I just got back from a trip to Las Vegas for my 35th birthday. When I was there I played a lot of Blackjack, won $6,500 in about 25 minutes and found that the way I play the game has a lot to do with how I build businesses.
In this episode I’m going to talk about why you should NOT “bet the farm” when starting a new business and I’ll share with you the idea of risk mitigation and getting your money back out of your business ASAP, which goes completely against what most investors and even most entrepreneurs do.
Hey hey. It’s Mitch Harper, and welcome to episode number six of my Insane Growth Podcast, which I’m calling “What I Learned Gambling in Las Vegas.” Now, it’s a bit of a clickbait title, but that’s kind of what I want to talk about today. Every year for those of you that don’t know, I go to Las Vegas for my birthday. I turned 35 on the 13th of July and I took a bunch of people across. My wife, my two daughters, my brother, and three of my friends, three of my close buddies.
I made a pledge to myself, probably about seven years ago, that every year moving forward I would spend my birthday in the place that I love the most in the world, and for me, there’s really two places. There’s [inaudible 00:00:47], which is where we go two or three times a year, but for me, it’s Vegas. Specifically, I love the Bellagio, and specifically, even more specifically I mean, I love Yellowtail, which is the Japanese sushi restaurant in the Bellagio, and even more specifically, I love their Big Eye Tuna Pizza.
Now, it’s one of those dishes that will change your life if you haven’t had it. I took my brother, I took three of my mates, and they’d never had it before. They all had it and they just lost their minds. If you’re in Vegas soon, if you’re taking your husband, your wife, your boyfriend, your girlfriend, your buddies, whatever it is, make sure you go and eat the Big Eye Tuna Pizza at Yellowtail. It is just incredible. I’m back home now, back in Sydney. There was a little bit of delay between the last episode of my podcast, which was on July 4th, and this one, which is August the 11th, so about five weeks between.
But I’m back to my normal schedule now, so we will be doing those every week and bringing them to you on iTunes and also on my blog. I played quite a bit of blackjack on this trip and I went to Vegas twice when I was in the US for three weeks, so once with my wife and little girls, where I did no gambling pretty much. We just had shows and restaurants, and all that … Swimming, and all that good stuff. Then the second time with my buddies where we did a lot of gambling and a lot of drinking as well.
The funny thing was, I’m a blackjack guy. Strangely, I never lose. I played two nights out of the three that we were there, and walked away with about six and a half thousand dollars, from a pretty small between. I’m not the guy that goes to a high roller room or anything like that. My normal routine is that I’ll go and take $500 from the ATM and I’ll play two or three hands with just the minimum bets. So, $25 I think or $50 we were playing on this table. If I can win some of those and I feel good, then essentially I’ll put all of my money on one hand. So, $525, $550, whatever it is.
If I win that hand, then I pocket my original “investment,” the 500 odd dollars, and I play with my winnings. This particular time, the table was good. My brother and I were playing, I lent him $500 and any of the profit he made I got half of it, and that worked really well, because he did well. I think he ended up with about $1500 and I ended up within it was about 15 minutes, walking away with $4500, so 4000 in profit. What I also like to do when I stop playing is just stay at the table and observe the psychology of the other players. Now, my view is I’m the alpha male. I always want to control the cards, so I sit at the right side of the table. I get dealt to first.
Therefore, there’s no one ahead of me that can mess up the flow of the cards. I don’t count cards or anything like that. I have two very simple rules with blackjack. Also assume the next card’s a 10, and always double down when you can, and always bet big. It’s a bit of an airy fairy thing, but if you feel you’re on a good table, max it out. Either win, go hard, or go home. That’s how I ended up with $4500 after 15 minutes. Then, I just sat there watching the table. My brother did well, as I mentioned. He was up about $1500. He was a few drinks in so that was quite funny to watch, because he’s only 22.
I was just watching everybody else and how they’d play and how they’d react, and I always go to the blackjack table with a number that I want to hit in my mind. An amount that I want to win. It was four grand. As soon as I got that, so the 15 … I think it was 12 minutes. One of my buddies was timing it and they were all just amazed that I got to that amount in 12 minutes. Once I hit that amount, I stopped playing and I walk away. I don’t get tempted to make the four grand 8000, and double and triple. I get the money that I want and then I walk away. My goal was 4000 and the reason I set that goal was because I felt guilty being in Vegas without my wife and my daughters.
