___k It!

“I am a better investor because I am a businessman, and a better businessman because I am an investor” – Warren Buffett

Warren Buffett has been vocal about the interlinkages between Entrepreneurship and Investing and rightly so. Likewise, there is a four-letter word which is common to both Entrepreneurship and Investing and needs to be internalized and optimized for achieving great success across both of these endeavours – LUCK!

One could argue that Luck is simply out of your hands. Sometimes you have it, sometimes you don’t. But perhaps there’s more to it than just resigning to the fact that it is uncontrollable. So, let’s try to understand some nuances about it.

As entrepreneurs and investors, we all know about the huge role that luck plays in the difference between success and failure. If not, one needs to reflect deeper. In 2007, Marc Andreessen wrote a blog mentioning that there is a roadmap to getting luck on your side. He referred to a book named ‘Chase, Chance & Creativity’ by Dr. James Austin which outlines four levels of luck and how understanding each one of them can enable us to stack the odds of winning in our favour:

1. Accidental luck: This is blind luck. One cannot do much about this form of luck. As they say, it is what it is. You are building a company and out of nowhere there is a government regulation which allows FDI investment in your sector enabling you to access foreign capital. Or you happened to mimic a friend’s investment in your portfolio and it turns out to be a unicorn.
2. Luck favours action: This is about improving the odds of becoming lucky by doing some action or being in motion. Essentially one is stirring the pot so as to increase the surface area and when the luck lightning strikes, it is not just accidental as in the first level above but more probable because of one’s action. You are at this networking event. You pitch your startup idea to a random connect and she becomes your first angel investor. Or as an investor you are building your investment thesis on a particular space and decide to take a tracking exposure to a company, the company starts performing well and you are able to double down on your investment.
3. Luck favours the prepared: This is about noticing what would have otherwise gone unnoticed. As an investor you have looked at numerous deals in a sector. As the next incremental deal comes your way, you are able to make sense of the metrics, compare with normal benchmarks and realize the uniqueness of the deal. Your preparedness makes it happen for you.
4. Luck finds you: This is reputational luck. You are known for something, a skill, know-how, some way of doing things. There is some uniqueness about you which enables luck to shine upon you when the time is right. You are an entrepreneur who has hit an unsurmountable wall in his startup and needs to shut shop. While you were building, you were keeping your stakeholders in concert of the happenings but unfortunately things did not turn out the way they should have. Next you know that one of your existing investors is willing to back you again and write a cheque for your subsequent venture.

Another important four-letter word in both entrepreneurship and investing is RISK. We come across multiple types of obvious risks such as Market Risk, Technology Risk, Execution Risk or some nuanced risks such as Mediocrity Risk or Safety Risk. Understanding and recognizing risks eventually enable entrepreneurs and investors to overcome them.

One crucial model that one needs to internalize on risk is the difference between ‘Risk Control’ and ‘Risk Avoidance’. As rational beings our endeavour is to reduce losses and increase returns. This is the intuitive part of the puzzle, however not everyone is able to understand whether to avoid risk or to control it.?Controlling risk leads to reduction in losses, however avoiding risk would lead to reduction in returns.?Therefore, it’s about taking calculated risks i.e. take risks when the payoffs are disproportionately favourable rather than avoid risks altogether.?Skillful risk control becomes the winning proposition.

Also, both luck and risk are very individualistic and cyclical. What is risky for you as a startup may be within the tolerance levels of a large incumbent, whereas your insights may enable you to luck out on a business model which an incumbent will take months to figure out. As far as market cycles go, during a downcycle we feel that risk is at its peak and one cannot get luckier. But if one thinks a little deeper, its actually the opposite – risk is at the lowest because one has hit rock bottom and any action one takes will only add weight to the luck quotient.

Harshad may have built it with the mindset of ‘Risk hai toh Ishq hai’, but in sum, a common sentiment on luck and risk management that all great achievers echo remains:?we are bound to make mistakes, however if we our positioned appropriately and our innumerable misses don’t outdo our fewer successes, we will be able to survive, earn and eventually thrive!