Small businesses have less capital than larger businesses, so they need better judgement to manage that capital. A string of unlucky outcomes can wipe out a small business more easily than a larger business. We can use the Kelly Criterion to see this in action: When you don’t have a lot of capital, each “bet” takes up a larger fraction of your total capital. When you stake more you can withstand fewer misses. The Kelly Criterion formalises this, and we can use it to show the point with ...
