Lessons From The Blackjack Table

by Mickey Lonchar , October 25, 2010

Let's say you're sitting at a blackjack table in Vegas. On a particular hand, you find yourself holding a 15 while the dealer has a 10 showing. Lousy hand, to be sure. So what's your play?

A logical ploy would be to play the odds. A quick calculation helps you determine that if you take another card, you have a 54% chance of busting. And your chances of drawing to an 18 or higher are less than one in three. So your logical move would be to stay in the game and stand on your 15. Right?

So why do knowledgeable blackjack players advise you to hit on 15 (and again on 16, should you draw an Ace)? Because they understand the goal of Blackjack is not to avoid busting. It is to have a winning hand. And as experience shows, in most instances 15 isn't going to stand up.

It will be a long night at the table if your strategy is to simply stay in the game and rely on the competition to fail.

And so it is in business. When presented with a situation or opportunity, we quickly assess our probability of success. And if our odds of failure are 50% (or 20% or sometimes even 10%), we "stand." But we forget. Our goal in business (as in Blackjack) is not to avoid failure but to succeed. And as in Blackjack, standing on 15 is not going to lead to much success.

When the odds are in your favor, the calls are easier to make. The risk of failure is less. But what separates the world-class Blackjack player from the tour bus crowd (besides the size of the bankroll) is the courage to take action even when the odds are not in your favor.

A couple of examples of companies that refused to "stand on 15" come to mind. One is Kellogg, which in the teeth of the worst economic climate in more than a century and against the advice of its financial people launched and promoted a new breakfast cereal, Rice Krispies.

This event was the turning point for Kellogg, which for the last 70+ years has been the undisputed leader in the breakfast food category. Then there's Apple. We forget now, but the first iPod was launched just a few weeks after 9/11.

Both companies could have stood pat. They could have waited to be dealt a more advantageous hand. But they realized they had plenty to gain. And you think the hand you're holding now is bad?

Play to win. Not to not lose.

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2 comments about "Lessons From The Blackjack Table ".

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Bill Kaplan from FreshAddress, Inc., October 25, 2010 at 6:36 p.m.
I couldn't help but comment on this article as the subject is near and dear to my heart. As the founder and leader of The MIT Blackjack Team (of “Bringing Down the House” and “21” fame), analyzing risk/reward scenarios, in cards and in business, is something I do every day. The point you're trying to make is a good one but your analogy, analysis, and advice are a bit off.
You state "But what separates the world-class Blackjack player from the tour bus crowd (besides the size of the bankroll) is the courage to take action even when the odds are not in your favor." This is incorrect! World class Blackjack players win in the long run (i.e. over time) specifically because they place their bets when the odds are IN their favor.
What separates the world class Blackjack player from the tour bus crowd is that the world class Blackjack player has done the research and analysis for every possible hand that can occur in the game AND has the conviction to act (e.g. place their appropriately sized bets) when the odds are in their favor, irrespective of what's going on around them.
Courageous companies and leaders are those willing to take action in a lackluster economy when the odds are IN their favor. Warren Buffett, my business school classmate John Paulson who made billions betting against the subprime market BEFORE the market collapse, and vulture funds have been doing this successfully for years. Oftentimes, the best opportunities are to be had when everyone else is running in a different direction.
So the next time "you find yourself holding a 15 while the dealer has a 10 showing," be sure to take another card, irrespective of how much money you've bet. In the long run, you'll be sure to do better than standing pat.
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Mickey Lonchar from Quisenberry, October 25, 2010 at 8:20 p.m.

@ Paula, always nice to hear from you. @Bill, I really appreciate your thoughts, and I think you added nicely to this discussion. Folks like Buffett and Paulson exemplified the kind of folks who saw opportunity while others couldn't see beyond the risk. On that point, we are in complete agreement.

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