The poker strategy that allowed us to create a US$1.2 billion company

Tony Hsieh relied on the poker strategy to grow Zappos until he sold it for US$1.2 billion to Amazon. Learn the secrets of their success.

In 2020, revered founder, investor, operator, and incredible human being, Tony Hsieh, died completely unexpectedly at age 46.

He is probably best known as the former CEO of Zappos, the online shoe retailer acquired by Amazon in a $1.2 billion deal in 2009.

His untimely passing was met with great sadness by the tech community, especially those who knew him, including a slew of high-profile founders, former colleagues and VCs.

I was not lucky enough to be in that group, so, to better understand his life and career as a businessman, I decided to order a book that he had written about ten years before.

Its titled Delivering Happiness: A Path to Profits, Passion and Purpose.👇

Delivering Happiness: A Path to Profits, Passion and Purpose, the book by Tony Hsieh

Notably, the book is neither a full autobiography nor a dive into Zappos.

Instead, it is an amalgamation of Tony Hsieh's greatest observations, experiences, and mental models. “to find happiness in business and in life.”

Partly for that reason, it is a short and super digestible read that contains a lot of points and interesting reflections in close succession.

My intention was to summarize the key points of the entire book in this article. But, there's a lot to break down into a logical topic, so I've decided to focus on a short section of the book that's really juicy for founders.

It details a brief period in Tony Hsieh's life in which he took up poker quite seriously.

To the point that he spent intense periods of time studying how to play it, and actively playing it in California card rooms and Las Vegas casinos.

For context, this was after selling his first company LinkExchange to Microsoft in a deal worth $265 million. At that point he had already become an investor and had put money into Zappos, but he was not running it.

Learning the dynamics of what it takes to be a successful poker player became an applicable business framework, which he would later take and use as CEO of Zappos with incredible success.

“I began to notice similarities between what was a good poker strategy and what was a good business strategy, especially when thinking about the separation between short-term thinking (like focusing on whether I won or lost an individual hand) and short-term thinking. long term (like making sure you had the right decision strategy)»

Tony Hsieh

In his other words, the “discipline of not confusing the correct decision with the individual result of any hand”.

In poker, there is a mathematically optimal way to play that gives you a huge long-term winning advantage if you stick to it over those who don't.

However, you can lose in the short term in individual hands or games, because there is an element of chance (the deal of cards) and other external factors involved.

Players who stick to their optimal mathematical decision strategy will win in the long term versus short-term players who spontaneously adjust their decision logic based on the results of each hand or game.

Because? Short-term gamblers do not play the odds holistically and optimally, but instead base their decisions on losing events that are not statistically significant in isolation.

They mistakenly conclude that their decision logic must be flawed if they have lost, and consequently overvalue the importance of individual incidents of loss in their strategy going forward.

Just like in real business life, you can't always win in poker. Chance that cannot be controlled is included in the rules of the game.

A long-term decision strategy accepts that there will occasionally be short-term losses, but that's okay because this uncertainty is built into the model. You can earn on average in the long term: months, years, decades.

To execute an optimal decision strategy in poker, you must first learn the underlying (mathematical) rules of the game.

The same can be said for virtually every aspect of business creation.

First, understand the underlying mechanics of your market. Next, set up an optimal decision strategy and stick to it. Sometimes decisions will produce bad results, but that doesn't mean the decision strategy is bad in the long run.

For example, a consistent decision framework that delivers 7 successful hires out of 10 produces better long-term results than changing the decision logic after the outcome of each bad hire and, on average, achieving 6 successful hires out of 10.

Furthermore, Tony Hsieh realized that the outcome of a poker game (the degree of success of a company) is decided before you even sit down and start playing (having taken the plunge).

For example, sitting at a poker table with a few tired players (weak or inefficient competitors) and a lot of chips (large addressable market) is going to yield many more results than sitting at a poker table full of talented players (tough competition). and fewer tokens (small addressable market).

“I realized there were so many similarities between poker and business that I started making a list of lessons I learned playing poker that could also be applied to business.”

Tony Hsieh

Below is that list, taken verbatim from his book:

  • Table selection is the most important decision you can make.
  • It's okay to change tables if you find it's too difficult to win at yours.
  • If there are too many competitors (some irrational or inexperienced), even if you are the best it is much more difficult to win.
  • Act weak when you are strong, act strong when you are weak. Know when to bluff.
  • Your “brand” is important.
  • It helps shape the stories people tell about you.
  • Always be prepared for the worst possible scenario.
  • The guy who wins the most hands is not the guy who wins the most money in the long run.
  • Bet on the expected positive value, not on what is less risky.
  • Make sure your bankroll is big enough for the game you are playing and the risks you are taking.
  • Only play with what you can afford to lose.
  • Remember that it is a long-term game. You win or lose hands or individual sessions, but what matters is what happens in the long term.
  • Don't play games you don't understand, even if you see that many people make money with them.
  • Discover the game when the stakes are not high.
  • Dont cheat. Cheaters never win in the long run.
  • Keep your principles.
  • You must adjust your playing style throughout the night as the dynamics of the game change. Be flexible.
  • Be patient and think long term.
  • Players with more stamina and concentration usually win.
  • Differentiate yourself. Do the opposite of what the rest of the table does.
  • Hope is not a good plan.
  • Don't get carried away with the “tilt.” It is much more profitable to take a break, walk or leave the game for the night.
  • Educate yourself. Read books and learn from others who have done it before.
  • Learn by doing. Theory is fine, but nothing replaces real experience.
  • Learn by surrounding yourself with talented players.
  • Just because you win a hand doesn't mean you're good and don't have to learn more. You may have just been lucky.
  • Don't be afraid to ask for advice.
  • You have to love the game. To become really good, you have to live it and sleep it.
  • Don't be cocky. Don't be ostentatious. There is always someone better than you.
  • Be kind and make friends. It is a small community.
  • Share what you have learned with others.
  • Look for opportunities that go beyond the game you've sat down to play. You never know who you're going to meet, including new lifelong friends or business contacts.
  • Have fun. The game is much more enjoyable when you are trying to do more than just win money. -Tony Hsieh