This Poker Strategy Built A $1.2 Billion Dollar Startup

Critical business lessons learned at the card table.

Hello 👋

Martin here. Welcome to another edition of Founders’ Hustle.

Today I’m sharing an incredible entrepreneurial framework—learned by playing poker—from legendary founder, investor, and operator Tony Hsieh.

Highlights:

  • How to increase your chances of building a successful business. 📈

  • What type of decision strategy is needed to win. 🧠

  • Why understanding the rules of the game is critical. 📖


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Last year revered founder, investor, operator, and incredible human being, Tony Hsieh died totally unexpectedly at 46.

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

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

I wasn’t lucky enough to count myself in that group, so in an effort to learn more about his life and journey as an entrepreneur, I decided to order a book he’d authored roughly ten years prior.

It’s called Delivering Happiness: A Path to Profits, Passion and Purpose.👇

Notably, the book is neither a complete autobiography nor a deep-dive into Zappos.

Instead, it’s 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’s a brief and super digestible read that packs lots of points and interesting insights in close succession.

My intention was to summarize the key takeaways of the entire book in this newsletter. But, there’s kind of a lot to unpack within a logical theme, so I’ve decided to focus on one short section of the book that is really juicy for founders.

It details a short stint in Tony Hsieh’s life where he took up poker pretty seriously.

To the degree he spent intense periods of time studying how to play poker, and, actively doing so in California card rooms and Vegas casinos.

For context, this was after selling his first company LinkExchange to Microsoft in a deal worth $265m. At this point he’d already become an investor and put money in Zappos—but wasn’t running it.

Why is his foray into poker interesting?

Learning the dynamics of what it takes to be a successful poker player became an actionable entrepreneurial framework, which he would later take and utilize as CEO of Zappos incredibly successfully.

“I started to notice similarities between what was good poker strategy and what made good business strategy, especially when thinking about the separation between short-term thinking (such as focussing on whether I won or lost an individual hand) and long-term thinking (such as making sure I had the right decision strategy).”—Tony Hsieh

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

What is that significant?

In poker, there is a mathematically optimal way of playing which gives you a huge winning advantage over the long term if you stick to it versus those that don't.

But, you can lose in the short-term on individual hands or games, because there is an element of chance (card dealing) and other external factors involved—like bluffing.

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

Why? Short-term players are not playing the odds holistically optimally, instead, basing their decisions on loss-making events that are not statistically meaningful in isolation.

They misguidedly come to the conclusion their decision logic must be wrong if they lost, and, consequently, overweight the significance of individual loss-making incidents in their strategy going forward.

Like real-life entrepreneurship, in poker, you can’t win all of the time. Randomness you can’t control is baked into the rules of play.

A long-term decision strategy accepts there will occasionally be short-term losses, but it’s okay because this uncertainty is factored into the model. You can win on average over the long-term—months, years, decades.

Significantly, in order to execute an optimal decision strategy in poker, you first need to learn the underlying rules (mathematics) of the game.

The same can be said for practically every aspect of company building.

First, understand the underlying mechanics of your market. Then, configure an optimal decision strategy and stick to it. Sometimes decisions will produce bad results, but that doesn’t mean the decision strategy is bad over the long-term.

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

Additionally, Tony Hsieh noticed the outcome of a poker game (a company’s degree of success) is decided before you even sit down and start playing (have launched).

For example, sitting down at a poker table with a few tired players (weak or inefficient competitors) and lots of chips (big addressable market) is going to yield far better results than sitting down at a poker table replete with talented players (tough competition) and fewer chips (small addressable market).

And, there’s more:

“I noticed so many similarities between poker and business that I started making a list of the lessons I learned from playing poker that could also be applied to business.”—Tony Hsieh

Below is that list, extracted verbatim from his book:

Evaluating Market Opportunities

  • Table selection is the most important decision you can make.

  • It’s okay to switch tables if you discover it’s too hard to win at your table.

  • If there are too many competitors (some irrational or inexperienced), even if you’re the best it’s a lot harder to win.

Marketing and Branding

  • Act weak when strong, act strong when weak. Know when to bluff.

  • Your “brand” is important.

  • Help shape the stories that people are telling about you.

Financials

  • Always be prepared for the worst possible scenario.

  • The guy who wins the most hands is not the guy who makes the most money in the long run.

  • Go for positive expecteted value, not what’s least risky.

  • Make sure your bankroll is large enough for the game you’re playing and risks you’re taking.

  • Play only with what you can afford to lose.

  • Remember that it’s a long term game. You win or lose individual hands or sessions, but it’s what happens in the long-term that matters.

Strategy

  • Don’t play games that you don’t understand, even if you see lots of other people making money from them.

  • Figure out the game when the stakes aren’t high.

  • Don’t cheat. Cheaters never win in the long run.

  • Stick to your principles.

  • You need to adjust your style of play throughout the night as the dynamics of the game change. Be flexible.

  • Be patient and think long-term.

  • The players with the most stamina and focus usually win.

  • Differentiate yourself. Do the opposite of what the rest of the table is doing.

  • Hope is not a good plan.

  • Don’t let yourself go “on tilt”. It’s much more cost-effective to take a break, walk around, or leave the game for the night.

Continual Learning

  • Educate yourself. Read books and learn from others who have done it before.

  • Learn by doing. Theory is nice, but nothing replaces actual experience.

  • Learn by surrounding yourself with talented players.

  • Just because you win a hand doesn’t mean you’re good and you don’t have more learning to do. You might have just gotten lucky.

  • Don’t be afraid to ask for advice.

Culture

  • You’ve gotta love the game. To become really good, you need to live and sleep it.

  • Don’t be cocky. Don’t be flashy. There’s always someone better than you.

  • Be nice and make friends. It’s a small community.

  • Share what you’ve learned with others.

  • Look for opportunities beyond just the game you sat down to play. You never know who you’re going to meet, including new friends for life or business contacts.

  • Have fun. The game is a lot more enjoyable when you’re trying to do more than just make money. —Tony Hsieh

Until next time!

Martin 👋

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