Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewzappos, poker, risk taking and banking
Zappo is a highly successful online retailer which has managed to differentiate the customer experience through its staff and human touch, not just through technological innovations. In addition in excelling in retailing, Tony Hsieh, Zappo’s CEO, specializes in poker. He offers some tips that might come handy as you consider product line, geography or other modes of expansion.
1. The odds are with you. As long as at least one player is not playing optimally, those who are playing correctly generally end up winning at the end of the day. Ergo, when considering expansion, one risk reduction technique is to assess how many of the players in the field are sub-optimizing, and how effective your own execution will be. With several ineffective players, the field is wide open to better operators.
2. Don’t confuse the right strategy with the individual outcome of any single hand. Win the war, but don’t expect to prevail in every battle. Setbacks WILL happen, but with the right view of the longer term, they can be managed. We often don’t allow a strategy to fully play out when a setback occurs. It is appropriate to evaluate whether the issue is temporary and tactical or whether the flaw is in the strategy itself.
3. A good strategy entails an appropriate time frame and a positive expected value. We often get too short-term in our horizon (see previous point). Further, by attempting to mitigate most risks, we sometimes don’t seek the highest positive expected value. In other words, we go for what’s least risky instead of what’s the most steady performance and income producing. The guy who never loses a hand is not the guy who wins the most money in the long term, and neither is the guy who wins the most hands.
A case in point: The best money maker in the highly volatile foreign exchange trading operation in one NYC bank was a guy who had fantastic discipline and decision rules. He never made huge windfall profits, nor did he lose a bunch. He just made money steadily every single day.
4. “Table selection” is a critical decision. The game starts before you sit down. What markets you play in and which products you offer are critical to your success. For example, focusing on the highest growth markets might seem like a wise strategy, but if those are over-fished or dominated by effective players, this decision needs re-evaluating.
5. It’s OK to switch tables (markets or products) if it’s too hard to win at your table or if new players come, thereby changing the table dynamics. The Chicago marketplace was an excellent market for midsize and community banks until several foreign banks acquired local players and destroyed the pricing discipline for both deposits and loans. Market dynamics changed dramatically. Similarly, as these players weakened, the market conditions changed yet again, presented renewed opportunities.
6. Figure out the game when the stakes aren’t high. Betting the bank is never a good idea, no matter how sweet the deal looks (remember First Union and the Money Store? BancOne and First USA?).
7. The player with the most stamina and focus usually wins. I have been preaching strategic focus for years. Apparently it works even in poker! Know who you are, and, more importantly, who you’re not.
8. Differentiate yourself. I have written and will continue to write about innovating differentiation. Our industry generally believes that our products are fungible, and therefore everyone differentiates on “service,” which in turn means no differentiation at all. True differentiation is both as possible and advisable in our business as it is in other industries
9. Zig when others zag. The lemming strategy hasn’t worked for our industry or elsewhere. Too often we follow others “just because everyone else is doing it” without a clear strategic intent, following the “last in, last out” strategy. Being where others are not is a far better way to reach profitability. For example, while technology and database management are critical tools of the trade for all banks, I find that some smaller banks want to use those as the cornerstone of their marketing strategy. Yet no small bank can outspend the mega-banks, so ineffectively competing with them on their own turf doesn’t seem to make much sense to me.
10. You must have passion for the game. If your heart isn’t engaged, if you don’t live it and sleep it, you’re less likely to succeed. Having a good time at work creates both short and long term value.
These comments are merely reminders of what you already know. I, in turn, was reminded of them as I read Hsieh’s book. They are not gospel, but they are relevant screens to evaluate your thinking against as you contemplate the future.