Successful poker players, those that win money over time, treat the game like a business. They’re not in it to win big pots, have a good time, and get excited. They try to make a certain amount of money per hour over time, averaged out between wins and losses, just as a shopkeeper tries to make as much money on the busy days as he can to create a cushion for the slow days. There are a lot of similarities between poker and business, just as there are between business and war.
Poker is a competitive, zero-sum game where every dollar a player wins is taken from another player at the table. Everyone is trying to get the most value for their investments, all at the expense of another. Just like business, it’s a game of limited information, where intelligence, confidence, guts, probability calculation, and risk tolerance are all equally important.
You meet all kinds of people as a poker player. You compete with people from all walks of life, with different personalities, strategies, and lives. But they all have the same goal: Take each others’ money. Thrust onto a battlefield where everyone must play by the same rules, understanding that everyone else is there for the same bloodthirsty reason, and still behave with some amount of professional honour.
It’s not all fun and games. You can learn a lot of important, widely-usable skills. Here are five specific poker skills and what they can teach you about business.
10. Table Selection And Commercial Location
The most important factor in your success at the poker table is sitting at a table that’s good for you. If no one is willing to gamble and you’re the loosest guy, you’re going to give a lot of money away. Conversely, if you’re not willing to gamble and everyone else is wild and crazy, you’re going to miss a lot of money-making opportunities.
Understanding different table compositions and finding one that matches your particular play style, can mean the difference between an easy session and a hard one. It’s not as simple as finding an easy table. It’s about finding a table that’s easy for you. You want a mix of players that works for you, but that same mix might be difficult for someone with different skills.
Similarly, knowing where to set up shop is an essential business skill, but it’s not all about having a ton of foot traffic or a lot of high-income residences nearby. It’s about picking a spot where people are likely to buy what you’re selling. You don’t set up a soda fountain at a health food market, and every glass pipe manufacturer knows when the next music festival is in town. Simple, really.
9. The Perfect Flop And Sunk Costs Discipline
Professional poker requires a ton of discipline. Most of the time, the money a professional poker player spends at the table is not spent playing poker, it’s spent folding. As you’ll learn in a bit, pre-flop hand selection is paramount to successful poker. That means folding a whole lot of hands before you play any. And when you do get a hand you want to play, if conditions aren’t favorable it’s still time to let it go.
One of the most common errors of poor poker players is throwing good money after bad. You’ll hear it all the time, “There was too much money in the pot, I had to call,” or, “I had put too much into the hand, I was pot committed.”
In reality this is simply the sunk costs fallacy, a mistake of logic that costs poker players a whole lot of money. And it doesn’t only apply to poker players. One example that Wikipedia gives is having paid for a non-refundable movie ticket for a movie you don’t really feel like going to. You feel like you have to use the ticket instead of better spending that time studying, working, or doing something you’d actually enjoy. The same applies to business.
It’s seven pm on Friday and the store that employs you as a salesperson closes in two hours. You haven’t made much commission this week, but lo and behold, in walks a clueless looking man in a business suit, holding a coupon for one of your highest priced items. You pounce, working him, building rapport and getting close to a sale but he he just keeps talking you down on the price.
It’s been an hour and a half and you’re no closer to getting him up to your desired price so you let him have the UltraMegaAwesome Max 1000 for half what you’d normally take. “At least I made some money,” you think, instead of, “I could have sold this for one and a half times that price come Wednesday.”
Other examples would be holding on to obsolete, expensive to maintain business machinery because you’ve spent so much repairing them that you’d be throwing away those costs if you upgraded to a new machine that would save you money over time. Very often, in business as in poker, you can find the dream situation becoming a nightmare. Being able to walk away can become the difference between solvency and disaster.
8. Pot Odds And Proper Risk
Pot odds are the comparison between the cost to call a bet, the amount of money already in the pot and the likelihood of a call paying off. Pot odds is what dictates whether a decision made many times has a statistical probability of making or losing money over time. Naturally there is a deviation between expected and actual results – that’s what makes poker difficult – but understanding pot odds and sticking to them is the difference between being a player and being a gambler. In other words, it is what separates playing poker from playing the lottery.
Now, consider the independent stock portfolio entrepreneur. He makes his money by investing in start up companies’ stocks. The amount of money he has determines how much risk he can take on. Let’s say that twenty percent of medical device ideas end in failure for the company. That means two in ten result in success. Consequently, if he’s investing in medical device stocks, every successful investment has to pay for four failures and still turn a profit. And, finally, that means that no wise medical device stock investor will sink more than 20 percent of their money into any one stock.
