0:02
So, we're going to start this episode in a locked in stance because we've just been talking off camera and I was like, "God damn it, we need to start recording immediately."
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0:07
I didn't even want to think to start here, but uh you noticed the apploving mug and then you're like, "Oh, Farugi." And then you laughed.
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What do you think of Adam Farugi? >> Well, it's great.
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I mean, uniquely focused, uh, ruthless, and I mean it in a, you know, in a positive way.
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When there's a goal, goes for it.
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Very rational, effective.
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I mean 10 out of 10 on that in in those areas I think.
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>> So when I published the episode that I did with him, I think I titled it like the best founder no one's ever heard of because at the time he was running like I don't know like $150 billion market cap company with like 400 employees and they're printing like 6 billion in cash and he kind of lays out exactly like his we were talking about fanaticism before we started recording.
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It's like he's just fanatical.
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It's like success of his company goes before almost anything or no it does go before almost any anything in his uh life.
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He's just completely obsessed and committed, you know, to essentially like excellence.
1:00
I think you share that trait with him.
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So, we had lunch together probably 6 months ago.
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I talked to you right after.
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I was like, man, you got to do the show because I know a lot of founders.
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I don't know any other founders that think like you.
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One of the things that you said that I think everything else that all the other ideas flow from this is that you want to be the best in the world at what you do, even if that's not possible.
1:19
Can you talk a little bit more about that?
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I've always been uh kind of polarized in my in my interests.
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I I either choose to do something and then I'll try to uh match that out, try to be the best uh or part of the best team or I will try not to do it at all or if it really has to be done uh then uh I'll literally try to kind of just check the boxes for you know minimum commitment.
1:48
All sorts of rewards emotional and material are at the extremes.
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I I think I have a close to 10 out of 10 relationship with my wife.
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I think to me that's worth that's worth 100 times more than having an adequate relationship with my wife.
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Uh same with with my job and my colleagues trying to build best company there ever was.
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Um and we understand that's aspirational and and likely nearly impossible.
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But I think if we get close to that accomplishment, the the rewards, the the fulfillment, the satisfaction, the learning along the way, uh financial rewards will be just exponentially greater than just doing well enough.
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And so I think you have limited time and energy.
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You want to find one or very few pursuits or to try to go all out and everything else keep it uh you know, eliminated if you can or keep it at the bare minimum.
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So you just said you're trying to build the best company there ever was. >> Yeah.
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Just again aspirationally don't take it it's not it's not not meant to be arrogant.
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I I know we have a very sling chance but just you know the waking up in the morning and thinking we're not building a nice church or trying to build the greatest cathedral that anybody has ever built.
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That's a lot more exciting to me. Gets you further.
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It's more fun energizing.
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Better people will want to work with you.
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And I think one of the big ways in which life is interesting is surrounding yourself with amazing people.
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better people than than you are if possible.
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So, >> do your co-founders feel the same way?
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>> I mean, you'd have to ask them.
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I think we probably for the most part, I'd say. Yeah.
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>> But is this something that you guys repeat to each other like throughout the company?
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You're trying to build the best company ever.
3:25
>> We're not big on founders.
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I know this is maybe uh ironic to say, you know, given your your your podcast, but we we try to eliminate the idea of founder from this company as much as possible.
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We we think it distracts people from from the company.
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from the company. the company is a center and and whether you're a founder or you joined a little bit later all that matters is your contribution your trajectory the people at at the company those at least I know the best and with whom I work the closest regardless of
3:53
whether they're founders I think broadly they share this ambition so yes but it's not necessarily a founder thing it's more of a banish thing >> the way I've been describing uh you to other founders is like it's almost like Luca is like the goalpost island of like entre- reneurship, right? Because if I'm
4:09
Because if I'm not mistaken, when we were talking, you're like, well, I don't really listen to like podcasts. I didn't read books.
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I didn't study other entrepreneurs.
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You've kind of evolved the way you build your company like completely independent of anything going on around you. >> Yeah.
4:23
I think part part of that is I don't know how much the audience knows about Danish, but we we started in Copenhagen, Denmark, quickly thereafter moved to Milan, Italy.
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These are not exactly especially Milan not exactly and certainly not at the time over a decade ago a center of uh entrepreneurial pursuit and an ecosystem where you you know you turn left and right and you have all these other startup startups or or advisers and whatnot.
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So and of course we were absolute nobodyies so it's not that we could pick up the phone and call Jeff Bezos right.
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So we just had to figure things out on our own.
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We were trying to build aspirationally speaking the best company in the world.
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If you emulate what most people are doing, you're pretty much guaranteed to, you know, at best be mediocre, mediocre plus, maybe you execute a little bit better, but if you want to try to be the best of the best, you need to take some risks and uh rethink things.
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And so we figured, okay, let's try to experiment, invent, think from first principles.
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And we will make more mistakes.
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It will take longer than if we copied some of the tried and tested approaches, but we should be able to find at least a few insights, a few new ways that will set us apart.
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And I think being more isolated geographically has probably played to our advantage in that regard so that we weren't under the influence of of of the mantras that everybody, you know, the big startup hubs over time was was preaching.
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>> Let's give a little bit of background of Benny Spoons.
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You had a startup before Benny Spoons that failed, right? Yeah. >> Okay.
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>> What did you learn from that failure and then what lessons did you learn from that that helped you start Bennington then? >> Yeah.
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So that was called Evertale.
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We were it went on from 2010 to 2013.
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We were using AI to write uh diaries automatically.
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So you would install an app and then it would collect data and uh figure out what what you'd done, where you had gone and whatnot.
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It was actually pretty cool but never managed to make it scale. Commercial failure.
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some of the most uh crucial lessons were one the importance of of talent.
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So we had a very small team at peak maybe 12 people but we saw that the contribution uh of the the best person we had on the team relative to like the say the medium person forget about the you know the bottom but was easily 10 times as great like literally worlds apart.
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So that taught us okay the range of productivity at least in our field in digital technology is massive.
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So the value of having on board that sort of individual uh is gigantic and also that person who was performing at the peak in that group was actually one of the least experienced people.
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And so that that showed us uh okay maybe experience you know certainly valuable but not as critical as people sometimes uh tell you it is.
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If you have someone who's really smart and and really cares, often they'll be able to deliver as much value, if not a lot more value, than someone with a lot more experience.
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>> Let's give a concrete example.
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So, I'm just going to pull up the notes.
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When we were having lunch, I was like, "Oh, this is too good."
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And I started just texting on WhatsApp.
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I'm like, and I think at the bottom I say like, "These are notes for when you do the show."
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Even though this was like 8 months ago or whenever it was.
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And you you mentioned that you're like, "Hey, um, you said something interesting.
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You're like, "I'd rather hire young graduates."
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Let's talk about the Evernote story in one second.
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So you said most executives are overvalued or overrated in your opinion.
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I'd rather hire young graduates graduates find someone good and then saturate their capacity.
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Can you give examples of how you've done this?
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>> Why talent let's say over experience?
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I think there are a few few reasons for that.
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Number one, most of the things we do and I mean broadly in most industries probably certainly in the technology industry are not rocket science.
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They do not require immense amounts of uh notional knowledge uh and and repeated uh you know uh extensive track records.
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They they require um uh actually a a good brain and a desire to do well to achieve um first and foremost and also our field technologically but also in terms of customer expectations uh evolves very quickly.
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So experience uh gets stale relatively fast.
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>> Wait, before you go on, sorry, I'm going to interrupt you.
8:39
Explain more about customer expectations evolve rapidly in your field.
8:44
Yeah, I think you know I I I'm not sure how it works if you sell sold, but when it comes to selling uh technical tools, what people consider excellent today or an intuitive uh interface or you know effective monetization uh are very different from what uh uh things looked like uh 10 or 15 years ago. Completely different.
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I mean, if uh I'm sure at least, you know, people in the audience who were at least, I don't know, 35 years old will remember what software looked like in the early 2000s.
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And, you know, by today's standards, that's primitive and almost unacceptably bad and people would never use it or buy it and the ways you build that software.
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And by the way, that's just the say customerf facing layer.
9:28
But then behind the scenes how and this is only something that probably people can understand if if they've built software before uh or work with AI the way you efficiently wrote software in the you know in 2010 bears very little resemblance to how you do that today in 2026.
9:45
Whatever people learned back then yes some of it will will will port.
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I'm sure you know you are more mature emotionally, you know how to work with others and whatnot, but a lot of that experience basically you can throw it away.
9:58
The value of accumulating many years of experience is not as great I believe as as some people think it is.
10:04
And additionally, not all experience is created equal.
10:06
Uh you can actually get worse through experience.
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If you're exposed to low standards, for example, of performance, you'll normalize those over time and you'll actually be a less capable team member than someone who has never been exposed to any standards and maybe you know naturally is inclined to believe idealistically perhaps that the bar should be held higher.
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bar should be held higher. or if you're if you've been working for a long time in an organization where the way to progress and succeed is by pleasing others and uh doing what they tell you to do even though you don't necessarily think it's optimal for the organization
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call it politics uh I don't know that that experience will make you a lot more capable uh necessarily if you for example join a company like Venice where I'd like to think we're a radical meritocracy and we try to be rational in in deciding and and and do what's right for the company. So for all these
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So for all these reasons, experience can be extremely valuable, but but it's not necessarily extremely valuable.
11:00
But talent, meaning a good brain and a massive eagerness to excel, grow, make an impact, those never fail to be valuable.
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And so, you know, in a competitive labor market where you can't have everything at the same time, you need to prioritize.
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We tend to favor talent also because experience, we can we can give it to you.
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You know, we just have to be a little bit patient.
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Make sure we expose you to good challenges and surround you with amazing colleagues.
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you'll accumulate experience very quickly.
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very quickly. first principles really and based on those anecdotes and observations during the first company I co-ounded but also at Bennis Poons in the early days we repeatedly saw that that thesis uh was supported by facts and and so we kept investing in first of
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all attracting excellent talent and then creating uh ideally the perfect conditions for that talent to to flourish very very quickly because of course you need to establish your structure and operations to get the the the most out of uh the human capital you have. I would build a company uh
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I would build a company uh differently if I had uh to work with inferior talent than than than we do because we believe we have amazing colleagues.
12:08
>> Well, say more about that.
12:08
So, how did you build the company? >> Yeah.
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So, for example, I think if you if you have uh and maybe there's nothing you can do about it.
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If you have mediocre talent, then I think the appeal of of process and procedures becomes greater.
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Checks, rules, cuz you need to guide more.
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You can count on people to problem solve autonomy as well.
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You can count on them coming to work with the fire in their belly as much.
12:30
You know process and procedures sometimes we say they are terrible but honestly they can be you know the the lesser evil if you are in that situation.
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If you are uh lucky enough or good enough for whatever reason to have a very strong team then I think generally speaking you want to have as few rules as possible.
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It's not that process and procedures are always bad.
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are cases where you want to have some of those but to the extent possible get rid of them.
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Uh and give people massive leeway to express and develop their talent.
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Make them feel trusted so that they will bring the best of themselves to work.
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Uh and that will be good for everybody.
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They they get to do better work.
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They get to learn a lot faster.
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Their careers can be turbocharged.
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But again, that only works if you have a very good team.
13:14
I suppose it's probably similar with with sports.
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I would imagine that how you coach, and I'm going to the extreme.
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I'm not saying Ben is, you know, that, but if you if you were coaching the, you know, the uh Team USA dream team with with Jordan and Barlay and those guys, you you would do it a certain way that that would be different the way you would optimally coach a team of kind of modest talents.
13:39
Uh, you can probably win with both.
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It's a lot easier to win with Jordan, but certainly you're not going to tell your more modest talents, okay, go and figure it out.
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You will try to give them a system that's a lot more guiding.
13:47
So we try to approximate as much as possible like the dream team uh aspirationally um and then uh give a lot of space for for those people to to live up to expectations.
14:00
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14:02
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15:05
How do you identify talent when that talent doesn't have experience? Have you done that?
15:08
experience? Have you done that? I think you can think about life in general as when it comes to people and accomplishments as you control certain inputs you know how much you work what you do when you work for example to make it
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super simple and then there's a bunch of u elements you don't control them boundary conditions sometimes knowable sometimes unknowable sometimes fixed sometimes shifting and the combination of those ingredients leads to outputs or results Call it what you will. Outputs
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Outputs results are fairly easily observable.
15:43
Sometimes there is a gigantic amount of inputs and that go into achieving a certain output and and those inputs go into it for a long period of time.
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Whereas the output can be very simple.
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You know, you the company achieved a certain amount of revenue whatever you won a certain tournament you know no matter the field.
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And so it's a lot easier to just look at the the results the outputs.
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It's the convenient uh sometimes lazy way.
16:02
But life typically in most pursuits most most endeavors is so complicated.
16:07
The amount of inputs, the amount of people contributing different inputs, the amount of variables you don't control, those boundary conditions are such that if you just look at the outputs, sometimes you get a massively distorted picture of what the person contributed.
16:20
A lot of it could be luck.
16:23
Uh a lot of a lot of it could be actual human performance, but not by that individual, someone else who just you you know you failed to know was involved, maybe wasn't as >> front-facing.
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Now the more extensive someone's track record is, the more results likely correlate with actual talent, take an investor.
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You can get lucky one year, two years, four years, but unlikely 30 years.
16:44
I don't think anybody would question that Warren Buffett is almost certainly insanely good at investing.
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You can never prove it definitively.
16:52
You could have been lucky for decades, but that's astronomically unlikely, right?
