Lessons in business risk from the poker table

Caspar Berry, a former professional poker player, explains how entrepreneurs can harness poker techniques to help them make more effective business decisions.

As a former professional poker player and having founded his own company, Twenty First Century Media, in 2002 (which he subsequently sold to Bob Geldof’s Ten Alps company), Caspar Berry knows a thing or two about taking calculated risks. Today, he spends his working life teaching business owners to embrace risk taking as part of their long-term strategy and imparts the wisdom he picked up in the casinos of Las Vegas about how to ensure you always play your best hand when it comes to running your business.

Q: What did poker teach you about running a successful business?
Caspar: What sits at the heart of poker – and of business – is decision making. Poker is about how to embrace calculated risk and how to differentiate this from a gamble.

All decisions are investment decisions – they are about the allocation of scarce resources under conditions of uncertainty. Sometimes that resource is money, but it could also be time. There are also much more intangible resources which are harder to measure, such as status, respect, our degree of comfort and wellbeing, or our health. You allocate these resources to any opportunity that comes along. Understanding how this process works can benefit your decision making process.

None of us knows what the future holds, so the key to success in business (as in poker) is planning for many possible futures. What a poker player does is calculate what value the opportunity has and allocate the resource accordingly. Understanding the process of how we assign value is important. It’s something we all do subconsciously.

Q: What are the biggest risks facing business owners today and how should they address them?
Caspar:  There’s a great quote which states: ‘more businesses fail due to indigestion rather than starvation’. The classic problems are cash flow, growing pains (taking your company to the next level once you’ve started up), and the need for systemisation in order to achieve this. Many of these problems stem from the issue of leadership. No one tells you how to lead yourself and this is something everyone who runs a business has to learn to do before they can make a success of it. An essential part of leadership is learning how to make the right decisions at the right time.

Warren Buffet’s mantra is ‘be fearful when others are greedy and greedy when others are fearful’. The madness of the crowd will always create bubbles and crashes. At times of bubbles, things are overpriced; at times of crashes, things are under-priced compared to their value. If you’re an investor, now is an amazing time to purchase because many people are struggling to raise finance and are more amenable to doing a deal.

Recessions are Darwinian – only the fittest companies survive. That’s why productivity always goes up during and after recessions because the least productive companies have gone under. It’s difficult to be greedy when others are fearful, but if you can take that pressure and take the right risks at this time, you’ll be infinitely better placed when times pick up.

Q: Following the economic downturn, many business owners and investors are increasingly risk averse. What’s the best way to handle risk in the current climate?
Caspar:  Although I think it’s very important to take risks in business, I don’t blindly advocate risk taking – they must be calculated. All decisions are appropriate to us according to the value we place on upsides and downsides. The challenge you face when making a decision is not whether the decision itself is right, but in fact whether your values are right. You need to work out whether you are placing the right amount of value on the concept of failure. It might seem terrifying, but is it really? If you make a decision which is very risk averse because failure feels like the end of the world, you could have just passed up an excellent opportunity.

Q: What process should business owners go through when making a decision?
Caspar: It’s been said many times before – but it’s still true – goal setting is paramount. The key to effective decision making is knowing what you want at the outset. You might have a stated goal, but what you really want is often revealed at the point of making your decision. For example, you may set yourself a goal to lose weight, but what you really want is revealed at the point of eating the cake or not. Often people will state one thing and then go on to do something completely different. There’s one word in the English dictionary which means two completely different things, and that word is ‘want’. One meaning is the desire (i.e. ‘I want to lose weight’) and the other meaning is what we want at the time (i.e. ‘I want that cake’). Knowing what you really want is the first stage.

The second stage is knowing what you’re prepared to lose or invest in the short term in order to get what you want in the long term. For example, when you go to a casino, most people are seeking fun. They might want to make some money, but their main goal is to have fun. The proof of this is that most people go in with a specific amount of money they’re prepared to lose in order to get that fun.

It works the same in business. You need to set your goal – whether that’s doubling turnover or bringing on new employees – and then you have to decide what you’re prepared to forgo in the short term to get those things, whether it’s money, a bit your sanity, reputation, or self respect (when faced with the risk of failure).

These are things we all do subconsciously, but you can harness the power of your decision making by thinking about them on a conscious level.