Delivering Happiness

My First Shoe Show as a Zappos Employee by Fred
I went to Las Vegas for the WSA (World Shoe Association) shoe
show the next day as a Zappos employee. I’m not quite sure what we
were thinking, but we showed up without a PowerPoint presentation
or any marketing collateral. We just had a sheet of paper and an idea.
We talked to eighty different brands over the next four days. Only
three agreed to work with us. It wasn’t exactly a promising number,
but it wasn’t surprising either. We were pioneering a new concept of
having brands drop ship directly from their inventory to the
customer.
Talking to the brands was actually educational because they
asked legitimate questions like, “How are you going to ship it?
Who’s your shipping carrier? How do you plan to handle returns?”
At least we now knew a lot of things about what we didn’t know.
We retreated to our hotel room for lunch and asked ourselves what
we needed to do.
So we started cold-calling. We left messages with DHL, UPS,
and FedEx. After some nail-biting and a lot of idea-throwing, we
finally got a reply. UPS was the only one that called us back and it

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turned out it was the only one we needed. They believed in us from
the beginning and they’re still great partners with us now.
Looking back, a lot of our growth happened that way. We’d just
throw ideas against the wall to see if they’d stick, improvise, and
make it happen.
Alfred and I weren’t very involved with Zappos during the first few
months after we made the investment. We were busy meeting with other
companies that were looking for seed investments. Over the course of the
next year, we would make twenty-seven different investments, and we
would check in with each of the different companies, including Zappos,
about once every two weeks to see how they were progressing.
To me, it was a bit of a strange shift to not be involved in the day-to-day
details of the companies that we were now investors in. Once the
investment had been made, we would occasionally offer advice to anyone
who asked for it, but for the most part the companies were busy running on
their own.
I was getting bored with the investment business, so I started looking for
something else to fill my time. I wanted to find something that was both fun
and challenging at the same time.
That’s when I discovered poker.
Poker
I’d played a little bit of poker in college, but like many people, I always just
considered it to be a fun form of gambling and had never bothered to
actually study it. Back in 1999, poker was not yet a mainstream activity.
Most people had never heard of the World Series of Poker, and TV
networks like ESPN were not yet broadcasting poker tournaments to the
masses.
One night while battling insomnia, I randomly came across a Web site
that served as a community hub for people who played poker regularly. I
was fascinated by the amount of analysis and information about playing that

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was freely available, and spent the entire night reading different articles
about the mathematics of poker.
Like many people, I had always thought that poker was mostly about
luck, being able to bluff, and reading people. I learned that for limit hold
’em poker (which was the most popular type of poker in casinos at the
time), none of that really mattered much in the long run. For every hand and
every round of betting, there was actually a mathematically correct way to
play that took into account the “pot odds” (the ratios among the amount of
the bet, the number of chips already in the pot, and the statistical chances of
winning).
With the exception of poker, almost all games in a typical casino are
stacked against the player, and in the long run the casino always comes out
ahead. I was intrigued by poker because in poker you are playing against
other players, not against the casino. Instead, the casino just takes a service
fee for each hand dealt (usually from the winner of each hand).
In a casino, each poker table seats up to ten players. As long as at least
one of the players is not playing in the mathematically optimal way (and
usually it’s several players that aren’t), the players who are playing
correctly will generally end up winning at the end of the day.
Learning the basic math behind limit hold ’em poker was not actually
that hard. I bought and studied a book called Hold ’em Poker and started
going to card rooms in California several times a week to practice what I
was learning from the book. (Although California is a generally no-
gambling state, card rooms are allowed because poker is not a game against
the house.) Within a few weeks, I felt that I had mastered the basics of the
mathematics behind playing hold ’em.
Understanding the mathematics behind hold ’em and playing against
players who didn’t was like owning a coin that would land on heads one-
third of the time and tails the other two-thirds of the time, and always being
allowed to bet on tails. On any individual coin flip, I might lose, but if I bet
on tails a thousand times, then I was more than 99.99 percent guaranteed to
win in the long run.
Likewise, when playing a game against the house such as roulette or
blackjack, it would be like being forced to always bet on heads: Even
though you might win any individual coin flip, if you did it a thousand

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times, you would be more than 99.99 percent guaranteed to lose in the long
run.
One of the most interesting things about playing poker was learning the
discipline of not confusing the right decision with the individual outcome of
any single hand, but that’s what a lot of poker players do. If they win a
hand, they assume they made the right bet, and if they lose a hand, they
often assume they made the wrong bet. With the coin that lands on heads a
third of the time, this would be like seeing the coin land on heads once (the
individual outcome) and changing your behavior so you bet on heads, when
the mathematically correct thing to do is to always bet on tails no matter
what happened in the previous coin flip (the right decision).
For the first few months, I found poker both fun and challenging,
because I was constantly learning, both through reading different books and
through the actual experience of playing in the field. I started to notice
similarities between what was good poker strategy and what made for good
business strategy, especially when thinking about the separation between
short-term thinking (such as focusing on whether I won or lost an individual
hand) and long-term thinking (such as making sure I had the right decision
strategy).
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: