We defined a “luck event” as one that meets three tests: First, you didn’t cause it; second, it has a significant potential consequence, good or bad; and third, it has an element of surprise, some aspect of the event is unpredictable before it happens. Using this definition, the evidence showed a lot of luck in the history of these companies. But— and this is the crucial point—we also found comparable amounts of luck in the control set of comparison cases we studied! The big winners did not generally get more good luck, less bad luck, bigger spikes of luck, or better-timed luck than their comparisons. What the best achieved, instead, was a higher return on luck. Hansen and I learned that the question is not whether you’ll get luck along the way—you certainly will get luck, both good luck and bad. The critical question is what you do with the luck that you get. I’ve come to believe that about 50 percent of great leadership is what you do with the unexpected.

You can look at life as a search for that one big winning hand, or you can look at life as a series of hands well played. If you believe life comes down to a single hand, of course, you can easily lose. But if you see life as a series of hands, and if you play each hand the best you can, there’s a huge compounding effect. Bad luck can kill you, but good luck cannot make you great. As long as you don’t get a catastrophic stroke of bad luck that flat-out ends the game, what really matters is how well you play each hand over the long haul.

(Again, to review from the previous chapter, a “luck event” meets three tests: First, you didn’t cause it; second, it has a significant potential consequence, good or bad; and third, it has an element of surprise, some aspect of the event is unpredictable before it happens.) Any framework that didn’t account for unpredictable and unforeseen events would be incomplete, and I couldn’t be intellectually satisfied until we wrestled with the question of luck. The concept of return on luck accounts for the undeniable fact that luck happens (a lot) yet captures the essential truth that luck itself cannot cause greatness. Catastrophic bad luck can kill a potentially great company, but good luck cannot make a company great. Luck doesn’t build great companies that last; people do.

In particular, you should avoid three pitfalls when thinking about where to play. The first is to refuse to choose, attempting to play in every field all at once. The second is to attempt to buy your way out of an inherited and unattractive choice. The third is to accept a current choice as inevitable or unchangeable. Giving in to any one of these temptations leads to weak strategic choices and, often, to failure.

Much the same will be true for the issues that I cover in this book. I’m not saying that we should be confident that value lock-in or major catastrophe will occur this century. What I am saying is that their chance of occurring is very real—certainly more than 1 percent, and certainly greater than many everyday risks, like dying in a car crash. When combined with how much is at stake, the expected value of trying to ensure a good future is enormous. When we’re applying the significance, persistence, and contingency framework, we should therefore be thinking about expected significance, expected persistence, and expected contingency.