Anand Gopal

Earlier this week on Spaces, someone asked me about how poker has informed my view of business risk. In short, profoundly. Poker is a fundamentally defensive game when played at an elite level. A defensive game doesn’t mean you can’t generate huge profits. In fact, poker can yield enormous profits but the way it happens is unintuitive to most. Maximum profits in poker, and other defensive games for that matter, occur when your error rate is less than your opponent’s error rate. So their errors - your errors = your profit. If you minimize your errors, you maximize your potential profit. This simple formula forces you to learn that a lot of the time, the biggest enemy of your success is you. By managing yourself in a predictable, reliable way, you give yourself time for your opponent to self-own themselves. This is true in poker, but it is even more true in business. As an example, suppose you have an R&D budget and you’re trying to build a product. Once you have some initial product market fit, the most important thing to do is to allocate your remaining resources in a thoughtful way. You should have many small bets that extend the product area. If any one of these fail, it won’t be life-threatening and you will have learned something that will reduce your future error rate. These small bets can then ladder into a few medium-sized bets which ultimately lead to a few large bets. In such a process, you’ve not only taken many bets, of various sizes, you’ve also done this over a long quantum of time. In that same time, a less organized competitor will eventually do something wrong/stupid/both. Said differently, you’ve de-risked your error rate in a thoughtful methodical way and have evidence that things are working while giving your competitor enough time to flail and eventually fail. In so many companies that I’ve invested in and companies that I’ve worked for, I’ve seen enormous bets being made too early, and mostly out of ego. These bets are rarely rooted in data and most have eventually been rolled back. The second thing to understand in poker is that when you make many small bets, you can play more hands - and some of these can lead to huge pots. Some of the biggest pots I’ve won have been with 2-2 and 8-6 suited while some of the biggest pots I’ve lost are with A-A! In business, as in poker, you have to make unconventional bets if you want to win huge pots. And the no-brainer bets are rarely big winners and can sometimes come back and sting you. So as an investor, by keeping my bets small I keep my errors small while giving myself a chance to win big by doubling and tripling down at the right time.