In 1986, Will Ade was enjoying his dream job as an explorations manager for a Texas-based oil company. Over the previous three years, he had identified a number of prospects—potential oil reservoirs—in Brunei that turned into major discoveries, and then more in Colombia that were drilled by Sun, BP, and Exxon. He was following this up by scouting in Indonesia. Will had proven his knack for finding oil and gas during an eight-year stint at Phillips Petroleum. He had worked his way through grad school as a field geologist in California and other western states and then became a full-time petroleum geophysicist involved in major ventures in the Philippines and Singapore. “My wells got drilled,” he recalls.¹

But big corporations move slowly. Eager to get his prospects drilled faster, Will had jumped to that smaller Texas firm. After enjoying those three years of success, he learned the downside of working for a small, undercapitalized company. Oil prices plunged 67 percent. Suddenly, Will was stuck in Indonesia without a job—and no severance. He and his wife had three kids in diapers and not much of a plan. “All we had were return tickets to the U.S., worth about $3,000.”

But Will had one other crucial possession: unbridled optimism. Among the many things Will had learned in Asia was that “the Chinese pictogram for ‘crisis’ is the same as the one for ‘opportunity.’” Yes, he had lost his job, but he still had his knack for finding oil and was tired of depending on someone else’s decisions. So he cashed in the airline tickets and started his own wildcat exploration consultancy, based in Singapore.

Every would-be entrepreneur has a dream for a business. The best entrepreneurs believe they can make it happen, again and again. They just keep climbing from venture to venture, and if one ladder fails, they leap to another. To most people who work for a living, such optimism is abnormal. And they’re right. Normal people do not risk their last $3,000 on a startup. What fuels that kind of risk taking is optimism of a very high level.

Daniel Kahneman, one of the world’s most influential psychologists, found that kind of optimism to be so unsettling that he called it “entrepreneurial delusion.”² Kahneman has spent his 40-year academic career studying how humans make decisions, and for the most part, he has not been impressed. The ingenious experiments that he designed—initially with his colleague Amos Tversky, who died in 1996—spurred the growth of the new field of behavioral economics. Their work earned Kahneman the Nobel Prize in economics in 2002. (Tversky was not similarly honored only because Nobel Prizes are not awarded posthumously.)

Overconfidence is so widespread among CEOs, investment advisors, journalists, academics, government officials, and other professional prognosticators that Kahneman and Tversky coined the phrase “planning fallacy” to account for the kinds of massive budget overruns that are endemic to so many projects.³ Anyone who has undertaken a major home renovation is likely to have also been a victim of the planning fallacy. A 2002 survey of American homeowners who had remodeled their kitchens found that, on average, the actual cost exceeded the budget by more than 100 percent!

Research shows that this optimistic bias tends to be highest among entrepreneurs and inventors, leading them to indulge in what Kahneman calls “fast thinking.” Fast thinking is going with your gut,⁴ and this propensity commits entrepreneurs to ventures that are too risky and costly. For Kahneman, the world would be a much better place if we all worked harder at being slower thinkers, relying less on intuition and emotion and more on focused, deliberative logic.

To be fair, Kahneman ends up quite ambivalent about the role optimism plays in American life. He concedes that the growing body of research indicates that “if you were allowed one wish for your child, seriously consider wishing him or her optimism.”⁵ Optimists tend to be cheerful, happy, and popular. They are likely to have stronger immune systems and thus better health. They are more resilient and bounce back from failure. Optimists even live longer than their less hopeful compatriots. Kahneman also admits that optimism is “the engine of capitalism,” stating: “When action is needed, optimism, even of the mildly delusional variety, may be a good thing.”⁶

Although Kahneman acknowledges the importance of optimism to personal and business success, he seems irked by the fact that these very successful people have also been very lucky in life—and typically do not acknowledge it. I will plead guilty to that charge. Early in my career as an entrepreneur, I was more inclined to attribute my initial success to my skills than I would today. But mine was hardly a rags-to-riches story. My father was a brilliant engineer and an executive vice president at NBC. I went to great schools, got a plum job at a leading firm, and worked for a few years at my wife’s family’s real estate company. I had more opportunities in my early twenties than many people see over the course of their entire career.

