What's the Meaning of Skin in the Game?

Basics Jun 29, 2021

What does skin in the game mean? It's simple: investors like to see executives taking on personal risk to lead a business. Yet there's so much more to it!

It's all about being invested in the outcomes of an endeavour. This can mean literal investing where you put money at risk, or dedicating your time to it. I like to view "skin in the game" in three different ways:

  1. How the business world does it
  2. What it is in general: commitments and risk
  3. How I can use it as a personal motivator

Whilst the business definition of skin in the game is straightforward, its implications for relationships and kink and aspirations are more involved.

The Business World's Skin in the Game Meaning

Investors are a power-hungry lot, often incredibly wary of doling out their capital form of power (money). They want not just to preserve what they have, but to grow it endlessly as well.

Therefore investors want to ensure that anyone being loaned their power will repay it, and not just take the money and run. To do that, they like to see business leaders that are aligned with the investor's goals.

The most common forms of alignment between leaders/executives and investors? Stock compensation, or insider ownership of a business.

Thus skin in the game is about power and communicating through actions. Investors want to keep the power dynamics in their favour, and they want to be able to trust the business leaders they lend to.

But trust in the business world is not built on words. An executive isn't going to raise capital by running around saying "Trust me, I'll give you a good return." That's something grifters and con artists do.

Instead trust is built on actions. Things like taking on the risk that if the business fails, the fortunes of the business leaders also fall. In effect, putting their money where their mouth is.

A leader who puts their own money into their company obviously believes in the business, which gives investors confidence that it's not going to be intentionally driven into the ground to milk money out of investors.

After all, if you put your own money into the business, then you also become an investor that wants to see profits returned back to you.

It's About Commitments and Risk

The basis of skin in the game is that commitment and risk are intertwined. It's hard to show commitment without taking some risks.

This makes for a great lesson in general, but also for personal relationships in particular.

Not everyone wants a committed relationship, and there's lots of ways to express commitment. Yet some of the most impactful ways to show commitment involve an element of risk.

Moving in together, for instance – privacy and housing are particularly risky fundamentals to put on the line if the relationship goes sour. Yet the rewards for taking that risk is the ease with which you can get quality time by nesting together.

Or ceding financial control to one partner, as another example. You're trusting that they will do right by you, and showing that you're committed to staying there.

Of course skin in the game isn't limited to just mundane life. In kinky relationships there's all sorts of leaps of faith and risky exchanges.

Power exchange is generally an exercise in mutual trust falls.

It can come in all sorts of forms. The first time you negotiate to be restrained, and to a lesser degree every time thereafter. The trust in a sadist that they won't break your arm when twisting it to the limits of flexibility. Every time you undertake edge play. Or how you run the risk of being outed to the mundane world. Or how you trust that a play partner won't report you to the police.

It's no exaggeration to say that kink often entails someone placing their life and well-being into another person's hands.

In the end, those little risks and trust falls all build up into a cohesive message – a commitment. It varies from person to person:
"I'll only hurt you in good ways."
"You can safely explore this with me."
"I'll give you what I can, while I can."

The dependability of those commitments is what's important. You can't make a commitment in fair weather only to break it as soon as trouble arises.

Predictable is better. Show that your interests are aligned, say what you're going to do, then do it, and repeat until trust is formed.

As an aside, it's worth mentioning that the core of commitment contains traces of the sunk cost fallacy.

That can be a positive thing. Sticking through the small rough patches can be good, since deciding when to split is a hard problem. You don't typically want to end relationships for trivial or senseless reasons.

In fact it's rather expected that commitment has a cognitive bias at play. The sunk cost fallacy is also known as escalation of commitment. It's in the name!

Biases have a special place with skin in the game.

Skin in the game can make you irrationally invested in achieving a positive outcome, even when all signs say that that's not happening.

It's how you end up with business leaders doubling down on failing strategies, or with people clinging to fractured relationships.

My Personal Meaning: Fear Motivates

Personally I find fear to be my best motivator. Skin in the game means I have something to be afraid for, because otherwise I'm just relaxing on the sidelines.

I don't mean numbing fear like "how will I feed myself next week?" or other extreme stressors that suppress your ability to function.

I mean aspirational fears, such as "If you died tomorrow, what would you be terrified of leaving undone in the world?"

I've talked about some of my broader goals on this blog, which I will invite to your attention:

Big Plans Within My Executive Household
Financial independence is a spectrum, and our goal is to achieve abundance. Yet early retirement is not our plan: FI is only the start of something grand.

Loosely speaking, my goal is to give back to the world as best I can. There's countless specifics I could approach, only some of which are mentioned in the above article.

Yet I'm terrified that I will die before I finish my life's work.

I'm invested in the outcome of my life's work, it's not just a punch-clock situation. My remaining time dwindles day by day, and I want to make sure that there's more good in the world for my having been in it.

To me, skin in the game is all about that sporadic worry, and that drive to achieve greatness. It's about being personally invested in achieving an outcome, and pursuing it instead of letting it sit by the wayside collecting dust.

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Mistress

Mistress of the Home, responsible for all matters financial. A loving Domme tempered with ambition and attention to detail.

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