Similarities Between Poker and Business
I’ve been an avid poker player for nearly 10 years now, and it always amazes me how many similarities there are between poker and business.
Many people dismiss poker as a game of luck. Nothing could be further from the truth. Sure, on a given night some people will get luckier than others, but I have yet to meet the poker player who consistently beats the odds just by running well. Over the long run, just as in business, those who are skilled, focused, and knowledgeable will always beat those who are just lucky.
Making Decisions With Limited Information:
In poker, as in business, you always need adapt to the situation using the information you have. Poker is far from an exact science. Hundreds of books have been written on everything from playing styles to pot odds, but underneath all of these complexities lie two fundamental rules:
- Stay in when you are ahead
- Get out when you are way behind.
The secret to winning in both poker and business is find out where you stand as quickly as possible. You can never know for sure, but through disciplined evaluation you can be right more over than not. If you are winning, you should act to maximize your financial upside. On the other hand, if you are beaten, you should play in a way that minimizes your losses.
It is this second rule that separates good poker players from the rest. If you have a winning hand, it’s generally pretty easy to stay in the pot. Where most players tend to lose money is on the hands where they are badly beaten. They hope to “luck out,” but luck is not a sustainable long term strategy. If you are beaten, you’re beaten, and (most of the time) you are not going to catch up.
Business is no different. If a business venture is succeeding, it’s very easy to continue investing time and money – but when people start failing, they often keep throwing good money after bad in an attempt to salvage the situation. This can lead to a dangerous downward spiral. Instead, it’s important to fail fast – if something is not working, you should cut your losses and move on.
Why do we make these bad decisions? Most of the time, it’s because we don’t like to admit we were wrong. It’s never easy to say that we’ve made a mistake, but it’s the first step in getting us back on the right path.
The Importance of Giving Yourself “Outs”
One of the central ideas in poker is the concept of an “out.” Basically, an “out” is a card that will help you improve your hand…when you are currently losing. To win, you have to take some risks (like bluffing for example), and if you’re good, these risks will pay off over time. But sometimes, people will call your bluff, and this is when “giving yourself outs” can help you get lucky and stay in the game.
It’s the same in business – few ventures succeed without at least SOME risk. But in most cases, it’s usually a good idea to hedge your bets a little bit.
It’s not the most romantic idea in the world, but it works. Take Mark Zuckerberg, the founder of Facebook. People think he dropped out of college on a whim, but in reality he waited until he had funding from prominent investors. Moreover, he could have gone back to Harvard any time he wanted to if Facebook didn’t work out.
Zuckerberg was smart enough to start Facebook as an experiment and lucky enough to turn it into a home run. Of course, not everyone gets so lucky. One of my close friends also dropped out of Harvard for a year to start a company that went nowhere. Fortunately, he was able to go back to school, graduate with honors, and get a high-paying corporate job. Not a bad set of “outs” to have!
The Dangers of Going On Tilt:
It’s 3:00 AM in Las Vegas. Six weary poker players have grinding it out for several hours. A big hand starts developing as money goes into the pot really fast. Joe looks at his cards and pushes all of his chips in the middle. Another player calls his bet. The cards are turned over. Joe is ahead, but there are still two more cards to come…
Two minutes later, Joe angrily whips out another thousand dollars to buy more chips. “I can’t believe how badly I run,” he mutters. He’s desperate to recoup his losses.
The next hand begins. Joe doesn’t really have anything strong, but he’s still angry from before. He thinks he can bluff everyone out. After all, he deserves a lucky break after the last bad hand, right?
A few minutes later, Joe is down another thousand dollars.
What happened here? In poker, this is called “going on tilt.” You get unlucky, start feeling angry…and all of a sudden you’re making some very bad choices.
But “going on Tilt” isn’t just limited to poker. It happens all the time in our day to day lives. We have a bad day at work, and then get in a silly fight with our loved ones. We get stuck in traffic and end up getting in a shouting match with another driver. One bad result turns into another, and before we know it, we’re throwing away our valuable time and money.
Here are three ideas to prevent you from going “on tilt”
- Talk to someone you trust and ask them to call you out the next time you’re making a bad choice. It’s a lot easier to turn things around when you hear the concern coming from someone you care about and trust.
- Take a moment to reflect. It’s amazing how a little reflection can help put things in perspective. Think about the big picture.
- Take a break. A lot of poker players will do this after a bad loss. Chances are that they’ll be angry, and they are aware of this. So they won’t even try to fight back immediately. Instead, they’ll regroup and wait until they’re ready to play well again.
Are you a poker player? Have you seen any similarities in business?