Past performance is not a guarantee of future success

Almost every investor has read the disclaimer in this column’s headline about never relying on the past to predict the future. This admonishment is typically prominently displayed in an investment prospectus as the sponsor or underwriter must caution investors of the risks before they pony up their money. Looking at past results is one method of predicting the potential of a positive outcome. But a look in the rearview mirror doesn’t come with a guarantee of what lies ahead.
Even though a business is thriving today, the future can become dicey with a turn of events.
The warning of not relying solely on the past applies, as well, to an organization’s top performers and rising stars who have logged previous accomplishments.
A cliché among venture capitalists sponsoring startups is: “Back the jockey, not the horse.” This translates into picking the right person to run a business, rather than choosing the company. However, the odds-on favorites don’t always prevail. Backing a past winner might help investors sleep better, but it is far from an iron-clad warranty. A painful lesson eventually learned by sports bettors and seasoned leaders is that racetracks and the business arena are littered with previous big winners who have stumbled and fallen.
In my experience, giving another chance to someone who has failed to win, place, or show every time can pay off big. A reoccurring gambler’s fantasy is their horse starts slow, running dead last, then suddenly in the final furlong moves to the outside and wins by a nose. In business, picking the right person to get the job done is not based on a wish or a fantasy. Instead, it requires a well-reasoned decision, including past victories and other metrics.
The best way to make this tricky go/no-go decision is to have a hardcore one-on-one with the candidate being considered for the undertaking. Ask the questions that deal with why that someone didn’t always produce as promised in the past. At the same time, ask what he or she learned since a previous misstep. Frequently, motivated second-time-a-rounders have an insatiable thirst to prove themselves. They seem to succeed by exerting the extra energy, doing whatever it takes, and relying on difficult lessons ingrained in them by painful earlier failings.
Too many companies look at winners in an absolute fashion, as in “they did it before, they’ll do it again.” Even the best makes mistakes. The good ones learn indelible lessons from their miscues and become more mindful of obstacles that may lie ahead… and they don’t make the same mistake twice.
Second chancers also frequently come with a bit of humility and a tad of gratitude for being given another grab at the brass ring. The taste of defeat is sour, but many times, like unpleasant flavored medicine, it’s the most effective.

I don’t bet on horses, but I have made big wagers on dark-horse managers. These include those who have placed or shown, coming in second or third previously, but with guidance and nurturing, can make it to the winner’s circle.

Visit Michael Feuer’s website to learn more about his columns, watch videos and purchase his books, “The Benevolent Dictator” and “Tips From The Top.”