So, what‘s your strategic approach looking to the horizon beyond the current turmoil for your startup? Among all of the nuggets I’ve heard, one word has jumped out at me: bet. I’ve heard people use the words Reboot, Initiatives, and OKRs – but bet captures the sentiment, the interplay between experiments, unknowns, risk, and outcomes.
The reality is, a startup has more in common with gambling than you may think. There’s a random nature to success – only 20% of startups get to a five year anniversary – but learning how to bet is important when it comes to your venture, as there are things you can do to improve your odds. To quote Nassim Taleb in Black Swan: The strategy for discoverers and entrepreneurs is to rely less on top-down planning and to focus on maximum tinkering and recognising opportunities when they present themselves.
We need to navigate these turbulent times, when it’s hard to imagine an upside, and discover the potential hidden within them. The decisions we make involve luck, uncertainty, risk, and occasional bluff – prominent elements in poker. In both startups and poker, you can’t control the cards, but you can control how you play the game of chance.
A bet can be tactical or strategic. Product decisions are bets. Sales negotiations are bets. Hiring is a bet. In these decisions, we’re betting against all the alternative outcomes that we are not choosing. By calling it a bet, we are admitting that something will happen, and of course, losing is an option. Timeframes matter too, when will we know if the bet has paid off? Placing small bets with a short timeframe enables us to learn information that can clarify the odds for larger bets, and de-risk.
You can make concurrent bets too, but taking too many bets at once can distract. Equally, you can’t win much if you spend all your time at the penny slots – you can’t win big unless you pull up a chair at the high stakes blackjack table. Each time you release an update to your product you’re playing a hand at the startup blackjack table. The combination of funding and your burn rate determines the number of hands you get to play.
The way to maximise your odds is to lose preconceived notions and instead pay close attention to the response to all of your moves. Everything is a test. Every bit of feedback is a signal. You need to look at what’s working and discard what isn’t. When we work backwards from results to figure out why those things happened, we need to avoid cognitive bias traps, cherry-picking data to confirm the narrative we prefer. We will all push square pegs into round holes to convince ourselves at time.
But imagine a startup as a game of poker. During a poker game, a player makes decisions quickly without knowing all of the facts; you don’t know the other players’ cards, you don’t know which cards are going to be turned over next, and you don’t know how the other players at the table will bet or play. Decisions need to be made in every hand in quick succession.
With a poker player’s hat on, we should adopt the betting mindset to determine which scenarios would likely play out in our game of startups. Generally, in every poker hand, thinking about what other players have and what their move could likely be, determines what you will bet and how you will react. Can you do the same for your startup strategy?
Great poker players are thinking not only what their opponents’ next move is, but the four rounds after that. It makes a lot of sense to start looking at your startup decisions and the potential outcomes of those decisions and the effect of each one in the same way. Of course, you end up with competing voices in your head, each saying how they would play it, but information remains hidden and as James Clerk Maxwell, the great physicist said, Thoroughly conscious ignorance is the prelude to every real advance in science.
What good poker players and good decision-makers have in common is their comfort with uncertainty and unpredictable circumstances. They understand that they can never know exactly how something will turn out. They embrace that uncertainty and, instead of trying to sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur.
Simply, the future does not exist. It’s only a range of possibilities. The expected value from any activity is the product of the gains available from doing it right multiplied by the probability of doing it right, minus the potential cost of failing in the attempt multiplied by the probability of failing. Every decision commits us to some course of action that, by definition, eliminates acting on other alternatives. Not placing a bet on something is, itself, a bet.
So let’s adopt the poker player’s mindset, how should we make startup bets?
Acknowledge uncertainty Making better decisions starts with understanding that uncertainty can work a lot of mischief. We are generally discouraged from saying I don’t know or I’m not sure, we regard those expressions as vague, unhelpful, and even evasive. But getting comfortable with I’m not sure is a vital step to better decision making.
We have to make peace with not knowing, I’m not sure is simply a more accurate representation of reality. When we accept that we can’t be sure, we are less likely to fall into the trap of black-and-white thinking. When we move away from holding just two opposing and discrete boxes that decisions can be put in – right or wrong – we move along the continuum between the extremes. Making better decisions stops being about wrong or right but about calibrating the shades of grey.
