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free cash flow equals Freedom eventually a real business generates real free cash flow you can't just be better you have to be different too you don't want to compete with someone bigger than you head on because they have more money
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they have more people they have more history you just want to compete with them where they're not competing fairb being in the early days had a calendar held the money paid out the money there was this big friction we need to figure
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out how to instantly book people gash started more Fringe than even sub because if you take a dollar and compound it 1% every single day you get this ridiculous result you get $37 $38 when I hear about making a Leap Forward 1 to 38 is a big leap and it's on a scale of figuring out what's a 10x idea the sequence of how you do something often determines whether remembered or not remembered [Music] you've had a remarkable Journey from
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entrepreneur to investor and I want to know more about this story but I want to start with some of your early life experiences that changed you and impacted you in the future I guess I was born in Taiwan um to two parents who um were both commercial Bankers um in an early age they from what they tell me I was always a little I saw the world a little different differently and did things a little different the story that they like to
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tell about me being different was when I was about 2 years old there's a new dresser that was delivered through our apartment in new uh in um Taiwan and I figured out a way to get to the top by pulling out the first drawer crawling into it then pulling out the second drawer pulling it uh crawling into that and then getting all the way to the top and when I got up there I thought I could fly so I jumped off and uh so they left telling that
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story because um they rushed me to a hospital and they were very concerned whether there was any permanent damage and things like that and my mom kept bringing me back to the hospital again and again and the doctor said don't
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worry I think he's fine I think he's fine and eventually he said well is there going to be any problem with you know his development he's like well he's either going to be um a genius or he's going to be an idiot he's one or the
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other I mean so that's that's how my parents would describe me high high variance and high beta and throughout school and throughout life I was very much like that I like to hack things and not do the work until one day and this was in you know in high in elementary school I just try to not do the work and hack my way through things and uh got suspended a few times uh one of which was just coming up with a creative idea of taking
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chairs from the second floor to the first floor I went down the slide and instead of following the teacher's directions I got suspended for that and so I didn't never really like school all that much because it was so rigid until until I used to hack my way through things and one of the teachers that I had Mrs Einstein had this way of teaching where she would put up a problem she would then have us try to solve that problem or do the assignment
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and and try to understand why she put the the reading up there and uh I would always bet with her if I knew the answer or if I knew the conclusion of the lesson then I wouldn't have to do the homework she let me get away with that once or twice and then she said to me once you know you're you're very smart I've seen a lot of people waste their talent so do you want to do you want to start first or do you want to finish
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first and I think I retorted back saying well I like to start first and finish first with the least amount of work possible and then she said to me that's a great answer for a sixth grader but what happens in life when there's no
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Finish Line what are you going to do then and that sort of put me back uh and I didn't quite understand it until maybe now that it's the whole concept of having an infinite game and thinking through not some thing some Finish Line some
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goal but just just think about what you want your enduring impact to be and what do you want to do and what do you want to accomplish and when the world doesn't give you a finished line we all have the same 24 hours in a day what do you want to decide to accomplish in that 24 hours we have an unknown number of years on this planet what do you want to get accomplished that sort of shaped the way I sort of started thinking about the
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world did it hit you then at the time or was it something you reflected on later I think it hit me then but I didn't think I I don't think I understood it then and so then that led to an number of Explorations on what I didn't want to accomplish why was it important to think about this concept of like infinite games how do you win an infinite game when there are no set rules you're making the rules for yourself in an
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infinite game and the rules change you get to change some of the rules the world changes some of the rules how do you how do you navigate that and then you quickly realize not about winning there in a finite game chess
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there's a winner there's a loser in an infinite game there are a lot of PE different people in the world they play the game differently and in some ways they're all trying to get on with the world and trying to do the best they can but some
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people are more successful than others and the reason they're more successful I think is because they really know what their their values are and they really know what impact they want to have on the world what are your
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values over the years i' I've thought through and this has changed over time but I think the the values for me are when you me when you want to accomplish something it's about the inputs it's about the process by which you go about
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getting the outputs I think it's very very important to have that and I value that Clarity of input eventually leads that output and focus on the inputs I value uh consistent compounding and just getting every single getting up every single day and just making small improvements every single day and compounding that I value um honesty and truth and just being very direct um with people I don't try to sugarcoat anything um I value
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I value people for who they are my father um I learned this from my father where he he told me once because I was like oh okay I'm just so much smarter than everybody else because a little cocky little uh kid and he said well actually you can learn anything from you can learn many things from every single person on this planet I think I was probably six or seven at the time and he was uh he'd show me all the different people that he learned
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from and that the collection of these lessons from many many different people is what you become and that was a pretty important lesson so I value people who for who they are and try to learn as much as I can from each individual person I value family and friends um pretty important to me he talked a little bit about work life and work life B from for as you said for many of us it's work life integration and if you don't have some
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grounding with people who see you for who you are call out when you're not act you're not being a good person or you're not doing the things that you said you were going to do um what is there in life besides that how do you want somebody to call you out in those situations or how do you call out other people the way I do it is try to be fact-based and um just give examples specifically of what has been working and what has not
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been working and I that tends to work pretty well and there there are times when Rebecca and my wife would say hey this is not working for us so what do you want to do about it uh you can try to keep going the same way same way down the certain path or we can try to change it if we don't like something we just change it and it's just much easier to have those kinds of conversations um my son a few days ago was being um quite negative about his
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school and you know he's start he's 13 he's going to be 14 this year he's starting to be like me when I was younger and think that he's smarter than the whole rest of the world and he said hey attakus do you want to be do you
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want to have negative attitude because you'll spin into this negative spiral um and by the way if you have a negative attitude the world just looks worse when you have a positive attitude the world just looks better and we played this
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let's use yes and for a bunch of things and let's create options and then you're going through the no butt situation and it doesn't work so let's try to just change your attitude about some of these things and I I thought that was quite an
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interesting conversation where just by simply changing the framework he became much more positive when you talk about inputs versus outputs what inputs do you think about in life well I think it the inputs I think
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about are um you know that it depends on what I'm trying to get accomplished but if the inputs are just thinking about hard work how do I get up every day do if want to stay healthy do I get up every single day and work out I I hear that you work out every single day because instead of trying to figure out which days you're going to work out it's always a negotiation with which days and some days you don't feel like um exercising you just work
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out every day I have the same philosophy you just get up every single day and do the things that are important um so the input I have is I get up every morning I work out I look through I read through my email and I try to think about what's the most important thing that I have to get right today what's the mo and um and think about first order issues what is the first order issue that I have to to solve what is the first order issue of a
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company that needs to get fixed um what is the first what is the thing that I need to do to influence and outcome for um for a founder and you know that's very very clarifying often we can create a very very long to-do list and then you got to pop up a level and just look at the to-do list what's the most important things I have to get accomplish because if you just list all the Doos you probably will not be able to get to all
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of them and the most most important thing might be the last one you list and so you can't just go down that list and do them one by one often it's by popping up a level where you sort of look at the whole list and like okay well most of
