On occasion, I enjoy spending an evening at the local casino. My favorite games are roulette, blackjack and slots. Games of chance are fun and exciting, but I am vehemently against gambling. For me, gaming at the casino is neither gambling nor risk-taking.
Why?
Before I go to the casino, I always check my finances. I only bring what money I am prepared to lose (which rarely exceeds $100). Not only am I ready to lose the money I bring, I expect to lose it. To me, gaming at the casino is a form of entertainment. It's no different than spending an evening watching a Broadway musical or seeing the Baltimore orchestra play Mozart's Jupiter symphony--two of my other favorite activities.
If you reserve a hundred dollars or so for gaming--expecting never to see that money again--and you can afford to exchange it for an evening of excitement and fun, then you're essentially not gambling; you're just paying for entertainment.
Gambling is when you're betting something (typically money) you can't afford to lose. Moreover, it's when you're betting against the odds and will likely not win. If you're short $200 on your rent and place a $200 bet on red, hoping to make up the difference, then you're gambling.
Gambling is different than calculated risk-taking. There's no such thing as a calculated risk at a casino. You're either enjoying some entertainment, or you're gambling.
I'll explain.
The Difference Between Risk-Taking and Gambling
Business owners, entrepreneurs, investors and everyday citizens face risks. In business, the owners, executives or proprietors must make economically wise, calculated decisions that will lead to profit and advance the company.
If business leaders examine the data and assess the risk of a particular opportunity, they must determine if it's worth taking or "a gamble."
Smart business owners and entrepreneurs do not gamble. If a risk-benefit analysis is performed and it's determined that a potential opportunity is too risky, they will typically veer away from it.
Hollywood sometimes portrays successful entrepreneurs as gun-slinging gangsters wearing flashy Italian suits and being more daring than Evil Knievel on crack. That's cool, but a smart business owner or investor knows how to play the game well; they're not performing wild and foolish daredevil stunts.
But they do need to take risks.
Risk-taking is a part of business strategy. Often, even after a carefully calculated risk-benefit analysis is performed and the opportunity is determined to be plausible, it rolls over the cliff, and the business or investor loses money. Sometimes they lose a lot. However, this scenario is not to be confused with gambling.
Business owners, investors and entrepreneurs know how to land when they fall. Their lucrative investments and viable revenue streams cover the loss of their investment failures.
For example, a venture capitalist (or angel investor) has $150,000 they want to invest. Diversifying their portfolio, they invest $25,000 in six promising startups. Within a year, 3 of the new companies go belly-up, and the venture capitalist loses $75,000 of their investment. The other three companies, however, do exceptionally well over the next five years. Their return on investment (ROI) results in a net gain of $238,000.
While failure was involved, there was no net loss in the original $150,000 investment. (It's unlikely to occur, but even if all six startups went bankrupt, the wise investor or entrepreneur would have several revenue streams to recover their losses.)
That is called calculated risk-taking. The venture capitalist only put in what they knew they could afford to lose. The odds, unlike gambling, were favorable.
The venture capitalist, repeating the process, now has $388,000 to invest. Over time, they can turn a few hundred thousand dollars into millions, provided they implement a careful risk-taking strategy.
Undergoing a series of wins and losses, the savvy entrepreneur will always come out on top, much like our friends who own the casino. People thunderously cheer as they walk out of the casino with jackpots worth of money. People win all the time (losses for the casino), but in the aggregate, more people lose (wins for the casino). In the end, the old saying goes: the house always wins.
Taking risks in business and in life is vital; it's how we grow. Without risk, there can be no reward. But these calculated risks should never be a gamble. Gambling is unwise and should always be avoided. Calculated risk-taking is how you win.
Be the house, not the sucker.
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