When to Take a Risk?

By: Howard McAuliffe, Pinnacle Entertainment Group

“The early bird gets the worm, but the second mouse gets the cheese.”  I wish I knew who to quote, but I can’t remember where I heard this.  However, it really stuck with me because of the relevance to business.  Being early into a business provides an opportunity for less competition and high profits, however it also provides an opportunity to be wrong about an unproven concept and fail.  How many people died trying to fly before the Wright Brothers?  There is no telling but I’m confident it was a lot.  My family started Pinnacle Entertainment Group 23 years ago when I was 17 and we have tried a lot of different things in business.    Many of these things failed, many were successful, some failed at first but then succeeded and others succeeded at first but then failed.  So how do you know when to take risk and when not to?   That answer is different for everyone, some of the most successful people in the world are successful because they took major risks that I would never be comfortable taking.  But here are the lessons I have learned over the last 23 years, which has been heavily leveraged by having my father, with over 40 years of experience, as a partner:

 

• If I’m going all in, for example personally guaranteeing loans that I need to sell everything to pay back, it’s not going to be on an unproven venture. I’m not going to be the first mouse, and if I’m second, I need to have surveyed the body and witnesses for the first death.

 

• Just because we try something and it failed, doesn’t mean we quit. If we can innovate, improve, and try again that could lead to a major success.  We tried going ticketless in game rooms years ago, and sales/profits dropped.  It failed, so we brought back tickets.  We kept trying this every few years, until the sales didn’t drop and ticketless was more profitable.

 

• Don’t be afraid to switch gears when opportunity arises. When we were offered a buyout of our amusement route, which was mostly comprised of Walmart locations we sold.  We had been successful for 10 years building that business, but we were offered a fair deal on a business that had a lot of risk, specifically a contract Walmart could cancel at any time on 30 days’ notice, so we sold.

 

• Just because something has been good, doesn’t mean it will stay good. We built a large route with a partner in Puerto Rico, we owned some cranes and he owned others, but we sold him plush for the whole business.  When the island began to experience an economic downturn, we encouraged our partner to sell the route to a willing buyer. When he chose not to, we brought our equipment back to the mainland and gave our partner our plush supplier so he could get a better price on plush to help him keep going.  This business was great for years but was diminishing, so we moved on.

 

• Don’t miss out on what you can gain by overly worrying about what you could lose. While I don’t have the appetite to risk it all for a high-risk high reward endeavor, I am willing to take significant calculated risks.

 

There are plenty of companies more successful than ours, but we have done well and stayed in business for 23 years so we must be doing something right.  The last few years have been great for our industry which leaves many people wondering when the inevitable downturn will happen?  We have this same concern, and sometimes wonder if we should be cautious.  This concern/fear hasn’t stopped us from investing in operations for the first time in 10 years, hiring employees, or investing more into our infrastructure but then again none of these things are we doing for the first time because well, we want the cheese.