All business proceeds on beliefs, or judgement of probabilities, and not on certainties.
If that isn’t the truth, I don’t know what is. My business is driven by businesses that believe that business is certain.
Business is Not Certain
I won’t go so far as to say that business is a gamble, because business is no roulette wheel. Roulette is entirely a game of probability. And when you add 0 and 00 onto the wheel it becomes probability that’s stacked against you every time.
Business is more like poker. You know what’s in your hand (King-4 suited, let’s say), and that hand is playable.
As the game proceeds and cards come out, you have a better idea of the conditions, like your assets, customer base, and so forth.
However, there are also things you can’t affect – though you can make educated predictions – like what’s in your opponent’s hand. In business that would translate to prevailing market conditions, natural disasters that disrupt supply lines (can anyone say Japanese Tsunami?), and so on.
Beliefs, Judgments & Probabilities
People who play poker purely based on the mathematics believe that, if they look at and comprehend everything on the table and what their opponents could be holding, poker is a game of probability.
However those who play Hold ‘Em know that they also have to follow their guts and use their instincts, taking subtle clues from the situation around them. How long did their opponent take to check, bet or raise? What was that raise and how does it compare to the blinds and the pot? Did you perceive a tell and are you sure that is his tell? What’s the pot at? Is he bluffing? Should I bluff?
The answers to all of these questions are, to some degree, unknowns, and our opponents are thinking comparable things (remember, in the analogy, poker opponents aren’t our business competitors – they’re larger issues we don’t know a lot about).
It is due to these questions, our gut feelings about their combination of possibilities and effects, and sheer probability, that we make decisions and act, both in poker and in business.
The Illusion of Certainty
Nothing is certain because we don’t know beyond a shadow of a doubt what’s in another person’s hand.
When businesses make spreadsheets and predictions, they fail to understand that they haven’t accounted for everything. There are unknowns and spreadsheets are based on assumptions. Spreadsheets are almost always wrong. And try as we might to act based on spreadsheets and these assumptions, an opponent’s better hand is still going to beat us.
But if you’re a good player, and you consider as much as you can, and act in accord with what you’ve considered – and you face your harsh reality (i.e. what’s in your pocket and what comes out on the table as it comes) – then you can act intelligently.
If you lose a hand – and you will – that’s okay. As long as there are still chips in your stack – which we’ll call your contingency plans, something every business should have – you’ve made it to fight another day, and play another hand.
Remember, the business lesson to learn from Texas Hold ‘Em is that nothing is certain in business. As Charles Eliot says, everything is based on belief, judgment and probability. It’s understanding that fact, and acting based on it and those beliefs, judgments and probabilities, that will make you a good business leader.
And don’t forget, you only get knocked out of Texas Hold ‘Em when you go all in.
Do you play poker? How do you apply it’s lessons to business? What other games in life help you learn about business?