Table Selection

I just finished a great little book by Tony Hsieh, the CEO of Zappos.com called Delivering Happiness.  For those of you who don’t know what Zappos is, go ahead and visit the site.  If you (or a significant other) has a shoe fetish, it’s your “mother ship!”  They also sell clothing and accessories these days, but originally they were solely (pun intended) an on-line shoe retailer.

Tony is an interesting cat.  He was a successful entrepreneur before he got involved with Zappos, having sold another Internet startup (LinkExchange) to Microsoft for a hefty chunk of change.  Like a few of his peers, after selling off his company Tony started an incubator and investment fund to help other Internet-related start-ups realize their dreams.

One of the companies that came through his shop was Zappos.  He liked the concept so much that he eventually became its CEO.  He put everything he had, literally, into Zappos.  Ten years later, in 2008 he sold it to Amazon.com for US$ 1.2 billion.  I don’t know what he made on the deal (it was an all stock transaction), but it was significant.

Tony’s still on board and Zappos is going strong.  In fact, I just received my Salomon Speedcross 2 GTX®’s in the mail yesterday!  Zappos promised me they would be here within 5 days and they got here in 2.  I love this company!  No one does customer service better than Zappos.

But I digress.  The topic of this post is something Tony brings up in his book.  He plays poker, and some of the lessons he learned in poker translate nicely to the business and investment worlds.  I won’t go through them all (buy his book, it’s a great short read), so let’s just focus on the first, and likely most important one.

Table Selection

Tony states that in poker, “table selection is the most important decision you can make.”    In business and investing the table is your chosen industry or sector.  The first rule of thumb is that if there are too many competitors your odds of success, regardless of your skill, are diminished.  This makes sense to me.

Quoting Tony again, “In a poker room at a casino, there are usually many different choices of tables.  Each table has different stakes, different players, and different dynamics that change as the players come and go, and as players get excited, upset or tired.”  Do you see the parallels to business AND investing?

“I learned that the most important decision I could make was which table to sit at.  This included knowing when to change tables.  I learned from a book that an experienced player can make ten times as much money sitting at a table with nine mediocre players who are tired and have a lot of chips compared with sitting at a table with nine really good players who are focused and don’t have that many chips in front of them.”

“In business, one of the most important decisions for an entrepreneur or CEO to make is what business to be in.”

Tony goes on to say that in business, unlike poker, if he didn’t like the “tables” he could create his own.  He didn’t have to sit at a table (get involved in a business venture or investment) that he didn’t feel good about.  That’s entrepreneurship in a nutshell.  Seeing an opportunity and creating your own platform to take advantage of it, whether as a CEO or an investor, is the ultimate in satisfaction.

How many businesses or investors do you know that succeeded by either choosing the right table immediately, switching “tables” when the odds turned, or created their own successful “tables?”  I can name dozens right off, and probably thousands if pressed.  We succeed as investors when we take measured risks.  We succeed by seeing things that our fellow investors may have overlooked.

Next week we’ll talk a bit about a few investments we are making right now that are counter-trend – or using Tony’s analogy, they are empty “tables.”

Enjoy your Holiday weekend!

Mark and Chris

For I remember it is Easter morn, and life and love and peace are all new born.
-Alice Freeman Palmer