Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio Carol Master
Speaker 1: along with Ed Ludlow here in our Interactive Brokers studio.
Speaker 1: And I don't know about you, Ed, but I know
Speaker 1: growing up my parents dress not giving up easily, not
Speaker 1: at all. You don't walk away from things. You do
Speaker 1: not quit, do not quit. That was definitely my upbringing.
Speaker 1: And it's me now, you know me. I know you
Speaker 1: keep going headstrong, yes, persevering well, writing about this and
Speaker 1: how learning to quit and walk away may just be
Speaker 1: a really crucial, important life lesson. So let's get to it.
Speaker 1: Form A professional poker player, Annie Duke is with us.
Speaker 1: She's a best selling author of Thinking and Bets. Her
Speaker 1: latest book Quit, The Power of Knowing When to walk Away.
Speaker 1: She joins us via zoom in New York City. She's
Speaker 1: also the co founder of the Alliance for Decision Education
Speaker 1: that's a nonprofit. She's also partnered at first Round Capital,
Speaker 1: a seed stage venture firm targeting tech entrepreneurs. She is
Speaker 1: a very very busy individual. And he's so so good
Speaker 1: to have you with us. How are you? I'm good.
Speaker 1: How are you doing, little cloudy out? You know, we
Speaker 1: need the rain, but it's going to stop at some point. Listen.
Speaker 1: You know, it's been a couple of years since I
Speaker 1: think we talked about your previous book, but you always
Speaker 1: take your experiences as a poker player, you know, what
Speaker 1: you've learned, and then how we can apply it kind
Speaker 1: of to our broader lives. Tell us about the progress
Speaker 1: and how it's culminated in your latest book. Yeah, So,
Speaker 1: I mean, I think there's just a really interesting conversation
Speaker 1: to be had between poker, which is this very high
Speaker 1: stakes decision making under uncertainty exercise, uh, and cognitive science,
Speaker 1: which is thinking about, you know, how do we make decisions? Um,
Speaker 1: And I think that the two disciplines can really inform
Speaker 1: each other. So, you know, the way I started thinking
Speaker 1: about quitting was that realizing that quitting the option to quit,
Speaker 1: that option is so incredibly valuable in poker, because if
Speaker 1: you couldn't fold your hand, it wouldn't really be that
Speaker 1: skillful game, right, and poker players have to really think
Speaker 1: about how to get good at cutting their losses. And actually,
Speaker 1: when you look at the difference between elite players and
Speaker 1: merely Okay. One one of the biggest differences between amateurs
Speaker 1: and experts and poker is how often they fold. When
Speaker 1: you just look at they get their first two card
Speaker 1: combination in a game of Texas hold them Um. Amateurs
Speaker 1: will play, they'll play over fifty of their hands, so
Speaker 1: they're folding less than half the time, whereas experts are
Speaker 1: playing about fifteen. And you were one of the top
Speaker 1: poker players for twenty years, right, and you've written this book,
Speaker 1: and it's hard to get one's head around the strength
Speaker 1: of being able to walk away, to stop, to quit.
Speaker 1: Talk me through the psychology of that. Yeah, So here's
Speaker 1: the thing. Whenever we make a decision, we don't have
Speaker 1: all the facts, and luck is going to influence the outcome.
Speaker 1: So I'm sure you've had that feeling, d of Oh,
Speaker 1: I wish I knew then what I know now. I
Speaker 1: might have made a daily basis of course, right. I mean,
Speaker 1: look at what's happening with the market, right like you're
Speaker 1: you're finding out information very rapidly every single day. So
Speaker 1: this is where the option to equip becomes so valuable
Speaker 1: because it allows us to start things even though we
Speaker 1: don't have all the facts that we know very little,
Speaker 1: because we know theoretically that when we find out new information,
Speaker 1: we can actually change our minds and we can change course.
Speaker 1: The problem for us as decision makers, though, is that
Speaker 1: that decision is itself made under uncertainty. Right, So, like
Speaker 1: I got to cool you out on that though, because
Speaker 1: you are also a venture capitalists and this is what
Speaker 1: fascinates me. You're a seed stage venture capitalist, right. You
Speaker 1: invest in many companies, not all of them are going
Speaker 1: to be successful. So when did you have a founder
Speaker 1: sitting in front of you one of a hundred meetings
Speaker 1: you've taken that quarter of that year, how do you say, right,
Speaker 1: I have to say no, I have to walk away
Speaker 1: from this potential opportunity. So you have to be thinking
Speaker 1: really struct in a structured way about the decision. So
Speaker 1: essentially you're taking all of your experience and you are
Speaker 1: thinking about what are the signals that I see that
Speaker 1: tell me that an investment is worthwhile? You know, given
Speaker 1: the constraints of like how much capital do you have?
Speaker 1: What what do you want your portfolio construction to look like?
Speaker 1: And then you have to systematize that. So as an example,
Speaker 1: let's just say broadly, this isn't This is not nearly
Speaker 1: as complex as as you would actually approach the decision.
Speaker 1: So let's simplify it. Let's say that you know at
Speaker 1: seed what you care really care about. What's the quality
Speaker 1: of the market, Uh, what's the quality of the product?
