In my previous blog, Backing and Bankroll Management, I attempted to demonstrate the soft skills necessary to survive as a successful poker business. I use the term poker business in place of poker professional to drive home that the backend of running a profitable business is comparable to what goes into poker success — more specifically the role in which money affects day-to-day operations both psychologically and functionally. In my haste to rush to the more significant point — that money should be viewed as a tool utilized to facilitate, rather than as a cure-all or security — it was brought to my attention that I didn’t really address how to get away from traditional fear-based decision making, and into a more utilitarian mindset with regards to money, business, and risk. So, I’d like to expand upon the thought experiment I presented:

Magic is in the air, and you are the beneficiary of a $100k gift which you are free to use as you see fit.

  • How would this newly found wealth best serve you from a life standpoint?
  • From a career standpoint?
  • What plan would you implement to grow this money to a million dollars?
  • How would a million dollar gift further alter your plans?

Now, instead, tragedy strikes. An unfortunate chain of events has drained your entire life’s worth (assume it to have been $50k).

  • What’s the path to first survive?
  • To regain your wealth?
  • To then to thrive?

That’s a lot to unpack, so let’s first start with some baselines to ensure we’re all starting the discussion from the same premise.

First, we’ll assume that in all scenarios we derive our income from some level of investment risk in a market — be it a start-up, a small business (defined as providing some good or service to its target market), an investment strategist, or for simplicity’s sake a poker professional (this would likely fall under all the above categories).

Secondly, we assume we are skillful at whichever of these business endeavors we choose to pursue.

Finally, we have a starting net worth of somewhere around $50k (this is a bit arbitrary, but necessary as the objective & strategies significantly change as your net worth nears the extremes). $50k is more liquidity than 80%+ of people possess, but as far as consideration for running a business, it’s a useful metric as it’s worth protecting, yet not enough to feel secure for long periods of time. In other words, it serves as a fair tipping point between fear and complacency.

In scenario one, a $100k gift is bestowed, and I challenge the student to demonstrate how this money will impact him moving forward. However, I think more clarity can be achieved by stating the questions more simply — why is this money impactful? Opportunity is the typical response, which is reasonable, but if the opportunity is the objective, then why are we so conditioned to avoid methods that will help us achieve scale faster than just natural growth? Debt or more aggressive investment strategies can help advance opportunities, but the prevailing thought is that these are last-ditch efforts to salvage a sinking ship. Why? The answer, in my observation, is two-fold — fear and risk.

Fear is an emotional response meant to preserve us from imminent dangers. However, as we’ve evolved into apex predators, our fears are no longer rooted in preserving existence but instead manifest in the preservation of our basic needs — food, shelter, clothing, love, and social acceptance. Meeting these needs (when born into the privilege of a 1st world nation) is fulfilled rather quickly, so long as you are of sound mind. However, to thrive there is an absolute need to risk — intelligently, yet aggressively. This creates conflict between the logical mind and our emotional monkey brain response. Knowledge can quickly circumvent the fear process; however, the resistance to get beyond conventional wisdom is strong when there is no conscious awareness that an issue exists at all.

By giving the students a sizable amount of money, and challenging them to explain how it will improve their long-term goals, I hoped to demonstrate that the real barrier between mediocrity and success is a lack of business acumen and an unhealthy relationship between fear and risk, not money. To further this example, we pursue the other extreme — How would you rebuild if you were broke tomorrow? The general lack of response here quickly qualifies how insecure most students tend to be in their ability to earn.

In further challenging the responses to escape ruin, I often find a very destructive feedback loop to occur. The first point of failure is that students, when broke, will now examine taking on debt, taking on a partner (backer), and even taking multiple shots in hopes that a little luck will rescue them from despair. We have it all wrong. Leverage is a crucial element to risks being successful. Ideally, you’d like to absorb debt when your bottom line can increase beyond the cost of the debt. In taking on a partner, you want to utilize their skills and or monetary contributions to reduce risk and better leverage your time / liquidity. Finally, when taking shots, you want the reward to outweigh the risk, but ideally, this is done when your risk of ruin (potential future earning power) is manageable.

When we are desperately throwing Hail Marys in an attempt to scrape something together, our risk of ruin is astronomical, which can be ok assuming non-life-or-death scenarios. However, since the reward comes so infrequently, it is imperative that we have a well-formulated investment strategy once we have an amount of money that we can potentially grow into something sustainable. This is the second point of failure in this destructive feedback loop. The general growth strategy when money is accrued is rooted in comfort. The emphasis falls on refining the skills which accumulated the money, to begin with— for poker players this means getting a coach, subscribing to a training site, or merely playing higher volume to learn first-hand. Though the growth of strategic skills is an absolute necessity, given the ever-evolving nature of the game, it’s equally, if not more important, to sharpen the soft skills of the business. Have a business plan, know the market intimately, understand risk and leverage, and finally examine the biases that go into our decision-making process in an attempt to dilute them as much as possible as you grow toward objectivity.

Going broke for me was a painful life lesson that forced the self-actualization process. Having honest conversations with yourself and your peers about where you most lack knowledge will reveal the biggest secrets of who you are and what you are capable of, both in business and in life. I hope this little exercise can help jump-start that process without the harsh wake-up call that being broke demands.