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This article was published on September 1, 2012

Are startup founders entrepreneurs or poker players?

Are startup founders entrepreneurs or poker players?
Douglas Merrill
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Douglas Merrill

Douglas Merrill is CEO and founder of ZestFinance, a Los Angeles-based financial services technology company that uses big data to help make Douglas Merrill is CEO and founder of ZestFinance, a Los Angeles-based financial services technology company that uses big data to help make better credit underwriting decisions in order to provide credit alternatives to the underbanked. He was previously CIO and VP of Engineering at Google.

In the U.S., small business (less than 250 employees) makes up nearly half the GDP and accounts for more than half the employment. But with the Great Recession, a number of these small businesses have gone bankrupt. The bets that entrepreneurs put on themselves came up short. But that’s why they are called “bets” — these entrepreneurs are knowingly exposing themselves to risk, and potentially, a great reward. But for many, the reward is less than they had hoped. For every Facebook, there are hundreds of companies that fail, bump along on the bottom of the market, or are acquired for a song and a glass of wine. Drive around Silicon Valley looking for buildings with a blank spot on the wall that used to be a logo. They’re not hard to find.

This leads me to a key question: Are entrepreneurs strategic visionaries or gamblers? Do they have an idea that can change the world? Or are they just folks who don’t happen to live in Las Vegas, and thus are getting their adrenaline fix from economic vagaries instead of cards?

In my opinion, they are a little bit of both. Placing a bet, or starting a business, requires two specific skills to give you a good hand — balancing risk, and creating a culture.

While employees have a substantial bit of their focus on what their boss wants, an entrepreneur tries to predict (a.k.a., guess) what customers will want. And the entrepreneur accepts the risk that they may be wrong.

Balancing the risk, and cost, of being wrong with the value created by being right is the game.  If you risk too much, you are likely to fail. Getting ahead of yourself is a good way to run off the edge of the cliff.  If you don’t push hard enough, a competitor will simply copy what you did correctly and outgrow you — being a “fast follower” is a pretty good business to be in. Winning means betting just enough, and constantly monitoring how much value you have at risk.

The second skill required to be a successful entrepreneur is the ability to build a strong culture. What do you want your company to stand for, how do you want your employees to act, and how will you reward good behavior? This is all about culture. Culture matters in more than just in tech companies — go have a burger at an In-N-Out. Culture is set through modeled behavior and through hiring. A successful entrepreneur realizes that they are being watched every minute of every day. Every person you hire adds to — or damages — that culture. Companies with strong cultures are more resilient to the changes that jar all small companies, and are better able to deal with the conflict that, inevitably, comes with those changes.

Presumably one can be successful without either of these two skills. But having them both surely increases the likelihood of having a winning hand.

Image Credit: maorix

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