mauboussin
The Winner-Take-All Society, Philip Cook and Robert Frank
Thanks for reading! I love when these thoughts lead to conversations with readers. Did you find anything interesting or surprising? Reply to me and let me know.