16:54
But if you find any hedge fund who delivered 50% performance in any given year, it could easily be they got lucky with two stock picks.
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Maybe they were those were terrible ideas.
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Maybe they picked them for the wrong reasons, but you know, whatever.
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The boundary conditions changed and they made a lot of money.
17:10
So, when you pick someone who's very experienced, decades of of work, probably you can get away with just looking at the results, uh maybe some reference calls, uh very likely you'll get a reasonably accurate uh uh assessment.
17:24
But if you have to pick someone who hasn't even graduated yet or maybe he's been in the you know in the workforce for a year or two then you don't have the luxury of using this like the the sample is too small and so >> you need to find different ways um and and something we >> we do is uh making extensive use of testing.
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So we we develop tests that people go through um that uh we have found over time uh proxy pretty well their same mental capacity. in faculties.
17:54
For example, uh we have over time developed uh we've really built a science out of uh studying uh people's track records including academic records and personal projects and and similar things whereby in some application we identify over 100 different signals and through those we predict their long-term potential.
18:15
It's not entirely dissimilar for what a stock trader who's uh algorithmically oriented would do.
18:20
you know the more quantitative hedge funds they would identify and test hundreds or even thousands of signals.
18:28
Many of these are only very marginally predictive but in aggregate they they you know they make you predictive enough that you can succeed because you're just better than others.
18:37
And so we we have all these signals some of which are completely obvious.
18:41
You know someone's GPA tells you something.
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You know higher GPA is better than lower GPA.
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It doesn't prove anything.
18:47
It's not definitive but it's a good sign.
18:49
some are more subtle and and we keep working and investing scientifically in identifying and and and measuring these signals.
18:54
So over time I think we have developed a competitive advantage in finding people who despite their minimal track record are very likely to excel. >> Okay.
19:08
So, this is one of the notes that we talked about at lunch and this is one of the things I text you where you essentially said you need a lot of other companies kind of uh like they don't really not many companies have brilliant people in HR and you're like no you actually need brilliant people in HR.
19:22
You said that you've you can make hiring a science that you had at the time a team of like 50 and you actually these are engineers these are not typically people that you find right and then you say you compare one two several years of
19:35
performance the signals from their CV which is what you just described or these 100 signals signals rather and that you centralized hiring and firing and I guess these are you call them talent managers and they're in charge of both entries and exits. The hiring and
19:47
The hiring and firing is centralized for all the companies that you own.
19:51
Yeah, it's a very unusual but and by the way the signals are are not just from the CV but they could be from email exchanges with our recruiting team from uh the tasks we ask a candidate to go through anything really anything qualifies as as a signal and we just care that it's predictive.
20:07
It doesn't have to be something that let's say intuitively immediately makes sense as long as we can prove it's likely not a statistical flu but actually >> give me an example that I'm a little confused.
20:16
Well, I mean, for example, one of the qualities that we value in people is uh because what we do is such a team sport.
20:23
You need to be somewhat collaborative.
20:24
You don't have to be the nicest person in the world, you know, like but if you are arrogant or uh dismissive of others or just an that that doesn't work typically unless you're a freaking genius, we might, you know, accept it occasionally, but it's almost nobody is.
20:38
So, for most people, you need to be nice enough.
20:40
And uh we find though that when they're interviewing even especially because these are smart because they've already passed the more cognitive oriented test, they are generally quite nice cuz they know that if they come across as super arrogant, they're not going to get an offer.
20:56
We found that whether the interviewer felt that the interviewee was uh you know open to criticism and reasonably pleasant to to to talk to wasn't a good predictor of whether they were actually collaborated on the job.
21:11
So we we have a role call it like a it's almost like customer support people who help you with the more the logistics of your application process of you know scheduling interviews or uh so it's more of a support role which clearly does not come across as in any way connected to the final assessment how people interact with those is a lot more predictive of how they actually are as human beings.
21:35
And so we found that people who were hurt and sometimes of course even disrespectful occasionally that's rare ultimately that that predicted uh poor behavior in a social context uh much better than how they interacted in an interview.
21:47
You know, again, one of hundreds of signals uh in and of itself is not definitive, but uh it helps form an accurate picture at the end of the day.
21:55
And that that would be for collaboration, but then we would have others for hardworking attitude, uh whether you're creative, whether you're logical in your thinking, uh perseverance, you know, the important things that identifying what's important is not rocket science.
22:09
You could imagine what's important to performance.
22:11
The difficult part is spotting it through these kind of subtle signals.
22:15
And the interesting part is that you just said how many companies do you own right now?
22:20
>> We bought um a little over 50 businesses over time, >> but you could see at like if you own 50 businesses, there's multiple different ways.
22:27
You're kind of like a conglomerate, you know, like the hiring could be pushed down to the actual individual company level and you're like, "No, no, this is so important."
22:36
And in the talk I had all that matters.
22:38
>> I I was going to say maybe the most important.
22:40
So you just said it's almost all that matters.
22:41
So it is the most important.
22:42
So I'm going to centralize this.
22:43
Are you also then the centralization allows you to kind of take the insights that you learn from one of the 50 and disperse it to the other ones. Is that what happens?
22:51
>> I firmly believe that in business entrepreneurship the number one thing is call it strategy meaning what we're trying to do how and why do we think it's going to work.
23:02
That is if you have a terrible strategy you can have you know the best team you're not going to go anywhere.
23:07
Um but once you have a strategy that makes sense, the team is almost all that matters.
23:15
I'd say the team and the culture which is like the the rules of how we engage with one another uh it's basically almost all that matters and so I don't think there's overinvesting in creating a great team within vision and we try to be uh generous in our time and resources when it comes to that.
23:29
So why why centralizing hiring and parting ways with with people?
23:33
I think there are plenty of good reasons for it.
23:35
plenty of good reasons for it. uh one is that team managers in most by the way most companies it's say you are you run a team of 10 people most companies you'd be deciding maybe there's a budget like you know you can hire two people but once that's in place you'd be deciding
23:51
who gets hired probably HR will screen CVS and send you and maybe pre-in a bunch of people and send you maybe five candidates and then you pick the one you prefer end of story we think that system is bad for a few reasons first of all hire Hiring managers meaning that that person who runs the team have almost all the wrong incentives in hiring. For
24:10
For instance, uh they probably don't want to work late or week or on the weekends.
24:18
They they feel they they need help.
24:18
Uh so they will try to fill the uh position as quickly as possible.
24:24
I'm sure they will not hire someone who they think is a net negative for the team, but as long as they find someone who they think can get the job done somehow, they'll probably get that person Obviously as a far-sighted ambitious organization you don't want to have you don't want to hire the first person who's adequate.
24:43
You want to hire someone who can be amazing over time.
24:44
So first uh bad incentive.
24:46
The second problem and it's connected to that is if you are running the team probably most people although they would be willing to coach if they it comes down to it they would much rather hire someone who's already fully mature and competent.
25:02
So they again they can either do other stuff or work class.
25:07
If you leave it to a hiring manager to decide, they'll favor very experienced candidates over green immature but potentially much over time much better contributors.
25:18
>> I like that you identified the incentive misalignment right that you find in typical companies.
25:21
What's the incentive structure for your hiring managers in your company then? >> Well, there's none. Just trust.
25:25
They don't have any any any bonuses, any variable pay.
25:29
We just tell them we trust them to build the best organizations they possibly can and then that's it.
25:37
And we find that if we hire people who are intrinsically motivated and who like the project and and you work with them and you're deserving of their uh friendship and and admiration then they will do their very best to achieve the common goals.
25:50
In fact, we find that setting highly specific concrete um objectives to which career progression or pay are tied uh almost invariably leads to bad outcomes or inferior outcomes.
26:03
Meaning maybe people will occasionally try a little bit harder in the short term, but then uh there's all sorts of uh deviations from what would be optimal holistically for the company and that's instead optimal for specifically checking the boxes of that particular uh incentive system you created.
26:19
And so we just tell them we trust you to create the best teams you can. So hire well part ways.
26:23
We go for we don't need to part ways with a lot of people but when it's necessary please do that.
26:28
Uh let's talk if you need help. Let's discuss.
26:30
But uh but ultimately it's as simple as that.
26:32
And by the way it's it shouldn't come as a shock.
26:34
I mean most of us I think when we worked in projects where we thought we were doing incred incredibly well and uh everybody was pushing in the same direction.
26:45
How frequently were there super mechanistic KPIs with our pay tied to it? I I've never seen it.
26:50
I mean generally in startups for example, yes there's a broader idea if we do really well maybe our equity will be worth more but it's highly indirect and ambiguous and when and how much people work hard and try their best because you know they feel a sense of ownership.
27:04
They like working with with one another.
27:06
They care about the project.
27:08
So we try to recreate that that same setup.
27:10
We give them full trust in leading hiring and and by the way because the the c this is centralized they also have a much bigger sample and much better information both in terms of uh what's available out there and what works and what doesn't.
27:25
Again if you're a hiring manager in a team of 10 it's probably bigger than most teams.
27:28
Uh at best you're going to hire three people a year.
27:30
I know I'm just making it up. Something like that.
27:33
It's not a huge sample to learn from and and you you're not focused on it.
27:35
So you you're not going to wake up in the morning thinking how can I be a better interviewer.
27:41
Obviously it's not it's not your core problem.
27:43
Uh for our for our centralized talent team that's all they do.
27:47
So you know they there is no professional pride other than we're we're good at this. They do it at scale.
27:53
So they have massive uh massive sample size and they get to see what kind of talent we can attract across all different uh let's say roles and positions.
28:02
Therefore, they're much better positioned to understand whether someone is the right hire for a particular role because they they've seen what's coming in time across the board.
28:12
And so, they know they're better positioned to know, okay, if we wait a little bit longer, the statistically speaking, we're likely or or are we not likely to find someone who can be even better.
28:21
So they they're they have all sorts of advantages in terms of uh their focus their you know the informationational sample uh that supports their decision making uh and also this efficiency that they they are basically yes they're hiring for a particular role but nothing prevents them from from picking from other pipelines potentially and you know swapping uh as as needed.
28:40
Again maybe someone applied as a product manager but they see that they could actually be amazing as a growth manager.
28:47
they they can easily make the swap because they are looking at the entire thing, not just that particular.
28:52
Uh >> I really love your insight.
28:53
It was like, well, if you're you're running the team and you feel the pain, you might just take the first candidate comes along.
29:01
But your whole thing is like, we know our strategy works, so now we're just going to spend all of our time on talent.
29:04
You're the conclusion you just shared here reminds me of Brad Jacobs, who was on this show last year.
29:08
He says he has a great maxim where he's like, uh, an empty seat is less damaging than a poor fit. >> Oh, yeah.
29:15
He's just like, I'll leave the position empty.
29:16
Like, it's going to be painful, but it's going to be not it's going to be way worse than if we hire the wrong person.
29:21
And he'll just leave it in indefinitely till they find the right person.
29:24
It's very similar to what you're saying. >> Yeah, completely.
29:25
And look, I I I think in general having sharp job descriptions is bad.
29:30
You want to have a there is a a blob of work that needs to be done and different things are differently important, urgent.
29:37
And if you have a team where people don't feel siloed, they're just responsible for for the company success.
29:44
Again, just like a startup, uh if you're failing to hire someone who's supposed to take care of like a little part of this blob of potential work, it's not that that blob is ignored if it's really important.
29:56
Someone will basically postpone something that's a little bit less important to take care of it, right?
29:59
And so I always say I generally talk to new hires.
30:03
Uh we have sessions where we discuss some of our cultural principles and other things.
30:08
And one of the things I sometimes say is that we all have the same job at Benish Blooms.
30:12
All of us starting with me and that's helping the company succeed on a daily basis.
30:17
It's helpful to say you're a software engineer, I'm a product manager just to so we don't step on each other's toes too much, but essentially everybody's job is the same.
30:25
Do whatever is needed to help the company succeed.
30:26
And so I'm not worried about a seat being empty because I don't think the concept of seat even exists really.
30:31
Uh we'll just adapt and take over and and complete the work that needs completion and you know we'll just uh not do some other work at the end of the day.
30:40
Very little work in a company, especially a digital business, is strictly necessary.
30:47
Almost all of it is elective, optional.
30:50
It's just a matter of what's higher priority and lower priority. >> Say more about this.
30:55
>> Well, I mean it almost everything you do, you could also not be doing almost all of it.
30:59
Uh and so winning starts with doing what's ROI positive, which is only a small portion actually of the complete universe of possible projects and tasks.
31:10
and then doing things in order of priority.
31:12
So from say highest ROI again the risk of being a little bit simplistic and and your resources will be limited.
31:18
I think most companies do things that are ROI negative.
31:22
You know there is 100 things they could be doing but only 10 are ROI positive.
31:26
Many companies are doing 40 things.
31:28
Hopefully at least they do the 10 that are ROI positive too.
31:30
In some cases tragically they're not doing some of the ROI positive things despite doing so many other things.
31:37
>> Wait, so why why do you think they're doing this?
31:38
Is this a a lack of talent, an issue of focus, not understanding prioritization?
31:42
Like what's going on there?
31:44
>> Oh, I mean all sorts of reasons for the companies you you buy cuz obviously you're buying things that are there's a brand that's wellnown, there's a customer, there's a product there, but in almost I think every single example, you've massively improved everything you've purchased.
31:56
So what are like the most common mistakes that people previously under previous management were making?
32:02
A lot of the the reasons for those opportunities not being seized uh uh frankly lay outside of their control.
