Podcast Monday (11/20/2023)
This Week’s Favorites:
Brian Chesky on Lenny’s Podcast
This is what a product oriented founder/CEO looks like
You can't build a product unless you know how to talk about the product. You can't be an expert in making the product unless you're also an expert in the marketing of it. And a lot of companies, what they do is they ship a product, it doesn't work, and they say, "We tried that. It didn't work." And if you say you tried and it didn't work, my question is, was it a bad product, a bad strategy or bad execution? Maybe it was a really well-made product, but you had no distribution plan. You had no way to talk about the product. If you build a great product and no one knows about it, did you even build a product? So that is essentially what we do. We have a much smaller function. The people are much more senior. They have much more responsibility.
And if people are watching this from a large company, here might be some of the characteristics. The first thing you notice is that these different groups might be running on slightly different technical stacks. And they may actually be accumulating technical debt. The next problem you'll see is that there's a lot of dependencies. So five teams are going different directions but they all need a payment platform. And so what happens is that the teams that everyone's dependent on get this backup like a deli and people are going around the block. And then at some point they just give up. So then the teams that are dependent on other people say, "Give me the resources and I'll build this group myself." So instead of five teams going to marketing to get a campaign or to leverage some service, they start building their own marketing departments, their own groups. So now they're really becoming separate divisions. And this is where a division comes from. Now, once you have a division, your division is as successful as you are a priority. So now you have to advocate for your division. So there's a lot of advocacy. If you have dependencies, you've got to persuade people by building relationships. And so the people that are liked that build the best relationships are the ones that get the most resources and that creates what we call politics. And so now politics that brood in the company. And suddenly people gets more subdivided, more subdivided, subdivided. And that creates another problem, which we call bureaucracy. And that bureaucracy means it's hard to know who's doing what. People are going in different directions and that creates a lack of accountability. When there's lack of accountability, then there's a sense that what I do doesn't matter and that creates complacency. And then suddenly a fast-growing company becomes a big slow moving bureaucracy. This is a general arc that winds up happening. And then you end up having this situation where a company's done 10 marketing efforts, but no customer's heard anything. They have thousands of engineers, they shipped all these products, but a customer can't tell you a single thing you did. Marketing and engineering don't talk to each other. It's not even they hate each other, they're in different universes. I've always said that the health of an organization, one simple heuristic is how close is engineering and marketing? And marketing is at lot of companies are like the waiters, engineers are like the chefs and the chefs yell at the waiters and they go in the kitchen. In fact, the waiters are the ones talking to the customers all day and they also know how to sell things so you really want them being enjoined at the hip and you want engineers to be thinking about maybe how to talk about the products that they're building.
We think of marketing as education. We're educating people on the unique benefits. A lot of companies don't do product marketing. They do brand marketing which are ads about the app or they do performance marketing, but they're never really educating people about new things they're making and shipping. And because no one's marketing new things they're shipping, there's no purpose to ship new things. Because you ship new things and people don't know about them or use them or they're not educated. You try these big new things, people don't adopt them immediately, so then you get more and more incremental.
When we're working on a launch, one of the first things we'll do is start figuring out what the story is. And the story will often dictate the product. Because ultimately you have to tell the story to people. But a story also is a really helpful way to develop a cohesive product.
We don't have a chief product officer title, but if we had one, it would be me. I wouldn't have a chief product officer. I think the CEO should be basically the chief product officer of a product or tech company. If the CEO is not the chief product officer then I don't know if they're a product or tech led company.
The problem is if you're running a divisional company, you're a product-led founder ... What are you doing? Strategy, capital allocation. My job went from proactive to very reactive. I was reacting to a lot of things. I was in a lot of meetings. Trying to adjudicate different issues between groups. So then the pandemic occurs and I had this image on mind. It's like I have this dream that I could run a company much more like a startup. I remember going on a walk with Joe and Nate in Bolinas. It was October 2019. And I told them I had this dream that I left the company 10 years ago and they just asked me to come back. And I said, "I was horrified at what I found." And they said, "Well, what'd you find?" I said, "I found a company that on the one hand had amazing culture and people with a great mission, with a brand people really loved, but we lost our design roots. We weren't investing in the longterm. We were obsessing over hitting metrics. We didn't actually have any cohesive understanding of what we were doing. It was really hard to get work done. A lot of the great people were leaving and cost was rising and growth was slowing." And that was exactly what was happening.
There's a great saying that the best way to slow a project down is add more people to it.
Way too many founders apologize for how they want to run the company. I don't know why they do, but I think they apologize for how they run the company. They basically find some midpoint between how they want to run a company and how the people they lead want to run the company. If you're a founder, what I would tell you is the problem with finding a negotiation between how you want to run a company, the people you want, is that's a good way to make everyone miserable. Because what everyone really wants is clarity and what everyone really wants is to be able to row in the same direction really quickly.
