The Secret to Wealth Forged by 99% Failure: The Law of ‘The Tail Wagging the Dog’

Have you ever heard the story of Heinz Berggruen, the greatest art collector of the 20th century? He amassed immense wealth by acquiring works by legendary artists like Picasso and Matisse at unbelievably low prices. Naturally, the world celebrated his “genius eye.” However, there’s an uncomfortable secret hidden within this narrative that most people miss.

Was his success truly due to his “eye”? That’s only half the story. He, too, bought countless artworks. And 99% of the pieces he acquired saw little to no value increase over time, or even depreciated. What changed his life were just a handful of “jackpots.” In other words, his wealth was the result of 99% failure and 1% miraculous success.

This is precisely the most powerful and peculiar law governing the world of money that we will delve deeply into today: the ‘Tails, you win’ law. This article will directly question why our brains instinctively shun this law, how giants like Amazon and Google were able to create “failure” institutionally to become the behemoths they are today, and where our society, which treats failure as a sin, should be heading.

Now, let us embark on a journey to confront this uncomfortable yet profound truth.

Chapter 1: The Asymmetry of Success - Why Our Brains Fail to Recognize the ‘Tail’?

The human brain is essentially a machine optimized for “survival.” For tens of thousands of years, our ancestors learned to survive within predictable patterns. Because “tail” events, like suddenly appearing predators, meant death, our genes are designed to react extremely sensitively to losses and risks.

This is what behavioral economics calls “loss aversion.” It means the pain of losing 10,000 won is about 2.5 times greater than the joy of finding 10,000 won. This is why we get so frustrated even by small failures.

Furthermore, our brains tend to view the world through the lens of an “average world.” Like people’s heights or weights, where most fall in the middle, we observe everything through the familiar glasses of “normal distribution.” However, the world of wealth and innovation is dominated by a harsh rule called the “power law” or “Pareto distribution.” It’s an extreme world where a tiny cause creates most of the results, with the top 1% taking 99%.

Understanding the fundamental difference between these two worlds is the true essence of ‘Tails, you win.’

• The loss from failure is finite: Even if you lose all your investment in stocks, the worst-case scenario is losing your principal, a -100%. The bottom is clearly defined.
• The gain from success is infinite: Conversely, there is no upper limit to the profit rate when successful. 100%? 1,000%? No, even 100,000% is possible.

This enormous “asymmetrical opportunity” is the secret to wealth. Suppose you invest 100 million won in 10 startups, and 9 fail. Horrible, right? But if just one grows 100 times and becomes worth 10 billion won, your final assets are 9.1 billion won. Your success rate was a mere 10%, but the outcome was an overwhelming victory. While we understand this intellectually, our hearts instinctively reject it due to the pain of the nine failures. We obsess over the “number” of failures, but this world is determined by the “magnitude” of success.

Chapter 2: The Venture Capital Playbook - A Perfect Design to Capture the ‘Tail’

There’s a group that uses the ‘Tails, you win’ strategy to an art form: Venture Capitalists (VCs) in Silicon Valley. They are hunters whose sole objective is to find the “tail.”

Legendary investor Peter Thiel said, “One of our fund’s investments, Facebook, generated more than all other successful investments combined.” This is common sense in the VC world. Their playbook is clear:

• Spray and Pray: They pour money into dozens, even hundreds, of early-stage startups to increase the sheer number of “opportunities.”
• Normalization of Failure: It’s commonplace for 70-80% of their portfolio companies to fail. Failure is simply the cost of hitting a home run.
• Bet on Unlimited Upside: They only bet on companies with the potential to grow 100x or 1,000x when they take off.
• Long-Term Horizon: They act as “patient capital,” waiting 7-10 years for the “tail” to unleash its potential.

What we need to learn is their “way of thinking.” Willingness to embrace numerous failures and wait for that one dramatic success that changes the world. What can be the “tail” in your life?

Chapter 3: Giants Born in the Crucible of Failure

‘Tails, you win’ is a principle deeply embedded in the DNA of the massive companies that drive the world today.

Amazon: An Empire Turned Laboratory

Amazon’s list of failures is on the scale of a “corporate graveyard,” including the ‘Fire Phone’ and ‘Amazon Auctions.’ However, Amazon had the historically most successful ’tail’: Amazon Web Services (AWS). Originally an internal side project, AWS now accounts for over half of Amazon’s total profits. Jeff Bezos famously said, “Failure and innovation are twins,” viewing failure as an “investment” for the future.

