You will often hear the phrase zero-sum game thrown around in boardrooms and casual coffee chats between founders. It sounds intense. It sounds like a battle.
At its core, the concept comes from game theory and economic theory. It describes a specific situation. In a zero-sum game, one person’s gain is exactly equivalent to another person’s loss. The net change in wealth or benefit is zero.
Think of poker. If you win five hundred dollars in a pot, that money came directly from the other players at the table. No wealth was created during the hand. It simply moved from one stack of chips to another. The total amount of money on the table remained constant.
This is a critical concept for entrepreneurs to grasp. It helps you decide where to focus your energy.
The Mechanics of the Game
#In a zero-sum environment, the available resources are fixed. There is a limited pie. If you want a bigger slice, someone else must take a smaller slice. There is no other way to grow.
This creates a strictly competitive environment. Cooperation is mathematically irrational in a true zero-sum game because helping someone else directly hurts your position.
Business is rarely a pure zero-sum game. However, specific aspects of building a company can mimic these mechanics.
Comparison: Zero-Sum vs. Positive-Sum
#The opposite of a zero-sum game is a non-zero-sum or positive-sum game. This is where the total value of the system increases.
Startups generally aim to be positive-sum. When you build a new software product that saves people time, you are creating value that did not exist before. You get paid, and the customer gets efficiency. Both sides win. The pie gets bigger.
If you operate with a zero-sum mindset in a positive-sum environment, you will fail. You will be too focused on hoarding resources rather than creating new ones. You might view competitors as mortal enemies rather than potential partners or valid alternatives in a growing market.
Scenarios Where Zero-Sum Applies
#While the macro view of a startup is positive-sum, you will face micro-scenarios that are zero-sum.
Equity Negotiation When you are splitting up the initial equity among co-founders, there is only 100 percent of the company to go around. If you take 60 percent, there is only 40 percent left for everyone else. This is a fixed resource at that specific moment in time.
Hiring Top Talent If there is one specific engineer that three companies are trying to hire, only one company can get them. The company that hires the talent gains that asset, and the other two lose out on that specific opportunity.
Commoditized Markets If you enter a stagnant market where there is no innovation and no new customers, you are fighting for market share. For you to gain a customer, you have to take them from a competitor. This is a war of attrition.
Questions for the Founder
#It is worth asking yourself a few questions as you look at your business model and your culture.
Are you treating your internal culture like a zero-sum game? If an employee gets a promotion, do their peers feel like they lost status?
Are you entering a market where you have to destroy a competitor to survive, or can you coexist?
Recognizing the game you are playing allows you to adjust your strategy. If you find yourself in a zero-sum trap, the best move is often to change the game entirely.