There was a saying inside Airbnb: add a zero. Add a zero at the end, which is to imagine something you order, imagine it bigger. The exercise isn't necessarily to say if people say they want to hit a goal, I say, okay, I added a zero, you have to hit that goal. It's more the exercise of what would it take to be 10X bigger or do something 10 times better? Because what you find is when you push people, they will sometimes think about the problem differently. And one of the best ways to get unstuck from a problem is to imagine a 10X scale or 10X better or 10X faster where you can't do the current process to do it. You have to think differently about the problem. And to think differently about the problem means you have to deeply understand the problem. And to deeply understand the problem, you have to break it into its components. And we might call this first principle thinking. What are the foundational elements that comprise this problem and how can we reconstruct them? So the first thing is I think by adding a zero, at least conceptually for teams, that helps them understand a problem. The second is, I think one of the most important things for a founder or leader to do is set the pace of the team. I think the pace of the team is one of the most important things you can do. And that pace is sometimes governed not by how hard people work, but how decisive they are. If you want to improve the speed of a company, then make faster decisions. Fast decisions come from a bias of action.
And so I think the first thing I try to do is to be a beginner. Pablo Picasso had a saying. He said, "It took me four years to learn to paint like Raphael, but a lifetime to learn to paint like a child." And so I've tried to always see the world through the eyes of a child. And I think one of the key characteristics of a child is curiosity. To see everything with fresh eyes. To not have too many judgments…I try to understand the sources of things. I try to learn. I try to be shameless about reaching out to help. I think that a lot of people are afraid to reach out to help because they think other people are busy. The biggest honor most people get in their lives, or one of the biggest honor is when other people ask them for help. Because we all just want to feel useful. So don't feel ashamed to reach out to something for help…I think that that is the key. It's learning, it's growing, it's curiosity. It's constantly having that hunger and that fire to always want to be better. To feel like I haven't made it yet. Because the reason I say I haven't made it yet is because if I've made it, then I'm done. And I want to feel like an artist. Bob Dylan used to say, "An artist has to be in a constant place of becoming.”
Brad Jacobs on Invest Like the Best
This is what a capital allocator looks like
I never buy a company if I don't really like the seller because I've seen a correlation between how I feel about that seller and how that deal turns out one, two, three years later. The integrity of the seller is really important to me because the company that seller has created reflects the integrity or lack thereof of the owner or of the CEO, of the senior leadership team. It reflects the work ethic. It reflects the amount that they are collegial and respectful and collaborative or not.
The perfect business, which doesn't exist, by the way. But if I had the perfect business, here's what it would look like:
1. It would be highly respected in the industry by its competitors. It would be very highly valued by the customers. The customers would say, "I'm willing to pay more to do business with this company because their service is so great, and their people are so great. And their technology is so great. Everything about them meets my needs. It delights me as a customer."
2. It's a business that has lots of organic growth, just grows by itself in terms of price, in terms of volumes. In some industries, you're not going to be able to raise price because it's too competitive. In some industries, you're not going to grow volume because there's just so much market out there, maybe it's a declining market. It's not even a growing market. So if you can find a business that can grow both price and volume, and you have ways to continuously improve the operations and grow your margins, that's a great business.
3. In every acquisition I've ever done, what's the return on capital? Because at the end of everything, that's what creates shareholder value. What creates shareholder value is you have a finite amount of debt and equity. You need to put that to use, and you have to get back a lot more capital than you put out. That's what it's about. And a business that has a high ROIC, whether it's in favor, whether it's out of favor, whether it's the fad or moment, it doesn't matter. Over the long term, will absolutely create value.
The IC in ROIC matters…The aggregate of your purchase price and how much money you're going to put in over the next year or two, assuming you're going to put in rather than take out money, that's your invested capital. And that's what you have to generate a return on. So the purchase price is very important, and you must stay disciplined on price.
The stock is down 20-something percent as some short seller is making up all this crazy stuff about us. And so we talked about it because every situation, there's a play. Every situation, there's a way to make money. If you stay cool and you're smart, and you keep an open mind and don't take it too personally, you'll find ways to capitalize on that situation…There was no reality to this. It was just a bunch of silliness and so temporarily, the stock was dislocated. So the right move is really obvious. Let's go buy back our stock.
You don't want to have audacity just for the sake of audacity. You don't want to be reckless. You want to be disciplined. You want to be rational. You want to be logical, but you need to be bold too. You need to be creative. It's a balance, like most things in life, you want to have one ounce of daringness and one ounce of cautiousness, balance those two out and come up with really good moves, good strategies, good tactics.
Think big and move fast. That's a very good phrase that describes my team, that's our culture is to think big and execute fast because things don't get better over time, law of physics, entropy sinks in…Time is not something to waste with frivolous things.
Any time I met someone in my business career, who was older than I was and was very successful. I tried to glom onto them. And I try to just pick their brains, just ask them, "So how did you get so successful? How did you accomplish all this? What are your secrets? What did you achieve?" And I find that every time I did that, they're very generous.
So if there's no problems to solve, you're not going to make any money. Shareholder value comes from identifying problems, running towards the problem, solving the problems.