They were back in LA and I was there, we drove to Vegas from LA. I wanted to buy my wife some shoes from Chanel. There’s a Chanel store in Bellagio, if you’ve ever been, and the week before we were in there and she bought some shoes, and there were lots of different colours that she could buy. She chose a particular colour, I think it was teal, and so I wanted to win because I wanted to go and buy her two more pairs of shoes. I wanted to buy her the beige colour of the shoe that she liked, and also I got her a shoe that they weren’t actually selling yet, because I asked the sales guy to go back and bring me out the new collection.
Anyway, that’s how I invested some of my winnings into my marriage, about half my winnings, I think I was $2000, and then the rest we just spent on food and drinks and whatever, over the next few days. Anyway, back to my original point about knowing when to hold them and when to fold them, and going into a game like blackjack, I see a lot of similarities with business. When I start a company, which I’m in the process of now and have been working on since November, and it’s not something I’m talking about yet, but there’s a small team, four of us.
I started that company with a specific goal that I wanted to hit. I see a lot of parallels between playing a game like blackjack where if you’re smart and prepared, of course it’s a game of luck and chance and risk and I get that. I’m not a genius blackjack player or anything like that, but I have an idea of what I want to win before I sit at the table. When I win that amount, I walk away, and I go and do something else. I don’t gamble again. I always know the house has the edge. I don’t go from blackjack to roulette to craps to this. I play, I win the amount that I want, or I lose. I strangely never have lost at blackjack and I’ve played hundreds of times in Vegas, but I get to the amount that I want and then I leave the table.
So many people get in life to where they originally want to end up, and then they still risk everything they have to get to the next level, without taking some chips off the table. I mentioned that when I play blackjack, I always start slow. I play a few hands on the minimum bet and then I go all in. Then, if I win, I take my initial investment or the money that I had to play, and I pocket that, and I play from my winnings. To me, that’s the buffer. I’ve mitigated the risk. I’m essentially in for an infinite return. I’m surprised that more founders don’t play the game of business that way.
A really simple example to apply this blackjack analogy or metaphor into business. Let’s say you start a company and you invest 500,000. You grow the company, generate profit, you pocket that $500,000, maybe over the first year or two. Then essentially, you’re playing with the house’s money from there on in, so you can’t lose, unless you do something stupid. You’re in for an infinite return, if you think about investment theory. I do the same thing in real estate. I have a real estate portfolio, it’s something I’ve been passionate about for 15 years now.
If I can get back the initial money that I put in for the deposit, the 10 or 20% or whatever I put down, and I can get that back through rent or whatever, improving the value of the property, then I’m in for an infinite return so there’s only upside. Again, assuming I have the right insurances and that tenants don’t trash the place, and I think that’s a really important mindset for us founders to develop. Trying to be in for an infinite return and getting your initial capital back instead of always swinging for the fences and risking everything you’ve got.
I’m not a big believer in going all in when you start a business. I’m not a big believer in mortgaging the house, in putting in all of your savings, right? I think you need to be completely 100% focused on your business and have singularity of focus. You have to go all in mentally, but I don’t believe financially it makes sense to go all in to a business. I believe it makes sense to invest in your business, but then I believe it makes sense to have a path to get back that initial capital, so as I mentioned, you’re playing with the house’s money, instead of gambling your mortgage or your kid’s college fund, or your emergency fund or whatever it is.
That’s a parallel that I realised, the life lesson that I learned a few weeks ago in Vegas, playing blackjack. I have a low risk tolerance, I have a low risk profile. I don’t like risk, which is funny considering I’ve started seven companies and I’m building my eighth now. Most entrepreneurs are hardwired to love risk and to go all in. I’m the complete opposite. I’m very risk adverse. I mitigate all of the downside first, and then I play to the unlimited upside. Very similar to what Richard Branson does. I was reading somewhere about how he started Virgin. He leased the planes, I believe it was from either BA or Singapore Airlines.
