9 Comments

Summary:

I can’t play poker, but I do enjoy watching it on TV. We’re in the middle of the 2009 World Series of Poker, an event that draws thousands of professional and amateur players to Las Vegas every year. The grand finale is the Main Event, a […]

poker chips_banspy

I can’t play poker, but I do enjoy watching it on TV. We’re in the middle of the 2009 World Series of Poker, an event that draws thousands of professional and amateur players to Las Vegas every year. The grand finale is the Main Event, a massive Texas Hold ’Em tournament with thousands of players and millions of dollars for the winner.

Tournament poker used to be the province of professionals. But starting a few years ago, a huge wave of amateurs has invaded the game. As a result, of the thousands of entrants into the Main Event, only a few hundred are real pros.

To my surprise, I’ve actually learned a lot about entrepreneurship from watching the World Series of Poker. But it shouldn’t be too surprising. Both rely on acting strategically under conditions of extreme uncertainty. And, in both, small changes in your odds of winning can have a big impact on the final outcome. In fact, I now routinely use the Main Event to help entrepreneurs cope with a frustrating paradox.

Why are some terrible entrepreneurs so successful?

Because the structural barriers to creating a high-tech startup have been lowered dramatically in the past few years, we’re experiencing a huge influx of entrepreneurs. This is a great thing. But it’s meant that there are an awful lot of startup stories floating around. When those stories take on the status of myths, they create tremendous confusion. Naturally, we want to emulate those that have been successful. But that’s not always a good idea.

In the World Series of Poker, no professional has won the Main Event in seven years. When you think about it, this is very surprising. Professional players are so much better than amateurs that they can make a living – in many cases, becoming very very rich – by exploiting the difference between their level of skill and the level of the people they play with. The best of the best win many tournaments each year. By any objective measure, they are much better players than the amateurs. Yet the Main Event has been won year in and year out by a complete unknown player. Some of those amateurs go on to become semi-pro players. But most have never won another tournament after their big win. Why?

The reason is that being a professional player shifts the odds of winning a given poker hand in the professional’s favor, just a little bit. Over the course of a year, a given pro will play thousands of poker hands, and so this shift in probabilities adds up to dramatic winnings. But on any given hand, they still have a significant probability of losing — even if their play is perfect.

Similarly, given enough amateurs in the field, the law of large numbers means that at least some of them will get lucky enough times to outperform even the best pros. That’s why I can say with some certainty that an amateur will win the Main Event this year, even though I have absolutely no idea which of the six thousand entrants it will be.

Entrepreneurship is similar. So much of what makes a startup successful is totally out of our control: the timing of the market, the behavior of competitors, the IPO or M&A window, underlying technology trends and, of course, the human factors of investors, co-founders and employees. Truly successful startup methodologies like customer development or the lean startup can only hope to increase our odds of success — they can’t guarantee it. The converse is also true: even entrepreneurs who do everything wrong sometimes get lucky and make a lot of money anyway. Some even do it repeatedly.

That’s why, for any tactic or strategy — no matter how hare-brained — you can find some “proof” that it works in some company somewhere. That’s what makes processing startup advice so hard. Just because someone has had a success doesn’t necessarily mean they understand why they were successful at all.

Which brings me to the second thing I’ve learned from the WSOP. It’s called a disciplined laydown. In poker, winning requires that your hand beats your opponents hand. The problem is that you don’t know what your opponent has. Amateur players often believe that their success depends on the quality of the cards they are dealt. Consequently, they fold their bad cards and wait for that one big hand to get their chips in with. Unfortunately, having a big hand doesn’t mean you’ll win — your opponent could have an even bigger hand. That’s why the most important skill in poker is not bluffing, counting cards, or computing the odds. It’s figuring out when you need to fold a big, big hand. Watching the pros do this on TV is amazing. Over time, they develop an uncanny instinct for knowing when they are beat, and not throwing more money after bad.

In fact, once you realize that this is the most important skill in poker, it becomes clear that when professional players bet, they are really probing for information. Everything is calculated to help them figure out if their opponent has one of those big hands that might beat them. Folding in those situations saves chips that can be used more profitably later in the tournament.

I think there’s some wisdom here for entrepreneurs, too. We get attached to our big ideas, but it’s those big visions that get us into trouble. Just because we’ve sunk a lot of time and energy into an idea doesn’t necessarily mean it’s a good one. In fact, the main reason we need to get out of the building and validate our ideas is so that we can realize we’re beat before it’s too late and pivot. Once you have that insight, you realize that all of the work we’re doing in building an initial idea — from minimum viable product to split-testing to customer validation — is all designed, like the bets of a poker pro, to promote learning about where we stand.

And that provides another possibility for dealing with startup advice. Instead of making an exhaustive search for all the smartest, most successful people and copying them — learn to place small bets. Take any advice (including mine), and think it through for yourself. Do you understand the underlying principles? Can you see how it applies to your specific context? Can you tease apart the impact of luck? And, once you think you have some advice you might like to follow, try it out. Find a way to pilot it without betting your whole company. And then be prepared to fold if it’s not working. Each time, make sure you do a root cause analysis, and figure out what you learned.

And, if you find advice that seems to work, be ready to go all-in.

Eric Ries is a serial entrepreneur and author of the blog Startup Lessons Learned.

Image courtesy Flickr user banspy

You’re subscribed! If you like, you can update your settings

By Eric Ries

You're subscribed! If you like, you can update your settings

  1. What I Learned About Entrepreneurship From Watching the World Series … – Gigaom.com | Best Texas Holdem Systems Wednesday, November 4, 2009

    [...] Post By Google News Click Here For The Entire Article Best Texas Holdem [...]