32:10
Some of it is perverse incentives.
32:12
If you're running a business on a standalone basis, especially if you're a public company, but also private companies ultimately they're aiming to to go public.
32:19
So it's kind of the same.
32:21
You'll be judged on what I often you'll be judged on what I would uh let's say consider ultimately secondary if not even vanity metrics uh rather than uh let's say uh value creation through through cash generation.
32:38
For instance, if you are running um a business where most of the revenue comes from subscriptions um and you you you know maybe that uh the optimal price is a higher price like in every pretty much with any product in a free market if you raise prices you're going to have fewer customers which can be fine.
33:00
You know, maybe you have 30% fewer customers, but each ultimately contributes twice as much.
33:04
You're better off, right?
33:06
However, often the markets will will punish you h dramatically if you do that because when they see that the number of subscribers has gone down, even if revenue has gone up, they will not like it.
33:17
Uh and we could debate why that's the case.
33:19
It's an interesting discussion.
33:20
But if you're a management team ultimately in that particular context you will have to heed the opinion or expectations of or of the market and you will not do that uh pricing change even if you know that it's going to be positive.
33:32
However, if a company, a business is run within the broader bending bones where uh none of the businesses uh let's say ends with itself, but it's a piece of a broader puzzle, a a a source of cash for further deployment and growth, then it's much easier to make those otherwise unpopular decisions and even investors would potentially support them because they're not focused any longer on I want say Evernote to have as many subscribers as possible.
33:58
Yeah, all all has been equal.
34:00
I want to have more subscribers, but I would rather have an Evernote that generates more revenue, more cash flow, so that it's it's more accreditive to the to the bigger benefits and we can go after bigger acquisitions and thrive.
34:08
So there there are incentives and this is one example.
34:12
Um, another one is talent.
34:15
Sometimes businesses when they have matured and you know everybody understands and sees their somewhat they've somewhat saturated their opportunity, you know, maybe they're growing 15%, maybe they're flat but they're not doubling every year or something.
34:28
often they have long stopped attracting some of the most hungry uh ambitious talent.
34:33
And so these executive teams um have access to perfectly valid talent, but maybe not against standout talent. And wait a minute.
34:41
So I just I think it just clicked on one of the the like unexpected benefits of what you're doing.
34:47
It's like you buy AOL and I'm working on AOL.
34:49
I don't think I'm working for AOL.
34:52
I think I'm working for Benny Spoons. >> Exactly. Okay.
34:54
So I you know I I don't consulting like um you know the big strategy consulting companies McKenzie BCG bank.
35:03
>> Did you have a you got hired there right?
35:05
>> I got hired I got hired because we had we so in parallel with the startup we were talking about.
35:10
>> So I have a background >> tell tell the story.
35:11
We're going to go back on betting soon.
35:12
This is a hilarious story dude.
35:15
>> So I have a background in engineering physics and um with two friends of mine also engineers.
35:20
also engineers. We had this idea of building that company that AI self-writing diary I was describing earlier uh Everale but we had no money you know all of us you know coming from countryside in in the northeast of Italy >> you come from like a town of what 900 people or something like that
35:35
>> at least at the time yeah fewer than a thousand >> I don't think anybody in your family went to college I think your parents cut hair right okay >> they are retired now but yes they they are they used to uh to to >> maybe some of those billions you got in your pockets are helping them retire Uh well it's all virtual. I haven't sold
35:51
I haven't sold a whole lot of stuff.
35:53
Um >> so um so anyway we we wanted to to build that that that startup but we had no money and uh it wasn't at least we thought it would wouldn't be easy to raise seed capital either and maybe it's easier or was was easier and certainly is easier in the states. it wasn't for us.
36:11
And so we figured how do we do this?
36:13
And so the three of us very good friends in the time and even more so today because we've gone through so much over the following 15 plus years.
36:20
We we figured okay we all all of us look for a job and whoever gets the most uh lucrative offer accepts it and pays for rent and food for the other two.
36:30
The other two would work on a prototype and basically the startup until we can convince someone to give us some money so the whoever is working can quit and we can all focus on the start.
36:39
the start. we all look for a job and well frankly one of us uh was uh doing a PhD uh already so that was uh you know our uh backup plan but not a super lucrative job so that you know we were hoping to do better than that and I I
36:53
happened to get a an offer from McKenzie for a consulting job as strategy consultant and so that was the best uh offer we got and I remember I was terrified because I I'm in I'm close to incapable of lying or being opaque I I always want to be honest and transparent. But that's why I decided I
37:11
But that's why I decided I would tell the partner from Mckins who extended an offer to me that uh yes, I was going to work there if they wanted me uh give it my 100% but the plan was as soon as possible for me to quit to go do the startup.
37:27
Um and I was so convinced that they would uh withdraw the offer, you know, cuz who wants to hire someone who uh was kind of as a who's who's not planning to >> be here for a little bit.
37:38
I'm trying to leave as fast as possible. >> Exactly.
37:40
Incredibly, that partner uh was enthusiastic about the project and said, "Yeah, it's great.
37:46
You know, well, we want to have you here."
37:52
So, very grateful um very inspired worked very hard, as hard as I could.
37:56
uh was working on the on the startup in the you know basically during the night but not like when people say during the night they mean from 7:00 p. m. to 9:00 p. m.
38:08
I mean like from midnight to 2 in the morning and then uh on the weekends and uh and then I remember after the one year at Mckenzie I had my I don't know 3 weeks of vacation or something like that I I spent to work like full-time on the start.
38:20
Anyway about a year later we managed to to raise uh uh about half a million dollars and so I quit.
38:26
I mean I finished a project another two three months and then I I I left.
38:30
So yes, that's my stint in consulting.
38:33
Um, and I and I think I saw something there that I I think has some similarities to Benish most of the time.
38:40
Most of the people who applied to work at Mckenzie and I'm pretty sure it was the same for BCG being these other consultancies were very excited to to be working there.
38:48
Uh, they got some of the best graduates at least from business, maybe not as much from engineering.
38:55
But then you would end up serving telos, banks, insurance companies to which you would never have sent your CV.
39:03
And I think Benny Spoons is kind of similar for software engineers, product designers, product managers.
39:09
I believe we got some exceptionally good talent, especially students, new graduates for reasons we can discuss, but talent density is one of them.
39:17
Career opportunities and then end up working on uh AOL or you know again Evernote.
39:21
uh AOL or you know again Evernote. Some of these businesses I they they these people would then have applied if the the the whole prospect have been to to work there for for five years or 10 years but they're incredibly
39:36
excited and rightfully so to spend say 12 months or 18 months on AOL rebuilding the technological foundation rethinking the you know customer experience monetization that's a very interesting challenge because you get to change a lot of stuff on a very large user and customer base. So you you you get the
39:49
So you you you get the the best of a startup and a big corp.
39:54
From the big corp, you get we're working on big user and customer bases.
39:56
This is not we're not trying to find product market fit.
40:00
We have a lot of resources.
40:01
But from a startup, you have a tiny team, lots of responsibility, and we're actually making big changes.
40:05
So it's not we're not refining a button or trying to add the next 0. 5% in revenue.
40:09
We're trying to to rebuild almost from the ground up in many cases.
40:13
And so going back to what are some of these executive teams from the acquire companies getting wrong?
40:19
Well, they're actually often doing well, but they're they can only work with the teams that realistically they can attract.
40:24
And we are often able to bring in a lot of fresh talent with the new perspectives and some excellent skills.
40:32
And so, it's a lot easier to rethink and rebuild these companies when you have access to this to this talent pool.
40:38
>> One of my biggest partners is RAMP and I'm really close with the the founders there.
40:42
And I was happened to be with them the night >> Eric >> Eric and Kareem.
40:45
But I was with Kareem the night that uh one of their main competitors who they didn't even view as a competitor anymore, but everybody else said Brax got acquired.
40:52
And Kareem said something interesting.
40:55
He's like, "Oh, uh, you know, I was like, "Oh, how do you think about this?"
40:58
He's just like, "Well, you know, there people thought there was like a war between Ram and Brex. He didn't."
41:03
And he's like, "Well, if there was a war, it's definitely over now." And I go, "Why?"
41:06
He goes, "Best talent's not going to go to Virginia and go work for Capital One."
41:09
He's like, "We're going to keep getting better talent."
41:11
And even if that like in that gap between, you know, the talent that we have and the talent that they're going to attract there, it's like it's like you play it out year one, year two, year, five years from now. It's like it's over. It's all about people.
41:22
It's very similar to what you're saying. >> Yeah.
41:25
I don't know their industry well, but it sounds possible.
41:27
I I tend to agree with that.
41:29
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41:31
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41:35
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41:43
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42:10
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42:14
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42:41
I want to go back to this idea of saturating their capacity because it's still one of the most interesting things you told me when we had lunch.
42:46
So like can you give an example?
42:48
Okay, you've you talked about, you know, it's better to have no habits than bad habits.
42:51
So, I'm going to find graduates or in some cases people that haven't even graduated yet.
42:58
They might start as like an intern or very entry level at Betting Spoons and then you're like, "Oh, we identified this talented person."
43:02
And what do you mean by saturating their capacity?
43:04
Like give give like concrete examples of how you've done this. >> Yeah.
43:07
Everybody at the company certainly the people who have shown promise, they should have way more on their plate that than feels even remotely comfortable.
43:16
And the reason why you should do that is is manifold.
43:18
The first reason is every time you choose what to work on, whether you do it consciously or unconsciously, you're prioritizing a set of work items, each with its own return attached.
43:30
Again, you may be unaware of potential returns or very deliberate.
43:32
But either way, that's what's happening.
43:34
uh the bigger the universe of uh let's say work items that you can prioritize from mathematically the higher the returns on your time you'll deliver let's say you have 10 possible tasks if I add and each with a certain let's say ROI attached if I add the 11th it's it's impossible assuming that you select well it's impossible that adding an 11 task will lower the ROI of what you choose to do cuz you're you still have the other 10.
44:08
So if this is lower ROI than the others, you're still going to do the others.
44:10
But it's it's possible that it happens to be the highest ROI of all and so you end up doing something more valuable.
44:16
So the more work you give people, the better the opportunity for them to to create value.
44:22
Now that's especially true if they choose well and therefore it's very important to work with people who are smart and it's very important for for for managers for leads probably the number one thing they can do or certainly you know one of the most important things you can do and we try to coach them in this regard is to help the report select well.
44:39
So that's the most important thing.
44:41
The other uh very important thing uh in that that you accomplished when you give people a lot more work than uh than than feels comfortable is you're really forcing them to uh come to terms with the immensity of of the of the possible.
45:01
We find that sometimes people as they as they grow and uh and the and their the aperture for them professionally expands they get overwhelmed or there's too much to do.
45:15
Uh we need more people for example on the team and uh and I think that's uh generally a a terrible way of looking at at life or the world.
45:21
Generally speaking there's always a lot more you could be doing than uh uh than you can do in terms of your capacity.
45:29
It's just that some people don't don't realize it.
45:32
It's not that if you're a student and you you're done studying for an exam, there's nothing else you can do.
45:38
There's plenty you could do.
45:39
You could launch a startup.
45:40
You could uh take a second degree on the side.
45:42
Uh it's just that you may not be sufficiently proactive and imaginative to to figure it out.
45:47
And so as people jump in a job and if you give them just you know relatively short task list so that they they'll be done within their eight hours and there's nothing in their on their mind.
45:58
Uh that initially feels easy and and comfortable but you're failing to train them at a a massively important skill which is handling that immensity of the of the possible.
46:10
And once you become really good at at being comfortable with having 100 times more things you could be doing than you can actually do.
46:15
That's an insane superpower to have because it enables you again to to handle a vast array of possibilities and and select surgically select those with insanely high returns.
46:27
And it's something you can only do if you're not uh thoroughly overwhelmed.
46:30
overwhelmed. So, is it better to have someone become overwhelmed by that immensity once you know they're 10 years in and they're running a 100% organization and a billion dollars in revenue or is it better to test them at that and coach them at that I wouldn't say on day one but maybe day seven and
46:46
for the first year so that first of all you only promote to that that higher level of responsibility people who have proven that they can do that and if they actually can do that they begin benefiting benefiting from it much earlier even if their their their scope is is more limited. But you need to
47:00
But you need to completely eradicate the concept of I'm only good at my job if I uh if I exhaust my checklist, my my task list. There's no such thing.
47:10
You're always going to have at least advantage spoons.
47:11
But I think again life if you look through the veil is like that anyway.
47:15
You're just unconscious about this. times.
47:18
You really want to be able to handle that enormous amount of possibilities and and surgically identify those that uh have insanely attractive returns and then be laser focused on those and disregard everything else.
47:31
Is this related to what you're saying earlier where you're like, listen, they're not going to be AOL's if it was a standalone brand, they're not going to get the talent that we are going to get at Benning Spoons.
47:39
Uh we can have a massive impact because they have a huge customer base, but then we can treat it like a startup.
47:44
But then you said something about like if they can work on this for 10 to or 12 to 18 months.
47:49
So then you rotate teams throughout the different companies.
47:51
Is that part of saturating their capacity?
47:53
It was like okay this opportunity on this business this person is really talented but there's no other ways to utilize that talent to a higher degree here.
47:59
So let's move them to another team.
48:00
Am I understanding that correctly or >> no no that you you do there there yes we do rotate people all the time.
48:05
There are very reasons for that.
48:07
Part is uh I think at some point when you have looked at the same thing for a long time you stop having good ideas.
