Tight Aggressive Entrepreneurship

Sep 02, 2024

Many founders tend to fall at one of two extremes: they overanalyze and never ship anything, or they ship tons of random crap.

The first is more common, the second is better. At least you’re shooting on goal.

But both approaches are far from optimal.

In poker, most world class players play a style known as “tight aggressive”.

They are tight about entering pots, but play aggressive when they do.

That seems like a great strategy for entrepreneurship too.

Carefully choose what you work on, but once you do, pursure the project with intensity.

The issue with the “just ship it” approach is that you waste a ton of energy on stuff that has a near zero percent chance of turning into something meaningful.

Not every brainfart deserves to see the light of day.

You also don’t pursure your bets with intensity if you’re betting on everything all the time.

But there is a risk once you start weighing your bets instead of just focus on shipping.

You might get stuck in analysis paralysis.

It’s a fine line to walk.

But similar to poker, you can at least always do some quick napkin math to see if a bet is worth taking.

EV Maxxing

Write down the odds of success, the potential payoff, the costs.

Then calculate the expected value.

Looking at the expected value decide if this is a bet worth taking.

Let’s do a quick example.

Say I have an idea for a digital product I can sell for $100.

Building the product will take me roughly 40 hours.

Marketing costs to validate it will be $2000 plus 40 hours of my own time.

I value my own time at $100 per hour so the total costs for the project would be $10,000.

I estimate that there’s a 10% chance that the product will be moderately successful (generate ~$1k in profit per month for at least 18 months).

Further I estimate that there’s a 2% chance that the product will be a huge success (generate ~$10k in profit per month for at least 18 months).

The odds of it being a complete failure are 88%.

The expected value (EV) therefore is:

EV = -$10k*0.88 + $18k*0.1 + $180k*0.02 = -$8800 + $1800 + $3600 = -$3400

The expected value is negative! This is a clearly a project I shouldn’t pursue.

If I’m a bit more optimistic and estimate the odds of moderate and huge success at 20% and 5% respectively, the expected value would be:

EV = -$10k*0.75 + $18k*0.2 + $180k*0.05 = -$7500 + $3600 + $9000 = $5100

It’s positive but not by much, at least by entrepreneurial standards.

If I look at the project like this it becomes obvious that I shouldn’t pursue it.

I can easily compare it to alternative projects and see select the most promising one.

It might sound trivially obvious. This only takes 5 minutes. But few founders actually do it.

Founders in “just ship it mode” are afraid that even the tiniest bit of analysis might paralyze them.

Founders in “analysis paralysis mode” are afraid that there always might be a better opportunity around the corner.

The catch is of course that all estimates are of course purely based on gut feeling. This is what makes entrepreneurship so much harder than poker.

But that’s also why the potential payoff is so much higher.

A few useful rules:

Some quick napkin math always helps. To generate $1k in profit I need to sell 13 units of a $100 product, assuming ~75% profit margin. That seems doable but doing it consistently month after month is a challenge. Moreover, who knows if I will get ads to work at a level where I can acquire customers for less than $100 and make a profit at all. 10% odds of success seems reasonable. For $10k, I would need to sell 130 units. These are not repeat buyers so finding 130 new customers every month is a challenge. Here I need two miracles. The ads need to work and they need to scale. So a 2% chance of success seems reasonable.
A good rough estimate for the odds of big wins in business is 2-5%. So if you’re unsure, just use something in that range. Factors that signficantly shif the odds are if you can sell a product to an existint audience you have direct access to or to people in your immediate network. If you’re purely reliant on converting cold traffic the odds are much lower.
Another good rule of thumb is that you can validate new projects quite reliably with a $2k-$5k marketing budget. After spending that much you usually have a good idea if there is any pull from the market.
An MVP for many projects can be built in 2-4 weeks.
You dollarized hourly rate heavily depends on where you are in your journey. If you’re just starting out, $100/hour might not seem too bad. For more experienced founders, hardly anthing below $1k/hour makes sense.
For the potential upside, you can look at revenue numbers of comparable projects. Revenue numbers are often not public but you can get an estimate (depending on industry) by multiplying headcount by the median revenue per employee in that industry. For example, for SaaS companies, you can use $200k/employee. For agencies, you can use $150k/employee.
The total value of a project in any scenario is the money you could sell it for. For SaaS companies, the multiple is often 5-10x revenue. For agencies, it’s often 1-2x revenue.
You will find that a lot of projects have an expected value of around a few thousand dollars. It might make sense to take such a bet if you’re just starting out. But if you’re playing tight aggressive, these are presicely the kind of hands you should fold. The expected value has to be a number that gets you excited. If it’s not, you’re better off searching for a better opportunity.
For many projects your costs will me marginal compared to the potential upside and pretty similar among projects. So to simplify things, you can focus on the potential upside, especially if your goal is to compare multiple projects fast.

This is not an exact science but gives you directionally helpful numbers fast.

Intensity

Now the second key to playing tight aggressive is to pursue your bets with intensity once you’ve made one.

No half-assing. No hedging. No second guessing.

Once you’ve decided that a project is worth doing, you relentlessy pursue it.

You don’t build a shitty MVP, put out a tweet to announce it and call it a day.

Instead, you put in the hours to build the best product you can, you do and pay what’s necessary to get the word out, you hustle to get the first customers.

You don’t stop until it’s obvious you’ve either lost or won.

Yes, losing is always a possibility.

It’s a game of probabilities. You can fold as more information becomes available.

But until then, you play to win.

Now there is of course no right or wrong way of pursuing entrepreneurship.

Just like in poker there are people that win big with an extremely tight style and people that win big with an extremely loose style.

But the vast majority of world class players play tight aggressive.

I’ve oscillated between playing too tight and too loose.

Shipped a bunch of crap without thinking about it.

Stopped shipping waiting for the perfect opportunity.

It’s always hard to recognize this yourself.

But it’s obvious when you see other people play too tight or too loose.