The Poker-Minded Entrepreneur: Why Thinking in Bets is Key to Success in Emerging Tech.
Over the past 30 years, we founded and funded various startups in emerging tech. This journey has taught us that entrepreneurship isn't a game of chess, where you meticulously plan every move, but rather a high-stakes game of poker. Like a poker player, you're making bets with limited information, and success depends on how well you manage uncertainty.
Embracing Uncertainty
In the world of emerging technology, uncertainty is the only constant. Startups often pitch with flashy projections and "hockey stick" revenue models. However, I've always approached it differently. I've always started with personal funds and focused not on being sure but on understanding how unsure I was. When it comes to your personal savings, you focus on the what-if-we-were-wrong scenarios. We mentally wrote off the initial and future investments, and if that made us feel bad, we re-evaluated the project. This approach gave us the freedom to make the right bets in the early stages. It's about making informed bets, not wild guesses.
The Danger of Beliefs
Our bets are only as good as our beliefs. It's critical to realize that these beliefs are often subject to influence and bias. People naturally believe what they hear, and they tend to twist new information to fit their existing beliefs. This is especially dangerous for entrepreneurs in emerging tech, where excitement and hype can cloud judgment. In 2014, I started a company in augmented reality software and attended many industry conferences, and I learned first-hand how easily one can get caught in an echo chamber of enthusiastic founders. The conferences were full of market research papers predicting exponential growth in the smart glasses sector. However, my experience in manufacturing and logistics led me to test the technology on factory floors, where it was evident that the industrial world wasn't ready for mass adoption. Instead of going all in on the smart glasses hype, we refocused our software towards smartphones, creating a unique selling proposition that ultimately allowed us to survive and thrive. Be open to all information that reduces uncertainty, not just the information that supports your beliefs.
Beware of Pitfalls
Motivated reasoning and self-serving bias are two major dangers that entrepreneurs need to be aware of. Motivated reasoning leads people to evaluate beliefs based on personal desires, while self-serving bias makes them attribute successes to themselves and failures to external factors. Engineers often fall prey to motivated reasoning, creating a product they love and then wondering why the world doesn’t buy it. I assessed my (INTJ) personality profile and it helped me be more aware of these tendencies. Know yourself and be aware of your weak flanks.
Focus on What You Can Control
It's essential to focus on what you can control and let go of what you can't. Many companies burn vast amounts of VC money trying to force a market to emerge. But money can’t make a market appear. Be a cockroach, as I like to say, growing gradually, focusing on revenue and cost control and ensuring financial robustness. Remember, your venture is your sole bet, while VCs are playing multiple tables.
The Power of Diverse Perspectives
Groups can improve the quality of decision-making when they encourage diverse perspectives and prioritize accuracy. A good company board should help a CEO make better decisions. But board politics should be avoided at all cost. For that reason, the board needs to focus on the Mertonian CUDO norms: Communalism, Universalism, Disinterestedness, and Organized Scepticism. Beware of CEOs with no skin in the game as they tend to keep the music playing with inflated promises.
Imagine Regret
To avoid making decisions based on past experiences or current emotions, imagine how you would feel about the decision a year from now. This helps to put things in perspective and make more robust decisions. For example, when a key team member leaves, I imagine how I’ll feel about it in a year, which helps me focus on how to prepare for such a situation in the future.
Conclusion
Ultimately, the poker-minded entrepreneur embraces uncertainty, understands the limitations of their own beliefs, and focuses on making the best possible bets with the information available. By being aware of pitfalls like motivated reasoning and self-serving bias and promoting open, objective discussion, entrepreneurs can navigate the complex world of emerging technology and increase their chances of success.
The Three Angles of Insight in This Blog:
Real-World Entrepreneurship – Lessons from Pete Gambitt’s experiences.
Proven Decision-Making Frameworks – Insights from Thinking in Bets by Annie Duke.
Poker-Inspired Strategy – Key lessons from No-Limit Texas Hold’em.