48:12
So it's good to get you know new people in to to maybe take a fresh look.
48:16
Uh part of it is we just uh uh find that if people keep working with the same people you risk uh developing subcultures and we're highly opinionated on what the optimal c culture looks like.
48:29
We want it to be uniform across the company and and so and if someone comes up with a better idea that's awesome but that has to be spread across the company.
48:36
We don't want to have subcultures and so you want to move people so and you know mix and match and so so that they they they don't get used to a different way of working uh at least on the important aspects.
48:46
Another one is that they get to learn more.
48:48
So that that goes back to what you were discussing.
48:50
Uh it's slightly different from having you know you know an immense set of possible tasks.
48:56
Uh there is an element of of of diversity there.
48:59
You need new challenges and diverse challenges to keep honing your craft and and finding new ways of growing.
49:04
So that helps too and it keeps also enthusiasm levels higher because uh you know humans tend to get bored uh and so we want to try new things to stay motivated.
49:14
And last but not least, as we keep acquiring new things, um, as an organization, you know, the the universe of of the things we could be doing expands with new acquisitions and, uh, often those in working on those new things yields the highest expected returns.
49:31
And so we regret, you know, regrettably, we have to remove resources from from businesses that would still have, you know, plenty of opportunity in them.
49:39
But, you know, relatively speaking, it's better to to work on a new on the new on a new business.
49:42
So for all these reasons we we do rotate people all the time and I think it's been quite uh quite successful for us to do it that way.
49:50
>> You just said you're you have uh very strong and you're highly opinionated on the culture they should have.
49:54
Do you want to share some of those opinions?
49:56
>> The main quality we look for in people we call it extreme ownership.
49:58
We try to work with people who care tremendously about being the best in the world of what they do about bringing value to the team. >> Hold on.
50:08
Did you get that from Jaco's book?
50:10
>> Actually the the the name Yes.
50:10
the concept is not exactly the same.
50:13
There are similarities, but I thought the the terminology extreme ownership was so immediately evocative of what you look for that I said, "Okay, we need to use that for sure."
50:25
>> Obviously, you know, I only read biographies and in history, but I don't read business books, but I I always tell people like that's one of the few business books I'd actually recommend reading.
50:33
You can read on a weekend and yeah, it's very direct.
50:34
It's just like Jaco is in I've met him in real life.
50:37
It's the exact same person. >> Yes.
50:40
>> So, extreme ownership. >> Yeah. Extreme ownership.
50:41
And we I think we define it a little bit differently.
50:44
But the >> So how do you define it then?
50:45
>> Extreme ownership is is caring in your belly tremendously about being the best at what you do about helping the team in the company succeed.
50:52
Uh it's a matter of priority and intense is a priority.
50:56
Um and we want to work with people who feel that way about their work at vantage points.
51:00
We'd rather not work with someone who's really really smart, very competent, but for whom doing well here would only be priority number three or four.
51:08
You know, like uh we have seen it time and again we've had people who were probably close to genius level IQ fail here because ultimately they saw their job as a way to make uh you know to earn a living to to make ends meet rather than actually transcending apparent limitations and uh and and winning and and being amazing at what >> Okay, hold on.
51:30
You just got done saying, "Hey, we're going to centralize hiring.
51:32
We have a bunch of engineers.
51:32
You need to have brilliant people in HR.
51:33
We went through this like very unique way that you think about this, right?"
51:36
But how do you screen for that?
51:39
How do you screen for being successful here and helping this company be successful?
51:44
Is that their top one of their top priorities?
51:47
You know, maybe the top priority in their life. >> Yeah.
51:49
I mean it's never going to be I mean we understand u obviously if you have a family that will be number one but if you start telling me after my family then there's uh you know being a great gamer at night plus >> people are going to apply for a job and say that so like what what are the actual things that you're >> Yeah.
52:05
So I think there's first of all you try to I mean I don't want to give too much away but let's say >> if it's a proprietary dog >> no no but I would say the first of all you want to see if there is a capacity to to express extreme ownership.
52:17
There's a bunch of pe well I suppose every human being in theory has it but I find there a lot of people are they don't seem to be at least not inclined to develop in extreme ownership or for almost anything.
52:29
So they just struggle to care tremendously about things in life and uh there's no moral judgment but I'm just saying I want to be a part of a team that has a real chance of redefining what's possible and and succeeding at at really high level.
52:40
Of course that type of profile is not going to be highly appealing.
52:44
I don't think I'm saying anything shocking here.
52:46
So you look for signs in someone's past of of that extreme ownership at work.
52:51
Uh maybe they, you know, they they were fully focused on their side is okay.
52:56
Did they do incredibly well at least, you know, uh maybe they um they did a lot of work next to studying because maybe they didn't have the financial means or they wanted to learn a craft.
53:08
Maybe they were into open source.
53:10
Did they is is their contribution extremely you know this small or is there something just in terms of it looks like they put in a lot a lot of effort maybe they didn't have a breakthrough but you can tell through the sheer volume of contributions that they really care.
53:26
Did they launch a startup?
53:28
Was it uh because it's cool for months it didn't work out too bad or they ground at it for 3 years and it was incredibly unsuccessful but you can tell they wouldn't let up.
53:39
you know, something that shows they are capable of of of putting their passion into something.
53:44
>> So, in your S1, I think you referenced Singleton, Henry Singleton and Tom Murphy.
53:49
I just read I did another episode on my other podcast founders on Singleton.
53:52
And what was remarkable, Singleton made a very early investment in Apple, right?
53:56
And then he ended up joining the board and he was asked by his partner, he's like, "Well, there's a million companies, not a million, but there's a bunch of companies trying to make the personal computer.
54:05
Like, why did you choose Apple?
54:07
did you choose Apple? like how you pick the best one of the bunch and there's a bunch of them and he said two things one he thought that people were going to be intimidated because they never dealt with there was no such thing as a personal computer these things could be intimidated less likely to be intimidated by a computer name uh
54:22
computer called Apple but more important than that he's like the the founders of Apple had he goes there's a lot of these founders that I met of other computer companies that they wanted to start a computer company but if it didn't work out they'd be okay he goes the founders of Apple had to make it work they had nothing else. There was no way that
54:38
There was no way that Steve Jobs was going to give up.
54:40
And the idea that Singleton being the genius that he was identified that in a 19 or 20-year-old Steve Jobs is incredible.
54:49
>> I think sometimes of course one of the greatest entrepreneurs, right, to ever do it.
54:53
And I think a lot of people focus on the eye for detail.
54:55
Certainly had that um the perception of what consumers would want. Certainly good at it.
55:02
I think maybe that wasn't even like his main thing, but I believe what we would call extreme ownership in his case just we'll probably call it differently, but I think deep down it would be the same thing.
55:16
just he cared so badly about seeing Apple succeed uh the way he thought it should like by building those amazing products and and when you want something so badly uh you're not guaranteed to win obviously but it just sets you apart >> cuz there's a million thousand different little decisions you're going to have to make and you're just going to pay attention and care more about every single little decision.
55:38
I I've mentioned this quote so many times on on the these conversations we get to have with these founders on the show, but um I think Josh Kushner just it's one of my favorite quotes I've ever heard.
55:46
And Josh's point was just like if you have to pick the person that is the smartest or the person that has the most experience or the person that wants it more, you always pick the person that wants it more. >> Oh yeah.
55:56
>> I think that's kind of what you're getting with extreme ownership >> completely.
55:58
Look, we what we found is that there is a level of uh let's call it intelligence broadly speaking not just purely let's say logical analytical that's uh necessary in at least in our endeavors.
56:10
So but after you pass certain threshold which is a you know admittedly a fairly high threshold but we're not talking about again genius level just a then it's almost all badly you want it like you you really want to be amazing.
56:23
I was talking about uh this with again some new joiners uh yesterday or the day before.
56:28
I brought up brought up the example of Rafa Nadal in tennis.
56:29
I think I've said this before.
56:31
Most experts I've talked to believe he wasn't even probably a top 50 talent in his generation, but went down as one of the three best for sure.
56:42
Some say the best or second best to ever do it.
56:43
And where he really stood out was that extreme ownership.
56:47
He just woke up in the morning and he was like, I'm going to be the best tennis player I can possibly be.
56:52
I'll give it my all 100%.
56:52
And >> did you read his autobiography? It's called Rafa. >> I haven't. >> You should.
56:58
I think you'd be interested cuz like a lot of people don't know the amount of injuries that he had when he was younger.
57:03
He shouldn't have even been able to play at all, much less be one of the best to ever do it. >> Unbelievable. Absolutely.
57:07
Like I what I said to those new joiners, I told them, I don't believe there is almost any chance you will fail to have an amazing career at least at Bendy Spoons.
57:19
Probably almost anywhere.
57:19
Probably almost anywhere. Certainly business where we try to be extremely meritocratic if you really bring it like if you are an extreme owner I would bet there's less than 1% chance you failed to have an amazing career because we know you're smart we tested that we're unlikely unless you cheated somehow
57:34
unlikely to be wrong uh you have the you know you studied what you needed to study so you have some of the foundations it's almost all about do you come to work to be amazing to be better today than you were yesterday to see your team be better to see the company take a step in the right direction or you come to work basically waiting for the day to be to be over. You know, like
57:52
You know, like of course you're going to try to be okay at it, but you don't really care too much as long as you're you have a job and you're in your mind.
57:59
And if you're part of the former group, you'll you'll do extremely well for sure.
58:03
So that's, you know, really a a key cultural tenant for us. We we we select for it. We try to to foster it.
58:09
We will much rather have a smaller team of people feel that way than than vice versa.
58:13
And by the way, it's contagious.
58:15
So if you have if you have a high density of people who feel like that highly accountable, proactive because if you're an extreme owner, so you care tremendously.
58:22
You're going to be entrepreneurial because you'll be paranoid about things that could go wrong and and enthusiastic about new ideas and how can you can improve things.
58:29
If I ask you to do something, you will not forget you get it done more so you'll even come back and do more things than I expected you to and that will be incredibly exciting for me and I don't want to show show you that I can be just as good.
58:42
that I can be just as good. So it's it's just there is an escalation of positive reinforcement that you accomplish if there is a high density of that feeling within the team and as soon as it you dilute that the people who feel that uh
58:54
either leave or lose it you can't have an extreme like Steve Jobs famously was was looking for a players and I I think he was looking for people who had that desire that drive to be to to do something amazing even even before looking for people who are brilliant. Obviously you want to have both if you
59:10
Obviously you want to have both if you can but uh you can never have a think I think a high performance team where more than a small fraction of people lack extreme ownership.
59:18
So that's really number one and then there's you know many other things that are important but but secondary to to this what are some of the things al that are also important.
59:28
Yeah, one thing that we we call relentless simplification.
59:32
Um we believe that most most things don't matter.
59:36
Uh most things do more harm than good.
59:39
However, humans have a tendency to to add the complexity do things and do those things that destroy value.
59:48
that destroy value. So if you leave an organization almost any environment uh uh let's say unattended and you don't provide guidance in this regard it will tend to to become more complicated people will be adding parts and when I say parts I mean it could be expanding a
1:00:05
team it could be adding a step to a process adding an entire new process if it's a product adding a feature to the product new rules uh it really you know I'm making a general point but it applies to almost any human endeavor people will tend to add pieces very rarely remove pieces. And with every
1:00:19
And with every piece you're that you're adding to this ensemble, this this system, you're not adding complexity linearly because you're not just adding with the piece, you're also adding interdependencies, interconnect interconnections with some and sometimes all of the other pieces.
1:00:37
So if you go from three to four pieces, you're not only getting, you know, the the system is not getting say 33% more complicated, it's maybe getting 40% more complicated or 50 depending on on again the connections and how these new connections impact the other connections.
1:00:52
Most human reorganizations if you don't make a conscious effort to achieve simplicity.
1:00:57
So avoiding this this this in increasing complexity and embodying complexity will will go down that that path and that's how we got to you know our modern society with all the bureaucracy and complicated regulation.
1:01:12
And a lot of it or almost all of it probably when it was introduced it had it was meant to be a good thing and maybe in a vacuum it was but then people failed to account for this the cost of these net connections and and frictions.
1:01:24
And so we have this value or this principle whereby we ask everyone who works here to first of all every time someone is suggesting that we should be adding complexity the burden of proof is on those making that suggestion.
1:01:34
The people who support the thesis that we shouldn't be adding that complexity don't need to prove it. They're done.
1:01:43
It's just to raise a flag and say I don't think we should.
1:01:44
So the burden of proof is on those who want to add complexity which helps reduce uh the addition of complexity dramatically and that the complexity you add tends to be hopefully more often than not good complexity because you have to prove it.
1:01:56
And so hopefully if you're intellectually honest that should be a good a good idea.
1:01:59
Then the other part of relentless simplification is that we want people to be on the lookout for existing complexity and and suggest that we should be removing it.
1:02:06
Understanding how we operate and the biases that accompany us through throughout our lives is very important.
1:02:13
Charlie Mer famously studied biases and I think knowing your weaknesses or likely weaknesses is you know 50% of of of avoiding them or or overcoming them.
1:02:21
avoiding them or or overcoming them. So knowing that we as humans tend to be disc called this thing called consistency bias but also inertia bias I mean I've heard it you know slightly different things called with with slightly different names but essentially we tend to assume the status quo is fine and we focus on deltas that happen new
1:02:40
things that are added or changes we we stop seeing we become blind to our surroundings as they stay the same day after day and so we ask our colleagues and all of us to make a conscious effort to question what's already there and the the longer it's been there the more we should be questioning it whether it's still enough positive so we can look for things we can get rid of. >> Have you paid attention to how Elon
1:03:01
>> Have you paid attention to how Elon talks about this at all? >> Maybe maybe not. >> Okay.
