How to deal with bubbles

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———- Forwarded message ———-
From: Jason Calacanis <jason@18.234.176.227>
Date: Tue, Aug 3, 2010 at 12:29 PM
Subject: How to deal with bubbles
I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.
— Michael Jordan http://jc.is/bI33SE
“Is the internet bubble going to pop? When?”
“Should I sell my company now, or wait and sell it for more next year?”
“Should I raise money now before everything collapses?”
I’m constantly asked these questions. Used to keep me up at night, these questions did.
Now? Well, they’re so burned into my brain that they are instinct.
Young poker players wonder how to play king-nine and eight-five suited before the flop, and first-time entrepreneurs wonder how they should play the markets.
The answer is you probably shouldn’t play either hand–or the market.
Here is what we are going to cover in this email:
1. How I learned the hard way (aka my mixed track record)
2. The truth about bubbles
3. The truth about great companies
4. What to do when the bubbles expands
5. What to do when the bubble pops
6. Closing thoughts: How I learned all this (aka Who I stole this from)
My track record (don’t hate the player)
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Again, I’m going to provide my track record to illustrate that it is not perfect, but probably slightly above average.
Just as there is no such thing as a perfect poker player, there is no such thing as a perfect entrepreneur.
Your goal in life is not perfection, but to be above average consistently.
Poker players who are 2-5% better than the rest of the field are infinitely profitable. Why? Simple, since there is a never-ending stream of players learning the game there is an endless supply of people to dominate (video evidence: http://jc.is/bB3J15 ).
Marc Andreessen, Steve Jobs, Mark Pincus, Mark Cuban and Evan Williams are “winners for all time” not because they don’t fail, but because they win more often than average players.
Said another way, behind every winner is a series of forgotten losses: Jobs had Next, the Cube and Newton. Pincus had Tribe, and Ev had Odeo.
Great players miss a lot of shots, but you remember the ones they hit.
So, I’ve raised money six times for four companies in the past 15 years. Once when the market was flat, two times when the market was hot, and thrice when the market was red hot.
This wasn’t luck, this was practice combined with situational awareness. If you keep practicing you learn when to shot the basket and when to pass the ball. Moving on.
In raising money I’ve employed a very specific strategy, that is based on equal parts timing, what I had and better-than-average salesman. For the record, timing, knowing what you have and salesmanship are critical to success in poker–which is why entrepreneurs are so drawn to the game.
I’ve sold two companies: once when the market was hot, but not red hot, and once when the market was on the floor.
So, I’m batting .500 when it comes to selling companies.
On the surface this would seem like a poor record, but as Mark Cuban told me early on “you only have to be right once.” Mark is one of those guys you can easily dismiss since he “just got lucky”–you know, like six times in a row!
[ <RANT>: don’t you just love the losers in the comments on <insert-any-popular-blog-here> who bash anyone who is successful as getting lucky? I suggest looking at the track record of both the commenters and subjects of the comments in those cases. What you’ll inevitably see is once person who hates their life (and who is living in their parent’s basement), and one person who has swung the bat countless times and connected with the ball often. </End RANT> ]
Two of the four companies I’ve raised money for (Mahalo.com and ThisWeekIn.com) are still in play. Truth be told, they could have both been sold already. That would put my batting average at .750. Why haven’t I sold them? Well, I’ll explain that in sections four and five below.
In those six examples I made the perfect move twice, a decent move four times and a bad move once. People remember me now for my two big moves: selling Weblogs Inc. and raising a ton of money for Mahalo. In five years they will forget those two and remember the next two baskets–and that’s the point isn’t it?
My philosophy: practice constantly, take a lot of good shots and one day you’ll wake up and realize you know how to play the game. Then it’s only a matter of time before you hit a game-winning basket.
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