Speaker 1: You know, do you think it's a good product, do
Speaker 1: you think it's going to achieve product market fit? So
Speaker 1: and so forth. What's the quality of the founder, what's
Speaker 1: the quality of the team. You have to be systematic
Speaker 1: and in making very clear and precise ratings of those
Speaker 1: things every time a founder comes into pitch. And then
Speaker 1: you also have to be thinking ahead, right like you
Speaker 1: have to make forecasts that are also very precise about
Speaker 1: what's the probability will fund at successfully funded Series A
Speaker 1: or Series B. And by doing that, what it allows
Speaker 1: you to do, first of all, is to overcome some bias,
Speaker 1: because it's harder to tell yourself a story or to
Speaker 1: ignore certain information that's a negative signal or ignore certain
Speaker 1: information that's a positive signal, because you're you're thinking about
Speaker 1: the exact same things each time, and you're creating a
Speaker 1: record that then allows you, as you see how those
Speaker 1: companies do, to go back and check on them and
Speaker 1: say what was I thinking at the time, and like,
Speaker 1: how were my forecasts? You got less? Indeed, Kenny Rogers
Speaker 1: for you. But yes, you need to know when to
Speaker 1: fold them. And that's what we're talking about with Annie Duke,
Speaker 1: former professional poker player, longtime professional poker player who did
Speaker 1: so well. Best selling author of many books, her latest
Speaker 1: one Quit, The Power of Knowing When to Walk Away,
Speaker 1: still with us via zoom in New York City. We
Speaker 1: mentioned too. She's the co founder of the Alliance for
Speaker 1: Decision Education, and nonprofit with the mission of empowering students
Speaker 1: through decision skills education. She's also a partner at first
Speaker 1: Round Capital, a seed stage venture firm targeting tech entrepreneurs. UM.
Speaker 1: You know, I was looking at your book and you do.
Speaker 1: You're right, you know, we need to redefine what failed
Speaker 1: and wasted means. You know, when we worry so much
Speaker 1: about quitting UM, and that quitting means that we failed,
Speaker 1: what exactly are we failing at? If you quit something
Speaker 1: that's no longer worth pursuing, that's not a failure of
Speaker 1: that's a success. Talk about Anie turning it upside down. Yeah, okay,
Speaker 1: So the problem, Carol is that we tend to think
Speaker 1: about waste as a backward looking problem. Right, So we're worried,
Speaker 1: like if we are in a job and it doesn't
Speaker 1: work out and we have to quit and walk away,
Speaker 1: that we'll have wasted our time in it. If we
Speaker 1: buy a stock at fifty and is trading at forty,
Speaker 1: were loath to sell it for fear that we can't
Speaker 1: get our money back. So these have to do with
Speaker 1: like resources that we've already sunk into this, and this
Speaker 1: is part of the sunk cost fallacy. Um. Resources that
Speaker 1: we've already sunk into something prevents us from walking away
Speaker 1: because that's the moment that you go from failing to
Speaker 1: having failed. That's the moment you go from having a
Speaker 1: ten dollar lost on the books to having a realized
Speaker 1: ten dollar loss or a sure loss of ten dollars.
Speaker 1: And the problem with that backward looking um perspective is
Speaker 1: that it causes you to put more time, effort, and
Speaker 1: money into something that isn't worthwhile. So the idea is like, look,
Speaker 1: if there's a stock that's trading at forty and you
Speaker 1: wouldn't buy it today, then the fact that you bought
Speaker 1: it at fifty shouldn't matter. You shouldn't hold it because
Speaker 1: holding is the same as buying. You should sell it,
Speaker 1: but we don't do that because we want to get
Speaker 1: our money back and that's huge opportunity costs because we
Speaker 1: should be taking those that forty dollars and putting it
Speaker 1: into something that is worthwhile. So how do you think
Speaker 1: about it when you know we spend so much time
Speaker 1: and talking and I know Ed talked attle bit about
Speaker 1: this in terms of the tech universe. You know, entrepreneurs,
Speaker 1: you create these companies that become vehemous in the tech
Speaker 1: space and then maybe have to pivot. And you do wonder,
Speaker 1: like I think, as you're talking about Facebook meta metaverse,
Speaker 1: like this is something that may take years to play out.
Speaker 1: It's who knows whether it will be a really art
Speaker 1: decision or not. But you do wonder about somebody like
Speaker 1: a Mark Zuckerberg so identified with this company so entrenched,
Speaker 1: is it possible that he won't know maybe when to
Speaker 1: walk away from something that could ultimately pan out to
Speaker 1: be nothing. Yeah. So I mean, look, the thing is
Speaker 1: obviously that the more uncertainty there is, the harder it
Speaker 1: is to figure out that you're supposed to quit, and
Speaker 1: more importantly, the easier it is to rationalize that you
Speaker 1: should keep going. So when there's lots of uncertainty, like
Speaker 1: you know in the startup world, it's easy to say
Speaker 1: it's just around the corner, like next quarters, when I'm
Speaker 1: going to start acquiring customers, I'm going to start accruing
Speaker 1: net new a r R that's going to show me
Speaker 1: that I'm successful. So where I go with that is
Speaker 1: Ron Conway, with the founder of s v angel Um.