1:03:04
I mean it's one of the things that he probably repeats the most.
1:03:06
Obviously he has that famous like four-part algorithm that he applies to every company he does.
1:03:11
But there's like emails from him and I think he might have even treated this.
1:03:15
It's just like go ultra hardcore on deletion.
1:03:16
He is obsessed with exactly what you're saying.
1:03:19
You call it relentless simplification.
1:03:20
His is like he wants to delete delete delete delete as much as possible.
1:03:26
Simplify simplify simplify.
1:03:27
We had Toby Luke on the podcast a few months ago and he said something that was very interesting.
1:03:32
He's like well in technology the world belongs to the fast.
1:03:34
It's to these teams that actually actually can get ahead by reduction.
1:03:39
He's like very few teams have understand the skill and the genius of getting ahead by reducing.
1:03:43
And the the illustration of his point which he did beautifully.
1:03:47
He's like, "Well, you know, the modern day Picasso would be the the picture of the Raptor engine that SpaceX designed where it's like you see the first one. >> It got super simple." >> Yeah.
1:03:56
It's got all kinds of weird and wires coming out of there and then the second version is a little less and then the third one's just like beautiful.
1:04:02
And I accident I actually posted the clip like two days ago of Toby saying this on the podcast and then I just quoted it with the picture of the the Raptor and then somebody asked for Elon's explanation.
1:04:12
He goes into and responds to like how he thinks about this process, but he's completely obsessed with the going ultra hard hardcore on simplification on deletion.
1:04:21
>> It is a superpower, super super powerful.
1:04:23
Um because yes, it breeds speed scalability also besides which is a slightly different thing.
1:04:30
>> But even you just nailed it.
1:04:30
He's like even goes into like well if I have like the the the comp the complexity is nonlinear like you just said.
1:04:36
If I have a 100 parts in this engine compared to if I have five like what does supply chain look like?
1:04:41
what does the manufacturing look like?
1:04:42
What is the repairing it?
1:04:43
Figuring out what actually went wrong.
1:04:45
Like there's just a million other things that uh get more complicated with more complexity.
1:04:48
So it's both people don't focus on simplification for some reason.
1:04:51
I think it's really probably there are anthropologic reasons.
1:04:55
There are certainly societal reasons, but people do not focus on simplification unless again they're, you know, uh unusual, you know, radical lateral thinkers like Elon or or you teach them.
1:05:05
H but when they do the second problem, they tend to be incremental in it.
1:05:09
But often by far the biggest wins in terms of simplification is complete removal.
1:05:13
Uh for example uh I mean you just said you know Elon is a master at that in our context I remember we were uh banging our heads against the wall a decade ago approximately with with job titles.
1:05:26
So we like pretty much every company we had we were very small but still enough people that job titles were a thing.
1:05:32
were a thing. So you wanted to you know maybe have a senior this uh staff that or director and H we were trying to develop definitions who who should be a director you know like you need to if if that exists if it's a thing you probably need to define it you know uh so spending time trying to define it and then you assign someone that title whether it's senior engineer and then
1:05:53
the other guy who's not senior engineer is disappointed it's like why why is she senior engineer not senior engineer well because of this or that so you need to have that conversation and then it's emotional drain it takes so at some point we were looking for ways to streamline it and simplifying it and someone said why do we even have titles
1:06:09
what's the benefit benefit of titles and and someone else is like well you need titles or everybody has titles and why do people have titles let's really try to dig deep into the root cause because I agree I mean everybody has said probably there's some benefit I mean let's not be arrogant there's probably some benefit what what what's that
1:06:24
benefit and we ultimately determined that the benefit was that people really needed titles uh for let's say bragging rights it feels good to be able to to show progress in one's career and they're useful if you need to find a new job to to be able to um very conveniently and efficiently convey a level of experience or capability you have you have achieved. And so we were
1:06:45
And so we were like, "Okay, but all we're saying here is probably true, but also not something that uh the company needs to be involved with, right?"
1:06:53
And so we we just got rid of titles.
1:06:56
And we told people, you can pick your title for your CV, LinkedIn, whatever.
1:07:01
We we don't need to know. We don't want to know.
1:07:03
We don't need to approve it. We don't want to see it.
1:07:04
Uh just don't embarrass us.
1:07:05
Like, you know, don't you're new hire.
1:07:07
Don't say you're the CTO because then people will question our integrity as a company.
1:07:10
But as long as it's broadly reasonable, we're good.
1:07:14
We have never reintroduced them again.
1:07:16
We don't have any titles.
1:07:16
I mean the person runs product which technically would be called a CPO. We have an algorithm.
1:07:22
It's just product management lead. As simple as that.
1:07:24
It's completely automated.
1:07:26
And and is >> what do you mean it's completely automated?
1:07:29
>> The organization is based on algorith algorithmic rules.
1:07:32
So that if you have direct reports and if these reports are um product managers automatically this tool will call you product management lead.
1:07:41
But whether you have two or 200, you're a product management lead.
1:07:44
So there's no discussion.
1:07:45
We don't need to agree whether you are or aren't.
1:07:47
There's no senior, junior, director, VP.
1:07:49
Uh and I just made the example of the let's say topmost leader in product.
1:07:54
For us, it's just has the same quote unquote job title as a person leading one person.
1:08:01
And if he needs to, you know, do something with his LinkedIn, he could put whatever he wants out there.
1:08:04
And it's just we never have to have this discussion.
1:08:08
So I we never looked back.
1:08:09
We probably saved easily hundreds if not thousands of person hours in terms of defining def you know terms and and having emotionally draining discussions with people never had a problem not a single instance of someone complaining that we didn't formally assign to them my title ever ever out of at this point many hundreds actually multiple thousands of people.
1:08:29
thousands of people. So that's an example of something that everybody does a certain way that if you are trying to simplify incrementally maybe you achieve a little bit of up uplift you know maybe 5% but if you get rid of it completely it's liberating it's a 10x improvement potentially or whatever the baseline you want to yeah however you want to measure
1:08:47
it um and often often not always but often you find these opportunities on a product get rid of an entire part of the product 2% of people use it it's adding complexity to codebase bugs issues and sure someone will be disappointed But you know the the 98% of people who don't use it, you can serve them so much better that one year on down the line you'll be 2x as as well off. Uh just do Uh just do that.
1:09:09
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1:09:12
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1:09:18
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1:10:27
Before we go back to these other cultural tenants of you, tell me about this like automated system you just described.
1:10:31
It's like running the company in the background. What is this?
1:10:33
>> Yeah, I mean I wouldn't say it runs the company in the background, but we we are pretty uh fanatical about technology in general.
1:10:38
Again, I personally was involved with AI in 2010, which uh at the time nobody I mean it looked uh weird because it wasn't a thing really.
1:10:48
Today, obviously, if you're now building a startup with AI, people look uh look you what the heck are you doing?
1:10:51
Of course, you should be building a startup.
1:10:54
You know, we carried uh with us this passion for using technology and cutting edge tools to to be more productive, more more effective.
1:11:00
productive, more more effective. uh as we have invested pretty heavily at Bennis Blooms over this point over a decade to to develop uh basically you could you could look at it as an operating system at this point over 50 proprietary tools that run almost
1:11:17
everything that we do or at least supported through automation and then we buy companies and they it's almost like installing them on this operating system and a lot of uh the operations are subsequently run homogeneously consistently and very efficiently through it. For example, we have one
1:11:31
For example, we have one system to manage payments.
1:11:33
We have one system to run AB tests.
1:11:35
We have one system to predict user lifetime value.
1:11:39
We have one system for for recruiting and talent uh uh predictions.
1:11:41
We have one system to orchestrate the many AI models we use internally to to to run our operations.
1:11:48
So, we always use the the ideal one in terms of cost uh quality.
1:11:52
Um we have one system to uh authorize different colleagues to have access to different systems.
1:11:59
access to different systems. solistic credentials management uh one system for uh data aggregation and processing and the list goes on and on and we keep refining them and we have kind of a an open source community internally whereby we have platform teams who own who own
1:12:15
these different tools and make them better by the day but then each of our businesses as they use them they find ways that they they they they come up short they can add features fix bugs and as they improve them they these improvements are propagated and automatically made available to to the entire portfolio of businesses. So we
1:12:31
So we adding businesses actually makes us better as a whole not just because we're adding some revenue but because we are adding another entry point for for innovation improvement ideas on this kind of operating system u and it's been a a boon for us.
1:12:46
It's hard to estimate exactly how much in terms of efficiency effectiveness it's added but it's certainly transformative let's say.
1:12:52
So adding bit more businesses is better for you.
1:12:57
But then is that not in conflict with I think you're now for your acquisitions you want to do fewer and bigger. >> Yeah.
1:13:04
I mean it's there's a trade-off obviously the the like in almost everything in life fewer bigger acquisitions is better for us to the extent that uh it means we can focus our limited operational capacity uh onto those transformations and those and and and and getting those right.
1:13:22
uh we have seen that the in terms of of of time and effort it doesn't take a lot more time to transform a company that's bigger in terms of revenue than a company that's smaller.
1:13:33
company that's smaller. So same amount of time invested >> roughly speaking Evernote uh in 2023 early 23 we uh we had a team a task force of spooners these people from the core team you know we've been talking about uh probably about 50 people who
1:13:48
joined Evernote and and really drove that transformation rewriting the codebase rearchitected cloud infrastructure rethinking monetization and re reorganizing the company and all that and and that was you know business generating a little less than $100 million in revenue >> at the time you acquired it? >> Yeah, at the time we acquired it. And
1:14:04
>> Yeah, at the time we acquired it.
1:14:04
And then uh in the first half of this year, we uh we we did broadly speaking the same thing with with Vmail uh with roughly the same number of people, 50 to 60, but Vmail uh is roughly $400 million in revenue.
1:14:18
So approximately four times as large and and the team originally was over a,000 people.
1:14:22
Ver was a little over 300 people.
1:14:24
So three to fourx the scale whether you want to look at revenue or headcount.
1:14:29
roughly the same number of spooners introduced into the business to to change it. So >> that's incredible.
1:14:35
>> Part of that is I believe intrinsically the complexity of transforming a business doesn't scale linearly with the revenue of that business.
1:14:40
Partly is in the meantime we've gotten a lot better.
1:14:44
For example, expanded and improved that operating system.
1:14:45
So we we're getting more productive but so because of that we prefer to acquire relatively few businesses and make sure each counts.
1:14:52
So get it has to be larger and larger as we scale as a company.
1:14:57
Currently we're at roughly $3 billion in run rate revenue.
1:15:01
So the business that moves the needle for us today needs to be a lot bigger than than when we acquired Evernote.
1:15:04
In terms purely of that operating system of technologies, we do benefit from more diversification because the more teams we have who adopt these technologies, the more likely we are we are to find ways that could be made better, innovated on.
1:15:19
So u we we have >> So how do you reconcile the two?
1:15:21
>> So how do you reconcile the two? you want I >> we we tend to to to prioritize the former because I think there so bigger businesses uh that >> because you developed this operating system over how many years decade and a half something like that >> but yeah we started 13 years ago
1:15:32
obviously you know when we when we kicked off the project five five people we didn't have the luxury of investing in R&D in our technology I think we started in earnest with significant investments maybe 10 years ago something like that >> and has anybody I don't think you would do this but anybody tried to come and
1:15:47
like buy these tools from you >> first of all we we like to to keep them for ourselves cuz competitive advantage also you can't do everything you know in life you need to talking talking about prioritization and focus and we just decided that we we use these tools >> for own benefit to run the this business as well as we can also I don't think
1:16:04
they would be all that appreciated by the broader market for a couple of reasons number one they tend to be very very advanced most people out there who run a digital business they actually don't want maybe they think they do but they don't want the most sophisticated AB AB testing platform overwhelming. They're not obsessive about AB testing.
1:16:21
They're not obsessive about AB testing.
1:16:24
They want something that's a little bit more approachable.
1:16:25
So, they wouldn't actually necessarily take full advantage of of the the real there are solutions out there on the market that are more mass market, a little bit more intuitive, easier that I would recommend to them rather than than our own, which is again meant for high level of sophistication.
1:16:40
And lastly, a lot of these technologies are doubly powerful because they're fully natively integrated with one another.
1:16:47
they're all built to function together.
1:16:49
Uh, and so it's very difficult for a business out there to choose to adopt 50 different things.
1:16:56
They're not going to scrap everything they're doing.
1:16:57
And so a lot of the value fades away from only giving you one thing.
1:17:01
So I don't even think that the the business opportunity will be all that great to to to market this stuff.
1:17:07
I've heard people that don't think pay attention to Benny Spoons.
1:17:11
They're like, "Oh, this is just like another like PE play."
1:17:12
And I was like, "That's I don't think that's it at all.
1:17:14
Can you so let's I think walk through one of the acquisitions right you mentioned earlier I don't know if this is a term you put on it but like you know when you're starting a company you're it's kind of you have to like
1:17:24
luck your way into product market fit you don't want to do that you want to buy you know a working product so let's take Evernote for example I was an Evernote customer for I don't know 8 years so like what did you see in Evernote what was the state of the
1:17:38
business and then what happened after the fact I guess >> and by the way I I think people who compare benoons to to private equity Yeah, they're they maybe have a simplistic superficial view of the world and they're like okay they acquire companies
1:17:50
uh and you know they've raised prices okay like okay but then uh you know Google acquires companies that has acquired hundreds of companies and has raised prices hundreds of times so it's a little bit of a pretty limited um set of criteria to to compare. I'll give you
1:18:01
I'll give you like the highlights on a high level and then I'll translate to the very specifics of Evernote or any business you want me to to talk about.
