StartUp Founders: Cheat?

Hey Reader,

Game theory is important. Why? A startup is just a series of games to get to the next level, each one unlocking bigger weapons and bigger demons.

It's exactly why some founders love the journey of building more than the exit, they love being in the arena, playing the game.

So the simple question should just be, according to game theory what is the best way to win?

TL;DR The Finite Game is about preventing death (runway, first everything). The Infinite Game is about managing growth (retention, reputation). Learning when to switch is the cheat code.

Cheating of course…. Game theory is unambiguous on this, in any competitive game, the absolute best individual strategy is going to be defection and in some manner breaking the rules. Take what’s not yours. Move before anyone notices. And cheating in this context just has to be defined - it really means transgression, renegade thinking, going against the trend, doing something different. This is not Theranos, cheating in this context is my alarmist word for refusing to follow the default baseline path.

The next best strategy is secret coordination… conspire with a small group, move together, beat everyone playing solo.

Family businesses, old school networks, YC cohorts, (and rigged poker games) know this. They call it ecosystem. All the cohorts in a YC batch use each other, integrate with each other, support each other - they all launch with 12 logos of companies using them, integrate to each other, amplify each other on social. Do you have that?!

Blindly following the default path is broadly the worst strategy. The founder who follows the rules, does everything right, proper channels, fair pricing, polite outreach, waiting their turn loses to the one who doesn’t. Every time.

So that was a quick founder newsletter. In summary. Cheat. Conspire. Transgress. Right?

Nope. That strategy only applies to a finite game. The startup journey is an infinite game made up of thousands of finite battles and the strategies that win battles are not always the ones that win the war. Transgression and renegade thinking does win moments, does get you out of the gate, but is not what actually works long term.

It’s hard to contextualize, but for every early stage startup, every customer you lost, every investor who said no, every engineer who took another offer. You lost. Zero-sum. In that moment, it’s a finite battle and you have to win enough of them to stay in the game. But the game itself doesn’t end. New customers show up. New investors raise new funds. New engineers graduate. The battles are finite. The war is infinite.

Infinite games it turns out reward trust.

So, you have to be a master of both at the same time. And that’s what makes this so hard and so amazing.

When your company might die in 6 months, “there’s room for everyone” is a ridic concept. You likely won’t exist. Runway is finite. One customer matters. One hire matters. One investor matters. One wedge matters. At that stage, aggression, speed, transgression, tactical selfishness, obsession all make sense. Because survival first. That’s the finite game. As you should.

But… The finite game ends. There’s a moment where existence is no longer the question. You know when you the wind is moving in your direction, found PMF, have some good revenue, are actually delivering on the promises you make and at the point you have to switch modes…

The Finite Game is about preventing death (runway, first everything). The Infinite Game is about managing growth (retention, reputation). What got you here, won’t take you there.

Once existence is ish secured, you are still fighting for survival, but a different survival, it’s not first customer, first hire, first investor - and in this phase… Trust compounds. Relationships compound. Ecosystems compound. Reputation compounds. Generosity compounds. That’s the infinite game with it’s own set of rules.

THE ACTUAL STRATEGY

Robert Axelrod ran a famous game theory tournament. Hundreds of strategies competed in repeated games - aggressive ones, passive ones, complex ones, random ones. Here’s what the nerds figured out.

The winner was the simplest strategy in the field: tit-for-tat. Cooperate first. Mirror what the other player does. Punish defection. Forgive quickly. Return to cooperation. Decades of tournaments. Same result. The generous-but-firm player wins the infinite game.

Tit-for-tat doesn’t win because it’s nice, because you are a pushover, because you are fab. It wins because it builds trust efficiently. Cooperate to signal trust. Punish to protect it. Forgive to rebuild it. This is not a generosity strategy, this is a trust enablement strategy because trust is the only currency that compounds in an infinite game.

Which is why I and many others are happy to give way more than we receive, give without any expectation of anything in return. This isn’t generosity, it kinda is, but it is true, I expect zero in return, but it’s also a long term strategy that has proven to pay enormous dividends, if you are willing to kiss a lot of frogs, get burned without regret, and are not sitting waiting to “cash in that favor”.

It’s a paradox. If you expect a return, it’s a transaction (Finite Game). If you expect nothing, it’s reputation (Infinite Game).

You have seen trust show up in so many variations including ones you would consider a conspiracy… But they are just co-ordination.

PayPal mafia. Ruthless to the market. Radically generous to each other. Thiel, Musk, Hoffman all competed brutally externally but the inner circle was backed each other’s companies and helped make each other richer, multiple times over.

Zuckerberg. The movie, the world might call him ruthless but look at his inner circle who stayed for 15+ years. Sandberg stayed because she trusted the person and the mission. The people inside the circle would go to war for each other.

Travis Kalanick (Uber). The world thinks he’s a savage, he is, an absolute monster of a founder, of a competitor, of a strategist. But if you ask the early Uber team they’d all run through walls for him, he built a cult of trust - which is why it survived every crisis that should have killed it.

Build-in-public founders. No network. No inner circle yet. No YC batch. So they earn trust at scale through transparency, through shipping openly, through showing the work. Their audience becomes their circle with the hope that by delivering value publicly, that audience becomes the pipeline to customers, employees, investors, advocates, and introductions.

All different styles of the same game and none of them include the losing strategy of being a lone wolf who trusts no one and lets no one in - maybe for all the right reasons in your head - but ultimately you have no one who would follow you into war. And startups are a war.

THE CATCH

Before you misread this and think it’s about making intros and a playbook of uber-kindness - it’s not. Trust without competence is worthless because trust only compounds when people believe that if they bet on you, something valuable actually happens. Otherwise there’s nothing to send back in your direction.

Which is why, early stage is the finite game strategy, just shut up. Build. Execute. Show competence. Ship the thing. Play it like your life depends on it (because it probably does).

You have to earn the right to play the infinite game by having proof of competence, something real, something you can show, something that makes you / gives you value.

THE TEST

Who would follow you into war? Not fun friends, not supportive circle, who (who has their own competence collateral) would quit their job to join you? Who would put their reputation on the line for you? Who would back you with their own money?

If you have those people, they are worth more than your product, your market, your timing. Trust at that level is the rarest thing in startups because it is so hard to earn.

If you can’t name anyone that’s your problem. Your trust. Go earn it. Build something real. Then build the circle.

FYI. This is why when you interview a senior leader, one of your questions, of someone who has had such a great career, such an impressive resume, is talking the talk… if we offer you a job here, who are you bringing with you… because epic sales people have epic BDRs, SDRs, Pre-Sales, everything who are both competent and would follow their VP of Sales into war.

LFG.

- James