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this is not important is that what you mean by first order issue I think you mean something a little more nuanced some people talk about the most important thing um and I think I think about first order if I get this problem
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it I have a problem on my hands if I get to the the first order issue and get to the root cause of that usually that helps solve that problem and there are other issues that are not first order um and that concept is quite
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important we also sort of navigate that into other uh situations where um where they are Crucible so as an example like you you have you have situations where the website's not working fast enough at appos we had a situation where the
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website's not fast enough is the first order issue that we have too many pictures well we want the pictures we have lots of photos we want to show those photos is the first order of shoe that we need to um triend the number of search results well customers want longer search results it's like no it's none of that we need to figure out how to make the website go faster and so we start caching the the search results we start
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caching things and you start developing the technologies that solve the speed issue but the first order of issue is that we need to solve this with technology not with a bunch of either or Solutions um that's an example that I
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learned a long time ago another situation the distribution at appas was not flowing well um and we couldn't figure out which process was broken was it the picking process was the was the ordering process this broken what was
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broken about it and we went and just looked through the flow and the flow was broken and so uh there was too many handoffs uh across all of these different discrete processes and so we had to sort of pop up a level and figure out what the flow of from when a customer order something when it gets through the Distribution Center how is going to be pck packed and uh packaged and shipped and when you look at that from a flow perspective you
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start thinking about new solutions that allowed there to be much better flow throughout the Distribution Center than been then to batch things for picking batch things for um packing P batch batch things for uh for shipping so that's what you mean by first order uh I want to get into more of your experience not only at zos but U being on the board of some of thean compies that everybody has heard of um today are being involved
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but before we get there I want to come back to the school for a second are there any other experiences that you had during school with teachers that might have impacted you you know earlier on in junior high school I was um I was suspended from the computer lab because I built this was very old so they're a Radio Shack TRS 8s so we call them trash 80s today um and there was the computer lab at you know you had to Brent time in our computer
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lab to to use the computer and it built this game and the central server at the time was literally a floppy Drive where all of us saved our programs there and one day uh a bunch of the students uh in the computer lab all found the game that I programmed and then started playing with it the teacher and the principal just happened to walk in and saw that we're all playing this game and um has told that computer lab is valuable time
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and you should be doing something much more productive than than producing a game so I I was no longer allowed to work in the computer lab and the computer lab teacher was Mrs petosa and she she also ran the MTH team and she
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said well you I'm sorry the principal wants you out of the computer lab but you should join the mou team and I joined the mou team there and um one of the things I was really good at was math and she told me that if you want to be a
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leader and you want the team to win it's not good enough for me to just solve the problems but figure out how to get the rest of the team to perform and so I started teaching the rest of the math team some of the reasons why I was able
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to solve some of these problems more quickly than they were they're very talented but I had figured out tricks that they had not figured out and they had taught me tricks that I had not figured out so we got better and better
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by riffing each off each other and so I learned the value of teamwork by just being thrown into a situation like that you started a company before you joined zapo what was that I started a bunch of things I started a lemonade stand when I was younger I those were not interesting I started a longming service in junior high school um I did it myself and realized it was not fun it was too hot in New York city so I I got the
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contracts and then asked some of my friends from school if they would do help me do the work at a few odd jobs here and there and it was just never as fulfilling as working at a company uh that from the ground up when Tony Shay left um Oracle to start this company that was originally called internet marketing Solutions because they're building websites uh he asked me to join that company I said no then they found out that they couldn't get any of
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anybody to go visit these websites so he connected all of them um and that became link Exchange and I joined that company soon after SEO invested in that company and it was a banner advertising exchange that was one of the largest Banner advertising exchanges in 1998 19 1998 99 we sold that to Microsoft for $265 million and um that was quite the experience did you know at the time we were sort of in a bubble or how did you
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think about it back in the late 90s I mean we had a business we had $15 million in Revenue you can kind of tell that we're in a bubble when someone would be willing to buy a company that had $15 million in revenue for $265 million um but also you know it was the third largest acquisition at the time so I think when you're in it you don't realize you're in that bubble but popping up like the numbers don't make sense yeah so that's why I think it's
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valuable to have people who are slightly outside of where you work to keep you accountable it's like hey how's this how does this work just by simply asking questions you get into a situation where like wait I can't explain that question I can't answer that question suly I can't explain it maybe that person's question has more insight than I would have expected what are some of the lessons you learned from link exchange boy that was so many
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um there are many many lessons because it was the first time we're doing anything um that was at scale and you hear this all the time that um that you should hire you should hire slowly and make sure you really really understand who you're hiring for and you know often when someone's not working out you should it's probably time to let them go and we always give people too long and and I think the company's velocity uh didn't couldn't go any
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faster because we didn't hire as well as we could have we didn't let people go when they were working out and those are very very important things to get right I often sort of think about the velocity of a company velocity in in a measure that in two ways there you use the word velocity velocity as opposed to speed because speed is just how fast you're going but velocity velocity also has Direction and I think the combination of
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two is quite important but the whole speed of a company generally doesn't get any faster unless you're pushing and the best companies they keep pushing and otherwise you're just going to go slower and slower and slower you know I
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think building a real business is really important um many of the companies that were founded in 1999 in 1998 99 2000 they were not real businesses they had lots of eyeballs they had lots of users um but that's not really
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enough and at Sequoia we often talk about the fact that we own shares in a company we don't know shares in the founder we don't own shares in the product we don't own shares in their Market strategy we own shares in the company and that company needs to have a business one day my partner Pat Grady loves to say that free cash flow equals freedom because eventually a real business generates real free cash flow and the freedom being that the freedom
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that allows you to not have to raise money the freedom to allow you to invest in new areas of freedom to continue to grow because you can invest in growth and invest in new novel Technologies and new product lines the freedom to um not worry about the quarterly uh sort of pace of having to do more and more sales you just you you generate free cash flow and it just generates a lot of freedom let's go back to the push poll thing for you know you
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said companies don't generally increase velocity without Force how do you think about the difference between adding force or removing obstacles that's a very that's very very insightful of you I think many times applying Force um is what what leaders try to do which is just apply a forcing function and make you make a choice and often I think removing obstacles are just as important as as applying the pressure to keep
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going on and on and on but often you know when you apply Force you realize where the obstacles are because you you butt against that obstacle and then you realize okay I keep buting and againsts this maybe I have to figure out a way
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around it um and then you know my job as a board member is to help you identify obstacles and help you remove it but sometimes you just need to be pushed against it is there an example that comes to mind when you say that where
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you push and it helped you identify an obstacle maybe in the early days of Airbnb I I think people forget it was much more of a listing service and it was less of a Marketplace and if you sort of take the definition of a Marketplace you have to complete the transaction and you just not only have to complete the transaction you have to remove as much friction as possible and so Airbnb in the early days had a calendar held the money paid out the
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money but there was this big friction big big friction and it was because there was not enough trust uh between the host and the guest and so the early days of the removing of that friction was to get um connected through Facebook connect so you can check someone out and check out their Facebook um pages and who who they are and to see if this is an authentic person but even that checking that out took 24 48 72 hours that's just too long
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and you just kept pushing this is not going to work long term um because there's only so many people that can book travel and wait 24 to 72 hours before they know that they can go there and and so it what started out many great companies start out as a fringe sort of activity and you have to figure out how to make it more mainstream often that is about removing obstacles and removing friction but you butt against this and you're like what's