In the late 1990s, bookstore shelves were limited. Only bestsellers had a chance to catch readers’ eyes. Joe Simpson’s mountaineering memoir, ‘Touching the Void,’ was one such book. Published in 1988, it received decent reviews but was eventually forgotten as an “old book.”

However, a miracle occurred at the online bookstore Amazon. Amazon didn’t have the “shelf space constraints” of an offline bookstore. As long as there was inventory in the warehouse, any book could be sold.

One day, Jon Krakauer’s chronicle of the Everest tragedy, ‘Into Thin Air,’ became a global bestseller. People started ordering this book from Amazon. This is where Amazon’s magic began: the recommendation system, “Customers who bought this item also bought.”

For mountaineering enthusiasts who bought ‘Into Thin Air,’ Amazon quietly recommended ‘Touching the Void.’ Similar theme, excellent writing. People started to take interest, thinking, “Oh, this book existed too?” As one or two people bought it, ‘Touching the Void’ gained word-of-mouth traction, and the recommendation algorithm showed it to more people.

The result was astonishing. The 10-year-old forgotten book, ‘Touching the Void,’ began a reverse climb, selling more than the bestseller ‘Into Thin Air.’ This was an event that could never have happened on the shelves of an offline bookstore.

This is how Amazon’s ’tail wins.’ Instead of relying solely on a few bestsellers (the body), millions of little-known books (the tails) were steadily sold through the recommendation system, and their combined total surpassed the sales of the bestsellers. Amazon expanded this principle to all products in the world, becoming the “largest store on Earth.”

Google/Alphabet: Failing Smartly

The term ‘Google Graveyard’ exists for a reason; Google, too, buried numerous services like ‘Google+’, ‘Google Glass,’ etc. However, from its ‘20% time’ policy, Gmail and AdSense were born, and the acquisition of Android at a low price became the decisive move that dominated the mobile era. Google is a master of “failing fast based on data.”

In the early 2000s, the online advertising market was dominated by large portal sites like Yahoo!. They sold “prime time,” meaning their homepages, to large corporations who bid the highest, much like broadcast stations. It was an exclusive league where only giant companies like Nike and Coca-Cola could advertise.

Mr. Kim, who made handmade fishing lures in a remote mountain village, had no way to advertise his business online, let alone make his products known. His lures were niche, “known only to those in the know,” specialized for specific rivers and fish, but he had no way to inform the public.

At this time, Google introduced the innovative advertising system, ‘AdWords.’ Google’s thinking was different. “Why should everyone see the same ad? Let’s show ads that are most relevant to each individual, just like search results.”

Instead of selling ad space wholesale, Google started selling “keywords” – the “tails.” Mr. Kim no longer had to compete with ‘Nike.’ Instead, he placed his ad on the very specific keyword ‘Handmade Worm for Pyeongchang River Sockeye Salmon Fishing.’ While the number of people searching for this term might be small, they were highly qualified customers, almost certain to buy Mr. Kim’s lures.

The advertising cost was mere tens or hundreds of won per click. Countless “Mr. Kims” began placing ads on millions of “tail keywords” related to their products. These small ads, which large corporations wouldn’t even glance at, such as ‘Handmade Cake Shop in Hongdae’ or ‘Dog Food for Allergies,’ accumulated to form a massive mountain that far exceeded the total advertising revenue of large corporations.

This is how Google’s ’tail wins.’ Instead of relying on a few large corporate advertisers (the body), they built the world’s largest advertising empire by enabling countless small business owners (the tails) to advertise in their respective fields. Google gave the “tails” a voice, and those “tails” made Google the world’s strongest company.

Disney: Magic Born from the Brink of Bankruptcy

Walt Disney’s early days were a string of failures. The studio went bankrupt, and even character copyrights were seized. Yet, from those ashes, ‘Mickey Mouse’ was born. And the true “tail” that made Disney an empire was the feature-length animated film ‘Snow White and the Seven Dwarfs,’ which everyone called madness. This single bold bet created the Disney of today.

For decades, Disney maintained its kingdom by focusing on the most popular characters of the time (the body), like ‘Mickey Mouse’ and Elsa from ‘Frozen.’ However, with the emergence of streaming giants like Netflix, a crisis arose. Disney had to launch its own streaming service, ‘Disney+’.

Many expected Disney to compete with new blockbusters from Marvel or the Star Wars series. But Disney’s real secret weapon lay elsewhere. It was the thousands of “forgotten” content pieces – the “tails” – that had been gathering dust in dark warehouses for decades.

From the 1937 ‘Snow White’ to the black-and-white TV shows of the 1960s, the nostalgic cartoon series ‘DuckTales’ from the 90s, and even videos of Disneyland parades that no longer exist. People signed up for Disney+ to watch the latest Marvel movies but were captivated by and enthusiastically embraced the nostalgic content from their childhoods.

