Thursday, June 27, 2013

Dutch news and ideas

Dutch BikeI’ve been stuffing things into Pocket as I read in between work assignments and calls.  Things are hectic, but I want to take time to share a few links and ideas. 

I can’t decide whether the busy days or the short nights are wearing me down but I’m looking forward to having a weekend off.  

People say I’m sighing more than usual too: ‘probably becoming a bad habit when I make a mental shift of perspective on a topic rather than any specific critique on the world.

Can the Dutch have too many bicycles?  link.

This one came from the New York Times, highlighted by a photograph of a woman lost in a sea of parked bikes in the garage outside Amsterdam Centraal.

I don’t see bicycles as a big issue. I’ve learned to look both ways crossing bike paths and feel more pushed around by motor scooters.  Finding a slot on the racks and worrying about having one stolen are my biggest concerns.

Nederland moet vooral weer geld leren verdiene. NLink ELink

Tweede KamerMP Jan Vos writes that the Dutch should return to doing  what they do best: Earning Money.  In particular, foster entrepreneurship and creative innovation to find sustainable energy solutions.  His argument is both historical and global and utterly oversimplified.

Historian Daniel Bell writes thoughtfully on the links between economic and political power, and better analyzes the tensions between business and government.  He goes further to suggest a solution: What if democratically elected representatives were chosen from economic rather than geographic blocks?  Imagine a  Tweede Kamer made up of elected representatives of business, labor, social and cultural groups.  Would that promote transparency, eliminate lobbying?

It’s a more intriguing idea than ‘green startups’.

Dutch are leading more sober lives.  NLink ELink

Nederlanders leiden steeds soberder leven,  but not in a good way.  More materialistic, less open, and more interested in violence according to a survey.   The authors attribute it to the effects of financial austerity; I hope that Dutch tolerance and optimism aren’t fleeing the country.

Bill Nye Aims to Change the World.  ELink

NyeNo, not that Bill Nye.  This is Bill Nye The Science Guy, an American engineer and TV-Science geek who turned up on the local late-night comedy show Almost Live in Seattle in the 80’s.  With the kids, we became fond of his knowledge and his shtick.

I hadn’t thought of him in years, but heard the other day that a conservative radio talk show host had excoriated him on the air for his support of climate change.  When contacted, Bill said that “When Rush Limbaugh says I'm not a scientist, I'm charmed”.  It was a classy comment, and made me go back and look up what he’s doing today.  ‘

Good to see feisty optimism lives on, 30 years later.

Tuesday, June 25, 2013

Pot Odds and Portfolio Entrepreneurs

Texas holld emWhat does Texas Hold ‘em teach about entrepreneurship?

Hang in: this will be three definitions, one simple unifying rule, and a big epiphany.

1)  Texas Hold ‘em is a variant of Poker, a card game, in which two cards are dealt face-down to each player and five shared cards are dealt face-up in the middle of the table.  The winner is the one who makes the best 7-card poker hand using their two hidden cards.  It’s a beloved pastime among Wall Street and business strategy folks.

Odds2)  Players can compute the probability of winning in a specific situation by calculating Hand Odds.  Suppose, for example, that you are dealt the 6 and 7 of spades and that the four shared cards dealt so far have two more spades showing.  What is the chance of you getting a flush when the remaining card is dealt?

There are 52 cards in the deck, 13 of each suit.  So, there are 52-6=46 cards unseen, and 13-4=9 spades remaining.  9/46 gives just under a 20% chance that you will complete your flush: you will get your card one time in five.

Do you bet on that?

3)  Before you decide, look at the pot.  What is the size of the pot (say, $60 on the table) vs. the amount that it costs to to have a chance of winning it (a $10 bet)?  The ratio is the Pot Odds: in this case 60/10=6.  So, if you won only one time in six you would make money.

There are, of course, tables for this:

sideB

Now, would you bet?  If you have a one in five chance of getting your card, and only need to win once in every six hands, yes.

The (over)simple, unifying rule:

When hand odds beat pot odds, you bet.

The epiphany:  Portfolio Entrepreneurship

80% of medical device ideas go bust.  So the odds of any single venture succeeding, the hand odds for the startup if you will, are one in five.

But the most you can lose is the money you invest, and the upside return can be tremendous.   So as long as you can stay in the game, and the returns (pot odds) are greater than five times your investment, you will make money in the long run.

I’ve thought a lot about this in the last couple of weeks, since hearing about the general idea on Radiolab.  It explains why 10x or 30x returns are mandatory or investors, and how they can tolerate the majority of businesses failing.   It also addresses a question that I’ve had for some time: is it better to be a serial entrepreneur, with only one business at a time, or a portfolio entrepreneur, running  more than one?Portfolio Entrepreneurship

There is no advantage either way (the odds are the same in either case) if there is independence among the businesses.

But if a prior failure diminishes the chance of finding funding, or confidence in running the second business, then the interaction makes the second more difficult for serial entrepreneurs.

It almost makes more sense to take on several independent businesses at the same time, running them as a portfolio, to get maximum chance of success in the shortest time.

“Non-interacting” is still a key word: there are only so many hours in the day and limited total energy that any one entrepreneur can put in.  Many investors argue that anything less than total focus and commitment greatly diminishes the chances of success.

But with proper partitioning and prioritizing, good partners and delegation, and adequate funding, I think that there are advantages to portfolio entrepreneurship.  The pot odds increase the overall chances for success, independent to hand odds.  And the accelerated learning, synergistic ideas, common networks, and shared services can increase the opportunity and efficiency of the whole.

And this isn’t abstract.  A recent study concludes that portfolio entrepreneurs have more diverse experiences, and more resources than serial or novice entrepreneurs. On average, portfolio entrepreneurs appear to offer more attractive growth prospects than other entrepreneurs.

Investors routinely spread themselves to decrease risk.

Entrepreneurs can spread themselves to improve the odds.