Speaker 1: I think really has the right tactic here, and he's
Speaker 1: probably one of them. I think he might be the
Speaker 1: most successful. I think he is the most successful angel
Speaker 1: investor ever. So he's dealing with this problem of you know,
Speaker 1: when do you grit it out even though things look
Speaker 1: like they're going bad, and when you actually quit. And
Speaker 1: he demonstrates this thing like you've got to get people
Speaker 1: to help you with the decision, because he, as someone
Speaker 1: who has invested in company after company after company, has
Speaker 1: a better perspective than the founders who are actually in
Speaker 1: the decision. So he'll go to them and he'll say, look,
Speaker 1: I don't think things are going that well. They'll say, oh,
Speaker 1: I can turn it around, which is what they you know, naturally,
Speaker 1: they believe these are gritty people who are brilliant, who
Speaker 1: believe in what they're doing, and he'll agree with them,
Speaker 1: and he'll say, yeah, okay, I agree that you can
Speaker 1: turn it around. So how long, like, how long can
Speaker 1: you keep going like this? Let's say they agree a
Speaker 1: quarter and then they set benchmarks for the end of
Speaker 1: that quarter. So it's about being clear because otherwise you
Speaker 1: can rationalize it away. Right, So if you say clearly
Speaker 1: that we have to generate two thousand and net new
Speaker 1: a R in the next quarter, then um, if you
Speaker 1: fall short of that, you have to have a conversation
Speaker 1: about walking away, because you've agreed about what it is
Speaker 1: that shows you that you're on your path, because otherwise
Speaker 1: you can just stay on that treadmill. I know I
Speaker 1: can turn it around, and then you have the conversation
Speaker 1: in three months and you know you can turn it
Speaker 1: around again, and then all of a sudden you're out
Speaker 1: of money. And the problem is that if you knew
Speaker 1: it a year before, that's a year that you, as
Speaker 1: a brilliant human being, cannot be spending on another idea
Speaker 1: that might actually change the world. So this is the
Speaker 1: kill criteria. Is that correct? Yes? That is kill criteria
Speaker 1: is thinking in advance about what are the signals that
Speaker 1: I might see that things are going poorly? And obviously
Speaker 1: the flip side is what are the signals that I
Speaker 1: might see that things are going well? And it turns
Speaker 1: out that we're just way more rational when we're thinking
Speaker 1: ahead than when we're actually in the moment. So if
Speaker 1: we can think ahead, which is what wrong Conway is
Speaker 1: getting his founders to do, that can get us to
Speaker 1: that decision in a more rational way. And, as he says,
Speaker 1: life's too short not to do that, because if you're so,
Speaker 1: founders are brilliant, right, they're gritty. We want them working
Speaker 1: on the best problems that they can be working on.
Speaker 1: So if they find out that the thing that they're
Speaker 1: working on isn't worthwhile, we want them switching as quickly
Speaker 1: as possible to something that is going to change the world.
Speaker 1: It's really kind of funny in a week that we've
Speaker 1: been spending so much time talking about elon us on
Speaker 1: Twitter and announcing the deal. Kind of a second, it's
Speaker 1: it's just kind of staggering. Hey, we have about a
Speaker 1: minute left. Was there a real life lesson that you
Speaker 1: learned and where you didn't quit when you should have? Oh,
Speaker 1: my gosh. Absolutely so. I think I, like most people,
Speaker 1: have stuck to things too long. And that's true, whether
Speaker 1: it's uh, you know, playing sports with an injury. I
Speaker 1: think that I probably I should have quit poker earlier.
Speaker 1: I wasn't happy. And the other thing was that the
Speaker 1: game was changing in a way where players were getting better,
Speaker 1: way better than me, and I honestly at that point
Speaker 1: in my career didn't want to put in the time
Speaker 1: to keep up and um, and so I think I
Speaker 1: took too long to get to that decision. And I
Speaker 1: think part of the reason why, and this is a
Speaker 1: really important lesson is that when you're when your identity
Speaker 1: is wrapped up in it. I was a poker player,
Speaker 1: I think it becomes very very hard to walk away.
Speaker 1: And we need to be thinking about that in these
Speaker 1: types of decision agents. Is is it because you know,
Speaker 1: am I happy? Or is it because I feel like
Speaker 1: it's kind of who I am? Yeah? I know that's
Speaker 1: a really good point. I'm thinking about Tom Brady, just
Speaker 1: Al Bunch in this week you know. Yeah, sorry, okay, okay, listen, Annie,
Speaker 1: this has been so much fun. Good luck with the book.
Speaker 1: Come back soon, Annie Duke uh, former professional poker player,
Speaker 1: as we said, author, she's an investor. Her new book
Speaker 1: Quit The Power of Knowing When to walk Away. It
Speaker 1: is out, so check it out. Alright, folks, that's a
Speaker 1: wrap for our hul Bloomberg Business Week team or thanks
Speaker 1: to Ed Ludlow for joining us. I'm Carol Masser. Have
Speaker 1: a great evening.