The game of poker shares many similarities to the game of business. The mechanics are different, but the principles are the same.
If you're not a player, I encourage you to start by joining that casual poker game at the barbecue this weekend. Then work to improve your game. Becoming a better poker player is a fun way to become a better business owner.
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Here are 16 business lessons I've learned from playing poker. (When I refer to “poker,” I’m specifically talking about the No Limit Texas Hold 'Em variation.)
1. A Game of Incomplete Information
Poker is a game of incomplete information. The one who fills in the blanks faster and more accurately wins.
Note that poker is a game of incomplete information, not no information. Good poker players pay attention and catch all the available information being thrown around. They look at the community cards, the actions of the other players, their postures, own chip stack, blind levels, other players’ chip stacks, and everything else that is happening or being said during the game.
Business is also a game of incomplete information. You do your best to analyze your environment, absorb the information available, fill in the blanks, and make a decision. If you consistently make good guesses, your business will be profitable. If you consistently make bad bets, your business goes broke.
To increase the chance that you're making a good call, start every initiative with exhaustive market research.
2. Second Level (and Higher) Analysis
Hand reading skill, or understanding what hand you’re holding, is first level analysis. All poker players start by learning to answer the question "what do I have?" But to consistently win in poker, you have to figure out what the other player is holding. The question you should be asking is "what is the other guy holding?" This is second level analysis.
When making business decisions, don't compare your initiative against what you'd like to see in an ideal world. Compare your initiative against what the competition is holding.
Conversely, if you can't beat your competition even if you muster all your resources (like when you're holding a full house against a four of a kind), then it's better to avoid the effort altogether. It doesn't matter if your shiny new widget does 95% of the competition's and cost $100,000 to develop -- if it's not better than the other guy's it's still the losing hand. Compare your business against the competition, not an arbitrary ladder of awesomeness.
3. Your Stack is Your Life (and Your Arsenal)
Your stack of chips represents your life (for the session or tournament anyway). If you're down to the felt (no more chips), then you get to go home. On the other hand, the more chips you have, the more you can win when you have the monster hand. By the way, not losing chips by folding quickly (see lesson #8) is just as good as winning the same number of chips.
In business, your company's assets -- the people, collective knowledge, equipment, processes, and all the other resources you've accumulated -- are your poker chips. Don’t waste resources on losing projects (protect your stack), so you can maximize the gains from profitable initiatives.
4. Be Tight Aggressive
There are two axes to characterize a poker player’s style: 1. Betting Style: Passive (bad) vs. Aggressive (good) 2. Betting Frequency: Loose (bad) vs. Tight (good)
The best players are tight and aggressive. They don't play in many pots, but when they do play, they initiate the action, making bets and raises instead of just calling. The worst players -- the fish -- are loose and passive. They play a lot of hands, and tend to call instead of betting or raising. The effect of fishy play: slowly losing chips with weak hands while leaving money on the table on strong hands.
Which type of player is your small business? You want to be the tight-aggressive player who enters pots sparingly but leads the action once involved. Selectively choose projects to spend resources on, but once you do pick the worthy projects, go all out.
5. Start with the Goods
One of the joys of poker is that in any given pot, the weaker starting hand can win with luck or audacity (by bluffing). Even a 7-2 (worst starting hand) wins against A-A (best starting hand) nearly 1 out of 8 times. But if your strategy is to keep putting on bad beats, you'll be the first one out of the game. Better to play selectively and start with good hands.
In business, play to your strengths. Don't get into the fray just because all your competitors are doing it. Even if they're all slashing prices to reach bargain shoppers doesn't mean you should do it too. Especially if your strength is providing exceptional value and superior customer service. Play to your strengths, put your best foot forward, to win consistently in business.
6. Bluff Strategically to Maintain Your Image
Bluffing is all about creating an impression. Act strong when you're weak, and act weak when you're strong. Bluffing is an essential part a poker player's arsenal.
But bluffing all the time is a disastrous plan. It’ll work for the first 10 times, but you’ll get your clock cleaned on the 11th. Bluffs work best when no one else wants to contest the pot. (Note that what you’re holding aren’t a consideration for the best time to make a bluff.)
I'm not saying you should be lying all the time. That's a bad long-term strategy. But strategic bluffing here and there, especially when your competition isn't up for a fight, is a good way to gain marketshare.
7. Shift Gears to Keep Them Off Balance
Great poker players are constantly shifting gears. That means they change up their playing style throughout the game. They may play conservatively at the beginning of the night, but will mix in a few aggressive hands to keep opponents off balance.
In poker, you shift gears to: 1. Keep opponents guessing about your strategy and tactics. 2. Take advantage of the situation.
Same thing in business. You want to change up your business "style" in order to keep competitors off balance and to take advantage of immediate opportunities the market offers. Stubbornly sticking to the perfect strategy you worked out 12 months ago, even in the face of a market that's now telling you to do the opposite, is a sure way to go broke.
8. Fold Quickly
Cut your losses faster. Getting sucked into a flop, and maybe the turn and river also, is the fast track for going broke. You need all your chips on hand to maximize on the plays that have the greatest positive expectation.
In business, don’t throw good money after bad. If a marketing campaign, new consultant, or product line is under performing, get out fast and save your cash (and time) for projects with higher ROI. Sound a strategic retreat and save your resources for a better opportunity.