  2. id really like to tear into this post but ive written so much about this concept that it would be exhausting.

    poker-business-startup analogies always fail: http://bit.ly/2cq0b6

    you are really hitting on an important point with this paragraph (http://bit.ly/vtyQp)

    Entrepreneurship is similar. So much of what makes a startup successful is totally out of our control: the timing of the market, the behavior of competitors, the IPO or M&A window, underlying technology trends and, of course, the human factors of investors, co-founders and employees. Truly successful startup methodologies like customer development or the lean startup can only hope to increase our odds of success — they can’t guarantee it. The converse is also true: even entrepreneurs who do everything wrong sometimes get lucky and make a lot of money anyway. Some even do it repeatedly.

  3. because im extremely frustrated, im going to contradict myself and have at it.

    >> “no professional has won the Main Event in seven years.”

    yes and no. just because they arent tv pros doesnt mean they arent known in the poker world. some of them arent as random as youd like to think.

    >>Similarly, given enough amateurs in the field, the law of large numbers means that at least some of them will get lucky enough times to outperform even the best pros

    EVERYONE, including pros needs to run extremely well to make it through a field that deep. however, luck can only take you so far. really what you need to focus on is the ratio of amateurs to professionals. its actually a reasonably proportional number when you calculate it.

    >>Entrepreneurship is similar. So much of what makes a startup successful is totally out of our control: the timing of the market, the behavior of competitors, the IPO or M&A window, underlying technology trends and, of course, the human factors of investors, co-founders and employees. Truly successful startup methodologies like customer development or the lean startup can only hope to increase our odds of success — they can’t guarantee it. The converse is also true: even entrepreneurs who do everything wrong sometimes get lucky and make a lot of money anyway. Some even do it repeatedly.

    this is the most important paragraph. i wrote a deep post on this topic (see above comment).

    >> It’s called a disciplined laydown. In poker, winning requires that your hand beats your opponents hand. The problem is that you don’t know what your opponent has.

    yes, you dont know what your opponent has but the rest of this paragraph is misleading. a good player plays his hand against an opponents range of hands. a pro will often play his range against his opponents range. that skews the expected value numbers significantly. given odds, the combination of hands, prior data, position, etc, you would be surprised how accurate you can be. good players are good readers. great players are good readers but have the ability to make their opponents guess wrong. a lot of what you see on tv is very misleading. most of the people are short stacked and the decisions are fairly straight forward.

    >>In fact, once you realize that this is the most important skill in poker, it becomes clear that when professional players bet, they are really probing for information

    again, its not instinct. if you read my post on the emotion economy, youll see that the best players are lucky enough to learn as they go. its a combination of skills and gut. not gut. i flat out think that probing for information is wrong. this only works with the theory of leverage. outside of this, you are mainly playing the style i said above.

  4. What I Learned About Entrepreneurship From Watching the World Series … – Gigaom.com | Texas Holdem Tips Wednesday, November 4, 2009

    [...] Post By Google News Click Here For The Entire Article Best Texas Holdem [...]

  5. “Which brings me to the second thing I’ve learned from the WSOP. It’s called a disciplined laydown. In poker, winning requires that your hand beats your opponents hand. The problem is that you don’t know what your opponent has. Amateur players often believe that their success depends on the quality of the cards they are dealt. Consequently, they fold their bad cards and wait for that one big hand to get their chips in with. Unfortunately, having a big hand doesn’t mean you’ll win — your opponent could have an even bigger hand. That’s why the most important skill in poker is not bluffing, counting cards, or computing the odds. It’s figuring out when you need to fold a big, big hand. Watching the pros do this on TV is amazing. Over time, they develop an uncanny instinct for knowing when they are beat, and not throwing more money after bad.”

    I know you meant well with this post, but you don’t know anything about poker. I think there’s some hidden meta in this post; if you’re going to be an entrepreneur, know the topic you’re talking about and be near the best of your field. Figuring out when you need to fold a big hand is only big in deep cash games, not in tournament play. Calculating equities and knowing when to push all/in or fold preflop, as well as knowing how to play according to your stack and position are the most valuable. Each small edge in every hand makes the difference. Of course, TV poker will tell you different, its marketing an idea, that poker is about big folds. Maybe thats another meta point; what something is hyped to be is not necessarily what it is. Peter Eastgate, winner last year, is probably the best player ever to win the tournament. Skill wise he’s the most sound and in tune with the modern game than any other past winner.

  6. I would like to point out that professional poker players, “in many cases, becoming very very rich” is absurd.

    One reason I quit playing cards was that I looked at the Iveys and Negreanus of the poker world and said to myself “if the top players in this field 1) make 7 figures a year tops and 2) are frequently broke” why the heck would I pursue such a stressful occupation.

    Money-wise the stakes are incomparably higher in business.

    Just one of a million possible comments on poker and business (or life for that matter).

  7. For gosh sakes guys this is an analogy, not a treatise on poker. Analogies can help the rest of us poor slobs, even if we’re not amazing poker theorists like you all.

    For those of us who only play everyone once in a while this is a damn good analogy to make the abstract concepts a bit more concrete and approachable. He shouldn’t need to consult Sklansky to get his point across…..

  8. This is a great analogy… I like to use the analogy of football when I am coaching my clients..I think why this resonates so much with us is.because it connects play with business

  9. Noi Jucam Poker Saturday, January 29, 2011

    is a very interesting point of view. But it is just about strategy and life not only Entrepreneurship.
    sorry about my english.

Comments have been disabled for this post