No Limit Texas Hold’em – Business Style

Businesses today seem to think that going “all-in” is a sound business strategy regardless of the cards they hold.  For those of you unfamiliar with the game of No Limit Texas Hold’em here is a simplified explanation of the game.  Players are able to make any size bet at any time on the hand they hold.  “All-in” means betting everything you have on the cards you hold and the belief that your hand is “best” – whether it is because of the cards you hold, because of the “odds”, OR because of your reputation.

Players may bet after looking at the two cards they are dealt.  They may also bet “blind” without looking at the two cards in their hand, or they may bet as the community cards are dealt.  They use the cards they hold and the community cards to make the “best” five-card hand.

As each round of cards is dealt, the players make decisions with “imperfect” information – meaning they know the cards in their own hand and the cards on the table; they don’t, however, know what cards other players hold.  As play progresses around the table, each player must decide whether to check (stay in but risk no additional money), bet or fold.  They also must decide as they bet whether they believe they have the best hand or if they can bluff and convince the other players they truly hold the best hand.

Poker is a pretty good analogy for business – they share common characteristics:

•    Imperfect information
•    Changing variables
•    Influx of new information that may or may not be correct or relevant
•    Knowledge of your capabilities but uncertainty about your competition
•    Need to “price” to beat the competition without underbidding
•    Need to get a solid return for the risk taken
•    Changing pool of competitors
•    Different levels of experience
•    Ability to take calculated risks
•    Need to “read” the competition and respond appropriately
•    Ability to conceal weak position
•    Willingness to compete with less than the “best” cards

When companies make decisions, they need to understand the risk/reward trade-off.  It they don’t, it is like playing going all in without looking at all your cards.  For instance, if your business is worth $500,000 and you have an opportunity that will take $500,000 to pursue with a guaranteed payoff of $1,000,000, then the reward is not worth the risk.  If the risk succeeds, you “breakeven;” if it fails you lose it all.

Not all opportunities are created equal.  Taking gambles on “opportunities” which don’t reward the degree of risk is like an inexperienced card player who can’t conceal the quality of his/her hand going up against a pro who holds the best cards.  Understanding the elements of the game and how it is played enables you to make the right moves – bet big with the winning hand and fold when it is in the cards.

It is important to note that the “best hand” doesn’t always to turn out to be the one with the best cards.  Knowing how to play the cards you are dealt – making the most of what your business is capable of doing – can win hands against the odds.  It isn’t a matter of bluffing – it is a matter of “presentation,” the confidence in your ability to take the cards which are dealt and back them up with expertise, experience, and reputation.

In both business and poker, bluffing is dangerous.  You just can’t know for sure what your opponents (competitors) have.  Sometimes they have more chips (resources) and can take bigger gambles, bet more with lower odds.  Sometimes, they have better hole cards from the beginning.

In business, all the cards are never on the table for you to see.  Your experience, instincts, and what information you do have must be pulled together, the risks and rewards calculated.  A less experienced player (competitor) may hold the cards which can not only create opportunity but also undercut your position against other players.

Keep in mind that two players can have the same cards and play them very differently.  It is the knowledge, experience, and the underlying “abilities” of the players which make the difference.  Also, a hand which has won before isn’t a guaranteed winning hand next time.  Variables are always changing.  Each hand is a different round in the business game.

Before each round it is important to understand your strategy for playing the game.  You may have more than one strategy depending upon your opponent(s), how many and what cards you hold, and how big the pile of chips in front of you.  Have a plan you can follow. You may deviate from the plan, but having one can keep you on track and in control.

Know the odds and how you play.  As your experience grows and you learn more about your competition, you increase your odds of winning.  Information will never be perfect.  Your competitors may change their tactics and take bigger risks.  Use that information.  Calculate the risk/reward payoffs and play the cards you are dealt.

Copyright ©2005 F.O.C.U.S. Resource, Inc.

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