But that was 35 years ago, and I’m still creating new companies. Yes, luck is important, and I’m quite realistic about where I stand on the scale between those who pulled a rabbit out of a hat and the true geniuses among us. But I’m still not sure that Kahneman hasn’t overstated the role of luck. If Kahneman were to meet Will Ade or hundreds of our other Tiger 21 members, he would soon find out that their high levels of optimism are fueled by an equally impressive capacity for slow thinking.

While Will Ade cashed in his family’s airline tickets to start his company, that wasn’t simply an act of foolish optimism. He was a highly trained geologist and geophysicist with a world-class record of finding drillable oil reserves. He also knew that his infant company with its minimal overhead would be able to underbid the competition. What about employees to carry out the exploration contracts? Will, who’d earned an MBA while working for Phillips, had that covered. He was not the only experienced oil and gas man stuck in Southeast Asia without a job. “I hired all my buddies who had been laid off,” he recalls with a chuckle.

It turned out Will also had a knack for entrepreneurship. His company proceeded to generate new ventures as well as mergers and acquisitions for publicly held companies and private investors. Over the next three decades, he confirmed his ability for slow thinking again and again, exploring for oil and gas reserves in Brunei, Singapore, Malaysia, the Philippines, and Vietnam, while also investing in farms, ranches, and forests in his native Indiana. Will currently holds overriding royalty interests in several of his discoveries in Southeast Asia and continues to be involved in new ventures and exploration prospects for select clients. His net worth today: nine figures and growing.

Some might read this and think, “That dude just got really lucky.” The controversy over the role of luck in business and investing always reminds me of a famous speech Warren Buffett gave in 1984. In it he defended the “value investing” approach that he learned from his Columbia Business School mentors, Benjamin Graham and David Dodd, whose classic book, Security Analysis, had been published 50 years earlier. “The professors who write textbooks,” he argued, were wrong to claim that the Graham-Dodd system was outdated because the efficient market thoroughly researches companies and prices them accordingly, leaving no undervalued equities. According to that point of view, investors who beat the market were simply lucky.⁷

Buffett pointed to a group of eight extremely successful investors (which included himself and his partner, Charlie Munger) who had used the Graham-Dodd system to beat the S&P 500 Index by significant margins for decades. To illustrate how such an extraordinary correlation had to involve more than luck, Buffett asked his audience to imagine that 225 million Americans (roughly the entire U.S. population at the time) agreed to participate in a national coin-flipping contest. The contest begins with every American betting a dollar on the flip of a coin. The losers drop out, and each subsequent day, the winners bet their cumulative winnings on a daily coin toss. The losers keep dropping out and the winners, the ranks of which are cut in half each day, have twice as much each day to bet.

After 20 days, there would be 215 people left who had won every single day. All of that would be due to pure chance, Buffet conceded. Had 225 million orangutans flipped coins, the results would have been identical. However, pure luck would probably distribute the 215 winning apes evenly around the country. If you instead “found out that 40 came from a particular zoo in Omaha,” Buffett noted, “you’d be pretty sure you were on to something.” You would then start looking for patterns of possible causes other than coincidence, just as scientists would if a rare cancer appeared in an unusual number of citizens in a particular mining town. Buffett concluded that the disciplines he and the other Graham-Dodd adherents used to beat the S&P for decades was proof that “a disproportionate number of successful coin flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville.”

Buffett’s speech explains that successful investing takes more than luck, and the same goes for entrepreneurship. Most of the successful entrepreneurs I know come from a place that nurtured their self-control, grit, and optimism. They were lucky too, but I have learned that luck tends to favor those who are prepared and willing to take the risk when the right opportunity comes along.