Entrepreneurship & the Lottery Effect

While I don’t think it was necessarily Mark Cuban’s intent, in a post over on Blog Maverick he implicitly describes entrepreneurship in a way that would be highly familiar to students of the “lottery effect”:

In basketball you have to shoot 50pct. If you make an extra 10 shots per hundred, you are an All Star. In baseball you have to get a hit 30 pct of the time. If you get an extra 10 hits per hundred at bats, you are on the cover of every magazine, lead off every SportsCenter and make the Hall of Fame.
In Business, the odds are a little different. You dont have to break the Mendoza line (hitting .200). In fact, it doesnt many how many times you strike out. In business, to be a success, you only have to be right once.
One single solitary time and you are set for life. Thats the beauty of the business world.

If it’s fair to think of entrepreneurship in lottery effect terms — recall, in a lottery effect people are willing to “pay” much more than the expected value because the potential payoff is so high — does that mean that most entrepreneurs overpay?
For sure, and while that can and does take monetary terms, with people taking themselves deep into bankruptcy risk, money isn’t the only thing people use to buy lottery tickets on entrepreneurship. People also bet marriages, hair follicles, and time, all of which cannot be (easily) replaced, but all of which amount to payments, of idionsyncratic sorts, on the entrepreneurial lottery.


  1. david bennett says:

    I find this definition of “business” incredibly silly. Yes there are brilliant or lucky ideas which launch rapid and easy fortunes. But down the street are dozens of entrepeneurs selling more traditional products, who must produce consistently day by day, who can be wiped out in months. The flash bang stuff has to exist in a larger, exceedingly complex system. With real competition (which the fancy stuff should become subject to in real markets) superiority in things like customer service, product quality and price do matter. For the more complex producs you need an organization which successfully evolves. Polaroid seems to be failing. And Xerox is the great tragedy which disproves this notion of clever ideas. They didn’t know how to market the work of Xerox Parc. IBM has done a lot better and could easily outlast Intel and MS, but they lost the relational database which they created to Ellison.
    Personally I think the gist of this simplification is destructive because it just assumes there is an infrastructure there to market good ideas and that the quick fortune is the sum of “business.”

  2. Amplifying David’s point…
    If we bet all these non-monetary things, surely we get non-monetary rewards.

  3. Nicely put, Ross. Hope things are well …