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How are entrepreneurs like poker players?

Posted by Andrew Dickinson on 01-Jun-2017 18:02:25

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The best professional poker players are not gamblers. In fact those that are, cannot win in the medium/long term - the same is true of entrepreneurs. Entrepreneurs that make instinctive, rather than calculated decisions are destined to fail. Proper and appropriate risk assessment must be applied to every decision - otherwise one mistake or piece of bad luck can be disastrous.

The uninformed will tell you that poker is a game of chance – I do not agree. Some of the keenest minds in the world, chess masters, mathematicians and scientists are professional poker players and there are many successful entrepreneurs who are also semi-professional poker players.

Probability

In poker and business, understanding probability is important. In poker this is well defined whereas calculating probable outcomes in business is more subjective. Whilst most businessmen will not construct complex mathematical models before taking a decision they will usually pass important decisions through a rudimentary risk assessment model. For example, before launching a new product they will consider the size of the prospective market and the probability of winning a percentage of it. They will turn this into a prediction of revenue and profit, which they will set against the cost (and opportunity cost) of development, sales and marketing. They will calculate a hurdle rate that the return on investment must clear before being given the green light to proceed. This hurdle rate will include the cost of money, inflation and a risk premium that reflects the range of potential outcomes.

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Risk/reward

Based usually on the historical behaviour of opponents, a poker player calculates the range of hands he/she is likely to be up against and the relative strength of their own hand. They will estimate the percentage chance of winning at each stage, considering the size of the pot, their own stack size and those of their opponents. Poker players that do not do the mental mathematics for each hand, or who gamble despite knowing they are a mathematical underdog, may win in the short term but are guaranteed losers in the medium/long term.

The team at Jola have been starting and running businesses successfully for years. If you are interested in working with likeminded suppliers, contact Jola.

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Topics: Jola Cloud Solutions Ltd

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