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the solution here and you keep playing for us this is this is going to limit our growth if we don't solve this and eventually um Brian and the team and the product team figured out that we needed instant book we need to figure out how to instantly book people well you have a whole set of hosts now that are used to not accepting guests just because they book them so how you going to to remove that obstacle well you start with new
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host it's like let me show you that airb can can be trusted we're going to as new hosts we're going to send you some customers and you should just book them automatically and eventually more and more of the of the hosts realized that instant book is just the way to go and um that's an example where you just have to be pushed against that for a bit of time to find the solution was door Dash sort of Fringe too and when mainstream
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did they start in like the suburbs or something go started more Fringe than even the suburbs it started on a on on a college campus and the reason uh we we pass on the seed round at Sequoya is were concerned that the
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this is like just something that college students did with their parents money um and then they started out um focusing on Stanford and then P out town they went to other suburbs and it turned out that it that was a very smart thing to do
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because everybody was going after the cities and one of the things that we talk about at squiz you can't just be better you have to be different too and if it's easy to say and hard to implement because everybody and when everybody is chasing after uh the cities because conventional wisdom tells you that that's the right thing to do uh it's very very hard to do something slightly to do something slightly different um but if you just
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hear uh Tony and the team talk about their business you realize that they had way more than just oh I'm going and doing something contrarian they actually had real reasons why the subs were actually a better place to start the
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value for someone who lives in the suburbs and have to drive 20 minutes to go get their food is higher than someone that can go from their um apartment go downstairs and walk a few blocks and get the food and bring it back home so that
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was like pretty interesting the other one was well is there enough density uh around the suburbs and it turns out yes there's it there is density you just might not think about it and they had examples where at in palalo there was University Avenue and there was California um Street and both of those places there that's where all the restaurants were and so there's density in where you can go to the those restaurants and you can
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radiate out from there so it was not as random as any any restaurant can be anywhere and any home can be anywhere um and it turned out when you go look and look at the data small towns all have this there's the reason why small towns there's a main street where everything happens and so then you start realizing that the density problem is not as not as complicated as you might think and they won because they were able to take
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the profits of the suburbs to go into the cities I often think about that as um you know there are people who uh think of the world and they just follow conventional wisdom and there are people who want to be contrarian well in either case whether
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you want to be conventional or contrarian you have to be right if you're right and conventional there's probably Le it's probably a less interesting solution but if you're right and um and contrarian you probably won't
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be able to make a lot more money because no fa no le going after that opportunity um I often find that it's interesting there are people who just want to be contrarian but if you're contrarian wrong that's not a great situation I try to put things in these 2 by two matrices of uh right and wrong and and Convention conventional and um contrarian you know the term I use for that is advantageous Divergence advantageous speak tell me more about
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that well that's it it's exactly what you just said right it's not enough to be contrarian you have to be right so you have to diverge from the crowd but you also have to be correct yeah it sounded like it's kind of the Walmart
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strategy right where it's like we're going to go in this area with which has less competition we're going to get really good at what we do and then we're going to use the the money or profits or and we're going to funnel into maybe the
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more desirable area like when Walmart started competing with Sears they didn't go into cities and Kmart you know they went into the suburbs where nobody was where the contrast I think between their ability and what they were competing against was much higher yeah and and and I think that that is a that's what all startups should focus on you don't want to compete with someone bigger than you head on because they have more money
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they have more people they have more history wherever they have more uh abilities you just want to compete with them where they're not competing double click on that for me well your example about Walmart where the example about door Dash focused on um the suburbs there's a example about door Dash where do you want to win McDonald's or do you want to win the top 100 merchants and it's not just about one or two yes McDonald's is one of the largest
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Merchants but winning a whole Suite of them is actually more valuable um Google the longtail keywords more valuable than you know the head and most of advertising was broadcast advertising you start from the top and
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this is a bunch of like longtail keywords and they think a lot of great companies um whether it's intentional or not um try to do things very differently than what exists today Apple they weren't the first to many things they were you know they
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didn't make the first uh personal computer they just made the user their focus was always about the user experience whether it was the computer the phone the watch everything they do is about having a great user experience
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that was not the conventional thing that people thought about it was about you know in the early days of the PC it was about processing speed and which processor was the fastest etc etc uh when the phone came out it was about the
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keyboard we don't use the keyboard anymore the Apple thing is fascinating so as the Blackberry thing cuz they really hung on to that keyboard thing but I remember when they came out with their new I forget what the device was called it was like their apple killer and I used it as a demo and I couldn't figure out how to get on the internet I was like they're done so user experience is so important it took a demo to like
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figure out how to use the internet once you figured it out it was great but I was like oh man this is so not inuitive yeah let's go back to hiring and firing a little bit was there any moments sort of at sapos or earlier with link
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exchange where you thought you had the wrong fit but it turned around that's a great way of asking that question I I would say probably not in the early days of Link exchange we hired and back to like conventional and you
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know we we hire the conventional right person we were looking for a marketing person we're looking for a marketing person that marketed to small medium-sized businesses they understood the internet they they fit all the specs
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that you would have in a job description um but they didn't fit the way we operated they didn't fit the way we Val what we valued and you know it's easy to sort of limit that down to like they're just a a professional marketer and
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they're mercenary not a missionary that's how Tony would tell the story but at the end of the day they didn't value what we were trying to build they didn't have the same values that we had and which is why when zap was started Tony spent a lot of time defining the values this is Tony Shay of Link exchange and zapas the values of the company and it's something that I talk to Founders about if if you don't have the same Mission
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you don't have the same values you don't have the same operating um understanding of the company it's very very hard to work together and then you know you're asking someone to change when they fundamentally don't fit to um to the company and how the company works that is generally the the the issue then the other issue on the flip side on the on the um the functional side when when your company is growing really really fast and you see someone
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who is growing but they're not growing as fast as the company every single day the Delta between how far the company is moving or how fast the compy is moving versus how fast or how far the person is moving the Delta gets bigger and bigger and bigger so it gets very hard to turn around um and so we have this concept that a lot of people have it's in sequa we hire for slope not intercept so experience obviously matters but if you
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just hire for the experience and their slope is not fast that's going to become a problem at some point and so we really really ask Founders to think about what is the person's potential what is their slope um and we much rather bet on
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someone with high high slope and low intercept uh because in startups in companies that are new the experience is helpful but you're doing something different and new and you need to reinvent bring a Playbook over from
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somewhere else is helpful up to a degree but usually many of the problems that you need to solve are just different and that's why you hear a lot of Founders talk about first principles thinking and don't Reason by analogy Etc because you do have to solve the problem um a different way what's the difference between slope and potential it's just well slope is just the is is pretty much the same thing slope and potential but having a high
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High rate of learning High rate of you know sort of being able to move fast and so someone has a lot of potential they're over here their potential is up here that slope when you draw that line is pretty high how do you gauge somebody's potential it's like you might be able to do this job you might be able to grow into it but like coming into it it's like they're not going to check the boxes they're going to look different
