What lean startuppers can learn from poker players
In startups as in poker, it’s all about knowing when to fold, call or raise. Even if startuppers don’t use these words, the world of poker has a lot to teach us.
There is a great quote by Sam Altman from his first lecture in the How to Start a Startup course:
“The outcome [of a startup] is something like idea x product x execution x team x luck, where luck is a random number between zero and ten thousand. Literally that much.”
So what is it that makes good entrepreneurs? Is it just folks who are luckier than the others? And if not, how do they overcome the immense effect of luck? In the words of Annie Duke’s excellent book Thinking in Bets, it’s all about moving ahead with smart bets. For this, poker can teach us a great deal.
The problem with innovation
When you build a new product or service, you innovate. Innovation is worlds apart from improving on something existing or doing something known: innovation is indeterminate.
When you are improving on an existing product, you are in the determinate world. You know where you are, you know the challenges, and you have some plan on how you should go forward. Your job is to implement that plan.
When building something new however, there is no plan. You may have an intuition about what the world needs, but you don’t know with any sort of precision what will work and what won’t — if you did, you would be a seer and not an innovator.
In fact, as I’ve written before, there is an argument to be made that good startup ideas should look terrible to anyone in the general audience.
That’s what happens in the indeterminate world: you can’t follow a predefined course; you have to constantly adapt to new facts.
Poker as a model for innovation
Poker is a perfect laboratory for the indeterminate world. At each hand, you will be getting new cards. You have no way to know what cards you are going to get, the only thing you know are the statistics: you know how many cards are in the deck, how many of these are aces, and so on. If you have two aces, you can calculate the odds of another player having one or you receiving another one later in the game, but you can’t have any certainty about any of this, and therefore you can’t make a plan: you can only find the option with the highest odds of success.
Yet, in poker like in innovation, while you can get lucky or unlucky with the cards, there are still good and bad players. The difference between them is not what cards they get: good players aren’t magically luckier than bad ones. The difference is how they play their hands.
Good players make more money on good hands
Good players lose less money on bad hands
Over a large number of hands, the good player will prevail — you can get lucky once or twice, but not a thousand times.
The lesson for entrepreneurs
Like poker players get cards, innovators get ideas. Getting only good ideas is not an option, so the best thing a good innovator can do is to make sure to lose as little as possible on bad ideas, and profit as much as possible from the (rare) good ones. In other terms, it’s also about making smart bets.
What does making smart bets mean?
It means knowing when what you are doing is not working, and quitting
It means knowing when what you are doing works, and doubling down on it
It means knowing when you should stay out of the game altogether and go look for another table
There is no way for you to get these answers before you start — again, unless you are a seer. Instead, you will have to be able to adapt along the way and adjust your course.
How to do it
To do that, you first have to give up any idea of a long-term plan: it would be at best useless, and at worst destructive. Instead, you need to be flexible, you need to learn and to adapt. To get there, you need to develop 4 habits:
Measure
Test
Incorporate test results
Track your progress
1. Measure
When innovating, you should understand what you want to change, and how you can measure it. This is a prerequisite, otherwise you will not be able to know whether you are making any progress.
In poker, your measurements are your odds and your returns. Imagine playing without knowing how many cards are in the deck or what the other players have bet?
In innovation, your measurement will depend on what you are trying to achieve. You want to improve the sign-up process to your app? Measure the time users take to do it.
You should always keep a critical view of what you are measuring and how. It is all too easy to focus on a vanity metric and congratulate yourself for increasing it while your core business is going down.
2. Test, test, test, test, test
Once you have a measurement in place, it is time to come up with ideas and test them. Do not operate on hunches or on convictions: whenever you think something can work, test it.
It is almost always possible to come up with cheap tests for your ideas. Interview users, test prototypes, launch trial balloons, do Wizard of Oz testing, and anything else you can to get more data.
3. Incorporate test results
Tests are only useful if you incorporate their results, and this is where many, many people fail. Not incorporating results means sticking with your initial feeling about whatever you have tested. If it was the best idea ever and it tests poorly, you will come up with rationalizations: “I didn’t test it with the right people!”, “They said it’s bad but actually when they see the final product they will love it.”
If you weren’t sure about an idea and the tests are great, you can also rationalize the results away.
Incorporating test results means killing your darlings, and doubling down on what works. If you have a great idea and it doesn’t work, it’s a bad idea, throw it out. If you test a bad idea and it works well, it’s a good idea, iterate on it. You are the master of your ideas: don’t let them control you.
4. Track your progress
Know your KPIs, and track your initiatives by whether or not they affect them. Be ready to be flexible in testing different ideas, going in different directions. Forget about making a long-term plan, use a flexible framework such as OKRs to know at each moment whether you are moving towards your goal. When you learn anything that challenges your initial assumptions, change course.
Wrapping up
When you innovate, always keep in mind that you are wading into the indeterminate world. You are a poker player and not a dam builder: you don’t have a plan, the best thing you can do is know the odds. So make smart bets. Invest little to gain as much knowledge as you can, and move ahead, one step at a time.
Only this way will you be able, through numerous iterations, to reach success.
