8 poker tactics that apply to startup businesses

A definite...read-and-share with your local-direct business client during their startup year. (Dr. Philip Jay)

by Emmanuel Marot, April 1, 2010 VentureBeat.

While the rules of poker are simple and the game itself is quite accessible, success typically requires more skill than luck. There’s a wisdom there that we can take from the game and apply to the startup life of a business.

So if you’re looking to win a big pot, here are a few things to keep in mind:

Calculate the odds – Good poker players calculate two kinds of odds before playing: the Pot Odds (or the ratio of money to put divided by the money to gain – the Pot itself) and Card Odds (the probability to have a winning hand). Anytime the Pot Odds are higher than the Card Odds, the hand is worth playing.
Likewise, you must try to evaluate the odds of your startup’s success: How likely is it to succeed? And how big would the ‘pot’ you’d win be?
Don’t fall in love with your hand – Sometimes, in a game of Texas Hold ‘Em, players imagine they’ll get a monster hand when all they get are promising cards. When the flop, turn and river are revealed, their dreams crash to earth. Novice players tend to stick with their original assumptions and behave as their good fortune is due. Experts cold-bloodedly re-assess the situation.
You had ideas and projects for your startup. But if the outcome isn’t what you had hoped for, it’s time to stop and think about the odds. Sometimes a slight change from your original direction can bring tremendous improvements. Every new card and every new outcome changes the game. Take the time to re-think your assumptions.
Use Probe Bets – Good players sometimes bet money while they know they have very little chance of winning. They push a ‘probe bet’ only to discover what the other players may have, and often fold if they meet resistance.
A small investment is sometimes necessary to validate your business assumptions. Keep in mind the money or effort spend validating your assumptions is never completely lost. Poker and entrepreneurship are both games of knowledge.
The money you’ve already spent is irrelevant – Bad poker players think ‘I’ve already put a lot of money on this hand, I can’t fold now’. Good players don’t care; they make an assessment of the present situation and don’t look back.
It doesn’t matter if you worked three years on your startup project or only two weeks. Your action should only be guided by your forecasted chances of success now.
Figure out which hands you can beat – When you play a hand, it’s crucial to keep in mind what you’re able to beat (as well as what can beat you), and how likely your opponents are to have them, based on their actions.
For startups, it’s less a matter of facing opponents than ‘facing’ (or, rather, winning over) customers. The question becomes: When do you have a winning proposition? And how likely are they to buy it based on their previous actions?
Learn – While you need to move on from money you’ve spent, hang on tightly to your past actions. Good players – both in the poker and startup worlds – are acute observers and devote considerable efforts in understanding the behavior and style of other players. The successes and failures of your past endeavors provide considerable experience. Spend the necessary time to analyze them, understand how customers, investors or competitors reacted, and why.
And never, ever, make the same mistake twice.
Manage your bankroll – If you systematically gamble all you have, you’ll finished ruined, sooner or later. Your talent may delay the outcome, but it won’t prevent it. Alternatively, if you only gamble small amounts, you relinquish opportunities by limiting your gains.
It’s crucial to know the optimum amount (or time investment) you should gamble, whether you’re at a poker table or assessing new opportunities. Examine any advantage you have objectively and size your bet accordingly, as a proportion of your bankroll.
Take meaningful details into account, but no others – Playing a hand isn’t just a matter of the cards you hold. It’s also about the positions of other players, the stack’s size and a million other things. World-class players take those into account, but can learn to disregard the irrelevant details (e.g. your opponent may look like a moron, but you shouldn’t take for granted that he is one).
Take a similarly holistic approach to your business, but consciously discard irrelevant information. And be wary of any feelings. Only make assumptions that can be backed by direct observation.