1:18:08
First major difference we're not a fund. We don't buy to sell.
1:18:12
We have never sold a material business.
1:18:14
We buy to hold and operate forever.
1:18:16
The second uh very big difference is that our interventions on the business require are very very deep.
1:18:24
Again, I'll be very clear as I describe Evernote, but we we transform them sometimes uh sometimes beyond recognition.
1:18:30
I'd like to think for the better.
1:18:31
That's what we try to do here.
1:18:33
Uh and the third aspect is we integrate these businesses very very deeply uh into a shared platform including the technological operating system we were discussing but also this core team of of uh we call them spooners who run the businesses you know a lot of the R&D marketing we move them around fluidly across businesses and none of this is bears any resemblance to what private equity does because those are fun they
1:18:58
buy to sell after say five years they generally intervene yeah maybe on some cost or price, but they I've never seen a private equity reinvent a product or or um or rebuild the or um or rebuild the technological infrastructure and they generally don't integrate the businesses together under a shared platform because they don't have the platform and even if they did uh they need to sell them peace meal. So if you
1:19:19
So if you integrate them you can't sell them or at least it would be much more difficult to sell them right.
1:19:23
So we are almost as as different as it gets uh other than we acquire stuff for a living.
1:19:28
Um so that's for sure uh in common.
1:19:30
Now Evernote specifically, so um what we saw in it, well Evernote in its history has been used by a quarter of a billion people.
1:19:41
you know how many a quarter of a billion people extensive reach and usage ultimately build a brand naturally there's that plus the experience needs to be good which often was especially for the first uh many years but it's certainly it's a brand that almost everybody has heard of is familiar with often is perceived positively sometimes
1:20:00
not as much but certainly not negatively more sometimes as well oh it something from the past is probably not that relevant but nobody has a negative association with Evernote or very few people so a very well-known powerful brand, a pretty sizable user and customer base, several million active users and customers at the time of acquisition and to this day. And uh and
1:20:16
And uh and we believe that a substantial opportunity for for improvement across the board.
1:20:23
I'll describe the improvements in a moment.
1:20:24
Uh and lastly, something we we always seek in acquisitions is predictability.
1:20:29
We like to buy stuff where we have a good sense of where it's going at least five years out at least under management once it's installed into our platform and and in that case a few factors enabled us to to predict its future.
1:20:44
predict its future. one uh uh the the user and customer base was was highly tenured on average I think a paying customer had been on the uh on the platform using Evernote for u 5 to 10 years I don't remember exactly but I assumely long periods of time um the um most of revenue was from sub
1:21:04
subscriptions which we tend to be able to uh predict uh in terms of their future performance better than uh more volatile revenue streams like advertising uh most of the value uh lay with existing users and customers as opposed to hypothetical new users and customers to that to acquire out there. And we
1:21:22
And we find that it's much easier to bet on existing customer bases than new acquisition because new acquisition of user and customers uh tends to be much more volatile with the changes in competition advertising uh uh dynamics in terms of advertising for for acquiring customers.
1:21:38
Uh so we like the whole package.
1:21:41
We thought the price was uh was reasonable.
1:21:43
Do you disclose what you bought it for?
1:21:46
>> Uh, well, it can be it can be seen directionally from our financial statements.
1:21:49
It was about $200 million, give or take.
1:21:52
>> Say that number again. >> 200 million. >> 200. Okay.
1:21:53
More or less about 203 something like that.
1:21:56
>> So, wait, they were doing 100 million in revenue, >> right?
1:21:59
>> A little less like 90. >> 90.
1:22:00
And they were they making any money or no?
1:22:03
>> Uh, I would say roughly break even. >> Okay. >> Roughly break even. Slightly profitable.
1:22:09
>> And it's doing what now?
1:22:09
So we don't disclose profits by by individual business but uh I would say it's it's very very profitable.
1:22:19
You can see our overall profitability as a group.
1:22:21
Um adjusted operating income margin we're at around 54 55%.
1:22:28
Individual businesses are tend to be more profitable uh especially if you've owned them for more than a couple years.
1:22:35
>> So hold on before you go in there.
1:22:35
So like an Evernote case, right?
1:22:37
You drastically increase the profitability based on these >> revenue revenue. Revenue went up.
1:22:43
>> Well, that's what I was going to ask.
1:22:44
Does the revenue also have to go up or you were just fine if you just make it?
1:22:48
>> We we try to improve revenue and improve cost.
1:22:50
Uh sometimes >> we're successful on both fronts.
1:22:55
Generally, I would say some sometimes more on one than the other, but uh on Evernote we both increase revenue and reduce cost.
1:23:00
explain the difference of what you were doing compared to they were doing whatever 90 million and not making any money or breaking even.
1:23:08
>> So >> like what is the difference between how you were running the business and how they were?
1:23:11
>> We made a lot of changes.
1:23:11
Uh we rebuilt the org vastly.
1:23:14
Um so it was uh roughly 350 team members.
1:23:18
Uh we um made it substantially smaller.
1:23:23
I think a year a year and a half after the acquisition closed, we were more around 50 to 60 team members. >> Hold on.
1:23:32
So when you acquired it, they had 350 people working on the product or the company >> approximately. >> Okay.
1:23:37
And you're cutting that down to, let's say, 50 to 60.
1:23:39
This is what we were talking about before we started recording, which I think is really important.
1:23:44
And this is why I like Adam from Apploven too cuz you know his whole thing is like the the if you factor in either his cash flow to employee ratio or market cap to employee ratio it's got to like that's a very interesting metric where his whole thing is like you know I'm doing this with 400 employees.
1:24:00
You mentioned previously it's like to see what can be done and how efficient a business could be run.
1:24:10
It's very similar to like it's a good example for other entrepreneurs in the same way that like other runners didn't crack 4minute mile for example until somebody did it and then once they see somebody did it then you just see it happen all the time. >> Yeah.
1:24:22
So why could you do this with let's say 300 people less than they could have?
1:24:27
>> I think there are different factors.
1:24:27
One is the access to talent.
1:24:29
We we've been able to build a an employer brand a company that where some of the best people want to work.
1:24:35
Um, we got 800,000 job applications last year.
1:24:39
We hired fewer than 300 people.
1:24:42
So, and and if you're running Evernote, even if you're Steve Jobs, >> 800,000 people are not applying to Evernote. >> Yeah, exactly.
1:24:50
And it's not it's not anyone's fault.
1:24:52
I mean, that executive team was was doing the best they could with the with the resources they reasonably had available.
1:24:58
So we we had the we have good good fortune to be able to to take advantage of a an arbitrage in in access to talent.
1:25:05
Um we also have a massive advantage in that each of these businesses matters to us but it's not everything and so we can take risks.
1:25:14
For example, if you're running ever Evernote uh and that's all you do that's a standalone company and you you make the change I just described in terms of headcount.
1:25:22
If something goes wrong, you're out of a job and as a say a CEO and realistically you're done because that will be the the the the blemish on your CV that you can never clear pretty much.
1:25:36
It's not that we want something to go wrong if say ever notice part of the bending spoon.
1:25:40
But we have we can make bets that are the expected outcome is highly appealing but maybe they're a little bit more risky and so not so appealing if that's all you do with your life.
1:25:49
Uh the upside of again it's almost like insurance.
1:25:52
We on average we get it right and it's a great uh value.
1:25:56
Occasionally maybe we we make a mistake that would be painful if it were uh if that business was was run as a standalone company but you know net net we we do so much better and we learn so much faster and the good lessons we learn from our business we can port them and apply them as you know as relevant to to all other businesses.
1:26:13
Uh three we had access to that technological platform.
1:26:18
So we have talent talent levels the the ability to take some risks that would be uncomfortable for for for for that management team given their boundary conditions.
1:26:27
Three that the technological platform I discussed it just enables us to do so much more with the with fewer people.
1:26:34
Um and but if you're running Evernote standalone you're not going to have resources to develop those technologies.
1:26:40
develop those technologies. But also you don't have the the business case because we can amortize those investments over all of our businesses and increasingly more businesses is required and it's difficult to justify if all you do is is evernote and then again those perverse incentives uh I mentioned earlier whereby if you're judged by Evernote and Evernote alone making a change that
1:27:02
would for example result in a smaller number of monthly active users or subscribers will get you so much hail uh even though it's maybe the right thing to do for the business we we could make some of those unpopular our decisions uh more easily um and and take full advantage because the business has been thriving relative to the previous trajectory and uh financially and in terms of uh of customers. So these are
1:27:23
terms of uh of customers. So these are you know some of the big reasons but yeah the changes were were sweeping I mean the or we rebuilt it I mentioned you know it was a lot smaller and by the way today Evernote we ran it with about 20 people so it >> what yes because in the meantime you
1:27:38
keep improving so I'll describe the improvements we made but uh some are fundamental improvements in the underlying technology codebase that enable the team to do more with with fewer resources because everything gets a little bit cleaner and more maintainable and manageable. Part of it
1:27:51
Part of it is our operating system of technologies has gotten so much better in the following two three years that we're so much more productive.
1:28:00
Uh we especially with AI we have had some close to breakthroughs in productivity. Can you talk about that? >> Yeah. Uh sure.
1:28:08
Um >> everybody's interested in this right now.
1:28:11
There's a bunch of founders that have already been on the show that are coming back on and we're just going to do like an hour of how literally they're redesigning their their entire organizations with AI.
1:28:18
Yeah, we've been using AI pretty aggressively for as long as I can remember.
1:28:22
Certainly in 2018, I'd like to say we're using it to predict user lifetime basically to inform our um AB testing.
1:28:29
But uh but I would say over the past two years especially with very rapid progress in LMS, we've been able to have some some major breakthroughs in uh in various areas, especially software engineering and data analysis and and product design.
1:28:44
I'll give you a couple of examples.
1:28:46
So for for for design um we recently actually deployed a a tool we built in house called diagram.
1:28:52
Whether you're a designer, a product manager, a growth manager, you go to this tool.
1:28:57
It looks a little bit like cloud design just broadly speaking, but it's specialized in our particular context and fully integrated with everything else at Benis.
1:29:06
And you can just tell the tool to pull up uh screens for the app you're working on.
1:29:13
say it's Evernote uh uh for the relevant features and then you guide it as it produces new versions of those of those interfaces uh and it will do so by automatically following the design guidelines that the say the head designer for that tool has laid out in some document somewhere.
1:29:30
You don't have to know where they are like the tool knows.
1:29:33
So you just tell it what what you need and it'll give you work that the head designer would typically approve.
1:29:38
it will automatically look into the codebase to know how the different interfaces interact functionally.
1:29:42
So it will make proposals that make sense from that point of view and then once you're happy with your proposal it will develop the code for you and then the say lead engineer will be able to review and approve it if it's fine and uh and then automatically because it's in it's integrated with our AB testing system you'll have a new segment where you you're going to test that new say on boarding flow or whatever.
1:30:04
If you had the skills before, you're a product designer, now you can do it sometimes in maybe 1% of the time.
1:30:08
In many cases, it's actually a better result because it's so precise and you just humans we we tend to miss things.
1:30:14
Uh but interestingly, it uh it enables doing design work for people before couldn't like product managers, software engineers, growth managers.
1:30:24
So now a lot of the inefficiencies that stem from I'm a product manager.
1:30:29
I have an idea, I want to test something, but I need to wait for the product designer to be available.
1:30:32
Then I need to explain to them what I have in mind.
1:30:34
I fail to explain it properly.
1:30:36
I get 3 days later I get work back and it's not what I meant.
1:30:40
I need to explain the inefficiencies stemming from this exchange of information.
1:30:45
We humans are insanely inefficient at exchanging information.
1:30:49
We're quite efficient at absorbing information.
1:30:51
But when we when we when we have to articulate ideas, you know, language is very very it's better than not having language, but it's very inefficient.
1:30:58
Um and more so when it's with another human uh with whom the iteration cycle will be slow because they may not be able to to to do the task immediately.
1:31:08
Even if they do will take them time but with the machine you can tell it it'll do it right away.
1:31:12
Uh and it will take them fraction of the time.
1:31:16
So you can actually iterate very quickly.
1:31:17
So overall you get to the result in a tiny fraction of the time but interestingly you can do it even if you can't design.
1:31:21
And so this overall makes our teams a lot more are efficient. This is an example.
1:31:26
Another example is something we called old spooner um for it stands for alter ego or alternative spooner and it's basically an agent that lives in Slack.
1:31:38
We use Slack for communications that has by design the very same access you do as an individual in the company.
1:31:44
So it has access to the same tools to the same degree.
1:31:49
So if you have uh full access, it's partial access. It's it mimics you.
1:31:54
It's meant to be you basically but artificial and you can instruct it to do pretty much anything you could do.
1:31:59
It could do some some things it will do better, some things it will do worse.
1:32:03
So we have Evernote, we we have a channel on Slack where we can report feedback on things think things could be improved bugs or new features and I was there to to provide input on something.
1:32:11
I I was just using to the tool and it failed at something and I wanted to to to relay that and I I saw live one of the best users of Al Spooner by one of my colleagues.