Open your mind to all possible options The startup world is a pretty random place. If we don’t change our mindset, we’re going to have to deal with being wrong a lot. We become focused on the immediate situation such that we overlook the range of possibilities. This can lead us to make rash decisions or miss opportunities because we don’t recognise them.
There is always a context beyond than we initially thought, filled with more possibilities than we envisioned. With a broader mindset we can counter the discomfort of uncertainty with greater optimism. Rather than focus on digging yourself out of a range of worst-case scenarios, recognise we have options based on upsides too.
Think in terms of probabilities, not binary outcomes Human nature means we spiral into imagining extreme outcomes. But the poker player thinks in probabilities. Stop thinking in binary terms – stranded or not stranded – we create anxiety and not options. When we consider the full range of possible outcomes and assign probabilities to them, we see things differently. This reminds me of French philosopher Michel de Montaigne’s poignant observation: My life has been full of terrible misfortunes, most of which never happened.
Throw the thinking forward Suzy Welch developed a popular tool known as 10–10–10 that has the effect of bringing the future into our in-the-moment decisions. Her 10–10–10 process starts with a question: What are the consequences of each of my options in 10 days ? In 10 weeks ? In 10 months? Proceeding this way reduces the weight of the emotion of the moment and brings more rationality to the decision-making process, considering the outcomes.
Backcasting – work backwards from a positive future When we identify a desired outcome, work backward from there to identify the steps that must occur to reach the goal. That leads to developing strategies to increase the chance this event occurs with a clear focus. Imagining a successful future and backcasting is a useful mental time-travel exercise for identifying what we need to make happen. Working backwards is proved to be a more positive approach when working in a crisis, as we give ourselves the freedom to imagine a favourable result from our bets and achievement of steps along the way.
Pre-mortems give us a balance One approach to achieve success is through positive visualisation outlined above, but the corollary of incorporating negative visualisation is also a useful technique. While backcasting imagines a positive future, a pre-mortem imagines a negative one. It may not feel so good during the process to include this focus on the negative bets, but the balance gives us a contrast to turning a blind eye to negative scenarios.
Less time means less room for making excuses The problem when we have time to plan is that it dilutes the thinking. Our focus needs to be reducing the amount of time we can cheat on our time. Short windows force us to make the most efficient use of our time and make the bets, because there’s no room to make it up later.
Just because we operate in short timelines doesn’t mean we don’t have long term thinking. We zoom out and pick strategy bets, but once the course is set, we zoom all the way back into, OK now what can we do today? A short focus window is about maximising output with zero room for waste. Use bets to make decisions in the here and now. Short windows also force us to set priorities, we’re forced to have a hard discussion about what really matters to us most, which is a very important and cathartic conversation to constantly have.
Balance probabilities with a humanistic approach Painting by numbers doesn’t guarantee a great finished picture. It provides a useful guide but removes creativity. Likewise, in decision making, balance the number-crunching and logic with a humanistic approach – business growth is derived from personal growth and learning too, integrate the two approaches.
Don’t simply execute bets based on what appear to be logical, empirical outcomes, but consider effort, risk taking and perseverance required. Use your emotional intelligence, every outcome is an experience and a chance to share, listen, reflect and learn. Treat outcomes as feedback.
Luck plays a part, like it or not No one has done more thinking regarding the impact of luck on making decisions than Michael Mauboussin. He states that it is reasonable to expect that a different outcome could have occurred. Mauboussin points out There’s a quick and easy way to test whether an activity involves skill: ask whether you can lose on purpose. In games of skill, it’s clear that you can lose intentionally, but when playing roulette or the lottery you can’t lose on purpose.
As the poker player knows, some things are unknown or unknowable. The influence of luck makes it impossible to predict exactly how things will turn out, and all the hidden information makes it even harder.
We need to keep a forward-looking mindset during these turbulent times. We’ll have hunches, insights and intuition about how to approach the post-corona economy for our startup, but going back to normal when normal isn’t waiting for us is going to present some huge challenges.
Much better to put your energy into shaping what ‘a new normal’ could be, a new reality, a new game, a new space. Better to bet on and shape a new future, but not a ‘back to normal’, because normal is not waiting for us. The ‘new normal’ is for creators, makers, innovators, builders. So place your bets.