Sometimes someone tells you something that is so ridiculously obvious but so dramatic to everything you have ever thought about, that it kind of shocks the heck out of you.  So here is something that just sent me for a loop.  It is a certainly philosophical in nature, so that fits in well in this publication – and it concerns the juxtaposition between luck and skill and how the two are intertwined.

Consider if someone has a strategy for starting, growing and succeeding in a business.  His strategy is to be brutally honest with everyone about everything all the time and insist that every single person in the company do the same.  Anyone who deviates – even the slightest – is immediately terminated.

Possibly to your surprise – or maybe not at all – it works!  And it doesn’t just work – it works incredibly well.  It is a runaway success. 

By the way, my belief is that there is a company that has exactly this strategy, which is Ray Dalio’s Bridgewater Associates.  Many believe it is an extraordinarily successful hedge fund with an exceptional track record.  On information and belief, the culture just “clicks” for some people who thrive in it and is awful for others who quickly depart one way or another.  It is self-selecting for those who will be optimal for the business.

So what are the implications of this?

Well, others starting businesses might consider whether this is a great strategy?  After all, it worked at one place and that implies it might work at another place too.  But then, let’s do the math……

Let us pretend 100 such businesses were started with this exact strategy.  Most businesses fail, but for the sake of argument, let us pretend half succeed and half fail. 

So now we are out in the world with 50 businesses that use this strategy that we know about – that the newspapers are reporting on – and that we can analyze for our determination on optimal business strategies.

But what about the other 50?  We kind of don’t know about them any more since they are just…….gone.  And presumably the reason they are gone is that they used this strategy and failed!

So we are – foolishly, or worse than foolishly – evaluating a business strategy only by looking at the businesses that succeed with the strategy and ignoring those that failed with the same strategy!

How stupid is that?  We evaluate a strategy by only looking at those who succeed with it?

We do this all the time for a very simple reason, which is that it is super easy to find examples of successful strategies, but very difficult and close to impossible to find examples of failed strategies, since the failures just disappear.

I feel entitled to kick myself because I myself fall into this trap all the time.  I eagerly read articles about Google and other great companies and much of the time conclude that my law firm should emulate their (successful) strategies, without considering whether maybe Google – or Ray Dalio – just got lucky.  Maybe 99% of those who try Ray Dalio’s brutal-honesty strategy fail!!!  How do I know?  The answer is I don’t have a clue because I am under-evaluating failure when assessing a strategy.

I give credit for this line of thinking to Michael J. Mauboussin in his book The Success Equation (Untangling Skill and Luck in Business, Sports and Investing).  He is very insightful and, among other things, teaches at Columbia Graduate School of Business.  Also, from my daughter -- a mathematics major and neuroscientist working for Google -- she says that in the science world this is referred to as a variant of the well-known concept of “selection bias”.

So how does this apply in the real estate world?  It applies just about everywhere.  For example, if you are an investor you presumably have your own investment style and your own manner of evaluating deals, hiring people, putting a team together, etc., but unless you are incredibly arrogant you will naturally look at the strategies of others that have succeeded and evaluate what you think they are doing right for possible emulation.  Have you considered that maybe those parties you are looking at were just lucky and others that tried that particular strategy aren’t around to be evaluated any more?

So what should you do with this knowledge?  The answer is simple – take emulation of successful strategies with a couple of grains of salt.  Maybe the strategy is excellent, or maybe the strategist just got lucky…..



What Clients Are Saying About Terri Adler:  Our Real Estate Joint Venture / Corporate Real Estate Practice is led by Terri Adler.  Terri was a co-founder of Adler & Stachenfeld in 1997 and currently chairs our almost 55-lawyer real estate group -- one of the largest in NYC.  Client feedback includes the following:

  • She sets the bar pretty high and is the standard by which I measure other attorneys in the industry (female and otherwise).  She’s awesome; works tirelessly; very responsive; kicks-butt

  • Terri advises and negotiates on your behalf as if she were a partner in your deal.  She is quick to understand complex transactions and always provides meaningful business feedback, as well as great legal advice.  Her energy and responsiveness are unmatched and she loves to get into the detail.  She’s the first person I call when a big issue comes up.  

  • Her intelligence, skill, legal acumen is just downright intimidating!!!!

  • Terri is a work horse with a tremendous capacity to manage multiple deals and all the minutiae and moving pieces that come with extremely complicated transactions.  She is commercial and has a great ability to balance both the business and legal points in crafting negotiations. 

Terri has first-chaired many billions of dollars of mega-NYC deals.  To mention just a few:

  • NorthStar’s investment in RXR Realty’s $6.5B NYC portfolio consisting of 100+ properties

  • Angelo Gordon and Extell’s Carlton House transaction in the center of NYC

  • Acquisition and redevelopment of key Montgomery Ward Chicago properties out of two bankruptcy transactions

  • 565 Broome Street development (one of the few almost all-China-sourced transactions in New York City). 

Terri does it all in real estate but has a particular expertise in joint ventures and so-called “corporate real estate transactions”.  This is often where the rubber meets the road for the most complicated of real estate deals – and we often think of it like playing chess in the future.  This is Terri’s forte. 

Terri has been recognized by her real estate and legal peers in trade publications such as The Commercial Observer’s 2013 Power 100 Reader’s Poll list (the only time the public was allowed to vote) -- Super Lawyers Top 50 Women’s List and Best Lawyers.

Finally, Terri leads our vaunted Joint Venture / Corporate Real Estate Practice, which is the Firm’s sweetest sweet spot and our crown jewel.