Published in the San Diego Union-Tribune, October 7, 2024
by Neil Senturia
Calling all entrepreneurs. Required reading, “On the Edge: The Art of Risking Everything,” by Nate Silver. Silver was both a professional poker player and the founder of FiveThirtyEight, one of the most famous websites that did predictions of election results.
It is not important to know that a flush beats a straight. What is important is to acknowledge how luck plays an extraordinary role in both business and personal outcomes.
Silver says, “Lucky people constantly encounter chance opportunities.” And lucky people are good at resilience and at “taking on the proper amount of risk.” It is the idea of putting yourself out there — allowing for optionality — open to chance encounters, assume positive intent — all those things, and more, seem to play a role in success.
The key to increasing your expected value is to try to structure optionality into your play, waiting until you can get the maximum information before being forced to commit.
In other words, leave doors open (unless it’s raining).
Silver was once in the top 300 of the Global Poker Index. He describes two worlds — the Riverians and the Villagers. The river folk get their name from the last card that is turned over in the game of Texas Hold ’Em. They are comfortable with “Bayesian prior” and eager to see the next card. The rest of us (the Villagers) are viewed as bit more conformist.While the concept of EV runs deep in poker, it also translates perfectly to the entrepreneur. The entrepreneur is always trying to assess and increase his EV. In other words, what is this bet actually worth measured in cost versus its potential value?
It is risk/reward sautéed in a stew of data science, math and psychology. Bluffing is allowed — and Silver encourages a liberal use of it.
As a CEO, you do not have to speak immediately with booming certainty, demonstrating your grasp of the issues. It is OK to consider. Silver talks about allowing time for the other person to blink. Resist momentum. Stop the clock.
Another way to think about EV is to take the reverse. What’s the worst that can happen, how can I minimize the risk, but if the fan arrives and apparent disaster is imminent, am I going to survive to fight another day? Am I going to go bust out?
How can I be anti-fragile (a concept developed by Nassim Taleb)? Can I live to play another day? My friend Dave Titus calls this strategy simply hanging around, staying alive, going nowhere, companies like this are disparagingly called the walking dead — and then sometimes strange stuff shows up — like COVID-19, and your company just happens to make rubber gloves or ventilators.
My pals and I go out for a boat ride. My partner is sure we have enough gas, I say let’s take the extra can sitting on the dock; we don’t need it, he says. You know how this one ends. We run out of gas in the middle of the ocean and we use the extra that I insisted on bringing to get us home. My question, why would you leave it on the dock in the first place?
Every mother in America with young children knows about “just in case.” That is why when they go to the playground, they have a 12-pound bag of stuff on their shoulder or in the stroller — just in case stuff.
I suggest that entrepreneurs would do well to internalize that thinking. I spend 90% of my time managing risk, the down side, the when do we go broke syndrome, the what if.
Customers are hard to get. Keep them. When you have failed to deliver, confess early. It will defuse any anger. Silver says to offer “self-awareness and humility.” Acknowledge the dilemma with a smile, ask for understanding, do not try to convince me that bug spray will work just as well as bear spray.
Confession leads to forgiveness and understanding. The customer will work with you.
Finally, Silver makes a compelling case that “humans are in general too risk-averse.” Play more hands. Fight the measured, cautious impulse and he thinks you’ll benefit greatly.
Look the demon in the eye. What’s the worst that can happen?
Rule No. 825: You can never be sure.