Fold often before going “all in”

Posted on May 13, 2010. Filed under: startups, Uncategorized, venture capital |

Jon Steinberg wrote a post this morning exploring some of the parallels between business thinking and poker strategy.  Much of his thinking focussed around changes in probability resultant from environmental (the flop) as opposed to operational (the player’s decision making) occurrence.  His post reminded me of something I wrote nearly a year ago, in the midst of some very hairy career planning post Untitled Partners.  In the height of macro decline, I found myself parsing through opportunities to work in VC, start a new company, etc… my approach, which is fairly unconventional during times of career transition, was to exercise extreme patience. My theory then, which is consistent with the career advice I give almost everyone who asks for it now, was as follows:

By definition, in our careers, we only get to make 5 or 6 “5 year decisions” in our lives.  When faced with the prospect of unemployment, I think most people make these 5 year decisions around future direction quickly, in the midst of bias and incomplete data, in a sort of flight from uncertainty.  In reality, much like in a game of poker, I believe the correct strategy is to let a ton of hands go by, watch the game, watch the players, wait for Aces, and then push your entire stack into the middle.

Below is a fairly unstructured account from the depths of a very intense poker game I was playing in late spring of last year:

Business and Poker 7/22/09

In my life I have won and lost surprising sums of money at the poker table.  I don’t really play any more, mostly because I don’t have time, but when I did, there were 3 factors that affected my success, two of which were relatively constant and one of which was variable.  My skill was relatively constant…I suppose with volume of hands played, pattern recognition and probabilistic intuition improved, but I was generally equally capable of winning every time I sat down at a table.  Second constant was luck (or probability depending on how you want to look at it).  With a large enough sample, good hands are evenly distributed across time played, hands that should win do win, etc…but in a small sample size, or an individual session as the case may be, these odds don’t always hold true…I recently heard some professional poker players refer to this concept of occurrence against odds as variance…so I will borrow it.  The third factor, which was not constant, but in my opinion, the greatest predictor of my success or failure was my own patience…It takes tremendous discipline to sit at a table for 8 hours and not play a single hand…but commitment to playing winning hands is what allowed me to win more than I lost…sometimes I would get impatient, especially when I was younger, and played hands I shouldn’t have.  Sometimes I won them, more times I lost them, but I craved opportunity to the point where even a 20% chance of victory was an opportunity to win, not a likelihood to lose…the real money was never won on flyers, or paying to see flush draws…it was won by waiting as long as it took to see winning hands, and maximizing my bets on those winning hands…

The last 3 months of my professional career has felt a lot like one of those 8 hour sessions…the kind where I’ve been tempted by 20% hands, but certain that they aren’t the right ones to play…My friend Andy suggested that maybe I am playing this game too tight…waiting for pocket aces to push my stack in, when Jacks is a really good hand worth playing…I can’t disagree that Jacks win more than they lose…the problem is Jacks aren’t even Jacks anymore.  The rate of change in the venture capital industry, the startup ecosystem, the broader industrial landscape, and the global macro environment is so great that I don’t feel confident relying on Jacks right now…And it’s not just the rate of change, it’s the opacity of change that is commanding my absence from the action…the process of identifying opportunity for me is a combination of understanding the current state of things very well, seeing the direction of change, and determining the likely future state of things…as I try to go through this process, a major hurdle is the quality of data informing my understanding of the current state of things…traditional sources, such as media, academia, and industry thought leaders, don’t really have a clear picture of how there respective areas of focus have settled post meltdown…and the reason?  Because things haven’t settled…still moving targets.  Plenty of people are willing to admit that it’s too hard to see the future right now and how things are going to play out, but I’ve heard very few voices admitting that they don’t really see the present.  A source of this opacity, I believe, is a reaction to loss in consumer (and enterprise) confidence.  Everyone is so focused on affirming the security of their place in the future environment (both to outsiders and themselves), that they cannot stomach an objective present examination and communication of their own business, industry, country, etc…And I get that…there is an element of self-fulfilling prophecy when it comes to uncertain situations such as ours…those who claim to be the winners, gain traction and attention and support, and may become the winners for that reason, but everyone is not well positioned to emerge from this disruption to the context in which they previously existed and operated, and NOBODY has emerged because we are still mid-disruption.

Anyone who tells you they are playing 90% hands right now, likely had a 20-50% hand 18 months ago, that got a lot better when the flop came out “meltdown.”  So I have some guesses as to where we are right now, and where things are going, and who is well positioned for the future…but they are 20-50% hands at best  …and I don’t play 20-50% hands anymore…but shit…how long can someone possibly sit at the table and watch hands go by?  After a certain period of time…your neck gets stiff, your legs and butt begin to cramp…and you need to either make a move or get up and leave the table…normally, I would get up and leave, but then there are these factors that are accelerating my need to play a hand: 1) boredom: I can’t stand not having something interesting to run at, things are getting too academic, not enough action; 2) money: I’m fortunate to have saved up some scratch over the years, so I could do this for a while, but the bank account is steadily declining…3) momentum: momentum in a professional trajectory is not to be taken lightly.  Networks atrophy when not utilized.  Action abstracts into theory, and the energy required to speed up a ball that has decelerated is much greater than the energy required to maintain a ball already in motion at desired pace.

You know a great place to sit around and watch a ton of hands go by without playing any right now? Venture Capital.  Still collecting sweet management fees to eliminate factor #2 (money), no pressure to push the stack in on a hand (in fact LP’s would prefer it if you didn’t), and access to better data on the current state of things.  So what’s the problem?  Seems clear, go work in venture capital until you see a winning hand, and then leave and play it, right? Wrong..[truncated]

P.S. I ended up working with a VC for the summer, watched a bunch of hands go by, used that as a platform to find my “aces” in JumpPost, and only after did my gig with Lerer Ventures emerge…

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4 Responses to “Fold often before going “all in””

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I really appreciate your perspective on the game of life.

What gets me is when the game changes from poker to chess to Go and then to some new game. So many different rule sets to play by. CGJ ~ Chief Game Juggler?

Great insight about 5 year decisions. For me, this really hit home after one such decision didn’t work out as planned and I was faced with the realization that I only have a few more 5 year decisions left and there is no more room for error. In the midst of deciding what to do next being patient is almost the last thing you think of but as you point out incredibly important. I made a move recently (mostly based around factor #2) but with a little more patience I could have let that opportunity pass by since it clearly wasn’t right for me.

Nice comparison to poker.

One thing to note: the 5-6 major decisions are not always independent events. You decision to go “All in” may impact your future options, both opening and closing access to other tables seen and unseen.

Nice post, and certainly you’ve practiced what you’ve preached here. Seems like especially apt advice for the start-up world, where you generally either hit a home run or fail, and picking the right idea or business concept from the get-go is a massive determinent of succes. With other professions or businesses, I think you sometimes have more control over the outcome of your career, so you can play a hand of jacks from a business model or initial opportunity standpoint and mold them into aces for the long term. Maybe that’s just another definition of a hand of aces….

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at (p.s. i don’t use spell check…deal with it)


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