Poker and Startups: What They Have in Common
Written by Tom Villante, Chairman, CEO & Co-Founder
Have you ever noticed how many entrepreneurs are die-hard poker players? Like so many of their brethren, they’re addicted to the rush; the excitement of chasing down a big win, knowing they can take home the pot or lose it all. If you think about it, this scenario is not all that different from their day job. Being the founder of a start-up company is a roller coaster, some days you’re the big winner, and most days, you are the complete opposite.
In business, and in poker, instincts will only take you so far. As an entrepreneur, and a card player, you must continually weigh every conceivable outcome by analyzing a long list of probabilities, factors and inputs – from the competitive landscape to the fiscal risk and reward.
The reason the world’s best poker players frequently come out on top is because they understand that the best way to minimize the gamble of the game is by taking carefully calculated risks. They don’t go “all-in” simply because they have a gut feeling—they make decisions informed by logic and information. They put emotion on the back burner, glean what they can from the table, and play strategically knowing that rash decisions will take out even the most seasoned vets.
Similarly, entrepreneurs must collect the best information available in order to make calculated decisions – knowing full well that they might not pay off. The successful ones know that the startup game is a huge gamble, and that good homework and sound judgment trumps the thrill of making a huge bet. Winners take calculated risks, losers just take risks.
It’s ironic, I know, yet I came up with the idea for my current business while playing poker. One of the guys at the table was talking about a motorcycle he saw at a flea market. He really wanted to buy it on the spot, but at the time, there were no online payment solutions in place that could accommodate a big-ticket item like that. Like every entrepreneur, that initial problem really got my wheels turning and pretty soon the first pieces of my online payments company, YapStone, began to come together.
That was 16 years ago. Today, YapStone is a leading FinTech company with payment volume expected to exceed $16B this year.
Yes, I took a big gamble in starting a company in an industry that I knew very little about and that is highly regulated. At the time, I had no idea if the market was ready for an online payments company, considering businesses like Stripe and Braintree didn’t even exist at the time. Yet, I did my due diligence, researched many industries, built out a competitive landscape and focused on creating a platform that would solve a real problem in the addressable markets. I believe that YapStone’s success is directly attributable to the calculated risks that we took at that time, based on the best information available.
Here’s a few tips on how to minimize the startup gamble:
Don’t bet the house on the river.
Over the past few years, the media has been obsessed with profiling “unicorn companies” – disruptive tech companies with valuations over a billion dollars. We heard about their sky-high valuations, innovative business models and super cool office space, yet, we rarely heard the whole story about the underlying business. Many of these companies were burning through their cash almost as fast as it was coming in and truth be told, had great potential yet were not on a path to sustained profitability.
As we face the economic conditions shaping 2016, many startups and VC-backed portfolio companies will no longer have “easy” access to capital as VC investments looks to be tightening up in the next few years. The result is that these same companies must start delivering real revenue and profitability as opposed to just growth opportunities. The days of burning through cash in the hopes of finding success are gone. Investors will be more diligent and want to see a business built with real revenue and a clear path to profitability in mind. By focusing on building real businesses, entrepreneurs will have the support they need to substantiate new funding. Simply put, take the risk out of your startup by focusing on building a real business, month over month and quarter over quarter. The ability to grow and deliver the numbers should equate to better access to capital in the short and long term.
Fold if your product does not solve a real problem.
There are some great products and features out there. Very clever ideas. I am always impressed by people’s ingenuity. When I am evaluating a startup company or a product idea, I always ask if the product is solving a real business or consumer problem. For example, I am out with my friends and we shared a nice bottle of wine. I need to get home safe and sound. Uber. Great idea and solved a real problem. I have seen lots of ideas fail because there is not a real, addressable market for it. Next step to minimizing risk is to make sure that a real consumer segment exists for your big product idea. Once you have it identified, then build a company around it.
Go “all in” on your team.
It’s a running inside joke among startup founders that you’re way less discerning about your team when starting out because we were all just so excited just to be hiring somebody to join the company. Trust me and every successful entrepreneur – you are only as good as the team around you.
At YapStone, our hiring process is longer than most because we want to make sure that we get the right people in the right role. I also recommend that founders stay heavily involved with the HR team and committed to the recruiting process. I believe that when I hire someone, I’m investing in them—and I know my risk aversion profile. I make sure to call folks who have worked with them to get an unbiased opinion, not a reference who is clearly friends with the candidate and sure to give a positive review.
Ultimately, you’ll never know about a person until you work with them, but you can minimize the risk by doing your due diligence instead of only acting on instinct.
Check your emotions.
Entrepreneurs are very passionate people and it’s easy to make a decision when you’re riding high or running low. Do yourself a favor—don’t.
Emotional decisions tend to yield undesirable outcomes. Logic takes a backseat, and the risk you’re willing to take may be too much. If you’re hyped up, chances are you need to take time to check your emotions, gather the facts and then make the best decision possible.
The interesting insight is that these tips apply all the time. As your business takes off, grows and matures, you will constantly be making important and strategic decisions. The risk associated with leading a company never goes away. It’s inherent in the game – entrepreneurs must take a risk, go all in at times and be willing to gamble. In my experience, the difference between being lucky or being great, is found in your approach to taking risk. Apply these tips to your own company and you just may find yourself sitting at the final table. It’s not about having “good luck,” it’s about taking the “good risk” – and just as important when to NOT.