1:32:23
She runs Evernote and and she wrote uh uh you know she in this channel she tagged old Spooner and said I I noticed this bug could you please go to Moros which is again back to the integration of our tools.
1:32:34
integration of our tools. It's it's our customer support tool that collects feedback from users to check whether it's a just I got unlucky or if it's a a widespread phenomenon or issue and then uh report back so we know how to
1:32:47
prioritize it and separately can you look into the code base for root causes for this issue and if you can find and propose a fix and then ping um uh uh Marco who's lead engineer for that particular uh product uh so that he it can review the code and push it to
1:33:04
production if it's fine And so she the general manager for Evernote in maybe 3 minutes essentially fixed identified and fixed a b a bug something that would have taken >> if this is human to human coordination >> yeah weeks maybe >> forever like exactly there are many more
1:33:20
examples I mean I I had to >> I wanted to to know the the you know that the trajectory of uh monthly active users on on on meetup not one of our properties recently for an analysis I was doing and and generally would have to ask a data analyst uh and they'd be busy. I would either interrupt
1:33:38
I would either interrupt them or they would get back to me couple days later.
1:33:42
It would take them presumably a couple hours to give me that.
1:33:46
Uh >> I actually interacted with my old Spooner went back and forth uh asking for further cuts.
1:33:52
Okay, just show me just for the US just for for users on on iPhone just on >> and uh you know I got all the answers all the graphs in a few minutes. >> Perfect. done.
1:34:05
>> I need to go back to this cuz you just blew my mind.
1:34:06
So, I know you're not telling us exact numbers, but Evernote's doing probably a couple hundred million or thereabouts in revenue.
1:34:13
>> Let's say more than 100, less than 200.
1:34:15
>> Okay, so there you go.
1:34:15
Uh that's the range of revenue.
1:34:16
It h it is profitable and you just gave a hint as to what like the operating profit percentage might look like, right?
1:34:23
And you're doing this to 20 people. >> Yes, that's right. Yeah.
1:34:27
Plus the help slightly unquantifiable help of that platform that keeps pumping out technological improvements you know like those automatically benefit everybody.
1:34:39
So it's you know you can allocate it uh by dollars in revenue whatever but yes people wake up in the morning and fix bugs for Evernote launch features optimize monetization that's about 20 people right now. >> Okay.
1:34:50
So this kind of efficiency are you seeing that in the rest of the businesses that you own as well?
1:34:53
Yeah, for the most part I think that not all functions are equally.
1:34:57
>> Are you optimizing for that?
1:34:57
Like >> no, I mean we we just try to make each business as successful as possible.
1:35:01
It's not that we know we want to have like the smallest number of people that we can.
1:35:06
I mean if more people create more value for customers and for benefits we would assuming we can we can hire enough you know fast enough we would certainly deploy them.
1:35:14
Sometimes we have situations where we would want to have more people we just don't have them.
1:35:17
more people we just don't have them. So okay that's a separate issue but uh we don't aim to minimize number at all just to run these businesses as well as possible and we often find that some of these resistances when you when we when you take them back to startup mode so they had been large slightly bureaucratic sometimes political organizations for a while
1:35:40
things tend to grind to a halt it's difficult to be entrepreneurial enthusiastic move fast work on what matters if bring them back to a much smaller size, much higher talent density, we get rid of a lot of red tape, then even though the team is smaller or per perhaps precisely because the team is smaller, a product development and and optimization of monetization pick up again and and Evernote is a good example. If you look
1:36:03
Evernote is a good example. If you look at the it's difficult to precisely quantify innovation but if you look at the timeline of uh say product improvements features before we acquired it in the say 2 3 years before and after it's night and day I I feel very com
1:36:18
comfortable saying it's at least three times as fast under almost any frame of measurement despite the team being much smaller but it's really I think despite is the wrong word in many ways it's because it's a lot smaller and so they these people are again startups
1:36:32
Instagram was built by I was I don't know like 10 people I'm not sure something like that >> I think it was like 12 when they got acquired some crazy proof that small teams of very capable people with extreme ownership who really care can do can out work and out produce vast
1:36:50
organizations where either not enough people care or they do but there are so many feet to step onto and you know and so many hurdles to overcome to get stuff done that they they they they fail to do so and it's not I mean nobody Nobody wants that to be the case. It's more
1:37:04
It's more like frog in the boiling water kind of phenomenon where you keep adding teams and and and and processes and rules and then at some point it's very difficult to it's very difficult to care and it's very difficult to get stuff done.
1:37:15
This is what I meant about like goes back to how I've been describing to other founders that just like this go island of entrepreneurship because I know you mentioned like being influenced by Henry Singleton for example and he would do this too.
1:37:27
this too. He was like over and over again he says hey yeah I think at one time he owned 130 different businesses and 129 of them were profitable but he wanted to break business units into the smallest part possible parts different was difference was between you and him you like breaking things down to smaller
1:37:41
parts less people more efficient but he didn't uh he kept kept the business units separate >> um where you're actually studying them all and then using insights and spreading across your entire organization very similar to like what Mark Lender did with constellation is there anybody else that you've been influenced by or do you take like an idea or two from? >> Frankly, not a lot. Going back to what >> Frankly, not a lot.
1:38:01
Going back to what we were discussing earlier that we we we were growing up as a business in no man's land in a way in Italy and >> um and a purposefully chose to stay a little bit isolated to try to >> at the risk of reinventing the wheel also coming up with some real powerful innovation. So, not not so much.
1:38:19
I'd say maybe um Netflix I think uh I don't really know Netflix from the inside.
1:38:25
I don't know anyone who works there but you know their their famous deck uh cultural deck and then there have been a couple of books that have been written about it.
1:38:35
I think some of those ideas that you want to beat complexity with talent not process and keep rules to a minimum.
1:38:41
I think some of that I think rubbed rubbed off on us.
1:38:44
Um um but other than that I think we've tried to be quite autonomous in coming up with our own idea.
1:38:49
Do you describe bending spoons as a conglomerate or no?
1:38:53
>> I mean it's a conglomerate to the extent that >> but do you actually use that word?
1:38:56
>> No, I've never used it.
1:38:56
It doesn't it doesn't bother me but I think it's a it's more at least in my mind a conglomerate is a set of relatively distinct and separate parts.
1:39:05
In our case we try to make everything as homogeneous and integrated as possible as I described.
1:39:12
>> So Bergkshire and Teladine would be much more conglomerate. >> Exactly. Exactly.
1:39:16
And I think what what Singleton and Buffett did did well better than almost anybody in history is quite different from what I think we've been doing really well.
1:39:24
They were and in the case of Buffett is still is exceptional at selecting at picking companies management teams that should be worth more than the market was valuing them.
1:39:37
more than the market was valuing them. I wouldn't say either certainly not bircher I think by their own admission would they most people wouldn't consider them exceptional operators they generally in fact would avoid buying businesses where they thought a lot had to be fixed they didn't like that they like business for for the people
1:39:55
listening to this they haven't studied singleton you can just go back I just did an episode on him on my other podcast it's remarkable how many ideas that we've heard from Buffett and Mer that singleton discovered like 20 years before them and they both yeah Buffett and Mer were both say it's like We these are this is where we got these ideas from. >> If I have to think about all the people
1:40:12
>> If I have to think about all the people who did exceptional things in business and investing, if I had to take their uh achievement and and assuming we can quantify it and divide it by their level of popularity
1:40:24
or just not meaning they are liked or disliked but how well known they are he would be at the top of the rank like he's been one of the most successful investors and business people ever by any measure and yet very few people know him actually. I think if you ask 100
1:40:37
I think if you ask 100 people even in business like 95 will not know who it was.
1:40:42
>> One of the things that Buffett and Singleton had in common is they essentially primarily saw their job as um they were the ones c allocate capital like their main talent was capital allocation right and Singleton I think you might have said this and I could be wrong but this is what I'm going to ask you.
1:40:56
you. It's like well after he started acquiring stopped acquiring companies right he bought like 160 in 10 years something like that I forgot the number exact number and then he's like oh now we're going to reverse course we're not going to he didn't make another acquisition material acquisition for the
1:41:09
rest of his career and then he just focused on capital allocation improving the business unit he's had and then just discovering like where's the best dollar I could spend and is improving operation of this company is it buying another company and then he discovered it I was actually buying back his own shares. >> Yeah. So I think I heard you say before >> Yeah.
1:41:23
So I think I heard you say before that out of all the investment opportunities you see in the future, it might be buying back Benny Spoon's shares. >> Yeah. Not imminently.
1:41:32
I think we see a runway right now allocating capital toward acquisitions is as as being and expect to continue being way too uh like returns I think will be way too appealing for that that not uh to be the the priority.
1:41:47
But I think if you ask me in the very long run uh that could be an appealing way of uh of creating um shareholder value.
1:41:54
I I think what what Singleton did incredibly well it was acutely aware of the circumstances and boundary conditions and uh very creative and made fully rational decisions.
1:42:04
So for a decade or more even the market was uh you know affording uh his stock a good multiple and it was uh aggregating a lot of businesses.
1:42:14
it was uh buying at a lower multiple and it was on top of that exploiting the arbitrage was also very uh astute at selecting those businesses.
1:42:23
It kind of double dipped a business that was undervalued uh regardless uh like people didn't see the the potential in the medium to long term and and add to that the fact that it that business would that them join a conglomerate with a higher multiple.
1:42:36
So double value creation and then later the market uh changed its uh preferences as the markets often do.
1:42:42
So you got to stay open-minded about it and started appreciating more vertical businesses.
1:42:47
And so he worked on improving those businesses and spinning them off so they could be maximally appreciated.
1:42:51
So he was never opinionated on opinionated on the on the how they should be done.
1:42:56
Uh it just uh looked I believed I've never met him of course but I believed it looked at investing and running a business as as a puzzle and try to find the best solution.
1:43:07
He was also a great engineer like he could have been one of the best engineers that he wanted to pursue that and almost a grandmaster in chess I believe or at least >> he could play chess blindfolded.
1:43:16
There was a story in I think the episode I just did where he's like playing with his back turned and he goes hold on you told me the wrong move. Three moves again.
1:43:24
I mean he's obviously genius of IQ.
1:43:26
Charlie Monger's on record saying it was the smartest single human he ever met in his entire life.
1:43:29
And you imagine all the people that Monger met in his entire life.
1:43:32
Singleton took Teladine public almost immediately.
1:43:34
public almost immediately. Did you know when you started bending spoons and you okay we're not going to stick with one company we're going to keep acquiring you started having you did really small acquisitions they were successful you kept on that path was the plan for you and your co-founders like this is going to be a public company one day I'd say
1:43:51
when we talked about public versus private I think more often than not we thought this would at some point be a public company there are advantages and disadvantages in being a public company I'd say for most companies the advantages uh are greater than the disadvantages and for a company like Benny's phones that require requires capital to grow fast. Uh the I think the
1:44:06
Uh the I think the advantages are are way too large.
1:44:09
I mean it's not really a discussion that you should be public but yes it's not all roses obviously there are new pressures and incentives and noise that you'd be better off without for sure.
1:44:23
>> How long it lasts when okay we know we're going to go public to you actually went public.
1:44:27
>> We like to make decisions as as late as possible.
1:44:29
I think that uh procrastination is awesome if it doesn't come from laziness because if you postpone decisions, you often have more information when you actually get to make them.
1:44:42
>> Singleton said something like this where he's like if you don't make a decisions in many cases it resolves itself. >> Yeah.
1:44:48
>> Removes the need to make a decision.
1:44:50
>> It's a slightly different thing.
1:44:50
It's it's another reason why uh it's a subset of of what I said.
1:44:54
meaning so there are some decisions that there is the only advantage of making them now is that you can forget about them.
1:45:01
So there's something to say about that and I think if the decision is not particularly important sometimes the moment you bring it up just make it so that you know you can free up the your RAM uh to to to tackle other tasks.
1:45:12
But if the decision is so critical as to whether you should be a public company or not or whether you want to buy a company or another, uh generally speaking, you're better off delaying it as much as possible or at least there's almost no cost to delaying it other than the slight discomfort that you know it's still on your shelf.
1:45:30
You need still need to make it.
1:45:31
Uh, and there are advantages or at least know I mean worst case scenario you'll be just as well off when you eventually make it as you were early but often you have more information.
1:45:41
Maybe as as we're just saying the boundary conditions shift and you just don't need to make it any longer because it's irrelevant.
1:45:48
Maybe you would have made a decision one way but then as the world changes or you learn something else that you had failed to to spot earlier you you end up with a different option.
1:46:00
And so with the IPO, we decided relatively early, probably something like first half of 2025, that we would want to prepare to go public in the near to medium term.
1:46:12
And so probably late 25, mid 26, late 26, but we would delay the decision as to whether actually to pull the trigger to as late as possible in the process.
1:46:21
So we knew that we were probably going to be a public company at some point.
1:46:25
I'd say certainly by late 25, no doubt about it.
1:46:29
But we we didn't know if we would go public necessarily in uh in early July 26.
1:46:32
We just said, "Okay, let's get ready and then we'll see."
1:46:35
I think the definitive decision of okay uh we will go public as soon as possible definitively we made that decision in the spring of 2016.
1:46:46
>> Earlier you said that assuming that the company the first thing a company has to do is have a strategy assuming that strategy is good then the most important thing is talent acquisition.
1:46:53
How do you articulate the strategy of bennings?
