What can Craps teach you about Business?

©2004 Martin Ouellet

It’s been a while since I’ve been to Vegas, but one of the things I really enjoy there is the game of craps.  It’s a fast moving game that the players and the crowd get excited about.  You can win (and lose) a lot of money very quickly, but if you play correctly, your odds of walking away a winner are better than any other game in the casino (except maybe blackjack if  you can count cards…). 

Because the game moves so fast and requires some math to bet correctly, it can be overwhelming, but once you’ve got it figured out it’s a lot of fun (especially if you’re winning)!

The proper strategy of craps can also teach you a lot about successfully running a small business (it’s my blog, I get to use what ever analogies I want!).

Read on and let me know what you think – it won’t take me long to reach the point.  (pun intended).  😉

How do you play craps?

For those that aren’t familiar with craps, it’s a variation of a dice game that’s been around for a really long time.  Here’s a more in-depth discussion of craps from wikipedia, but I will try and summarize here.

The basic bet in craps is that the roller will be able to roll the number they establish as the Point again before they roll a 7.  For clarification, the point can only be 4, 5, 6, 8, 9, or 10.  Let’s look at a simple example:

The game starts and everyone bets $5 on the Pass Line and the shooter makes the first roll (the come out roll).  He rolls an 8 – so the Point is now 8 and everyone is betting their $5 that the shooter will roll another 8 before he rolls a 7.

The shooter goes on to roll a 3, a 5, a 6 and finally an 8.  Everyone that bet $5 on the Pass line wins even money for their bet and the whole process starts all over again – simple game, right? 

At it’s core, it is simple, but in addition to that basic bet, there are at least a dozen other bets that you can make as side bets, odds on your bets and you can even bet against the shooter if you want.  It’s both simple and extremely complex – which is why it’s fun!

What does this have to do with Business?

There are several key principles in winning craps that are also winning strategies for business.

1.  The real money is made by betting the odds

For Line bets and Come bets (Come bets are essentially the same as line bets, but you can bet them after the point is established), the payout for the initial bet is even money.  However you can also bet Odds bets after your number has been established – and those bets pay off in the true odds of hitting that number (i.e. rolling a 4 is twice as difficult as rolling a 7, so you get paid 2 to 1 on your odds bet).

In business you need to go all out when you see an opportunity – if you just go after the minimum (i.e. only the initial bet) then you will only get a minimal return.  A customer that likes what you sell will likely be interested in other things that you sell – can you upsell or cross sell them into other products or services?  Can you bet the odds and increase the amount of money you can make?

2.  The money rolls in when your number comes up again!

In craps, your Come bet stays out on the table when you hit your number and win, so you get paid out your winnings and you still control that number without having to put out any additional money.  If you lose at that point, you will be slightly ahead overall.  However, if that number hits again, all of that money is pure profit – your initial bet is still at work and you’ve more than doubled up on what ever that initial bet was.

Hit the number a 3rd or 4th time and you are into a very profitable roll!

In business, it’s generally takes a really large investment up front to get new customers.  You’ve got all of the marketing and sales overhead that it took to find that customer and get them to buy in the first place, so you’re actual profit on that first sale might be pretty slim.

The second sale from that same customer, now that’s where it get fun…the 2nd sale doesn’t have any of the overhead – you still have the costs of goods, but your margin goes up substantially and it’s generally much easier to make the second sale than it was the first (assuming you have a quality product).

3.  It pays to know the math

Craps is very much a mathematical and statistical game.  Although any roll can turn up to be any number, over time the odds of certain things happening are very predictable.  If you know the math behind it, then you know that most of the bets on the table are sucker bets that will not pay off in the long run and are a great way to lose a lot of money, even if you’ve got a good table going.

However if you play the line and 2 or 3 come bets, with the proper odds bets, you are statistically even (or very close to even), which means that you have just as much chance of winning as the house does.  If you get onto a ‘hot’ roll, you will clean up if you are betting correctly.

In every other game in the casino, the house has a decided advantage, making it very difficult to win in the long run.

In business, you have to know what’s working and what’s not working.  If you figure out that it costs you $2000 to make a $1999 sale, then that’s not a good deal.  You are NOT going to make that up in volume and you will slowly be headed to a going out of business sign.

If you know that product A has a profit margin of 5% and product B has a profit margin of 25% and they are approximately equal in terms of how hard it is to sell them – then you’ve got to put all of your efforts into product B (or start charging more for A).

I want to go to Vegas…

I’m sure there are plenty of other take aways that would translate between success at the tables and success in business – staying focused, not trying to do too much, you have to play to win…what ideas can you think of?  Share them below and let me know – I’d love to hear them.

Shawn Kinkade  Kansas City Business Coach