Why have Skin in the Game?

Warren Buffett is generally attributed with coining the phrase “skin in the game.” It essentially means key players have a financial stake in the outcome of an investment. That if you’re going to run a company or development project, you’re personally as at risk in some capacity as the outside investors. 

For a development project, this “skin” is typically the equity you have on the line. Capital partners always want to see the percentage of total cost. How much are you personally willing to risk? How much do you believe in this project and your ability to execute it? Because they want to understand what you are willing to personally, put into the game.

You can really tell people’s risk aversion in a game of Monopoly. This is one of the reasons I love this game.

In this board game, every player starts out on equal ground. Some are hungrier than others are and gobble up each property as fast as they can. Others will be strategic and aim for properties in proximity to one another. Some are very cautious and end on holding on to all their money. There is always that one player always strives to control the railroad and utilities. One who is most aggressive to build their portfolio and aim for the density associated with hotels. 

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You could play multiple rounds of Monopoly with the same players and they will have different results each time. That’s because you have at account for changing circumstances.

Strong players will be strong regardless, because they grit their teeth and find paths in the face of adversity and adapt to changing circumstance. They also usually lose most stylishly, always going out with a bang knowing they gave it their all and are confident with their decisions. 

In development, these two things make or break you: Are you willing to put your money where your mouth is? Are you a strong player in the face of adversity?

-jen