Avoiding the Downward Spiral
Accepting the past and growing into the present
Writer’s Note: We interrupt your regularly scheduled AI programming to talk about the mental side of the startup game. This is a combination of insights from my own experience in the world of high-stakes poker tournaments and Josh Waitzkin’s wonderful book, “The Art of Learning,” which I reread over the weekend.
It’s a hot day in the Bahamas. There’s eight left in the first big tournament of the year, the PokerStars Caribbean Adventure. $1.5 million dollars to first place. I’m second in chips, but basically even with the chipleader. I’ve ran over the final two tables and can scarcely remember the last time I lost an important pot.
The past six months have been the best of my career so far. I found a new coach that unlocked insights into my game that I’d never had previously. I’m coming off two cashes of over $500k, including the biggest win of my career so far. I’m ranked in the top five in the world and if I win this tournament, I’m likely #1, just three and a half years after I turned pro. The culmination of all my hard work is right in my grasp.
Someone opens middle position with a biggish stack, but smaller than mine. I’m on the button and look down at ace-ten offsuit. A very standard play here is to reraise bluff. It’s generally not a strong enough hand to call and folding is a bit passive. But at least one person in the blinds is shorter stacked which may tighten the opener’s range.
I decide to reraise. I misjudge my chips and accidentally reraise to a larger size than I wanted. The short stack in the blinds comes over the top. I decide to call quickly after the original raiser folds, thinking the pot odds are too good now with my large reraise size. I don’t pause to think about whether that’s actually true given how strong of a hand someone needs to have to come over the top here.
I lose the showdown versus a far superior hand and also lose 20% of my stack.
Middle of the pack now. Lose a big pot vs the chipleader where he flats me on the button with eight-seven offsuit. What the hell is going on?
A few hands later get in AK vs QQ vs a shorter stack. If I just win this hand, I’m back to where I was. Back in control. I tense up as we wait for the dealer to lay out the board.
King on the flop. Joy surges in my heart. I’m back! I’m going to win this tournament. I’m going to be #1.
Queen on the river. Now down half my stack.
Lose more pots.
It’s all a haze.
Blinds go up.
I look down at ace-jack offsuit with seventeen big blinds. I could raise small and see what happens behind me. But I’m reeling and tired of losing pots. What has happened the past forty-five minutes?
Someone has aces behind and that’s it.
How do we avoid the downward spiral that comes from not accepting a new position we find ourselves in? How do we radically face reality and reflect upon the present in a way that allows for clarity of insight?
The first thing is to pause. Assess the reality of the situation on the ground. It doesn't matter what our previous position was. Maybe we were #1 in our playing field. Maybe there was no competition, we had a great team, and we were acquiring customers with ease.
But now, a new competitor just got announced that’s backed by Sequoia. Or OpenAI announces something that seemingly craters our opportunity. A key executive leaves the company.
If we cling to our previous position, the one where we had an advantage, we will subtly make mistakes in our product, our hiring, our marketing. We will want to ignore decisions that subtly account for this new reality, only wanting to make decisions that act as if we’re still in our prior position. Cutting burn, rejiggering the team, or pivoting out of our market will all be anathema as they seem like the acknowledgment of the loss of our previous position.
We don’t need to throw out everything willy-nilly when the situation changes, but we must constantly cultivate deep presence where the reality on the ground is reality for us.
Let's take a harsher example, one that many companies are facing right now. They raised at a valuation in the last two years that now seems like a long way off. They still haven't found product-market fit. It's tempting to cling on to things like runway in the bank, the employees we’ve hired, but most importantly, the attachment to that number.
"My company is worth $XX million” or “My company is a unicorn.”
Consciously or unconsciously, we may have even calculated what that number means to us and our family. It's okay. There's nothing wrong with that.
What we need to do now is let go of that. Everyone knows the "market has reset" but to actually take that into account and to take stock of the business as if that's reality is hard. Public market comps are down 70-80% and multiples have compressed to 5-10x even for best-in-class software cos.
Is that the valuation we’ve reset our internal mark for the company?
Particularly at seed or Series A, there’s likely been no reset on paper. It's tempting to think about "growing into our valuation" if we're at the A or "raising a big up round" if we're at seed.
Let go of that. It doesn’t matter.
