Imagine you came across a genie who offered to play a free coin flipping game with you.

The game is simple. You flip a coin. Heads you win. Tails you lose.

Each time you must bet $100. In fact, to entice you, the genie gives you a free $100 to start.

Consider these two different outcomes.

Outcome 1

You flip the coin. It’s tails. You lose.

The genie says you can play again if you put in your own money. But you start to think maybe it was rigged from the start, that perhaps this genie was just playing with you.

You decide to never play this game again.

Outcome 2

You flip the coin. It’s heads. You win.

Now you have $200. You’re free rolling – so what’s the harm in playing again?

So you bet another $100. And you win again. And again. And again.

Occasionally you lose, but after 100 flips, you realize the coin lands on heads 90% of the time. You’d have to be really unlucky to go broke playing this game.

As it turns out, the same coin was used in both scenarios. Person 1 was just unlucky to be in the 10% of players who got the bad toss the first time around. And he will never figure out how lucrative this opportunity was.

With most things in life, there is a huge advantage to being successful the first time around.

The psychological advantage of knowing success is possible

There is a huge psychological advantage of knowing that success is possible, and that you’re capable of achieving it. And this self-confidence compounds.

Any time you have a bad first experience, you’re very unlikely to try it again. Sometimes you never try it again.

The opposite is also true: when you have a good first experience, you’re very likely to try it again, even if you repeatedly fail at some point later.

A good example is launching a startup. For many people, one failed startup is enough to kill all confidence. But get your first one right, and it doesn’t matter how many more times you fail after – you’re much more willing to pick yourself up and start that next company because you know it’s possible.

The direct byproducts of success compound as well

Sometimes it’s more than just self-confidence that compounds.

Imagine it wasn’t so much a genie flipping coins as it was investing in startups or the stock market.

If you get lucky, you not only get the confidence to do it again, but you have the capital gains to keep doing it. Or perhaps make even larger bets. And also accumulate more learnings in the process.

Conversely, if your first investment flops, you might swear it off forever.

Situations like this happen very frequently in life. Which is why understanding first principles of why something does or doesn’t work is important.

And of course, so is having the resilience to pursue a sample size bigger than 1. Because most of the time we won’t get lucky the first time around.