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People have been arguing the same thing about investing for a long time: is it a game of luck or skill?

On one hand, there are academics saying it's always mostly luck, and their typical argument goes roughly like this: Say 100,000 orangutans enter a coin-flipping contest in which 'heads' wins and 'tails' loses; so around 50,000 orangutans will win on the first throw; of those orangutans, around 25,000 will also win on the second throw; and of those, around 12,500 will also win on the third row; and so on, until after ten throws, there will be close to 100 orangutans who will have won every throw in a row due only to pure luck -- just like investors who have only a string of hits in their track record.

On the other hand, there are successful investors like Warren Buffett who say that luck is a factor in the short run, but skill becomes the more important factor over long periods of time. You can read his detailed response to the 'orangutan argument' in this article he wrote for Columbia Business School's magazine in 1984: http://www4.gsb.columbia.edu/null?&exclusive=filemgr.dow...

Edit: corrected typo.

I've worked in game design. I once built a card game (Ambition) with the express purpose of taking card-luck out of the game as much as possible. (To make a long story short, I was in Budapest and left all my German board games at home, so I had to make do with a deck of cards.) Bridge solves this problem by duplication. (Bridge is an immensely deep and skillful game, but there's a lot of card-luck when the players are skilled, so when it's played in tournaments where outcomes are taken seriously, they duplicate it; each team plays the same sets of hands and is scored on its relative performance.) Poker solves it by changing the definition (it is a skill game, over hundreds of hours; people have enough patience to play for long enough for it to converge). However, for an obscure recently-invented game that no one had heard of at the time, and even now might have a few hundred players worldwide, neither of these (duplication or the "it converges over time" argument) is a credible option. Taking card-luck out of a trick-taking game is very hard to do, and this led down a rabbit hole of analyzing game designs for the "luck/skill" question. The conclusion I came to is that the mere concept of such as a continuum is a massive oversimplification. What I found with Ambition is that, while the card-luck was largely taken out of this 4-player trick-taking game, there was a lot of unpredictable strategic influence that doesn't always have to do with a player's individual skill (which, in my mind, is an asset of the game.)

In any game of more than 2 players, there's a third element: strategy. That's a mix of both. People are pursuing their own interests and sometimes it affects other players disproportionately. Or, we might be sitting together at a 3-player game and I win, even though you're a better player, because that 3rd player is either lousy or unpredictable and does things that hand me advantages. (The most extreme example of this is the "king-maker scenario" where a player can't win but gets to choose the winner.) Puerto Rico, although very skillful and deep, is notorious for its table-position effect.

For an aside, part of what makes German-style board games is this strategic "interaction term" resulting neither from chance nor from individual skill alone. Pure skill games like Chess are a bit dry, in the sense that if the skill levels are different by much, the outcome is predictable: the more skillful player will win pretty much every time. German-style games leverage this third "strategic" factor to make games that aren't very luck-driven (you never feel "screwed by the dice") but that also don't have the same winner every time.

This is why most of the "serious" mind-sport games are two-party games. In Chess, if your opponent's strategy hurts you, then he (by definition) had a better strategy and therefore played more skillfully. In Bridge, any player's strategic affect on your outcome is likewise indicative: if your teammate hurt you through a strategic interaction, then you're not as good a team. In luckless 2-player games, the party that wins is the party that played better. In 3+ player games, this isn't always true.

Economic and business games are like that. They're massively multiplayer, which means that there are a lot of strategic-interaction teams that can't be attributed to skill or luck, and the quality of information most people have isn't very high. This is especially true in technology where, by definition, we're trying to do things that haven't been done before. That makes it fun, but also really, really noisy.

Almost every multiplayer strategy game becomes more about the players involved than the specific game rules, once at least some of the players have a bit of the strategy figured out. And pretty much any 3 or 4 player game can be thrown by a player who decides he doesn’t care to try to win himself (this is even often true in 6 player games, though it usually takes a bit of skill and cooperation from the to whom the game is being handed).

One way to make multiplayer games interesting is to have enough variance so that with 3 players left, the balance between a player who pulls some lucky breaks and the other two players working together is just barely in favor of the two players. If the game is well designed and the players act strategically, this shifting balance of alliances can last quite a while without either handing one of the players the game or getting boring, and winning is about figuring out how to hold your ally past the time its in his best interest to turn on you, or turning on him at just the right moment to maximize impact.

Is it this Ambition: http://www.pagat.com/invented/Ambition221.pdf? [PDF]

Yeah, although those rules are a bit out of date. I've made some changes for balancing on some of the Slam/Nil corner cases.

Unfortunately, I get so little time to play games these days that perfecting it isn't something I've had time to do.

