There is a persistent, somewhat depressing idea in management research known as Gambler’s Ruin Theory. It essentially tells us that growing a company is no different from flipping a coin. If you succeed, it is not because of your strategy or grit; it is simply probability working in your favor, and entrepreneurs are just corks bobbing helplessly in a sea of chance.
However, the study by Derbyshire and Garnsey provides a more sophisticated, neutral alternative. They suggests that the randomness we think we see is often just a byproduct of how we choose to measure performance. They invite us to stop looking at business through the lens of probability and start viewing it through complexity science.
The measurement trap and the illusion of randomness
The problem often lies in how we define growth. Traditional studies tend to track sales revenue, which naturally fluctuates.
For instance, if a company earns just £40 less than the previous year, rigid statistical models automatically classify its growth streak as broken, labeling a practically stable business. This hair-trigger sensitivity makes stable businesses look like they are erratically jumping between success and failure, mimicking the randomness of a coin toss.
When the authors switched the metric to employee count—a far more stable indicator—the picture changed completely. Instead of random jumps, they found that over 56% of firms simply stayed the same size over four years. Real businesses do not flip-flop like coins; they tend to lock into a path.
Deterministic chaos: Where agency meets environment
The most profound insight here is the distinction between pure chance and deterministic chaos.
- Complex, not random: Chaos does not mean an absence of cause. It means the system is so sensitive to initial conditions that predicting the future is nearly impossible.
- Skill matters: This is where the entrepreneur differs from the gambler. In a game of dice, skill is irrelevant. But in a chaotic market, the entrepreneur has agency. They use specific strategies—like effectuation, which focuses on building with currently available means rather than predicting an uncertain future—to constantly match their internal resources with external opportunities.
The Gambler’s Myth vs. The Entrepreneur’s Reality
Source: Visual interpretation based on arguments from Derbyshire & Garnsey (2014). Image generated by Nano Banana Pro.
The illustration contrasts two models of success. The spinning coin (left) represents the ‘Gambler’s Ruin’ view: pure randomness where outcomes are independent of human effort. Conversely, the kayaker in the rapids (right) depicts deterministic chaos. While the water is turbulent and difficult to predict, it follows physical laws. Crucially, the kayaker possesses agency; they use their paddle (strategy) to navigate the flow, proving that survival depends on interaction with the environment rather than pure luck.
Practical implications: Navigating the rapids
This research offers a balanced way to think about how businesses actually succeed.
For those starting ventures, the takeaway is that unpredictability is not the same as futility. You are not floating aimlessly; you are navigating a high-stakes environment where your skills in matching resources to opportunities determine whether you stay afloat.
For those studying these firms, the inability to predict growth does not mean that effort is irrelevant. We need to move past simple linear models and start looking at firms as complex systems where small actions and timing create massive, non-linear impacts.
For policymakers, the “picking winners” strategy is flawed. Since chaotic systems are highly sensitive to initial conditions, predicting exactly which start-up will succeed is nearly impossible. Governments should abandon attempts to pre-select high-growth firms and instead focus on cultivating the ecosystem. By improving the general initial conditions—such as access to funding, infrastructure, and talent—policy can empower more entrepreneurs to use their adaptive skills effectively.
Conclusion
While ‘initial conditions’—the specific timing, resources, and market state—set a unique trajectory for every firm, they do not determine the destination entirely. The crucial differentiator is adaptive skill. Success depends on the entrepreneur’s ability to recognize patterns within the chaos and adjust their course using available means. It is a test of strategic endurance where the founder leverages agency to impose order on a volatile system.
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