Commanders

Commanders play a different set of games that emphasize optimization, preservation and the avoidance of risk. These games have a common thread that can be summed up in a simple heuristic: Conservation Over Conquest.

Their goal is not to become a winner in the game, since they already are winners by definition, their goal is to keep winning as long as possible. Commanders are therefore focused on defense and downside protection far more than potential upside profits, although they do want to keep growing their pools in incremental ways.

That means being careful and conservative, with a primary emphasis on two different types of games: Expand or Maintain and Protect.

Expand or Maintain

If you want your pool to exist in perpetuity, then you need to invest in both people and assets: people to help manage different subsystems within the pool, and assets that will generate value in the future.

For example, a venture capital fund has to make decisions about what entrepreneurs and companies to invest in. VCs have to deduce, based on information on balance sheets and resumes, whether to allocate their capital or not.

Their primary risk management strategy is diversification, as they are investing mostly in early-stage companies that will mostly fail. As long as one or two companies hit a very big return multiple that catapults a company into a $1 billion dollar "unicorn" valuation, they tolerate those losses.

The same can be said for the institutional investors such as pension funds and endowments, who put their capital into the venture fund for the VC to invest. They need to assess the judgement of each prospective VC in order to ensure they aren't giving capital to someone who will recklessly lose it. Risk management for these players involve long decision times and careful examination of track records that allows the most vetted people to make the cut.

Protect

Commanders are, in most cases, more interested in avoiding big losses than they are in big wins. Their stance is built around optimization and custodial management of their pool, rather than the Contender's rush to build or gain control of one.

This means they not only have to be careful about where they allocate their resources, but they have to be cautious about the people they allow into their orbit. Commanders are careful to screen anyone who so much as sets eyes on their pools, with a strong emphasis on reputation and past performance as their guiding lights.

Decision-making processes for Commanders are almost universally slow as a result. Given the stakes involved, they cannot afford to make a fast, incorrect decision that sends shockwaves through their pool. It's politically important for Commanders to take their time so as well. At a bare minimum, if a decision backfires, they need to have evidence they did what they could to make the right choice.

The old saying, "You'll never get fired for hiring IBM," is straight out of the Commander's protection playbook.

For example, in the world of finance, Commanders exercise caution through strict due diligence processes. When considering an investment, they don't just look at the financials on paper; they examine the company's culture, leadership, and long-term viability. This isn't just about preventing financial loss; it's about ensuring they don't make a misstep that could endanger their position or the pool and its attached ecosystem.

Commanders often employ sophisticated risk management tools. They might use advanced analytics to forecast market trends or hedge their bets through a variety of financial instruments. Their ideal is to reduce risk to as close to zero as possible while staying within the lines of whatever mandates (such as the Prudent Man Rule) they're subject to.

In addition to financial safeguards, Commanders are also acutely aware of the reputational risks. A single misstep can have ripple effects on their entire pool. They invest in public relations and legal teams to not only manage crises but to proactively build a resilient public image. This extends to their personal brand as well; they are often as cautious about their public persona as they are about their business decisions.

Another concern for Commanders is intergenerational strategy, as they often want to pass control of their pool onto family or high-trust partners. Inheriting a pool is a time-honored way to become a Commander, and as such the current generation has to spend considerable amounts of time, energy and money on ensuring whoever comes next is ready.

Risks

Although Commanders dream of a stable, predictable future, their lives are filled with potential landmines. First and foremost, they have Contenders who are willing to take all kinds of desperate measures to make the transition to Commander status. Every Commander knows this and has no choice but to remain vigilant against the intrusions of ambitious Contenders.

This manifests in the fact that Commanders do, in most cases, have an obligation to expand their pools in some way. That means opening up to some degree and deploying money or another resource in order to generate a (conservative) gain. These openings represent opportunities to Contenders, as well as competitor Commanders.

Their slow decision processes and emphasis on reputation can also backfire on them in unexpected ways. The expectation is that, if someone makes it through these arduous filters, they're safe to deal with. That means unscrupulous Contenders who understand what those filters are built out of can manipulate perceptions and exploit Commanders once they're through.

The same can be said for investments. Consider the example of subprime mortgage securities that triggered the Global Financial Crisis (GFC). These securities were sold all over the world to sophisticated investors even though they were filled with risk. The reasons they passed muster were A) they were rated AAA by prestigious ratings agencies, and B) the firms selling them were some of the most well-known and respected names in the financial industry.

Overall, most of the risks Commanders face are built on the strengths of their position. Their more risk-averse, defensive posture ensures they're difficult to reach, but it also creates dangerous situations when someone does manage to reach them. Trust can be built up and then betrayed, with significant consequences.