The most educational post per byte I ever read on HN.

Thank you for this post. I'm in nearly the same boat (41 years old, < 1M net worth, on my fifth startup with < 100k to show for those efforts) and watching seemingly complete idiots pass me by. I'm too old to be infuriated by the vagaries of chance, however, it does make me wonder if I've done something wrong. I suspect that the numbers are slightly skewed - that there are far fewer people having wild success than the media would have us believe.

The conclusion that I've come to is that VC-istan isn't actually technology, at least not in this current social-media fueled bubble. It's old-fashioned social climbing and self-promotion with a bit of technology in the back end.

Do startups actually succeed based on technical merits, or on how well they market themselves? In this social media bubble, it's the latter. I'm not going to claim that technical skill doesn't matter. I just don't think it matters as much. You can back-fill the technical stuff by hiring the right people (contrary to our overblown claim that non-technical CEOs have no hope of finding technical talent because they can't individually judge it) but if you build great technology and can't sell it, you never get off the ground.

It's exceptionalism that leads people to think that the VC ecosystem is in some way (or should be) morally superior to Wall Street, Hollywood, the fashion industry, or Madison Avenue. Sure, what we do is cerebral, but so was advertising in the Mad Man era. VC-istan isn't worse than these other industries, but it's not better. When you have a "creative" industry, there are a lot of opportunities to do great work and profit by doing so. But there are also smiling-idiot narcissists who pile in and fuck everything up because they think they're "creative"... and of course, what gives them this opportunity is that there are other idiots in power who will put them ahead of the people of substance like us because they don't know any better.

It's the expectation of meritocracy that makes us unhappy, but human organizations and ecosystems and societies all turn to shit over time no matter what so this is an unreasonable expectation.

There is a place for people like us, the virtuous soldiers who get rich slowly, building our skillset until we're just really good at a few things... but there's also a place for smiling idiots. And smiling idiots are always going to be the "cool kids", and it's the cool kids (not people of substance) who get those stupid TechCrunch articles written about their 7-Couric products. It's the expectation of fairness in human structures, which is just unreasonable at scale, that creates the unhappiness.

The odds are always against entrepreneurs:

http://chrisyeh.blogspot.com/2010/07/entrepreneurship-is-abo...

"Let me reiterate--you have a less than 50/50 chance of founding a successful startup, even if you manage to raise VC every time (which is not a forgone conclusion) and even if you devote essentially your entire professional life to it."

On the other hand, if you enjoy entrepreneurship, don't let the lack of success get to you. After all, there's always the next company!

What I've seen for the most part isn't that people make the wrong strategic decisions. It's that they don't realize there are decisions to be made.

For example, there's a major correlation between your career success and how visible your role is. Maintaining internal systems will almost never pay off as well as working on the flagship product. This, and many other considerations, matter as much or more than your individual performance/talent. But the majority of people never consider them.

(A quick sampling of major strategic decisions: your elevator pitch, the elevator pitch other people use when introducing you, how visible your role/projects are, making sure your day-to-day responsibilities don't take up much time, refusing to work on projects that will pull your career in the wrong direction, working at successful companies/projects, and perhaps most importantly, understanding how connections are really formed).

Excellent post.

Still, how do you advise one go about "making sure your day-to-day responsibilities don't take up much time, refusing to work on projects that will pull your career in the wrong direction"?

On the first, it seems that the solution a lot of people take is to have short job tenures, because (in the absence of mentorship or high-level interest in career development) responsibilities accumulate while learning opportunities tend to get rarer, so a lot of people leave once the responsibility/learning balance tilts out of their favor. The problem with this strategy is that, at some point, having a string of 6- to 18-month job tenures starts to look really bad.

The second is even more tricky. Most people aren't in the position of being able to "refuse to work on" bad projects, especially since it's obvious what the person's doing. It seems like this is a recipe for getting fired (which may help a person's career in the long run by preventing a rut, but is something most people would rather avoid).

On top of that, there's the even harder question of how to know that the direction a project will pull a person's career in the first place. It's rarely obvious. Sometimes, doing the grunt work makes a person more trusted and puts him in line for the best projects. Sometimes, it leads to more grunt work and otherwise goes nowhere. These depend on the individuals involved and it can't easily be broken down into simple if-then rules.

The strategy that most people seem to follow is to change jobs frequently until they find a fit. The problem with that is that, although the "job hopper" stigma is much less severe than it was 20 years ago, it still exists.

"[P]erhaps most importantly, understanding how connections are really formed"

How are they really formed? There are a lot of pet theories on this one, but it's not clear which of them (if any) is right. And people tend to be different enough that I'm skeptical that there is a general-purpose answer to the social engineering problem.