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the future does not look like the past but you have nothing else to go on but the past and you can see whether someone moved really really quickly in the pr situation where they promoted three times in the same year at a different
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company that was moving very very quickly do they have a sense of urgency you can test for some of these things you can ask about these things but yeah you don't know whether they have the potential to grow into the next stage of
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the company until you you you're you put them in that position often I think the the challenge is the company is moving so fast and you're hiring someone that has done the job before and you know that they can do the job for the next year or two and that's maybe good enough if you hire someone you have to let them go in 3 months that was a that was a mire there's almost no reason why that person was not going to be able to do
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the job for the for three months they either were not a cultural fit they didn't have the right skills if they stick around for a year or two it's usually because they they've done the job before and they're picking up a bunch of lwh hanging fruit um but I look at you know Tony at D many of the people who work for him have worked for him for a long period of time he likes to grow people from within he obviously hires from outside as well but
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many of the people who have been around the company have been around for a long time Amazon many of the you know the the senior VPS that were around Bezos had been around the company for a long long time um now that jessis were you know they're now a CEO he's trying to develop people also for a long period of time if you if you look at Great companies they're very very good at developing Talent both from within and hiring from outside is it a
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red flag if the turnover is too high then is it like a sign that people don't know how to hire right I think it's a it's a red flag and you look at it and you don't want to so the the issue with metrics is people start managing to the
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metrics and so if you start telling them hey your your turnover is really high um they start managing to the turnover number and that's another thing yeah have to manage the turnover of regrettable what is a regrettable
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turnover why you not able to retain your best people and what and if you have unregrettable turnover then why did you hire these people in the first place and so you if you break the problem down that way you get finer reads on what the
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issue is what the turnover I really like thinking about it in terms of regrettable versus unregrettable turnover um a lot of people when they're hiring the sort of we need this job I want to know somebody who's done it at
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the next level cuz that's where we're growing to so they're trying to like anticipate where they're growing and one of the problems that I hear commonly is that people run into well that person might have done the 100 million to 300 million growth but they had a different team than we have they have a different system different resources how do you think about that when it comes to hiring my observation is that when you try to
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hire someone that is from a company that is one chapter or two chapters ahead they tend to work out better and and part of that is because there are only one or two chapters ahead of you if you try to hire someone who you're you're over here and you're trying to hire someone that's 10 chapters ahead that usually is a problem because you don't know whether they understand the problem a few chapters before it's been too far
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away on this on your particular point about the system I do think that if you hire people who are 10 chapters ahead and they have a whole system in place even even though they took it from 100 to 300 in a product division inside of a
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large large company they probably had a lot of guardrails that allowed them to not make a bunch of mistakes and so you have to dissect whether that operating system works the same way as your operating system most startups don't
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have an operating system so the thing that you have to sort of assess is how well can this person operate when it's just more nebulous it's just less clear are they going to put the the operating system in place dive into this story behind zpos from sort of the initial idea in the early days just highlevel five minute version to the the exit with Amazon maybe from the start zapas was this is this weird idea we I can't even
39:47
believe uh we funded it because that this was a this is originally founded by Nick swimmer he had called and left a message message on on our answering machine this is how old and back we were going in 1999 and Tony and I were
40:04
running a seed fund a venture fund uh an incubator called Venture frogs and uh Nick said hey I have this crazy idea I'm a Web Master at uh Auto byel which is an auto um website on the Web Master there I think it would be great to just um
40:25
start something for shoes because I want to one store couldn't find the right size one to another store couldn't find the right color one to another store they didn't even have the style that I'm looking at and he had already searched
40:36
the web and found a whole bunch of websites where people were basically trying to sell specific shoes on the internet and we thought it was the craziest idea and we almost I think one of us had our finger on the delete
40:50
button to that voicemail and he then he said that that um you might think this is crazy but mail order is already 5% of sales in the US uh for shoes I'm like okay 5% still small but the shoe industry is 40 billion 5% is 2 billion and it just wasn't rocket science to understand that um shoot that the internet was going to be bigger than mail order and so we took a meeting we decide to make an investment and we we funded the company
41:25
$500,000 at a time uh when I when we were at Venture frogs I had to then leave to go work at a company called tell me networks and Tony joined zapo relatively early on as an advisor and then became co-o and eventually CEO but the most important
41:43
thing back then was because it was an e-commerce company and we were going from 1999 to 2000 it was growing from 2000 to 2001 I was like uhoh we have a situation and the day after 911 then the company had zero on
41:59
sales zero you went from whatever it was which was small to zero and that was the first Crucible moment um using the term because sequa uses term cruci one what we're going to do about that so have shook the company and we basically went back to basics and we wanted to build a company that was profitable and so we ran saton ran the company at break even and continued to grow the company for a long period of time until SEO came in in
42:26
20 4 2005 to make the first investment most of and so most of the company was financed from a small seed round Tony invested $10 million of his own money but most of it was financed through being very creative figuring out how to get Merchants that we we we ordered from to give us credit and to increase the credit line we had a eventually got a a line of credit from Wells Fargo but the burned very little cash and for a
42:59
company that went from zero when we sold the company it had $1.6 billion in sales uh that really didn't have a lot of equity financing uh was pretty incredible you hear about companies raising hundreds of millions of dollars to get to 1.6
43:18
billion in in in gmv or um or in sales and here's a company that basically raised $10 million and it probably was under capitalized but it really did highlight that you can build a company by having CAC be profitable on
43:37
the first order by being focused on customer service and not focused on marketing talk to me a little bit more about that because you didn't have a huge budget for marketing you had to get you know within the first month you basically had to pay back yourself for marketing how how do you think about that not only back then and then what's different now in a world where there's a lot more money and maybe all the players
44:02
aren't rational about how they're spending money to grow back then we thought that that was a you know we probably thought it was a curse that we couldn't raise more money because you probably would rather run the business a
44:15
little bit looser so we can grow a little faster Etc but being tight led us to find solutions that was again non obvious or Divergent to use your term uh um and the Divergent idea we had was if we can only spend money that was
44:31
profitable on the first order we needed other ways to grow and the focus was to become uh much better at customer service we noticed that it was much easier to keep a customer and ordering getting that customer to order more than it was to acquire a new customer and then we just went down the line of what we can do for the customer we we we tried to make the website load as quickly as possible we tried to pick back and ship within 4 hours the
45:02
solution to pick back and ship in 4 hours was to solve a operations flow issue and not batch the the operations which I don't think anybody else figured out in the e-commerce back then besides Amazon um we we decided to work very very closely with UPS in particular and then FedEx and USPS to figure out how to get um the shipping rat as low as possible we started shipping so that it it was you know 5 to 7 Days um ground shipping to
45:35
eventually overnight shipping so that the customer got it the next day we figured out logistics uh reverse Logistics so we bring the shoe to your home um we heard lots of reasons why people didn't uh want to order shoes on the internet we knew that before before we invested and we knew that we needed to bring this the store to your home have you try it on and then return the things that you did not uh that didn't work for you you did not
46:04
want anymore and by doing all those things um we provide a much better customer service when we on any given day the the orders that we had 80% of it was from repeat customers and we grew the business some with marketing but the
46:23
majority with by providing great customer service having high repeat rates having high LTV and having customers basically tell everybody else how great that business was how well they were treated etc etc I read somewhere and this was
46:41
counterintuitive when I I came across it so correct me if I'm wrong that your best customers returned the most shoes yeah that was a very contentious discussion because every every year the return rate would go slightly higher and it was slightly higher but we kept growing so one way to look at it is well it's not really hurting us and then the other way is well the return rates are high and the most expensive process in the Distribution Center
47:12
was was managing the returns you had the return shipping you had to open up the boxes you had to look at the product and figure out whether it it's ready to go back on the Shelf it's damaged I need to fix it or it's can no longer be sold again uh because if you put something that cannot be sold again on the we on the website and make it available and that that gets ordered it's freaking going to come back and be returned again
47:37
we then did this analysis um and this is the type of analysis I really enjoy doing is like let's take our best customers and let's take our worst customers and look at their return rates and it turned out that our best
47:49
