Effective money management is a cornerstone of both poker and entrepreneurship. For entrepreneurs, maintaining sufficient cash flow is paramount to staying operational. Poker teaches us the importance of bankroll management.
By crunching numbers based on the stakes, expected ROI, and the average number of players in your games, you can determine the likely variance, and therefore what limits you’ll need to set for yourself. If you play beyond your limits, regardless of your skill level, your bankroll will not support the variance and swings, causing you to go bust. You have to be discipline to play within your bankroll, which is extremely hard to do at times. When you’re running cold on a downswing, it’s tempting to take risks to win it all back, but if you do that, you won’t get to keep playing at all. This is why so many talented poker players run out of money.
On the flip side, being too conservative can inhibit your growth and upside. When I played poker seriously, I participated in small tournaments with less variance as my baseline. Ensuring I played enough of these allowed me to steadily profit and cover expenses. I would allocate 80-90% of my buy-ins for these games and use the remaining 10-20% for larger tournaments. I would track every single tournament I was playing in, and what my results were.
The wonderful thing, as with other lessons in poker, is just how in your face it all is. It’s easy to internalize lessons like this when the numbers are so visible. It’s having gone through this, that’s one of the many reasons I believe that companies should make their finances and metrics apparent for their employees. A lot of folks probably take this as a given, but I’ve been very surprised how often this isn’t the case.
For any given tournament, having 100 or 200 buy-ins is advisable for multi-table tournaments with hundreds or thousands of players. However, you can manage with 20 buy-ins for single tables or smaller games. Managing your bankroll for cash games follows similar guidelines.
The main goal of bankroll management is staying in the game. As your bankroll grows, you can play at higher stakes; if it shrinks, you must scale back. Discipline is essential; if you remain disciplined and keep playing, you’ll improve over time, allowing you to raise your stakes and increase profits. If you don’t, you never get to.
It’s similar to Paul Graham’s idea of creating a “default alive” business by choosing strategies in poker that reflect how you manage your finances in the world of entrepreneurship. You have the option to select strategies for managing your bankroll that keep you financially secure, or you can choose approaches that may lead to financial instability.