One father showed his son ‘Robin Hood,’ which he watched as a child, and an uncle binge-watched over 30 seasons of ‘The Simpsons’ with his nephew. People felt interest from the latest releases (the body) but were drawn in by the vast library of past content (the tails) and maintained their subscriptions.

The power of these “tails” was beyond imagination. Disney analyzed data on what “old content” people enjoyed watching and used it to create new series based on less mainstream characters from the Star Wars universe, like ‘The Mandalorian,’ which became a great success. “Tails” that were just collecting dust in warehouses became geese laying golden eggs.

This is how Disney’s ’tail wins.’ Instead of betting the company’s fate on a few new blockbusters, they are winning the streaming war through the power of their extensive content library, built over nearly 100 years – a formidable “tail.”

Thus, Amazon, Google, and Disney all saw the potential in the “tails” that no one else paid attention to, while everyone else focused only on the “body.” And they proved that those “tails,” when gathered, could become a colossal force that changes the world. This is the grand story of ‘Tails, you win,’ which has transformed the landscape of 21st-century business.

Chapter 4: Korea’s Dilemma - A Society That Cuts Off the Tail

Now, shall we return to our story? Unfortunately, we are trapped in a culture that views failure not as a process but as a “stigma,” and that does not tolerate challenges deviating from a predetermined “model answer.”

1. A ‘Right Answer Society’ That Doesn’t Tolerate Failure: In an atmosphere where failure brands you an “outcast,” who would dare to take a risky challenge with a 1% chance of success?
2. Misunderstanding ‘Fail Fast’: The essence of “fail cheaply, smartly, and learn quickly” is lost, sometimes morphing into irresponsible recklessness: “Just do it first.”
3. The Shadow of ‘Concentration’ and Winner-Take-All: Money and talent flock to only one or two seemingly promising ventures, causing the sprouts of innovative “tails” that could grow in the periphery to wither and die.

When everyone walks the same path, the soil for new 'tails' to grow disappears.

Ultimately, the key is balance. A balance between the strong execution that grows the “body” and the flexibility that allows the “tail” to grow. Everything depends on how we create a system that allows for failure but rigorously learns from it.

Chapter 5: A New Playbook for Korean Innovators

So, what should we do? Here are new game rules to break free from the phobia of failure and create a land of innovation where “tails” can grow freely.

Principles for Leaders and Organizations

• Principle 1: Praise the ‘Process,’ Not the Outcome. We should ask, “What did you learn from the process?” rather than “Why did you fail?”
• Principle 2: Create a ‘Safe Zone’ Where ‘It’s Okay to Fail.’ The best teams share ‘psychological safety.’ The belief that you won’t be blamed for failing fosters innovation.
• Principle 3: Formally Allocate a ‘Failure Budget.’ Like Amazon, set aside a portion of the budget as “innovation experiment” funds to find future “tails.”

Principles for Individuals

• Principle 1: ‘Survival’ is Top Priority. Stay Alive. Since the “tail” can erupt at any time, the most crucial thing is to “survive” without being eliminated from the game until an opportunity arises.
• Principle 2: ‘Diversify’ Your Life. Dedicate 10-20% of your time to learning new things, working on side projects, or meeting people from different fields. Plant various lotteries throughout your life.
• Principle 3: Record Failures as ‘Tuition Fees,’ Not ‘Losses.’ Your experiences of failure will become your unique assets, dramatically increasing the probability of your next success.

Epilogue: Courage Towards the Tail

The world has always been driven by a handful of unpredictable “tail” events. From the printing press, the steam engine, the internet, to the AI revolution. All of these were bold bets by someone who initially seemed crazy.

‘Tails, you win’ is not just a technique for making money. It’s a wisdom for living in an uncertain era, a story about the courage to keep going on your path without being discouraged by countless failures.

Our Korean society stands at a critical crossroads. Will we rest on the formulas for past successes, or will we foster a brave culture that tolerates failure and cultivate great “tails” that will lead the future?

Are you prepared to endure 99 failures? Do you have the patience to persistently survive and capture that one “tail” that will change your entire life?

What shakes the world is not the giant body, but your small yet powerful ’tail.’

References

• Housel, Morgan. The Psychology of Money
• Thiel, Peter A. Zero to One
• Kahneman, Daniel. Thinking, Fast and Slow
• Taleb, Nassim Nicholas. The Black Swan
• Google Re:Work - "Identify dynamics of effective teams"
• CB Insights - "The Top 20 Reasons Startups Fail"