customers at the highest ltvs return the most and I'm like that that is crazy how is that possible well it turns out because they were they understood how to use zap BOS they just ordered more yes they return more but they kept more too
48:07
because they would be willing to try things if you never returned anything that means the only you buy are the things that you're super comfortable with you know the size you know the style you so we we were trying to help people open up the aperture try new things um so we did this analys on the extremes and compare them and realized our best customers had the highest return rates so then you say well the board doesn't like the fact that we have
48:34
such expensive return policy and it's costing us a bunch of money so then the solution is not to reduce the return policy and make it less liberal you want to keep the return policy as liberal as you can but make the cost of processing as low as possible and so the first order issue there is exactly going back to first order issue the first order issue is not the return rate the first issue is making the return process as
49:01
cheap as and efficient as possible it's so counterintuitive right when you think about it because you actually like know we're okay with people returning shoes as long as they're buying more and then then they're trying them on at home
49:13
which is exactly what we want and sending back what doesn't work yeah I think we changed the whole industry and it originally was just a competitive response we had a liberal return policy in 30 days other people copy 30 days
49:26
then it was 90 days other the people copy 90 days and then we made it 365 days and not everybody can copy that some did but by doing that it would put a stake in the ground that we want people to try the zapus experience and
49:41
have a great experience why do you think it works for shoes but doesn't seem to get as much traction when it comes to clothing no I think it it got a lot of traction for clothing it was an understood Problem by the time we got
49:55
into clothing that you wanted wanted to have high returns you're going to have high returns and therefore you need better processing for for clothing I I think for clothing for shoes um and for a variety of soft Goods return rates are high because you need to try it on and try it out I'd also point out that shoes the difference in sizing really does matter I mean you wear a small or a medium both could probably fit and you
50:26
may look more Buff when you wear a small and you it's loose fitting when it's a medium and whatever size you you want to use but for shoes the difference between seven and 7 and a half or 12 and 12 and a half is big difference and did you guys do things and I don't I was never as zos customer so sorry but like did you do things where it's like hey last time you you're ordering a 10.5 or 11 last time you ordered a 10 we're just letting you know
50:54
as an effort to like reduce turns like maybe you hit the wrong button oh we we let people know those things we also let them know that this brand you're used to buying this brand um like A6 Runing shoes and Nike fits a little looser so you might want to up the size we had this measure of like does this fit true to size or does it fit a little looser or a little tighter you guys also had like an incredibly unique culture what went into
51:22
the thinking behind that the culture of zapus um was very special and it was something that we wanted to preserve partly because Tony Shay had this experience at link exchange where we didn't Define the values of the company we started hiring people that were conventionally right for the positions in the job and one day he woke up and realized the company that he had founded and built was no longer the company he wanted to work at and he
51:54
wanted to make sure that the company that had this special culture that was zpos kept the culture in the early days it was not very well defined C what is the culture of zapus well you know that that was more nebulous in the early days and then the company grew and people asked well what is the culture we don't have it written down how do you know someone's a culture fit well does Tony like them does Fred like them does
52:24
Alfred like them after the interview and I don't like the term the word like like could mean so many different things it was just not well defined and at some point Tony decided to just ask the company what do you think the values of zapus are what are your personal values and what do you not like about zapus and just parsing through that we got a lot of responses and in his book delivering happiness he talks about the fact that
52:53
we started with 38 different values that you yeah these are all saus values and combined them shrunk them and we ended up with 10 core values the problem with 10 is that um there probably a handful of people that remember all 10 most
53:09
people remember the first one or two or three of them and the first one was was to deliver well through service it was the you know was in some sense the most important core value but we meant it uh in the way not just to deliver while
53:24
through service to customers but also to employees to um our our partners our business partners and to investors you had a different management system as well talk to me about was it holistic management holoc holcy holoc
53:42
yeah so um the management philosophy was um was different partly because we wanted to hire people that could just self-run and self- sustain and so so there was an element of allowing people to do what they love the most and it and
54:01
pair them with other people who love other things and make it sort of homegrown I think Tony's perception of his job was that he was to create his his idea of creating a operating system for the company was to basically build a greenhouse was his analogy and he's going to try to help every single person grow as tall and as strong as possible and so he very much focused on allowing people to focus on their strengths and
54:36
hire other people for their weaknesses to supplement them is there an ideal growth rate do you think like can you grow too fast the the answer depends I I I think the easy if you're growing so fast and the customer experience starts
54:52
to degrade you're hurting yourself and so yes you can grow so fast that it's just a complete mess you're losing customers because you're not servicing them correctly and at zos we were very mindful that whatever customer
55:07
experience that we delivered it was the best customer experience that we can deliver at that growth rate and I think if you ask uh Tony Shu at door Dash or Brian chesky at Airbnb they would probably say the same thing I like we want to grow as fast as possible with the con strength that we don't we want to make sure that there's a great customer experience and maintain the internal culture yeah and the maintaining the internal culture
55:35
is one way of thinking about it and you may have to grow the culture over time you have a company it's growing do you think the culture that was on day one is going to be the culture that's going to work you know 5 years 10 years and it's not the static thing it's not a static thing cultur should not be static every year you do a strategic plan and a financial plan you you figure out what your next year's revenue is going to be
56:04
your hiring a plan your marketing plan you have all these plans you should also have a plan for culture and how to grow that I think the best companies think about that like how does this how does our company change how do we grow up how
56:18
do we become one year older and better and faster at the same time how when you're having so much success scaling like going from a million dollars in sales to a billion do you not sort of get complacent I think that
56:36
because you were dominating the market at that point in time you were the leader clearly in that space you're talking about dapos or yeah or in general either in general I I think in in for every company the if you read Jim Collins's book why the Mighty Fall or it's the first sign is the huus of much success us and we you know it's AOA we're just never complacent but you really work not to be complacent we actively work not to
57:08
be complacent and almost every single company to make sure that you're not complacent successful companies just think that way that's the quy we talk about you're only as good as your next investment uh at a as zos we talked a lot about um about how easy it is to ruin a good reputation you just with the next order if that's not good for a customer you have you built you built all this effort to build a good reputation with a customer and one bad
57:45
order on an important order like their wedding day and you ruin that reputation and so I think a lot of companies have different ways of thinking about done and Brian chesky thinks about what's the next thing what's the transformation that we're going to create what is the next thing for the customer experience that's going to be great Tony Shu thinks about the next product that to to power the the local economies what's the next set of
58:15
people that we're going to help um and I think you know if you sort of go back in the history of any business you notice that customers are just enormously impatient they're enormously unsatisfied everything that becomes that
58:36
is new and novel becomes standard and basa had this line about how customers are just always always dissatisfied her I want to kind of go deeper on that it's almost like there's a natural entropy to create more sentiment inside an
58:52
organization Toby luk and our interview use the word sentiment like you start building up the bureaucracy and entropy being like that's the natural result of growth in scale and then you actually have to apply a lot of energy to make
59:05
sure that it doesn't happen what are the early signs that you see that uh of siment yeah well there are a lot of uh examples of this when you you know the reason I always take a snapshot of when I when I go into a company for the first
59:26
time to see how fast they're moving and then I tell them you PL today is a great day this hopefully you will move faster than today and I hold that to as AAR and if you don't have that mentality it will SL start to slow down um and so what what's the settlement like the process becomes instead of making Fast good fast decisions the the thing that people value is having a good process that slows you down to make sure you have the
1:00:00
right decision you have to make High Velocity decisions at scale um and I look for that like are we able to make high quality fast decisions as quickly as possible or do you let the process determine the decision how do you judge a decision's
1:00:19
quality you can't necessarily at the the moment in time um you can think of about things at the moment in time is how reasoned how reasoned how deep have you thought about the problem how much research have you
1:00:32
done and you can sort of at least say well you researched the problem you understood it deeply and you picked a course and hopefully that's the right decision and in hindsight you can always look back and look at whether those decisions are right or wrong and I don't think enough companies look at that enough you instead of projecting next year's revenue and next year's strategic plann part of the Strategic plan should
1:00:59
be about looking backwards what decisions did you get right what decisions did you get wrong why do we need to corcraft you guys um also had an element of I think it was even specific back before it became popular but getting 1% better talk to me a little bit about that what it meant practically speaking there are two things that zapo that I um I I pushed very hard and popularized one was the um was the power of and because
1:01:28
I found too many people trying to figure out ways to do either or and uh it wasn't like okay we're going to ship product more quickly but the website's going to be slower like those are you got to do both and if
1:01:49