This same logic applies to all sorts of speculative businesses, from publishing to futures trading to materials brokering.
7: Trapping And Advertising
Trapping, also known as slow play, is the attempt to lure an opponent into betting when you have a very strong hand. When trapping, a poker player attempts to disguise the strength of a very good hand by betting weakly to induce a raise or checking and calling to induce a bet. It’s a dangerous move because your opponent has to have a hand worth betting and raising with and your hand has to be able to stand up to whatever better hand may come. It takes some guts to trap, and guts are necessary for entrepreneurship, but what trapping has to do with business is advertising an investment.
The pot is the product and your opponent’s bet is his price. Just like advertising, they can get a big fat pot by throwing some money into it. Advertising an investment product successfully means that your potential investor believes they’re going to get a lot more out of it than they put in. If The Wolf of Wall Street played poker, he’d be a trapper. But it works for more than just stock investing – giving the impression of value in order to jack up the initial costs of a product is a tried and true advertising formula.
6: Bluffing And Salesmanship
On the opposite end of the poker play from trapping is bluffing. Trapping is acting passively when you have a strong hand and bluffing is, as you know, acting aggressively when you have a weak hand. A successful bluff is both a difficult and necessary part of the poker player’s arsenal. Good bluffs are the stuff of poker legends – it’s tough to beat winning a pot with nothing but your courage and an unreadable poker face – but most people, even players, don’t realize the situations required for a successful bluff.
First of all, there has to be a pot worth bluffing for. Then you have to be reasonably sure that your opponent doesn’t hold the unbeatable hand he’d call any bet with. Then you also have to know your opponent – is he or she the type of person who can’t or won’t lay down their cards anyway? Then, you have to be able to represent a hand worth folding to, and that usually takes a scary board. If you think about that last bit for a second, you’ll realize that bluffing can be tricky, situational. You are trying to scare your opponent because the board suggests you could have a great hand. In reality, that scary board could have given your opponent the very hand you’re trying to scare him or her with.
Business bluffing is the subject of some debate. Debate not only on the subject of game theory, but on ethics as well. Ethically and morally speaking, bluffing is OK. Henry Taylor put it best when he said, “falsehood ceases to be falsehood when it is understood on all sides that the truth is not expected to be spoken,” a maxim that applies both to poker and business.
In business, bluffing is usually withholding or misleading someone about the facts of your intentions or the product in question. Car sales is a good example – the price is highly variable, the product is not uncommon, and the salesman really lives in the margin. The salesman may overstate the car’s gas economy and understate how often it needs a new set of belts. The prospect may try to appear to walk out without getting the price he wants. Both may try to appear to not give the other what they want without the other caving. What you can learn from poker about bluffing in business is to read your counterpart’s intentions and learn just who can be scarier, you or him.
5: Pre-flop Hand Selection And Staffing
One of the most important and basic skills in poker is the ability to understand the strength of your cards, keeping the strongest and tossing the rest. The reason for this is simple: In Texas Hold-Em, the most popular game of poker, it is only the very strongest pocket cards that are likely to be winning hands after the flop comes out. A proper poker player will toss upwards of eighty percent, even ninety percent, of their pocket cards. And Jack Welch, one-time CEO of General Electric, would give the top 20 percent of his managers a bonus and give the bottom 10 percent the axe.
Welch has been criticized plenty, but his methods have been mimicked by CEOs across corporate America, and no one could say that GE performed less than excellently during his tenure. Just like you need the best cards to win in the competitive game of poker, you need the best staff members to win in any competitive business. If it’s not competitive, it probably isn’t business.
4: Bet Sizing And Pricing
You may think that if you get your pocket cards and look down at AA the best move is to shove all your chips into the middle of the pot. As often as not, this is the wrong move. If you’re not a real poker player, you may think I’m going to say this is because you want to disguise the fact that you have pocket aces. Not so.
First, you’re going to get different reactions to your all-in bet based upon how much money you have in relation to the rest of the players – they’re much more likely to call $20 than $20,000. Next, consider the action that’s occurred before you. Is there enough in the pot for someone to warrant a big call? How about your opponents: Are they the type of people who really want to gamble?