9. Keep Honing Your Instincts
Winning poker players are constantly improving their game. Every bet, raise, call and fold provides information about the player and/or game. Winning players earnestly collect new information, analyze situations, learn from experience, and adjust the plays based on the new knowledge. They constantly strive to plug leaks in their game and maximize opportunities In business, constantly look for ways to maximize opportunities and minimize waste.
• Have a post-mortem after every project. Learn the lessons from the project, so you can be more effective next time.
• Constantly gather information. Read all the industry literature (like magazines, blogs, email newsletters) you can get your hands on.
• Attend industry conferences.
• Ask for criticism from trusted advisors, employees, and even customers.
What are other ways you hone your business instincts?
10. Don’t Tap the Glass
Don’t antagonize the fish who make a bad beat on you. They were behind, they should have lost, but a fluke river card saves them. They think they’re the best player in the world. You know otherwise. You tell them as much in no uncertain terms using words that are unprintable (even on the Internet).
Letting loose on a competitor because they got lucky and bad beat you feels good for a moment, but has negative expectation in the long run (ie., you end up losing more money). Why?
1. Makes the fish aware of their mistakes. When you point out their weaknesses, they will go fix them.
2. When you embarrass them in front of the other players, you're building up resentment, and now they're highly motivated to beat you.
3. When you complain loudly about bad beats, it makes the entire game uncomfortable and not fun. You won't be invited back to play. Being belligerent and sarcastically “teaching” fish about their mistakes is a fun way to vent, but it’s a losing strategy in the long run.
In business, play nice -- especially with your competition. You don't want them to specifically go after your business, leave you out of the loop on industry news or gossip, or gang up with other competitors to take you out.
11. Use Every Advantage
Poker is so interesting because the cards you're holding are only a tiny part of the game. A few non-cards-related parts of the game include:
• Chip stack -- With more chips, you can exert more pressure by making big bets or raises.
• Table image -- How you acted in the last hand, how you're acting in the current hand, have you been playing passively or aggressively?
• History -- Did the player you're going heads-up with in this hand lose or win the last hand he played? Is he feeling overconfident or is he playing scared? Good players use recent history and their opponents' current psyche to their advantage.
In business, you need to use all the tools and resources you have available to you if you want to win. You can be sure your competitors are using their full arsenal. Use your network, past experiences, market positioning, existing products or marketing campaigns, other departments -- whatever you've got -- to maximize your advantage over competitors.
When launching a new initiative or solving a tough business problem, bring the full resources of your organization to bear.
12. Tilt Kills
Tilt is when you make bad poker decisions because you just suffered an unlucky beat. If the unlucky beat didn't wipe you out, then the tilt that follows might. Beware the deadly two hand exit because of tilt. Here's how this train wreck plays out. Player holds great cards (say, pocket Aces) but suffers a bad beat. On the next hand, player goes all-in on a losing hand because they're angry and frustrated. Player loses (as expected), and goes broke. Player goes from top-of-the-world to shell-shocked and out of the game in two consecutive hands.
Things will go wrong. You will make mistakes in business. The secret to success is to not let those mistakes lead to bigger ones that kill your company.
13. Learn From the Masters
Poker has been played for hundreds of years, and every single one of the billions of possible poker situations has been played out. Someone has written about it and offered an optimal way to play it.
If you want to be good in poker without having to first play 10,000 hours of poker to experience all those situations yourself, pick up a poker book. For casual players, I recommend Phil Hellmuth's Play Poker Like the Pros. For serious players, start with these essentials: The Theory of Poker by David Sklansky, Caro's Book of Tells by Mike Caro, and the classic Super System by Doyle Brunson (the revised 2nd edition Super System 2 is a decent substitute).
Likewise in business, you can learn "optimal plays" by reading some books. Even though there aren't enough hours in a day, I try to squeeze in at least one non-fiction business book per quarter. Start with Trent Hamm's list of great books for small business owners (read the comments for some more good recommendations).
14. Learn From Other Players
When I was actively trying to improve my poker game, I frequented the 2+2 Poker Forums frequently. It's the largest collection of the most geeky poker players in the world. Those guys take situational analysis to a whole new level. The poker talk at 2+2 is easily 10 times more sophisticated than what you see on TV. The users there debate plays, argue and nitpick tactics. While a consensus is seldom reached, just participating in the discussions were invaluable to helping me get better as a player.
Build out your business network and talk to other business owners. The easiest way to start your business network is to engage the people you already work with. Reach out to your business neighbors, vendors, even competitors. You can join a small business community like OPEN Forum, or browse the LinkedIn groups directory to find other business owners like you.
15. Chart Your Progress
Keeping a poker diary of wins and losses helps you honestly monitor your bankroll. If you don't keep track of how you've been doing, you don't really know if you're a winning or losing player. Tracking your bankroll also lets you know if you've been on a hot or cold streak, when you should move up to bigger stakes, what your best games are, and more. Similarly, tracking your business bankroll is critical to building a successful business. Learn how to create, analyze and apply basic financial statements. And don't be afraid to hire an accountant if you're unsure of your financial experience!
16. Act Boldly
Acting on your read takes courage. But if you've put in the work to get better, then go for it with gusto! Trust your read and make the bold play! In both poker and business, courage to act on your instincts — backed by a concerted effort to hone those instincts — is the defining trait of a winning player.
Greg Go is the co-founder of Wise Bread, a blog dedicated to helping readers live large on a small budget. Wise Bread's book, 10,001 Ways to Live Large on a Small Budget, debuted as the #1 Money Management book on Amazon.com.