Alix Pasquet: Idea Ingredients
Look for a non-incremental insight into a dimension of an idea that makes incremental work irrelevant. For example, penetration is now 2%, one day it’s going to be 20%, it’s non-incremental, it’s a step change. Ideas have many dimensions, in this case it was TAM. And incremental work is irrelevant to derive that.
Smart people around the hoop: You’ll find that great ideas have smart people all over the ecosystem…There’s also a reflexive aspect to smart people being involved in a stock or a business…The incremental buyer will buy more when he sees these guys are involved because of social proof, psychology, and other behavioral factors.
Hard Men build great companies.
Culture: If a company says learning is important to us, that’s one of our values, okay, show me the rituals that show that is important to you.
Great businesses tend to have an emotional relationships between the customer and the product. Better yet, a community around the business itself. We found these businesses that are literally cults where the employees are cult members the customers are cult members, it's a very emotional.
Internal signs:
- Are we learning from the idea?
- As an ENTJ, am I excited to tell people about the idea? Or better yet, do insights on the idea come out of me as I discuss it?
- Are we getting a strategic benefit from the idea? For example, in our field work, have we met a contact that might become an investor in our fund?
- Confident we are going to make money but still have a feeling of uncertainty
Brad Gerstner on Art of Investing
If you're going to do something for a lifetime, you have to design it in a way that brings you joy. That is the source of your passion. Because everything is super competitive. So I find that you can only sustain the highest-level championship caliber effort with you and your team if you get up every morning and truly love what you're doing.
It took me a while to break through to institutional LPs. I looked at folks like Klarman, folks like Paul Reeder, folks like Warren Buffett or Ted Weschler and the attribute that stood out to me is they were moneymakers. They had a deep appreciation for business models, competitive moats, leadership margins what the attributes were of a great business. And so that's what I wanted to build, and I just focused on that, and Paul Reeder said to me early on, he said, Brad, deliver the returns and you'll get the investors you deserve and he was right.
The most valuable thing of those 20-year-old relationships are these are my friends. This is life, the compounding value of fun, the compounding value of learning, the compounding value of an interesting life lived on all sorts of topics with these folks. That is by far the best return I could ever ask for. And we've also done a lot of business together. I want to make sure the order is very clear. The 90% benefit for me in having these relationships for 20 years, I still talk to Bill Gurley, probably every day, but certainly every week. We debate everything under the sun from macro to politics to individual companies to venture to public markets. It is so fun, so interesting and so valuable. And those start off as these small relationships. Find the people early on, the people who stand out, invest in them and tell my kids, part of being a friend is investing in that relationship and that friendship.
And one of my first days at Harvard Business School, we did a foundations class with the guy who wrote the book, [ History of Modern Capitalism, his name is Tom McCann ]. And he said to everybody there, he said, "The are good news and bad news. The good news is that you're at Harvard Business School, and you probably bought yourself an insurance policy. Life's going to be okay for you." He said, "The bad news is that you're at Harvard Business School, and you just bought yourself a life insurance policy. And so you'll probably never be really great." And he said, "Because the great ones, they risk everything. The great ones don't try to keep all their options open. The great ones don't want to go work it, and I'm not dinging them. If you think about the interviews of Harvard Business School, it's Goldman Sachs and McKinsey." And so he just said, "Challenge yourself." He said, "In this life, commit to something, and then just see. Go deep. Bill Gates went deep. Elon Must went deep, right? Elon sells PayPal, and he risked everything on building reusable rockets to get us to Mars and electric cars that nobody thought anybody would drive, right? He didn't diversify into 20 things, right?" And so to me, that was a real inspiration seeing that.
Sanjay Ayer on What Got You There with Sean DeLaney
Investing is a wonderful platform for self-discovery. I can’t think of a profession that reveals your strengths, weaknesses, biases, and flaws as well as investing does.
I used to think of optimism as an intrinsic quality, but I’ve come to believe it can be strategic and developed. I don’t know if you watch that show on Apple TV called ‘Shrinking.’ It’s a comedy with Harrison Ford and Jason Siegel. But there’s a supporting character in that show who always uses the line ‘Everything goes my way.’ It’s kind of a cringeworthy line, an annoying character quirk, but I was reading an interview with the showrunner, Bill Lawrence, and he talked about how he uses that line ‘Everything goes my way’ in real life, almost to annoy his friends, but as a strategic facet because, in that field, in media, in show writing, you’re dealt body blows every day with scripts that get turned down and whatnot, it’s an incredibly competitive field. So I do think strategic optimism has carried me forward.
There are times when it’s very hard to force-fit creativity. You just have to create a lot of space without stimulation. Probably my most creative period, Sean, was when I lived up in Santa Monica and drove down to where our offices are. I did that drive every day, right? This was before I knew about podcasts. So, you just had time to think, right? And I found myself being highly creative. It’s like going on an airplane and not using the WiFi. I was on a five-hour flight the other day and came back with a couple of really creative nuggets.