Bet sizing is the art and science of deciding how much money to put into a pot for a specific effect. It’s based on the nature of your opponents and the amount of money already in the pot compared with the strength f your holding. The best bet sizing makes weaker hands call and stronger hands fold. In other words, some bets are meant to be called and some are meant to be folded to. You have to know what people are willing to pay to see your better hand, and manipulate that price to get the most out of them. In the retail world this happens with menu design. And, boy, is menu design a science.
Go to any chain coffee shop (and most foofey independent cafés) and check out the menu and you’ll notice that a small, plain coffee is going to be a pretty standard low price. The medium will be a little more and the large will be much more, and those prices don’t scale up at the same rate as the size of the coffee itself. If you want a little steamed milk in your coffee it suddenly becomes twice as expensive, even though it may actually cost the shop less.
The entire menu board at that cafe is designed to lure you in with one price and carefully and quietly jack up the cost of getting what you really want – after all, you could have made a regular coffee at home. No, you want a little chocolate in your coffee. And it’s going to cost you. Make it white chocolate and it’ll cost you even more.
Just like a good poker player will lure in their opponents with slowly escalating bets that seem reasonable compared to the pot, so should businesses make it seem worth the customer’s while to pay more, little by little, for the extras that make your product their best choice.
3: Value Betting The River And Closing The Sale
One of the most important talents a poker player can develop is extracting the maximum value from his made hands. When your opponent has followed you all the way to the river and you have the very best hand, you want get more money out of him. It’s called value betting: Making a bet that you want to get called, believing you’ll win. Of course, if you bet too much you run the risk of tipping your hand and getting folded to. If you bet too little and get called, you don’t get enough money out of the hand you’ve waited so patiently for.
Closing a sale is very similar, especially when you’re trying to tack on some added costs once your customer has already made the decision to buy. Think about the famous line from McDonald’s. “You want fries with that.” It’s not really a question. It’s a statement. You WANT fries with that. And why not, it’s only a couple of bucks more into a seven dollar purchase. Obviously, if those fries cost $10 or even $6 you might not bite, and McDonald’s would lose a little potential revenue. This technique is used at retailers the world over on such final line items as protection plans and warranties.
2: Representation And Story Telling
A key skill in poker is deception, and the essence of that deception is hand representation. It is what it sounds like: Making it seem like you have one hand when in reality you have a different one. The simplest example would be betting 22 like it’s AA – bet big preflop, then on the flop you can act as if you had aces in your hand. Each new card is a new chapter in the story you’re telling, and selling that story can make or cost you money.
Telling a good story is important to business, as well. When comparing two products the consumer chooses based on many factors, but, all other things being equal, a person prefers to buy from a company that represents his values, or a person that he can see as a friend. They’re also more likely to spend more for a product that they identify with.
Companies tell their stories in the way their products are packaged and the advertising slogans they use. The mason jars full of alcohol on the shelves of southern Walmarts aren’t really moonshine. The coffee growers of Colombia never really entrusted their interests to a mule herd named Juan Valdez. The Duck Dynasty guys looked like Princeton alums before they appeared on television.
The best example of a corporate story that is part truth and part fiction is the history of Microsoft. If you buy into their corporate rhetoric, Bill Gates invented the first comprehensive private computer operating systems and won a huge market share thanks to the superiority and innovative nature of their product. In reality, Gates bought the first operating system for IBM from another company and modified it a little to meet specifications. As for being on IBM’s radar in the first place – he can thank his mommy, who was on the board of the United Way with John Opel, IBM’s then president. That’s not to say that those who buy IBMs products aren’t getting value, but the first generation of consumers weren’t getting what they were sold.
1: Table Image And Negotiation
In poker, your table image is how you are viewed by the other players in the game. This has serious consequences for your game. If you’re viewed as a loose player, you’re going to get called light. If you’re viewed as tight, you’re going to get folded to a lot, or bluffed at a lot. If you’re seen as foolish, people will try to outplay you, and a smart, scary image will get you a lot of respect and less fancy play.
Take this concept to the negotiating table. If you’re viewed as a strong negotiator you have an advantage, and learning how to manipulate that image of yourself is therefore a very valuable skill. Imagine there is a camera over your shoulder and look through it. Do you appear confident, controlled? Do your actions and words speak of a person who knows their value and the position they are in? When you are aware of how you appear, you can use it to your great advantage.