Slot machines are effective because they disguise losses as wins. Small wins interspersed with continuous losses give the gambler a false sense of winning.

Before the invention of the electronic versions we know today, slot machines were a small part of a casino’s gaming mix and weren’t popular. People put coins in, pulled the arm and lost within minutes. The odds were obvious and winning felt hopeless.

Digital slot machines created the opportunity to disguise the gambler’s losses as wins. Small wins are doled out incrementally to keep engagement and hopes of winning high. The longer they play the more money they lose. All while experiencing the excitement of winning.

We know how it ends. The house always wins with slot machines. That’s why there are over 120,000 slot machines in the state of Nevada.

Mismanaging cash flow can create the same phenomenon as a slot machine. 

Closing sales and increasing revenue can distract us from the fact that our margins are weak, our expenses are creeping or we’re not turning our inventory fast enough. “It takes money to make money” so we put coins in the slot machine to keep the wins coming.

We know how it ends. 

Losses disguised as wins are an easy trap to fall into for small business owners. Especially for those that have inventory-based businesses. 

A couple of ideas on how to avoid the slot machine phenomenon:
Know the game you’re playing.
Do the math. 
Financial reports are intended to be reviewed monthly, not annually. 
Turn inventory quickly.