you if you think about the little things that we do at zos it was about just compounding 1% every single day and I used to write on the Whiteboard one plus one 1 plus 1% to the 365 because if you take a dollar and compound it 1% every single day you get
1:02:08
this ridiculous result which is you get $ 37 $38 and so when I hear about you know making a Leap Forward 1 to 38 is a big leap um and it's the scale of figuring out what's a 10x idea it's even bigger than a te 10x idea I hear
1:02:31
Founders talk all the time about I only want 10x ideas because that those are the things that moved the needle and it turns out just simply compounding 1% every single day moves the needle even more than a 10x idea where do people
1:02:46
tend to go astray right so you you have a great core product and I'm just imagining you start building up a team you start getting out of your focus like where do companies go wrong a number of places if you just look at Great companies they compound at a very high rate for a long period of time in their Core Business Google for a long period of time was searched Amazon for a long period of time was e-commerce and there's a difference I
1:03:15
think there's a difference between act two and category expansion so in Amazon they went from books to music to electronics to a whole bunch of they just went category by category but it was the same real like Core Business which is pro getting product to the Distribution Center pick pack and ship the the products that you want and shipping it to you um and it could be books it could be music it could be Electronics it could be shoes it could
1:03:42
be um tools it could be a hammer but but that's one Core Business and all I think Founders start their company because they have novel and compelling insights into the world and specifically for their company and they like the new shiny penny I'm not saying that you shouldn't focus on the new shiny penny that is adjacent to your business I'm just saying that you shouldn't focus on new shiny peny that is like way out away from your
1:04:11
business eventually all companies need an act two AWS was an act two that was very different than the than the e-commerce business but even the way that Amazon thought about the their web services business is like well we're very good at building distribution centers here yeah originally the Distribution Center that we built was for physical things and here we're building a distribution center for electronic things for bits like even the
1:04:44
way to sort of think about it was quite interesting they didn't think this was a this is a high margin business I thought of it as like okay this will be a low margin business too and we we like low margin businesses that was be's
1:04:57
famous quote right like your your margin is my opportunity I like the idea of act to for a lot of companies act to is the founder steps down Professional Management sort of comes in talk to me the difference between as you see a
1:05:10
founder-led company and a professionally LED company and I use the word professionally Loosely because Founders are professionals but I just want people to get the distinction in their head well there's a lot there's a lot being said about the difference between founder mode and manager mode and I would go back to the the question the question is shouldn't it be and shouldn't you want don't you want to be both I have a concept of Fire and Ice
1:05:34
the best companies are both this huge fire they have this entrepreneurial spirit and they run hot because the idea is so compelling and interesting but they also have this icy side it's just cold facts it's management it's about getting to the details and the best companies have both um and it it pains me to see that you have to choose one or the other because the best companies do have they they figure out how to make
1:06:05
make sure that both are in this in the company what are the different strengths I guess then maybe that's a better way to think of this question between founder mode and management mode what are the weaknesses and strengths of each like how do they work symbiotically together I would say that there are many different modes of a Founder um and or a manager you know the the beginning days you're you're a Creator you're finding
1:06:32
zero to one you're creating something that the world has not seen before and the mode there is to be a Creator and instead of calling it a Founder you're creating something that the world has never seen once you create that what
1:06:46
sometimes it gets into you know sort of operator mode and found many Founders are fine operating and making their creation better it's about understanding the inputs and outputs how do I sort of make this system how do I make the
1:07:02
system better I create something I need to sort of go to market with it how do I systematically make the go to market happen um and you're trying to just operate the thing in a way that sort of scales the business and many Founders are very very good at the scale then you get to a mode where you need to manage you're trying to figure out resources resource allocation and it's like should I invest a dollar in the core business or should
1:07:31
I invest that dollar in a new project and sort of having a framework on how to make management decisions like that that's what a lot of um companies at scale but the CEO needs to figure out and then there's just a level of leadership around how do you lead the organization and think about it from an organizational standpoint so some of that is manager mode and some of that is is is um founder mode but let's just break it down to what it is
1:08:04
and not talk about one contrast over the other well I want to go back to something you said earlier about Crucible moments what are they and how do you identify them Crucible moments um is is the term we use at stop as ADD Sequoia for things that are basically very important type one decision and I've had to deal as an operator before Sequoia we didn't call them Crucible moments but I've gone through a fair share of Crucible moments you know
1:08:38
link exchange do we want to do we want to sell the company to Microsoft at um tell me networks when we're burning $60 million a quarter how do we get through that and how do we pivot the company from a consumer business that
1:08:57
wasn't working into an Enterprise business these are decisions that change the trajectory of a company um at zapus it was what do we do um after 911 um when sales went to zero what did we do during the financial crisis when credit
1:09:14
became very very difficult and we were borrowing uh $60 million and we had $6 million debt we did nothing wrong but we needed to but the banks didn't have the liquidity him anymore they're calling the loan and how do you how do you go through these things at Airbnb there have been a number of Crucible moments as well one of which started very early on that Brian chesky talks about a lot which was the pr crisis with um a guest
1:09:41
trashing a host um and that led to host guarantees but there were many of those there was a fight to win Europe and a competitor called Wu that copied the Airbnb website pixel by pixel or door das's decision to go after suburbs and
1:10:01
not the cities they didn't give forgo the cities but we're going to start with suburbs first D Ash's decision to focus on Merchants and selection over speed and you know you can have a situation where you can increase speed of delivery
1:10:19
by just having a smaller radius which then you know if you if I only showed you the rest resturants that are close to your home you'll get them faster but it doesn't give you the breath of selection that you may want and these decisions change the the trajectory of the company and their choices that um many of the times they they're oneway doors once you make this decision you can't go back and I think they are very very important to get
1:10:47
right and so at a Qui we have a podcast about it um partly because we want to highlight how to how to Founders and the management teams puzzle through these decisions and then another characteristic about cruci moments is
1:11:04
every one of them don't doesn't look like the other So you you're presented with a new problem and you're trying to figure that out for first principles how to solve that problem that's the second or third time you brought up first
1:11:18
principles thinking what is that mean for me it means start from a blank sheet of paper and you have a bunch of Frameworks that you have that help you sort of triangulate the answer throw those out maybe you need a new framework for this P particular situation you're the king of mental models to me their their Frameworks we love them because it it instantly helps us think about the world and narrow down the options some
1:11:42
situations you want to generate more options and more more ideas and in those particular situations you want to narrow your thinking you want to broaden your thinking if we're on board together and we get a problem imagine and it comes up
1:11:58
and how do you think through that in first principles thinking like how would you do that in that setting I'll give you I'll give you an example from from Airbnb you know when the pandemic had uh you can decide to do
1:12:12
a variety of things and you know there there's all these pressures there's the investors who wants you to raise enough Capital so that you can you you you can go through and weather the storm there are employees that want to know that they're going to be employed there are hosts that want to uh know that uh even though guests can't travel that they have a non-refundable cancellation policy they're going to get the money you have guests who want
1:12:43
to uh figure out how to get their money back because they're not traveling you have a business that went from a business that was growing uh 20 30 40% on a year to a business that declines and you lose 80% of your Revenue there's all these pressures it's a complete mess and the solution that you had yesterday doesn't work for today because Airbnb before the pandemic was a lot of Cross bber travel and today after the the pandemic there is no
1:13:19
crossb travel how do you think about this problem where do you start it's a mess everybody is yelling at you from all these different angles and Brian just one of the most important things is to stay calm and look at the prom that
1:13:33
we have at hand and figure out what the most important problems to solve first second and third and he had principles that he had outlined he you know we we used to have these emergency board meetings and it was just always
1:13:46
discussing what's the emergency this week this week this week and then he leveled up and decided to say hey we need principles to decide decide what we're going to do and he decided that Arab we have a once in a generation pandemic one in 100 years that's outside the building there's nothing that he can do to fix the pandemic but what he can do is to make sure that Airbnb survives for the next generation and he had principles by
1:14:22
which he wanted to make sure that uh we when we get out of this we're seen as someone who created Airbnb for the next generation and not not something that uh wasn't going to to survive this generation then he went to work and he
1:14:39
had these great um plans of like we're going to reduce our Burn by doing all the things in this order we're going to cut marketing nobody's traveling anyway easy decision we're going to cut contractors we don't need we we don't
1:14:55
have enough work for that easy decision we're going to have to raise money and we're going to do it in a way that doesn't burn previous investors so we're not going to raise money at a low valuation we're going to raise debt why do we need to raise the money to survive the this crazy situation where both the the guests and the host want their money back we have $3 billion of capital on the balance sheet at Airbnb but we we we
1:15:24
