What Poker Really Teaches You About Business
After football and warfare, poker has to be the single most overused metaphor for business, especially entrepreneurship. You see, both entrepreneurship and poker are a big gamble, and both call for you to bluff and to hold your cards close to your chest, and on and on. You've heard it many times before.
All that misses the point. What makes a great poker player and a great strategic business thinker is an unusually clear grasp of reality, and a better-than-average humility about one’s ability to foresee the future. The rest of the lore of poker-as-business has no basis in reality outside of country music. Here’s, more specifically, what great poker players and great business leaders both get right:
Both think in probabilities
Poker aficionado Nate Silver, famous election forecaster, author of The Signal and the Noise, says that top players excel at probabilistic thinking. Rather than bet on one hopeful outcome, they prepare for a wide range of hands and give each due weight based on the true odds of them occurring. The normal human tendency is to give excessive weight to rare but memorable “black swan” outcomes. But you won’t last long in poker if you keep expecting to draw an inside straight, and you can’t build a business by betting the company on becoming the next Instagram or Twitter.
Each understands the difference between luck and skill
Good strategic leaders don’t automatically attribute their success to smarts - they understand they may just have been lucky. Tony Hsieh, CEO of Zappos, spent a summer playing poker and noticed how tempting it is to get mesmerized by good outcomes. Smart business leaders and smart poker players realize that whenever chance plays a role, a good decision process can result in bad outcomes and vice versa. So make sure that in your business you focus on what you and your team can control--namely, how you arrive at decisions, not the outcome of those decisions. As a leader, you need to reward good practices, not lucky outcomes.
Both keep score over the long run
All poker players lose hands; the best are comfortable with this and take a long-term perspective when scoring themselves. A loss does not mean they played poorly. What matters is whether they had an edge over other players and exploited it properly. Likewise, business leaders who take a long-term perspective are comfortable with some losses in the short run. When Amazon went public in 1997, Jeff Bezos emphasized it was all about the long run. Bezos stuck with that mantra, took losses in the short run, and just focused on what customers wanted. His most recent purchase of the Washington Post is a long game, if ever there was one.
Each gets inside the other guy’s head
Great negotiators think more about the other side than themselves, and so do great poker players. Just as winning poker players study their rivals’ expressions, twitches and playing style so that they can exploit any patterns, strategic leaders use war gaming to anticipate what competitors might do. They simulate key rivals and walk in their shoes. Some go as far as to create psychological profiles of competitor CEOs, including behavioral footprints.
Both refuse to throw good money after bad
Once you have been raised a few times in a poker game, research shows that your emotions push you toward irrational escalation and a desire to win at all costs. But if your hand is bad, the best tactic is just to fold. Great poker players move on from such no-win situations decisively, without any feelings of regret or ego dents. Strategic leaders in business likewise recognize that you don’t have to play out every hand. You should treat doomed projects as sunk costs. Fail fast and move on. Or--because you knew you'd never get through this story without Kenny Rogers lyrics--know when to walk away, know when to run.
Neither takes the poker metaphor too seriously
Using poker as an analogy for business has its limits. In the business world, you never find out so quickly whether any given stategy is a winner or a loser, and you can't deal a new hand right away. Business is not a zero-sum game operating under fixed rules, and in real life, you can pursue cooperative strategies without being called a cheater. But in both, the smartest players understand that they never know what card they’re going to be dealt next--and they set their strategy accordingly.
Co-authored with Viraj Narayanan, Senior Consultant at Decision Strategies International.
PAUL SCHOEMAKER | Research Director, Wharton School
Paul J. H. Schoemaker is the founder and chairman of Decision Strategies International. A speaker, professor, and entrepreneur, Schoemaker is research director at the Mack Institute for Innovation Management at Wharton, where he teaches strategic decision making. His latest book is Winning the Long Game: How Strategic Leaders Shape the Future.