The first thing he did was not think about, “How can I make a billion dollars from Virgin, the airline?” The first thing he did was think about mitigating the risk. As part of the leasing agreement no the first fleet of airline that they had … Aeroplanes , sorry, that he had, he had a clause in there where he could give them back at any time and walk away. He completely mitigated the downside and the chance of Virgin failing, that he would be held liable and go bankrupt, and he essentially had unlimited upside because he could keep leasing more planes using the cash flow that came from the business.
I think that’s such a fundamental mindset shift for entrepreneurs that we need to make. I made that mindset shift without realising, probably 10 years ago. Why I’m telling you this story with Vegas and blackjack is I realised that I carried that across all areas of my life. First I think about capital preservation. If I put money in, how do I get it back? Then, very distant second spot, I think about capital appreciation. How do I make my money grow? Whether that’s in business, whether that’s in investing, whether that’s gambling in Vegas, playing blackjack at Bellagio.
That’s the lesson that I wanted to share with you today. Think about and plan, and it’s not hard to do. Mitigate the downside, don’t believe these fools tell you that being an entrepreneur means going all in, risking the family house, putting in your kid’s college fund, dipping into your savings. It is just not true. One of the articles I wrote on Medium a while ago was how to generate a million dollars to fund the first year or two of your startup, and so you don’t have to read the article, the idea was to build a consulting company, sell education, like an online course, do webinars, do something like that where it doesn’t scale, as Paul Graham teaches.
Do something that doesn’t scale, but it generates a lot of cash you can use to fund your business or your startup, so you don’t have to go to investors, so you don’t have to dip into your college fund for your kids, so you don’t have to mortgage your house. Yes, it takes 6, 12, or 18 months longer, but isn’t that worth taking an extra year and not betting the farm just to start your business? I think it is. There’s this misconception around building any company that speed to market is important, and if you’re the first to do something, most definitely it is.
When we launched Bigcommerce back in 2008 or even 2007 as a previous company, we were one of the first SaaS platforms to market. Speed was important. But if you’re playing in a big category with a lot of players, in the big scheme of things, over the next 10 years, investing 3, 6, 12, even 18 months to do consulting or an agency or coaching or whatever it is, to stack some cash that you’ll use to fund the first one or two years of your business, so you don’t have to dip into your mortgage or raised capital, is an excellent use of your time and a very, very smart investment. Because you mitigate the risk.
Mitigate the risk first and when you can mitigate the risk in a way that’s smart, then think about how do you uncap the upside, and essentially play for unlimited upside. Coming back to my blackjack game. I played, I bet big, I won, I took my initial $500, I put it back in my pocket, and the $500 of winnings I had within 15 minutes, I turned that into $4000. So, I left the table with $4500 in 15 minutes. Even if I walked away five minutes later, I still would have that initial $500 back. Yes, I could have lost it on that hand, that first hand where I bet all of my pot, but I didn’t.
I don’t know. I thought I’d share that with you, and the analogy of Vegas and betting and psychology and going all in, and using the house’s money as opposed to your own, and putting the capital back into your pocket so you mitigate the downside and have zero financial risk in the business, I think is a very smart way to approach anything you do when it comes to money. That’s pretty much all I wanted to share with you. Thanks for listening, this was episode number six, which I have called … I actually don’t have it in front of me. I wrote it down, the title of what I wanted to call this, but now I’ve lost it. Anyway, you know what it was about. The lessons I learned in Vegas, or something like that.
Thanks for listening, make sure you go ahead and subscribe to my Insane Growth Podcast on iTunes. If you just go to iTunes or the podcast app and search for “Insane Growth” you’ll find it there. If you found this episode useful, make sure you listen to the other five episodes that I’ve previously put up over the last two months, and I will also love and appreciate and will personally read any review that you put on iTunes. A five star review would be awesome. Anyway, enjoy the rest of your day, make sure you subscribe, and I’ll come at you in the next episode of my Insane Growth Podcast. Take care.
|About Mitchell Harper
Mitch is a 7x company founder, advisor and investor. He is best known as the co-founder of BigCommerce. His companies have generated over $200,000,000 in total revenue and he is currently building an online education company and a SaaS company.