have $3 billion or $4 billion of customer deposits we can give all of that to one side and one side will be pissed at us give it also host the the guest will be pissed if we give it to the guest the host will be pissed and we won't have a business when we when we uh emerge from the pandemic so he goes out and raise $4 billion $2 billion of debt so two plus our three is five we can cover both sides and then take to both
1:15:51
sides okay we can put we can pay both sides instead of paying it out why don't you just calm down you'll get this money you know you can get this money and let's see how the system works itself out and so he had to sort of project confidence and imagine your way out of this thing and you imagine a solution which is okay well we're in New York right now not not a lot of people want to stay in their apartments in New York they're traveling
1:16:20
upstat in San Francisco where I was not a lot of people wanted to be in San Francisco they went to Napa and so slowly but surely in it didn't happen in March it didn't happen in April but in may he found resilience in the business
1:16:34
model where people started to travel again just in their own backyards in their own country and that allowed the the company to come out of that and the thing that he did last was to lay off employees he knew that the employees
1:16:51
were were going to have a harder time finding another job during that time during the pandemic and so that was the just had these principles of how he was going to go solve this problem nobody would have told them to do that in that order that's an incredible example thank you and then on the flip side this is the craziest thing so because you know Airbnb was the poster child of the number one IPO possibility for 2020 and
1:17:19
they had seen their revenue go down 80% and then they came out of that and then went um went on to be the number number one IPO of that year um in December and door Dash you know sort of I had the opposite experience of door Das which was boy you know they were also going trying to go public that year but instead of being beaten down by the pandemic they uh really accelerated during the pandemic and also there t Tony Shu had a lot of
1:17:52
principles behind what he wanted to get accomplished um and it was like anything else during the beginning of the pandemic it was very very scary um because around the world there are some places that were completely shut down including
1:18:07
restaurants and if you shut restaurants down because of his experience having worked in a restaurant with his mom by his mom's side washing dishes with his mom he knew that restaurants wouldn't survive they have less than 30 days of
1:18:21
cash and you know that's less than 30 days of cash when they actually are running at full speed so now they're they have less they have less cash the the restaurant is is uh shut down for a period of time people didn't know
1:18:38
whether they can order fol and and would be okay as soon as we figured out that the restaurant shouldn't be shut down and the restaurants can remain opened for delivery and take out he went to full force and making sure that the
1:18:53
business could help help Merchants bridge the gap you know this is not something that other companies couldn't have done but one of the things that I really respect about Tony and the team is they decided like these Merchants are going to be hurting and we need to help them and so they proactively went out and uploaded menus from different Merchants onto door Dash and said hey I know you guys are hurting the only thing
1:19:22
you can do is delivery we're here to help you we've uploaded the menu your menu we found your menu whether it's on the internet we got a copy of your menu we uploaded it it's ready to go just let us know if we can turn it on for you and that allowed door Dash to grow very very quickly during the pandemic I thought that Jord Dash was a well-run company in 2019 um and it was a it was a process by which they they grew very fast they
1:19:52
probably grew too quickly um the unit economics wasn't great they had a few hard fundraising rounds for the C and D they fixed the the unit economics so in 2019 it was a W Oil machine and I saw this W Oil machine push to another level
1:20:10
in 2020 during the pandemic when they Tred they really did help um restaurants um when they were in a world of hurt so the pandemic is a crucible moment for every business it a crucible moment for every business what differentiated the
1:20:30
founders in seoa from the ones who took advantage of that opportunity and sort of came out of it stronger and the ones who [Music] didn't I I think we were you know I hate to say this and it's maybe TR but going through the pandemic we all came out stronger it was a shared experience sometimes when you go through crucial moments and crises you don't have the shared experience but I to answer your question more uh more succinctly I think the
1:21:05
there are people who knew that the crisis uh was an opportunity and then there are those who just thought of it as a crisis and I think it was Andy Grove that says that you know good companies are get better and they're
1:21:22
defined by a crisis where where as you know there are a lot of companies that are destroyed by a crisis and many great companies were defined and they changed the way they did things in a way that you they found solutions that you would
1:21:40
not have imagined uh when the crisis didn't happen and I think the founders that are they realize they're in a crucial moment they realize they're they need to do something differently and they stay calm they look they stop they look around and they figure out they look around 360° and say that's the direction I'm going even though the whole world is like revolving around them and it's a complete Whirlwind and they imagine why they
1:22:13
should go into that direction and in most cases they had to find a different solution a different product a different way of operating and then scal down in into that direction those are the ones that come out really really
1:22:30
successful you know in airbnb's case they had to re they had to change crossb travel to local travel they changed the long-term States they changed to having experiences in door Dash's case they simply had to sort of do things that
1:22:48
they've never done before it wasn't a new Pro it wasn't a product change but they had to imagine a different solution they're not going to wait until Merchants call them and say negotiate a deal they said look we've uploaded your your menu onto the website into our app these are our standard terms do you want to go or not that wasn't a product that they had designed before the pandemic often you need to find a completely
1:23:16
different solution to I mean they seem so simple after the fact but at that moment is completely unclear that that was the right decision but that's why you need to stay calm that's why you need to look around you need to stop look around and and find the right direction that you want to go in and then accelerate I think that's really an interesting approach right where you sort of stop you don't panic you evaluate what's going on as rationally
1:23:46
as you can in the moment despite everybody wanting things from you and all this pressure that you probably have from investors but you also put on yourself to to take care of your employees to take care of your customers take care of your family and everybody's worried to put the same thing so you're operating in a very Amplified environment to begin with yeah and the Beth's Founders are doing this day-to- day but here the time frames are much
1:24:09
much shorter and much much more compressed and people's voices are are much louder um know just recently Tony said that it's about many good decisions about sequencing we all know what we need to do do but sequencing it right is is
1:24:26
actually what matters um and the sequence of how you do something often determines whether you're remembered or not remembered in in the example that we talked about for Airbnb there's a sequence of like what is easiest what is
1:24:43
the what is the values that I have for the company and let's go through the sequence that most matches the values so Brian want to take care of the employees the most and so the layoff was the last thing that he did he tried to do everything else before the layoff in Tony's case um the sequence was to make sure because he had a heart for merchants the sequence was take care of the merchants so there wasn't um it's just when you
1:25:17
have these well understood values it makes the sequencing a lot easier and often people forget they write down their values for for a good reason because when you don't have a Playbook anymore all you have left is the essence of what the company is which is the values of the company often that's the essence of the founder the values of that founder and how they want to operate but you forget that because it's noisy lots of people lots of
1:25:46
different parties um wanting your time and your attention work from home has become somewhat contentious uh topic but I really want to hear your thoughts on the pros and cons and and how you see it uh pros and cons I think it's very
1:26:08
very hard to build an early stage company remote and the reason I say that is unless you you've worked with each other before I I view I view there to be a well of trust that is created when you work together in this you know the
1:26:25
reason why people who have worked together for a long period of time can like anticipate each other as movements and what they're going to do next is because they've been around each other for a long time and as you know that most of our communication is not verbal there's body language and how you sit how you react there's a lot of communications that we miss uh through through work from home and you just can't read it as well
1:26:54
on the screen versus in person cuz there's only your you know on screen in Zoom you only have your head there's the rest of your body uh That You Don't See and so I think it's quite important for early stage teams to work together I mean they don't have an office they find a CO the coffee shop to work together at why do you do that you can all work from home but why do you get together at a coffee shop to work together it was like
1:27:20
it's noisy there a lot of people around there's a reason why you want to do some of these things and I think you know does it mean that every single day I'm more productive in the office no there are days when I'm writing a memo it's probably better if I sit in the office or I'm at home and just cranking um it's also hard very very hard to build culture if you're all separate and apart from each other there's no ritual culture is the values
1:27:48
but how you express those values they're they're they're your behaviors they're the ritual they're the narratives that we tell each other and those things are just a lot harder to do over Zoom so I think I think all companies
1:28:05
should go back to being in the office a certain a certain number of days a week it doesn't have to be five I think that we can't put the genie back in the bottle on remote work but at the same time you know we thought the world was
1:28:20
going to be different when we were all online and it turns out we actually enjoy seeing each other in person we enjoy having dinner together I don't enjoy having dinner over Zoom with someone I enjoy it when we're we're breaking bread right off right next to each other do you believe that you can please both sides and that that's sort of the hybrid model where people are going to work at the office two or three days a week and then you can work
1:28:47
from home two or 3 days a week do do you believe in that being effective or do you believe you have to pick a predominant one and focus like CU your operational backend your company Culture Your Cadence they're all going to be determined by what you pick and if you pick in the middle you're probably making trade-offs on both side and not getting maybe the advantages because you don't want to make tradeoffs I think it's best if you take
1:29:13