1:46:58
Well, basically we want to achieve the maximum level of operational excellence which means getting the most out of a business possible by any means necessary both in our case structural means such as integrating everything on the same platform so that
1:47:15
we eliminate all redundancies and we can achieve all sorts of scale advantages and network advantages uh and uh by sheer investment in talent and and technology by any means possible We want to achieve the greatest advantage as an operator. And once you have that,
1:47:30
And once you have that, meaning you are a business is better off with you than with almost anybody else.
1:47:36
Once you have that for a sufficiently large number of businesses, then you're almost guaranteed to be able to compound capital very efficiently through acquisitions because by definition, by definition, mathematically, you'll be if a business is better off with you with than with everybody else.
1:47:49
If there is if there are enough of those out there, you should be the best, you know, the highest bidder there when it's on sale.
1:47:55
and and so and the seller should still get excellent returns from their sale and you get excellent returns.
1:47:59
So we probably focus 99% of our resources and and in efforts in in in being the best operator building up that platform unlocking as much of these structural advantages as we possibly can and and remarkably little uh in in actually in the acquisition side of things.
1:48:17
like we we are very deliberate, highly sophisticated, but but once we have a powerful platform and and and these structural advantages, then it actually gets pretty easy to deliver very high returns through acquisitions.
1:48:28
It's not that we see necessarily things in businesses that nobody else saw.
1:48:31
It's just that we know those businesses are going to do so much better with us than with almost anybody else.
1:48:36
So, we can offer more >> and that operational excellence allows you to bid higher as well.
1:48:40
you I think I think you said like you're pretty sure that you bid maybe 50% higher than the next highest bid on like Evernote for example. >> Yeah.
1:48:48
I I mean I don't know I cannot never know for absolutely sure because you don't you know obviously the sell side only tells you so much but I I'm pretty confident that our offer was uh was way way higher than the which by the way in hindsight we should have negotiated better.
1:49:03
Uh but >> no but no but we talked about this at lunch.
1:49:06
Um, you I think you have a very unique Let's talk about this now.
1:49:08
Like you had a very unique approach to negotiation.
1:49:12
Like I I'm pretty sure you explicitly said like you don't want to come in as like a like how most people do.
1:49:18
It's like let me just put a really low number right now and then you say a higher one and then we go back and forth and back and forth and back and forth.
1:49:23
I think in time uh you want to be known as a I want to say generous because obviously nobody buys a company as a generosity but uh you you want to come across or establish a reputation as someone who's trying to you know get the last penny out of a negotiation.
1:49:41
You want to help the seller get good value from the transaction.
1:49:47
But at the same time you you you want to be known as pretty firm.
1:49:51
like I put a number that I think is absolutely fair and highly competitive on the table.
1:49:55
I probably think I could have gotten lower, but again, I'm not trying to get all the value out of this transaction at all.
1:50:02
I wanted to to to get a lot of the value, but at the same time, I'm not going to be available for a lot of back and forth.
1:50:08
And uh >> you tell them that upfront. >> Generally, no.
1:50:11
If they ask us, sure, but hopefully they do their research.
1:50:14
I I can only think of one case in recent memory which actually quite recent um where we ended up raising our offer substantially uh because and and but the reason is s so in that case we we were asked forced really by the seller to put a number on the table before we had the data we needed. Mhm.
1:50:37
>> And so, you know, between not even participating or risking to having to change it a lot later, we said, "Okay, look, we don't know a whole lot.
1:50:44
Based on what we know, we think we'd be happy to do this at uh between X and Y."
1:50:52
And then later as we progressed into, you know, the sales sales process and and we got more data and we finally could form a somewhat complete opinion, we found that we could offer a lot more.
1:51:03
And so we we increased that offer substantially.
1:51:07
>> You increase the offer on your own or they said that's way too low.
1:51:10
>> You know, I don't actually remember exactly how it played out.
1:51:14
>> How would you do that today?
1:51:15
>> Probably a mix of the two.
1:51:16
>> How would you do that? Yeah.
1:51:16
How would you do that today?
1:51:18
>> I would imagine if you think it's an >> I think I would, frankly, I think I would do it similarly because we just didn't we didn't have the data and be we the data wouldn't be forthcoming unless you put the number on the table.
1:51:27
I don't we're not trying to prove a point and be dogmatic and say we only put a number on the table if we have absolute certainty.
1:51:34
So we said look we are not highly confident in this number because we don't have a lot of data but this is the number. >> Okay.
1:51:38
So let's say in a different example you have the numbers that you need. You put the number out.
1:51:41
Is that number pretty firm? >> Yeah generally yes.
1:51:45
I don't think we increased it uh almost ever by more than 5 or 10%.
1:51:51
>> So did you ever uh hear about the way Buffett bid for Clayton Holmes?
1:51:54
>> No I don't think >> the the founder of Clayton Holmes wrote an autobiography.
1:51:57
I can't remember I can't remember um what it's called, but I think his name is Jim Clayton and his son was handling negotiations cuz he had sat down and his son is CEO.
1:52:03
And so his son goes to Buffy.
1:52:05
He's like, "Yeah, we'd uh" they were they were debating on like what price per share.
1:52:09
He's like, "Uh the board would entertain offer at 17." And Buffett goes $12. 50 bid.
1:52:17
And then the guy comes back, he's like, "All right, we talked over we'll we'll take 15." Buffet goes, "1250." He goes, "All right." Went back. We're going to do 14.
1:52:25
And he goes, "11250 is my final offer."
1:52:27
And then his closer was, I can assure you if every capital market in the world closed tomorrow.
1:52:31
And when he's like, "You can still rely on this offer."
1:52:35
And they're like, "We'll take 1250."
1:52:40
I will not name names, but we we have had uh one or two situations a little bit like that.
1:52:46
And look, I think it's easier to do because we're so confident.
1:52:48
I don't believe to this day that we have ever been outbid.
1:52:54
I don't remember a single case, at least not in the last five years, in which we put forth an offer and then the seller sold to someone else.
1:53:02
We have had cases where they chose not to sell.
1:53:04
Uh maybe they thought it was too I suppose they thought the offer was too low, but we have never seen that business being sold to someone else.
1:53:11
to someone else. A and that and we have been able to deliver the extremely high returns we have while winning uh essentially all winnable sales processes because of that massive advantage of an as an operator where we can deliver such a an improved performance visa be
1:53:28
private equities primarily and most other people when you have that uh ability to basically bid higher than I mean it's I can't say everybody else every single time of course there will be exceptions but almost everybody else almost every time then you can be confident in your offer. And uh we have
1:53:41
And uh we have seen that sometimes we put forth the offer and the the sales party thought they they could get more and they choose not to engage further and then maybe we hear back from them say 9 months later or 6 months later and they then they're willing to transact at that price cuz they they needed to convince themselves that actually that's what you can get.
1:53:59
It's harder to do if you think your offer is weak.
1:54:01
Then you need to be much more persuasive and uh and try to get it done before uh people shop it around.
1:54:08
But in our case we always say do you want to shop it?
1:54:09
You know, often people try to look for exclusives.
1:54:11
They're like, "Okay, okay, this is my offer, but unless I get exclusivity within five days or the offer is gone because they know that their best chance is to win on timing, like I'm here now."
1:54:22
They know the offer is not that great.
1:54:24
In our case, when we're asked, we almost always say, "Look, if you want to, we we encourage you to go and shop it around because in fact, once you convince yourself that this is the best offer, it'll be easier for us to like it'll be a lot smoother from we'll sign faster.
1:54:38
will close more easily like we want it to be fully satisfied that this is the best value for for you and your shareholders that you can get.
1:54:43
So that's being generally speaking our approach.
1:54:47
>> So I think from the outside I I would ask like how much of your business is run by numbers.
1:54:53
Remember the discussion we had on jiu-jitsu and MMA? >> Uh vaguely. Okay. >> Which part?
1:54:59
You mentioned you ma named some people that you were fans of in the sport of jiu-jitsu and MMA.
1:55:04
And then you said the >> her we discussed >> but then you said one of the weirdest anybody's ever said to me in my life and you're like oh by the way I don't know what they look like. >> Oh yeah yeah.
1:55:15
>> And I'm like how can you be a fan? >> I remember. Yes. Yeah.
1:55:17
>> How can you be a fan of a sport and not know what the person looks like?
1:55:21
>> We don't say I'm a fan of the sport but I know I I know something about the sport.
1:55:24
I'm a little bit of a a geek for uh stats, numbers.
1:55:28
Um um and so yeah, uh same for for a lot of sports like for example CrossFit.
1:55:37
I don't practice CrossFit.
1:55:39
I barely ever I probably seen >> You don't watch the sports study the data that comes off the sport.
1:55:46
That's what I'm trying to get to.
1:55:47
I would tell you that Miss Tumi, she's the greatest prostit.
1:55:51
She probably won like eight prostitute games.
1:55:53
She only missed once when she was pregnant, I think, uh, a couple years ago, and then she came back and won again. So, I don't know.
1:55:58
I just love to the stats, >> but you don't know what she looks like.
1:56:03
>> I If she's walking out the street, would you?
1:56:05
>> No, I I don't think I've ever seen her.
1:56:07
If I've seen her is maybe as I was googling, I guess the picture, but >> So, help help me understand this.
1:56:10
>> So, help help me understand this. So like this part of you which is one of the most memorable things you've ever said to me right where you have like this you had a bunch of knowledge about these people like so clearly you retain these numbers are you running your business the same way I would say I'm a
1:56:25
strong believer in in logic rational I think logic and rationality properly defined are perfect they're always good for you I'm uh skeptical about numbers actually meaning numbers can be very dangerous because they are an an approximation of reality and if you take numbers at face value, if you're not uh sufficiently skeptical and inquisitive, you risk being misguided. So numbers are wonderful and very
1:56:52
So numbers are wonderful and very useful, but they need to be handled with care.
1:56:56
What we try to preach at Ben is there's never a decision that you have to make where being logical and rational isn't the optimal strategy ever.
1:57:06
No matter how quantifiable or unquantifiable the matter hand is, you're going to be as logical and as rational as you can.
1:57:15
Whether you should be datadriven, uh let's see.
1:57:18
I mean, uh some things are very clearly well informed by numbers.
1:57:23
Other things are probably it's useful to bring numbers to the table, but they don't tell you everything.
1:57:27
Some things are somewhat dangerous.
1:57:28
For example, today we we generate well over four $4 million in revenue per spooner.
1:57:33
So we >> $4 million per revenue per employee >> per yeah per like core team employee like um >> so technically we and we pay some of the highest compensation in the markets where we operate >> because we want to work with some of the best people.
1:57:51
Um, and that's not the main thing, but we we want to make sure it doesn't become a thing.
1:57:57
Like we want to want them to feel that they're highly valued and and so that we focus on on the the things that are actually more exciting and and motivating than, you know, the extra dollar.
1:58:06
So pay needs to be high enough that nobody forgets about it, but it's not front and center, let's say.
1:58:10
Having said that, we as as is only natural, we don't want to waste money in composition if it doesn't bring better talent, right?
1:58:18
I think I'm not saying anything shocking here.
1:58:19
shocking here. And so I I remember having this discussion with some of my colleagues whether we should uh raise salaries or paying in general and I was firmly of the opinion that we should and we have by the way and we will further in the
1:58:33
future and and someone suggested that we run a an experiment and that was we would put out their job descriptions with the higher salary number than we would typically pay the company and see whether that would get us more applications, better applications, more conversion rates. I was in favor of
1:58:46
I was in favor of running that experiment because had we seen major uplifts that would have very strongly supported the view that we should be increasing salaries.
1:58:55
But I told the team before we ran the experiment that I thought even if we didn't see any uplift, I would still be of the opinion that we should raise salaries.
1:59:04
And the reason why I I I believe so is that I think that the people who click on a job ad and actually then decide what to do is actually a fraction of the people uh that could be clicking on that ad.
1:59:23
And uh and by the way, a lot of those people will have already decided whether they're inclined to apply or they're just curious.
1:59:28
And if you look at conversion from a piece of information you're you're changing so late in the final essentially and running an experiment that's going to last two months, you're going to fail to observe all the compounding effects of you establishing a reputation as an extremely highpaying company.
1:59:44
Those will never show up immediately.
1:59:47
You need people to spread the word at universities in workplaces.
1:59:51
You need to start showing up in the job boards as you know there are websites comparing that will take many months at a minimum probably multiple years.
1:59:59
The same way as today Benus is generally regarded as one of the highest talent density best places to go work.
2:00:05
It's not something we achieved overnight.
2:00:07
It's a slow investment in that.
2:00:08
And by the way the the test showed modest uplifts but but not enough in and of itself to justify maybe paying people 20% more.
2:00:16
So I I I cannot definitively prove that we were right in ultimately increasing compensation a lot, but I believe we were.
2:00:24
If you based your decisions on numbers alone or primarily on numbers in every case, you're very likely to miss out on a lot of opportunity.
2:00:30
I'm still I'm sure Steve Jobs would have said that numbers were occasionally interesting to him, but but definitely not the guiding deciding factor in many of the best decision they made at Apple.
2:00:40
So, we we try to make the maximum possible use of of numbers, but with uh with skepticism and and and context, but logic and rationality, they never they never fail you. They're the best thing.
2:00:53
>> Luka, man, out of all the founders I talked to, you're one of the least predictable uh people that I have conversations with.
2:00:59
I really appreciate you exist.
2:01:00
I love what you're doing, Brend Spoons, and I hope we have multiple conversations in the future.
2:01:04
Thanks for taking the time, man. >> Thank you, David.
2:01:06
>> I hope you enjoyed this episode.
2:01:06
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2:01:09
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2:01:12
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