I'm not going to pepper my advice with caveats, but note that none of the below applies 100% of the time.

> making sure your day-to-day responsibilities don't take up much time

What do you do when you've finished a reasonable amount of work for the day? The average person will ask for more work or do more grunt work. Instead, don't. You'll get much further in your career if you have an amazing side project and produce 20% less other work, than if you produce more day-to-day work but don't have any highly visible projects.

> refusing to work on projects that will pull your career in the wrong direction

You can't really outright refuse if your boss asks you to do something-but projects are frequently assigned on a semi-volunteer basis.

> On top of that, there's the even harder question of how to know that the direction a project will pull a person's career in the first place. It's rarely obvious.

I agree, it's not obvious. As a general rule, try to work on projects that give you the opportunity to be in contact with a greater number of people, especially people in senior positions.

> How are they really formed? There are a lot of pet theories on this one, but it's not clear which of them (if any) is right.

This is difficult, but the good news is that you don't have to be perfect-even a little effort here yields significant returns. The average programmer could benefit massively from an hour a week of studying psychology or practicing meeting people.

For a 20-something the goal is to get powerful, successful, competent people interested in your career. This is hard and there's no silver bullet. A major part of that is to give off the impression that you'll be successful no matter what, while at the same time benefiting from their advice and replicating their ideas. There's also a massive element of luck at play. I've spent a lot of time working on this, and I still wouldn't be able to come up with any sort of consistent method-just things that increase your chances, bit by bit.

Finally, I'd like to note that despite my claims of how difficult some of the above goals are, making good strategic decisions saves you huge amounts of time. Allocating your time in a job wisely will quickly mark you as someone "up-and-coming", and help you rise to interesting work quickly. 100 hours invested in networking will save you years over your lifetime, in terms of advancing your career. A great mentor can keep you from accidentally committing career suicide. And so on.

"Business is obviously not "random" in a true sense, but it's obviously not a pure-skill game because so many idiots get lucky and a lot of really talented people (like DMC) don't."

DMC had choices to make and his talent didn't extend to making the right choices.

Forgetting luck for a second which is obviously important, talent could be thought of as a collection of features that all come together to create success.

So simply saying that DMC has "talent" and that someone else who has made it has "inferior talent" ignores that you need varying degrees of talent and quality in many areas which also depends on what you are doing. Not a jack of all trades, master of none but a proper balance (just like you would want in a product). Stylish, good gas mileage and plenty of headroom say for a car.

In addition to luck then DMC was lacking talent in a few areas that would be required to be successful (to the degree he or anyone thinks is success).

As only one example consider the ability to have attention to detail and product quality. That might be super important when selling an expensive luxury product but an impediment if creating products for dollar stores.

Take any super successful person (by whatever definition) and put them in the wrong field. Do you think Bill Gates would be teacher of the year? Do you think pre-presidential Obama would be good running an incubator?

I agree with many of your points. But I think DMC made it pretty clear the extent to which he slacked off and didn't take things as seriously as he should have. So there were actually many things he could have done to achieve (by his words of what success is) greater success than just picking the right door.

So, we have a bunch of identical-looking options and cannot know which pays out better beforehand. It sounds to me like we should apply the Multi-Armed Bandit algorithm to the problem.

I think the truth of it is just that (and few people will admit to this) it's better to be a VC. They're diversified. Some fail out and never get rich, but they get to play more chances.

There's nothing generally wrong with not getting rich, but there are certain things people only do in order to get rich, and VC-istan startup life is one of them. If you're a writer and you make $100,000 per year mid-career, you're kicking ass, because most people never get anywhere near that point. If you're a stock trader or VC-istan denizen (whether engineer or founder) and that's where you are mid-career, you're a fuckup.

Actually, I'm simplifying quite a bit. Most people in VC-istan don't necessarily want to get rich personally in the same way that traders do, but they want to become the social equals of the VCs and established founders. They want their ideas to be taken seriously, and that unfortunately requires social status. So there is a bit of difference. A derivatives trader who makes $25 million and retires could give fuck-all about social status, whereas most VC-istan types would rather have a mediocre financial outcome if it got them access and status. They'd rather be at $2 million net worth with the contacts to try another "game changer" startup than $25m without it. Still, though few people will admit this, VC is a better life. You already have status and access, and if you want to start a company as a Real Founder, you can do that any time you wish.

> if you've been in VC-istan for 2 decades and haven't made fuck-you money, you haven't won

Dave has only been a VC for a few years, in a game that takes a few rounds to go either way. In terms of "late bloomer" my guess is he's talking about life, not VC.