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What would happen if you treated every decision like it’s a million-dollar bet?
The biggest struggle over the past six years and counting for our family of nine manufacturing businesses has been the shrinking labor market. If we don’t have the people, we can’t make enough of what our customers need.
Our labor challenges began in 2017, and the pandemic that hit in 2020 only made things worse. We’ve since lived through the changing dynamics of the labor market, which have included weathering the demands of remote work, quiet quitting, and the Great Resignation.
It was also a wake-up call for me as the CEO of the business. I had always taken for granted that when we built our strategies for growth, we could find the people we needed. Boy, was I wrong. So, starting in 2023, we recognized that we needed to do a much better job of building contingencies for the people needed in our business plans.
In other words, we were trying to figure out if we should make a big bet on growing our business. Should we be buying another company, investing in new capital equipment, or building a new plant if we didn’t know if the people would be there?
Asking Questions About How to Grow Our Business
True to our historical pattern, we went seeking answers from anyone and everyone we thought we could learn from. We talked to economists, lobbyists, college professors, and members of trade associations. Heck, we even asked cab drivers and fishing guides.
We asked them all the same question: “Would you make a big bet if you can’t get the people?”
As you might guess, the most common answer we heard was “No.”
Or, they told us, if you did make that bet, be careful because the demographics are working against you. And so is the data. Don’t let the recent news of big layoffs in the tech and finance sectors fool you. Competition for talent remains sky-high. When the last of the Baby Boomers leave the labor market in 2030, the bottom will fall out of the labor market—and the economy. That means, short of an unlikely breakthrough in immigration policy, the long-term forecast is grim without people.
Charting an Uncertain Future With Business Growth
That left us where we started. How were we supposed to decide on whether to make a big bet or not? That’s when a higher power intervened and handed me a book: Thinking In Bets: Making Smarter Decisions When You Don’t Have All The Facts by Annie Duke.
If you’re not familiar with Annie, she has a life story worthy of a Hollywood movie or Netflix series. Poker enthusiasts will recognize Annie as a multiple-world champion poker player who has earned more than $4 million professionally.
What people might not know is that Annie also has a Ph.D. in psychology (perfect psyching-out your opponents at the table). Annie left us with some profound lessons to teach us how we make decisions in life and business.
When I opened Annie’s book, maybe I was expecting to learn a few tips the next time I took a seat across from my friends to play a hand or two of cards. But within just a few pages, I was keenly aware that this masterpiece wasn’t really a book about poker. It’s a book about how to run a business.
Annie explains that when she is playing poker, she needs to make decisions worth thousands—even millions!—of dollars in mere seconds. And she needs to make those decisions without any certainty of how they will turn out.
Annie writes:
Over time, those world-class poker players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.
As I continued to read Annie’s book, what became clear to me was that she had written a fantastic guide on how we can make better decisions inside our business. With her help, I began to recognize that a bet is simply a forecast.
A Game of Probabilities When Betting on Business Growth
A key lesson Annie taught me just a few pages into her book was that every decision we make in life and in business is, in reality, making a bet. Ultimately, we’re making a forecast based on the data we have collected and then making our best guess at how our decision will pan out.
It’s a game of probabilities.
Annie writes that it’s easy to fall into the trap of what poker players call “resulting,” which is starting at an outcome and working backward from there to either validate or lambast the people who made the decision that led to that outcome.
What we should do instead, she says, is examine whether the process that led to the decision was sound or not—and whether the outcome was simply a result of bad luck.
As she puts it:
Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is what thinking in bets is all about… Decisions are bets on the future, and they aren’t “right” or “wrong” based on whether they turn out well on any particular iteration.
The lesson to be learned here, I realized, was that making a sound decision based on probabilities and data was more important than the result you achieve because you’re taking emotion and luck out of the equation.
It’s like if you go all-in on a poker bet with a strong hand like a full house, only to lose to an opponent who happened to be holding four of a kind. Making the strong bet is the right thing to do, even though you lost the hand.
But what happens if the process behind making your bet is flawed?
Making Bad Bets on Our Yearly Growth
The lessons from Annie’s book hit home recently. As our 2023 fiscal year was ending, we realized we had made a significant error in one of our businesses. We let emotions—rather than data and probabilities—guide our decisions.
After a hot first quarter, followed by a smoking second quarter, demand seemed to be growing. Confidence ran high, and people began to rethink their forecasts. They thought we would now blow the sales number in our plan out of the water. But to hit that new number, we were going to need parts. Lots of parts. So, we made a bet and doubled down on our orders from our suppliers. It wasn’t long before our warehouses were overflowing with materials ready to ship.
And then everything hit the skids. As the bills for all that material began to roll in, our customer orders didn’t increase at the rate we had forecasted. Suddenly, what looked like a sure bet had turned into a black eye. We were now forced to get our inventories back in line. We spent the next five months shedding inventory we couldn’t use.
Before I read Annie’s book, I probably would have been angry and frustrated with our supply chain people. I’d wonder why they missed things so badly to end up with all that extra inventory. But Annie got me thinking: Had we made a good bet in the first place when we signed off on adjusting our sales forecast?
For you Texas Hold ‘Em players, it’s like we held a five and a seven card in our hand, with five and seven cards showing, and decided to go all in with one card to play—hoping to draw a full house—only to find out that our opponent already had a straight.
Sure, we could get lucky making big bets with a hand like that and still win some of the time. But all things considered, it’s a bad bet every time. Hope is not a strategy. And that’s exactly what we did when we adjusted our sales forecast. We let emotions, not the data or even facts like purchase orders in hand, guide our decision.
We made a bad bet.
For what it’s worth, I took the 18 people in the supply chain department of our business out to lunch and apologized to them for what happened. I showed them Annie’s book and explained where we had gone wrong in our decision-making process and how we wouldn’t make the same kind of bad bet again. They got it.
That lesson alone is worth a fortune.
Betting on Our Future Like We’re Playing Poker
I touched on just a couple of lessons we learned from Annie’s book. But there are so many more. Who knew that playing poker could help you become a better businessperson?
That’s why I’ve been buying and handing out her book to every business associate I can think of because Annie’s lessons will change everything about how to approach making decisions in your business and beyond.
This is recommended reading for everyone—especially for the next generation of budding entrepreneurs and emerging business leaders.
Thank you, Annie, for sharing your valuable insights with us. We hope we get the opportunity to meet you in person someday—as long as we don’t have to bet against you!
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