The MIT Blackjack Team: An Effective Startup Model
by Nicholas Colon

Starting a business is no small or easy task. Hundreds of hours go into making plans and contingencies for those plans. All of this preparation almost always goes out the window as soon as you make your first marketing call. Entrepreneurs are always looking for that magic book or article that will catapult their business to the top echelons of success. I’m confident that no such infallible text exists.

Yet, like all things in business, there are exceptions to rules. The exceptions in this instance come in the form of nuggets of wisdom offered by overtly successful business people. The business section of any book store is filled with how-I-did-it books by a variety of these folks: Donald Trump and Jack Welch come to mind, and now Ed Thorp in his new A Man For All Markets: From Las Vegas To Wall Street, How I Beat The Dealer And The Market.

Counting cards for fun and profit.

For those that don’t know, Ed Thorp is likely the most successful straight money manager in history. The unconfirmed billionaire is also the Godfather of card counting — the first method used to reverse engineer casino games for profit. This method seeded the idea of the MIT Blackjack Team in the early 1990s, events chronicled in the New York Times bestseller Bringing Down the House and the subsequent movie 21.

The MIT teams were managed and funded by two men who used the student body of MIT as a labor pool to find potential, skilled card counters. Sounds pretty easy right? Not so much. But what these two founders had that differs from a traditional start up was that their cost was essentially zero. So you are probably asking yourself, how did they do it? Let me to explain.

Steven Levitt, professor of economics at the University of Chicago and author of the wildly successful book Freakonomics, states that every business, legal or not, starts with a large pool of “worker bees.” As time goes on the swarm thins and stronger bees move up, and infant bees come in to take the place of those who have perished. Eventually, one person emerges as the alpha and to the victor goes the spoils.

Tapping the hive for worker bees.

The startup of the MIT teams focused on not wasting any capital on training people. Oftentimes companies waste thousands of dollars training a person to do a barely adequate job. Not here. The success of the individual leads to success for the organization. This concept often eludes most new companies. A successful aspect of the MIT Blackjack Team startup model is that the worker bees come at no cost to the organization.

A company’s revenue driving principles are most often defined in very broad terms; the details are not important to the general workforce. But the nature of a MIT student, specifically in the STEM programs from where many of the MIT players were tapped, is inquisitiveness. They have a desire to know and understand.

Desire can only take a candidate so far. They have to apply the earned knowledge of the system. First, they apply it in way that has no financial consequences, then in a way that has only minimal financial consequences. Then, when players are competent in executing specific revenue generating techniques, they can move to levels where the profit margins have the potential for exceptional earning power.

Moving from real money to virtual money.

In the world of advantage blackjack play, candidates can learn how to apply a desired system through any number or resources. Once they’re competent in the system they can move on to real money gaming. Before big-time Internet gambling, this required going to a casino and playing for low stakes.

Now players can simply log-on to a website and test their skills. For example, 888casino is an online casino that has real dealers that deal every major casino game in real time. Roulette, Craps and of course Blackjack, are all there for players to play. This real dealer application gives the player a taste of what live play is like.

This testing phase must be tailored to a startup’s industry but the generalized concept is valid for all entrepreneurs. If the company is a money management fund, a virtual portfolio can be established to test the methods to back-test and verify that the methodology was on the correct side of market movements. For management, this is a process for giving a person more and more power and responsibility, once their decisions are proven to be sound.

Applying the lessons.

The key methods demonstrated by the development of the MIT teams are, first, select your employees from large and very talented group of people. Here the cream rises to the top and the talent pool is self-regulating. Next, show your employees where the methodology you will use comes from and allow them to develop their talents. Then, give them opportunities so that they can display their competency for a given task.

What makes these methods so effective is that there is no cost to developing talent in the organization. There is no opportunity cost associated with the learning curve in an organization. And, by negating the talent development cost, a company can spend money on the revenue generating aspects of the organization.