The Lean Startup Meets Vegas

by Mark Datta

Author’s note: Few things reinforce a concept so well as light parody, so please read my post in this spirit. Credit for the Vegas theme goes to Joris Poort.

I’m sitting on a flight to Vegas, deciding what to write this blog post about – so naturally my mind turns to the parallels between lean start-ups and gambling strategy.

Up and down the Strip, you’ll find gamblers who believe they have the system to make money in Vegas…guaranteed. That’s what Burrell Smith would call a ‘reality distortion field’. As most statisticians will tell you, there is indeed a way to pretty much guarantee a profit – and that’s to be the casino. That’s basically being Google or Facebook, where you run the platform and set the rules of the game.

But let’s consider the more interesting situation of an aspiring professional gambler who lands in Vegas for the first time, with a few thousand bucks in his wallet and a big idea. He’s smart enough to realize that he has no chance to compete in the roulette and slot machine markets, where the platforms dominate and the odds are heavily stacked against him. A film about MIT card counters is fresh in his mind, so he first sets his sights on Blackjack. After researching the attitudes of casinos to this, he decides it’s time to pivot. He plays a reasonable game of poker with his friends, so he settles on Texas Hold-Em is a market better suited to his skills.

He’s in the ramen stage, so he steers clear of the Belaggio and Boulud, settling instead for a dodgy motel and Denny’s. He takes a stroll through the strip’s finest poker rooms, watching the ‘whales’ (aka high-rollers) wager tens of thousands of dollars a hand. After a few hours, he’s still not sure why the best players win so much. Do they have a better statistical engine in their heads? Is it their slick pitch when they bluff the quality of their hand? Or are they just buying success with the a fat wallet?

After some more observation at the tables and watching reruns of Late Night Poker, he has a decent hypothesis on how he can win, and he’s ready to put his MVP poker strategy to the test. Instead of sitting down amidst the glamour of the casino, he heads back to his motel and flips opens his MacBook. The $100 minimum buy-ins on the strip – and even the $25 buy-ins at the less salubrious end of town – would quickly exhaust his meager budget. Instead, he heads to

He starts off at the cheapest room he can find, playing for points rather than cash. He tweaks his strategy as he goes along, and seems to be doing very well. His hypothesis has held out so far. But he realizes that things are very different when cash is at stake, and his ‘customers’ will not part with their money so easily. He works his way up from 10c/20c blinds to $1/$2 blinds, observing how the behavior of his ‘customers’ changes. He is continually A/B testing his strategy, so he’s still losing more than he’s making, but he grows more confident in his strategy – and has playing logs to back up his claim.

He’s down to his last $200, so it’s time to turn to find someone to bankroll him. A friend of his uncle, formerly a professional gambler, offers him a seed investment of $50k, with the winnings split 50-50 up to a cap of $100k.

Now it’s time to hit the casino floor. Soon after sitting down at the tables, he realizes that customers at the low stake tables are different again from the ‘early-adopters’ he encountered online. Before he knows it, he’s down to his last $2k. But crucially, his win statistics are trending upwards, so he’s in reasonable shape for another fundraising effort.

The cycle continues. He iterates his poker strategy. He keeps his win stats trending upwards. He patiently listens to advice from his investors. He crosses the chasm. Soon, he’s earning revenue at the high stake tables from ‘whale’ customers. He’s the hottest player in town – with investors lining up to stake him, slipping a check under his door (now a sizeable suite at the Wynn), and the media clamoring to interview him.

The casinos have also started to take notice. With people queuing up to play against him, there are generous rakes to be taken on each hand. They realize that there’s plenty of upside available if they can tie him exclusively to their casino, and perhaps ramp up his playing hours and playing speed. A bidding war ensues, and the two big platforms bid up to a contract with a very generous one-off signing fee, a split of his winnings and a three-year lock-in. Even after the dilution from his investors, he’s made life-changing money.

And he lives happily ever after.


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