Identifying key moments in the creation of a business, particularly where a significant stroke of luck may be involved, is very unusual these days. The announcement today of the death of John Peel, veteran UK disc jockey, brings to mind one related to Virgin boss Richard Branson. Although the Virgin brand now encompasses everything from mobile phones to trains, the original Virgin company was an independent record label. Although it is customary for people to say that someone like Branson would have been successful come what may, the ebullient boss has in the past impressed me for significantly attributing the origin of his success to luck.

The key moment for him, he said, was that John Peel decided to play Mike Oldfield’s Tubular Bells on his eponymous radio show in the early 1970s. The show has a reputation for having discovered most of the major serious British rock music acts for nearly four decades and a great many more. That consistency on Peel’s part may itself mean his own decision reflected some kind of judgement, and yet there are of course plenty of acts Peel played that went nowhere. Perhaps this is Branson’s insight. The initial play ignited the phenomenon that led from one record to many more and to a business. Would Branson have survived long enough had the cash not started coming in on the back of that airplay? Examples of contemporary failures who lacked such lucky breaks are unlikely even to be footnotes to this history. Without such information, judgement of why a company like Branson prospered will normally suffer from what we call the “survivorship bias,” where we define success factors on the basis of the survivors without knowing if similar factors were common to other companies who failed for the sake of unlucky timing or the lack of a similar break to Branson’s. Failure goes away.

The interesting point is that, whatever might be said about the nature of the Virgin brand and how it has been developed over time, replicating the success model may not be possible without the lucky first spark. It is important for business managers and entrepreneurs to understand how lucky they may be if they have an existing cashflow (however acquired) on which to build new business and take risks, how difficult it may be to create a cashflow from scratch if they are so inclined to start a business, and how random can be the creation of new competitors that may come and eat their lunch. Of course this leaves investors at an even more significant disadvantage, except in their ability to look for overconfidence in said executives.

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