The Thin Line Between Bold and Reckless

Cornelius Vanderbilt had just finished a series of business deals to expand his railroad empire.

One of his business advisors leaned in to tell Vanderbilt that every transaction he agreed to broke the law.

“My God, John,” said Vanderbilt, “You don’t suppose you can run a railroad in accordance with the statutes of the State of New York, do you?”

My first thought when reading this was: “That attitude is why he was so successful.” Laws didn’t accommodate railroads during Vanderbilt’s day. So he said “to hell with it” and went ahead anyway. Vanderbilt was wildly successful, so it’s tempting to view his law-flaunting – which was notorious and vital to his success – as sage wisdom. That scrappy visionary let nothing get in his way!

But how dangerous is that analysis? No sane person would recommend flagrant crime as an entrepreneurial trait. You can easily imagine Vanderbilt’s story turning out much different – an outlaw whose young company collapsed under court order.

So we have a problem here.

People could praise Vanderbilt for flaunting the law with as much passion as they criticize Enron for doing the same. John D. Rockefeller is similar: His frequent circumventing of the law – a judge once called his company “no better than a common thief” – is often portrayed by historians as cunning business smarts. Maybe it was. But when does the narrative shift from, “You didn’t let outdated laws get in the way of innovation,” to “You committed a crime?”

It’s hard to know. I think we only judge the process by its outcome. Which is dangerous.

The hardest thing about studying businesses and investors is that many traits that fueled their success could have just as easily triggered failure. But we rarely think about it that way when learning from specific outcomes.

Those eager to learn from others tend to look at the tails. What did the big winners do right? What did the big losers do wrong? It’s often hard to find an actionable takeaway from either because winners and losers often pursued similar risky strategies, with outcomes tilted ever so slightly by chance. My point is that big success requires bucking conventional wisdom, but conventional wisdom is usually right and worth following. We’re left with outcomes where winners are praised more than they should be, losers criticized more than they deserve.

There’s more to this than breaking laws.

The majority of Benjamin Graham’s investing success is due to owning shares of Geico. Both his initial purchase, and subsequently holding the stock at high valuations, broke nearly every rule that Graham himself laid out in his famous texts. What are we supposed to learn from that?

We think Mark Zuckerberg is a genius for turning down a big offer to sell his company. But people criticize Groupon and Yahoo! with as much passion for turning down their big buyout offers. What is the lesson for entrepreneurs here?

Uber took no prisoners as it disrupted the entrenched taxi market. But the line between rooting for a scrappy startup and “#DeleteUber” turned out to be a hair thin. Which case study will be taught in business schools?

Countless fortunes (and failures) owe their outcome to leverage.

The best (and worst) managers drive their employees as hard as they can.

“The customer is always right” and “customers don’t know what they want” are both accepted business wisdom.

The line between “inspiringly bold” and “foolishly reckless” can be a millimeter thick and only visible with hindsight. But it’s easy to view the process that led to successful outcomes as something to emulate, and the process that led to failures as something to avoid.

I don’t think there’s much we can do about this. It’s one of those things that just is. Risk is unfair and unforgiving.

But a few things are worth thinking about.

Focus less on case studies and more on broad patterns. Case studies can be dangerous because we study extreme examples, and extreme examples are often the least applicable to other situations, given their complexity. You’ll get closer to something actionable by looking for broad patterns of things like how people respond to surprises, how fragile competitive advantages can be, how quickly people/businesses/economies evolve, and what makes people happy. This is also why multidisciplinary learning is so important.

Accept that strategies expire. The irony of history is that it’s mostly the study of things changing, often used as a guide for what to do next. The only thing more dangerous than underestimating how risky someone else’s strategy was is not realizing that the entire strategy only worked in a different era. When you accept that things change over time you become less interested in specific strategies used in the past and more interested in broad topics, like how people discovered the strategies to begin with.

There’s more to learn from people who endured risk than those who seemingly conquered it. If success requires taking risk that could easily turn into failure, and the line between the two is nearly invisible in real time, I want to learn from people who accidentally stepped over the line and lived to tell the tale. Companies that survived deep recessions. Investors who survived bear markets. Products that flopped, were redesigned, and then worked. In any risky endeavor, the line between success and failure is thin enough that hardly anyone can find it but never walk over it. So you’ll gain more by learning how to put up with and survive the occasional misstep than attempting to avoid them entirely. This is why room for error and humility are so important.

“What do I care about the law?” Vanderbilt once said. “Ain’t I got the power?”

He did, and it worked. But it’s easy to imagine those being the last words of a story with a very different outcome.

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