Know When to Hold 'Em

“Son, I’ve made a life, out of readin’ people’s faces
And knowing what their cards were by the way they held their eyes
So if you don’t mind me saying, I can see you’re out of aces
For the taste of your whisky, I’ll give you some advice”

Kenny Rogers, “The Gambler”

Founders ask me for advice. What I have to offer is my experience, and the belief that it’s critical for an entrepreneur to know when to fold and when to double down on their ideas.

The thing early-stage companies require is good judgment. Specifically, the judgment to know which feedback to follow, because feedback will come as quickly as you start engaging with folks outside your own mind.

Kenny Rogers put it better than any business book. In “The Gambler,” an old card player tells a stranger the secret to surviving the table: know when to hold your cards and when to fold them. When to walk away and when to run. And never count your money while you’re still sitting at the table.

This is a make-or-break quality of founders who pull through the valley of death.

First, make the bet

Take a seat at the table and place your bet. Do the work to clearly articulate your vision for the world with and without your company. Validate the idea — its scale, your competitive dynamics, and your unique advantage — before you put your time or money in harm’s way.

Talk to customers. Sell it before you build it. But know what customers can and can’t tell you. They can tell you what hurts. They can’t tell you what’s possible. That part you have to reason out yourself, from first principles, not from consensus.

Don’t be blinded by passion. Let knowledge, experience, and passion together guide the first bet. The best bets sit where you know something the market doesn’t yet believe, and nobody can train for it.

Then commit. A bet has a timeline, a budget, and a number you’ll measure at the end. Say out loud what would make you wrong, what would make you right, and how big that outcome could be. Size matters. A 10 percent shot at a 100x outcome is a great bet. A 70 percent shot at 1.5x is a waste of your life. Most founders fold the first kind and double down on the second. If you can’t say the odds and the payoff, you’ve made a wish, not a bet.

Then listen, but not to everyone

The moment you ship, the feedback starts. All of it arrives with equal volume and unequal value.

The judgment to know what feedback to follow is the most valuable thing a founder has.

Feedback from people who pay you, or who tried the product and walked away, is gold. Polite feedback is noise. Investors tell you what’s fundable, not what’s true.

The gambler says the secret is reading faces. Scar tissue tells you whether advice is credible. But scar tissue can harden. Jaded and pessimistic is a legitimate reason to discount what someone tells you, no matter the resume.

Here’s how I calibrate feedback from an executive or another entrepreneur. Figure out which column they’re in first.

The left column tells you hard truths and still wants you to win. The right column tells you why it can’t be done, describing their own ceiling, not yours. Take facts from both. Take inspiration only from the left.

Then read what people did, not what they said. Usage beats opinion every time.

Know when to fold

Folding is not quitting. It’s declining to put more chips on a hand that won’t improve. The tell: you hit the milestone you set and the number didn’t move. Not “a little, and we have a new theory.” It didn’t move.

Sometimes small losses are more valuable than small wins, because they keep you honest, humble, and hungry. Small wins can give you a false sense of confidence. Contextualize your wins. Is this something I can replicate at scale? Or is it a one-off, driven by the situation? Being honest about that is key.

One honest check before you fold. Did you run the test hard enough for the result to mean anything? A failed test and an unrun test look identical from the outside. Only one of them has earned a fold.

At BitTorrent, we had a sunk cost fallacy. Our early developers were religiously committed to building everything, including the client software, in Python. Our consumer products were technically great but commercially dead. It hurt the founders to hear that, and they were often blinded by religion, laziness, and devotion to the open source heritage. But every month we kept those products alive was a month not spent on what was working.

Staring at a declining balance sheet and hearing excuse after excuse, I finally convinced our board, our inventor, and an outside investor to let us fold our bet on the open source client. Jettison the people who were stubborn. Abandon the code and the legacy product. Follow the users and where the market was going. We bet the entire balance sheet on a C++ client a friend of mine was building outside the company: uTorrent.

Fold fast, fold without drama, deal the next hand.

Know when to double down

The harder call, because the signal is quieter. For me, the issue was that Samba’s early years were a roller coaster. We were shipping product and signing clients and partners, but every day brought a different challenge. The ups and downs made it hard to know if we were on the right track at all.

We had to force ourselves to zoom out and ask a simple question. Were our highs getting higher? And were our lows also higher than the last ones? That’s not easy to see in the heat of the moment. Some of our founders quit because of the volatility and the uncertainty.

When Google released a competing product and even took our product name, a co-founder jumped ship. He didn’t believe we could withstand the competitive pressure. The rest of us decided to stay the course, but pivot out of that particular feature. We held the bet and folded the hand. Google is now one of Samba’s biggest customers.

That’s what doubling down looks like. Not ignoring the noise, but reading the trend line underneath it. If the highs and lows are both climbing, put more chips on the same hand. Go deep before you go wide.

“You got to know when to hold ‘em, know when to fold ‘em
Know when to walk away, know when to run
You never count your money while sittin’ at the table
There will be time enough for counting when the deal is done”

Kenny Rogers, “The Gambler”

Don’t count your money at the table

This lyric is beautiful and poetic. It’s also widely misunderstood. The scoreboard matters. A founder should be extremely objective and data driven, and should know the numbers cold.

What the gambler is warning against is something narrower. For me, it’s about net worth. A founder or startup executive should be careful not to get myopic about calculating their net worth from a private company’s illiquid stock and their ownership percentage. Those numbers move in step functions, not smooth lines. Focus on making the steps big. Create chunks of new value for everyone on the cap table. Grow the share price and the rest works itself out.

I behave like I own enough stock. I like to give generous amounts to the people who are going to help me grow the whole pie. When everyone exhibits an ownership mentality, all of us end up better off through the value we create together.

The judgment is the asset

If pivot-versus-persevere could be reduced to a rule, VCs would have automated it. The judgment is the asset. Not the deck, not the code, not even the team. Keep most bets small enough to survive being wrong, so you get the reps. But know that some things can only be learned by going all in, and part of the judgment is knowing which kind of hand you’re holding.

Make your bet. Read the table. Know when to fold, and know when to double down. The rest is just cards. So don’t forget to smile and enjoy the game.