Do we have product-market fit? Do we have the right team in place? What is the present-day reality of the business and market?
I'm convinced that's why there was a mimetic coalescing around 10-15% RIFs in the beginning of the downturn. Not because it made sense for all companies across the board, but it was a simpler way of avoiding the pain of looking at a business deeply and honestly and realizing maybe the right answer was a 30% RIF. Or a 50% RIF. Or maybe even going all the way back down to two cofounders.
It's not the first mistake (raising at too high of a valuation, overhiring, etc.) that kills us. Sometimes it’s not even a mistake but a new entrant onto the playing field or a change in the environment. Regardless, this all can be corrected quite quickly. It's refusing to correct these mistakes that creates danger. Second mistake, third mistake. Suddenly, we're out of money or out of time.
That’s the mistake I made in the PokerStars Caribbean Adventure. I made a bad reraise sizing. Then I compounded that mistake by making a bad call to the all-in shove. Then, instead of pausing and then reassessing my new situation (no longer at the top of the field), I desperately tried to claw my way back to where I was. I played loose, trying to gain chips back quickly. I had a deep emotional attachment to being at the top of the table. I’d spent the last few hours, the last several days, in fact, nurturing that advantage, nurturing, nurturing it. I held that advantage closely to me.
And then it was taken away from me.
I should’ve paused, taken a breather, splashed some water on my face or gone for a quick walk. Then come back with a fresh mindset. Let go of where I was and accepted where I am.
That’s how you avoid a chain reaction spiraling into oblivion.
On the investor side, this downward spiral could take many forms. For some, it's being gunshy on investing now. After realizing they invested at way too high of valuations a few years ago, it's a retreat to safety and avoiding anything that doesn't have the words AI in it and/or with founder pedigree to boot. They build a hundred different cases in an Excel model and still can’t get to conviction on a business. This is a downward spiral of another kind. This is a downward spiral of a lack of confidence. This can be terminal for an investor.
We need to shake it off and live to fight another day. Acknowledge our mistakes. Deeply study them. Invest in the loss. Don't sugarcoat them, pretending they weren’t mistakes or we’re excused by the fact that others around us have similarly bad vintages. In order to succeed, we must lose along the way, but learn from the losses.
Watching the recent McGregor documentary, he will deeply sit in the pain of the loss, acknowledge it, even shed some tears. But when he gets back and it’s time to work, he watches the videos of him getting knocked out, analyzing every moment of it. The only way we can achieve greatness is when we use loss or mistakes as a way to improve our game and to learn. The day we stop trying to learn is the day we start losing.
What does this mean practically for us as founders or investors?
We must cultivate deep presence. After a tumultuous shaking like the past two years, that might mean taking a break. Yes, I’m giving you permission to take a break.1 This isn’t a mindless, hedonic break of vacation that assuages pain, but doesn’t unlock creativity.
Go fishing. Go into the woods. Take a trip out on the ocean or lie on the beach. Whatever it is for you that will feel like rest.
Take one week. Cultivate moments of deep presence throughout it. Don’t check your email.
Then come back to work.
You just may find that the complexity that was locking you up for the past few weeks or years has suddenly dissolved. Clear decisions unfold as you cut through difficulty like a hot knife through butter.
We are in the business of knowledge work. Inspiration comes from unlocking creative insights in our brain, not pounding our heads against the wall day-after-day. Breaks from the day-to-day grind create opportunity for our brain to recover and sparks of creativity to flow.
Let go of the past and where you were or what you did. Understand it, sit with it, deeply analyze it. But then let go. And face today. What should I do with my business today? What should I invest in today?
And then go.
The game is waiting for you.
I highly recommend Josh’s book; it helped crystallize into principles so many ideas I understood intuitively from poker, but didn’t see their broad applicability. He’s an inspiration for me in my life. Studying athletes like McGregor, Jordan, Brady, etc. can also be very useful in understanding psychological resilience and the importance of recovery to performance.
Unlocking peak performance is one of my obsessions personally, but also one that I also hope to cultivate in the founders I work with. If you found this article interesting and want to share thoughts or ideas, feel free to reach out at pratyush [at] susaventures [dot] com. I’m always looking to learn and improve my understanding of these principles.
If your investors or team complains about you taking a break, point them to this article or to me directly. I’ll happily explain my thinking!