Join us next week for our final Entrepreneurship 101 session. Hear tips on how to build and deliver an effective pitch that will help you find financing for your venture and sell products to your customers.
Those who know me know that I love to play poker. There was a time that I actually thought of quitting my job and playing full time. That was then and this is now. Since that time, I founded and sold a small business and now have the pleasure of working with amazing entrepreneurs as a VC. While I don’t get to the felt (that’s poker lingo for playing) that often anymore, every time I do it strikes me how many of the skills needed to be a great poker player are the same skills as needed to be a successful entrepreneur (or VC for that matter!).
Your play in a poker tournament should first and foremost depend on your chip count. Losing track of that chip count and not adjusting your playing strategy accordingly can be catastrophic. The same can be said about running your startup. The single most important question I expect every CEO I work with to be able to answer at any given time is, “how much cash do you have and when does it run out?” Cash forecasts and the availability of financing should be one of the most important drivers of your growth strategy. No different than at the poker table.
The most important thing to do once you sit down at a poker table is to assess your competition. When sitting down at a new table, I’ll typically play fairly conservatively for the first 30 minutes until I feel like I have a good sense of the other players around the table—their strengths, weaknesses, habits and tendencies. Some call it being able to “read another player.” I just call it understanding how they tend to play. Starting a business is no different. If you don’t have a great understanding of your competitive landscape, you are basically wasting your time and money. One of the first things I look for when sitting in on a pitch is whether or not the team has a good understanding of the competitive environment.
Yes, poker players bluff (although good ones don’t bluff as much as you would think, based on what you see on TV). There are very specific times in which it makes sense to bluff and pretend like you have a good hand when really you have junk.
When starting a business or a new product line, there are many times when it is okay to bluff and “fake it.” It can be a great way to prove whether or not your idea has product market fit. Why spend months building something before you know whether people will pay for it? Instead, fake it. Pretend you have the product and do unscalable things in the background to provide the service you are promising. Once you are sure that your idea solves a pain and people are willing to pay you for it, then build it.
Bluff from time to time—but don’t do it too often!
The best no-limit poker (that’s when you can bet all your chips) tournament players in the world will work their way through an entire tournament while minimizing the times that they are “all in” risking their chips and tournament lives. One common mistake amateur poker players make is that they think they need to go “all in” in order to execute a bluff. This is simply not the case. Many times you can get the same information by risking much less. This way, if you are wrong, you are still in the tournament!
When running a business, you may be faced with situations where you think you have to risk it all. My advice to you when facing these situations is to step back and really analyze the situation. Ask yourself if there are other ways to get the answer you are looking for without risking the entire business. Maybe it’s as simple as A/B testing your new strategy (e.g., a revised pricing model) before forcing the change throughout the entire business.
If you have watched much poker on TV, you probably won’t believe me when I tell you that the best poker players in the world play less than 15% of the hands they are dealt. Newsflash: Poker can be a very boring game if played properly and it requires an amazing level of patience. Last year when playing in the World Series of Poker, there was a two-hour period where I played only one hand.
Building a business is no different. I have seen amazing ideas and companies go out of business because they scaled before the market was ready. Market timing is so critical when growing a startup. Don’t ignore the signals. You may have an amazing product, but if the market isn’t ready for it, there is no point increasing your sales and marketing spend with no results. Exercise patience and when you see the market shift in your favour (or you finally get good cards and a flop to match!), then you pounce.
Ultimately poker and building a company is about making the best decisions possible with limited, and most of the time, imperfect information. Next time you are “on the felt,” pay attention to your habits and I bet you will find similar habits in how you run your business.
May your businesses thrive and your flops be full!
And search “Entrepreneurship 101” on iTunes U.