a stance take a side hybrid I would cribble with the fact that hybrid doesn't work at all I I think you can be in person you can be a remote you can be hybrid you just need the systems around it to to make up for the
1:29:29
fact that you're going to operate in this way every multinational corporation when they have multiple locations was doing some form of hybrid right you have some people who are in this office some people in this office they're connected
1:29:44
through tele you know uh telecommunications um and some some people are on the road and okay any company that had like gets a a certain scale the sales people in the field they're not actually at headquarters and you're having an all hands those people call in um but when you have an important all hands you call everybody in you have an important offsite you call everybody in um and there're just certain things that should be done in
1:30:13
person there certain things that are okay to do over zoom over um over telecommunications over email I think that there's there's a different medium to do different jobs depending on the objective is and you should understand what the drawbacks and the advantages of each one that's AO I mean we take a lot of first meetings over Zoom um and during the pandemic when we were only doing um meetings over Zoom you just never got
1:30:46
the right texture for the company the Cadence of the how the company operated and yeah we might still take for meetings are resumed but we're going to meet the team you know at temp point in person did you analyze your investing
1:31:01
during that period where you're meeting more over Zoom versus more in person when it comes as approaching the investment decision yeah we can make those assessments but the hard part is the environment is also different right
1:31:14
so 2021 valuations were nutty was it the issue of making those investment decisions over Zoom or was it the environment that drove valuations higher so therefore the returns are going to be more difficult more challenged
1:31:27
when valuations are higher why do you play When the valuations are higher when when sort of like the this the game is loaded against you in a way like why choose to keep playing why not back away and then come back when it when you the
1:31:41
odds are in your favor well historically valuations have gone up but if they keep going up then you you how does that work like I think rlps pay us to make money during good times and bad times and and here's the thing that is most interesting to me um you can decide to shut down but then you won't get the texture of those companies being developed and sometimes it's you got to keep meeting companies right like so you
1:32:12
don't shut things down you can decide to invest fewer dollars uh when when things are hot and you could decide to invest more dollars when things are cold but the market is also smart so when things are hot it's usually because
1:32:30
something new is happening and things are called maybe it's just not a good time to invest to if you could identify when it's irrationally exuberant yes you decide not to invest in the irrationally exuberant situations but in
1:32:47
1999 which was one of the if you go back in history and look at Megatron in in investing you know I'm 52 years old right now when I was in junior high school one of the things I did as a business was to build
1:33:04
PCS clone PCS because the IBM PC XT at they were really expensive and and so there is one that was one Mega Megatron which is the PC Revolution then in then there was the internet Revolution and then more recently the Cloud Revolution the mobile
1:33:25
Revolution some right now we're in the AI Revolution and the internet Revolution when I first started working professionally after college was Ed link exchange and then we started investing in 1999 uh that's when vent frog started and if you decided not to invest in that time you would have missed out on Google Salesforce PayPal zapo open table there are a lot of great companies that were still founded during that time and
1:33:53
paying market prices for those Investments would have been just fine and you can better than just fine would have been better than just fine you could have you know but you could wait until 2001 and maybe you could invest in lower valuations but often uh in the public markets you can you can wait because those companies are available when the multiples are low in private companies just because the valuations have come down does doesn't
1:34:23
mean the company that you want to invest in is looking to raise around maybe you know in 1999 you wanted to invest in in Google in 2001 they happened to be public you could invest in Google but if they were private maybe you wouldn't be able to
1:34:38
yeah John brag said this thing in in my recent interview with him that I I had never fully appreciated I don't think which was he had a reputation for overpaying for all of the land he was acquiring and I said why do you do that
1:34:53
he's like well we're easy to deal with people want to deal with us and he's like these assets only go for sale once and he's like so maybe it takes 12 years instead of 10 to get our payback but it doesn't really matter because there's no opportunity 10 years from now to buy it again yeah I think the that's an example for us it's the same as true in the in investing in private companies it's still much better to pick the right
1:35:17
company and slightly overpay than to invest in something that is cheap you brought up AI as sort of like the next Revolution where are we going with AI where do you see that and obviously the longer we go out in the Horizon the
1:35:33
harder it is to predict so maybe let's start with like what do you see is the next 12 months in Ai and where do you think we we sort of like how do you envision sort of 12 months to 5 years it's funny because I think in the
1:35:48
history of Technology changes it's and then bill I think Bill Gates said this it's easy see we we almost always uh overestimate what things are going to happen in a year and we underestimate what's happened in 10 years yes it's
1:36:03
harder to imagine 10 years out but you know in the business I'm in at sequa we are paid to make investments and to hold them long term and we do have to sort of Imagine 10 years out um in the next year these Foundation models
1:36:20
are getting so good that you can see certain things being automated that we used to do that we're not going to do as much but I think you know the next step after that is if you think about lots of people talk about customer service and how we can automate some of the customer service emails or calls or and things like that okay let's say we do that what's next well then you should reimagine the customer experience and so
1:36:49
AI will help us automate some of these things and there's be massive of cost savings but AI should also allow us to reinvent the customer experience and that's why we're very excited about a company like Sierra they're not just going to help you automate customer service tickets they're going to help you reimagine what customer service looks like just similar Le to how what happened in the internet you could in the internet happen we could
1:37:15
book um things we can book travel on the internet we can have to call a travel agent it change the experience we could search that changed the experience it broadened you know I had to imagine where I wanted to go and call someone to get me a ticket or to get until now I can search so my my imagination could be broadened and that just changed my my experience of of travel um and you know the the airlines didn't allow you to
1:37:45
change tickets once you bought them because they that was in some backend system they didn't want to open up that system now we can change flights on the website well the same will be true with a like start with automation start with
1:38:00
new experiences and the experience will completely change over time and it always takes a little longer I mean I remember we talked about tness Vehicles probably 10 years ago and today we have autonomous vehicles working in a few
1:38:13
cities with weo people imagine that that would be solved very very quickly but um where are we going I think we're going in a world where uh many of the problems that we have in the past will get solved through automation many of the things that many new problems will get solved through AI because they're going to be as good as we are in doing analysis and doing being creative and things like that and so I think it'll be a very very
1:38:44
productive megat one way to explore this topic is to ask you what you're looking to avoid with AI Investments and I'm thinking you know maybe something that comes to my mind is like it's a rapper over chat GPT or something what are you what are you trying to avoid when it comes to making AI Investments so the rapper is a good example of something it just is just a different user interface on on top of a foundation model but you
1:39:11
know I think we're trying to make sure that something persists and what if it persists it has its unique distribution it's embedded into your workflow um it has true Roi from a long period of time and it changes the The
1:39:26
Experience um other things i' you know I'd say we try to avoid is um things that are roadkill along the way of a company like open AI or Google or Amazon or meta so small refinements into what the model doesn't do well today that's
1:39:46
just going to be real kill along the way and then um I think we're trying to avoid things that are that sound good but they're not good businesses you know back to you know 1999 there were a lot of things that had lots of usage that not had no revenue and so right now there's there's a different example where lots of there's a lot of test Revenue but the turn is very high because people don't stick so there are a lot of things where you see
1:40:18
very very fast adoption but the turn rate is very very poor uh so we're trying to avoid those those kind of companies do you think Google and Microsoft like how how do you think you compete with them on a foundational
1:40:31
model basis like they a they can scale into Enterprise overnight B they can spend hundred billion dollar on on gpes how do you think about that are we going to end up in a world where there's like only a few foundational models and we're
1:40:44
all going to plug into them to the honest I don't know but I'll tell you this in the history of Technology investing that I've been involved with if you're afraid of the incumbents you should just punch out but in 1999 you could have been afraid for Microsoft because they have lots of money and lots of servers and yet they didn't win search someone else won't search Microsoft won the browser War for a hot sucket it was NE ncape against uh
1:41:19
Internet Explorer I don't know many people use Internet Explorer today most people I know use Chrome so this is not a static situation I think you just have to sort of have an open mind on why you will win um and often the reason why large companies don't win is because they have their own internal issues that slowed them down so Microsoft during the internet it was it was the it was the antitrust situation and that slowed them
1:41:51
down they could no longer bundle IE into into the operating system and so they had to break all those things apart um Google has its own regulatory challenges and so do Microsoft so I don't presume that they're just going to win because they have a lot more money and they have more a lot more capital and they have a lot more people um and but besides if you thought that then I would be out of a job so how important do you see what Facebook's
1:42:20
doing then where they're spending you know 50 to 100 B but they're making it open source I think open source is a very very important aspect of um what has happened in technology and you know you have these religious fights between closed and open and you have religious fights between Apple and Microsoft you or or apple and IBM it's let's get let's go back to ant the world is built on Ant um and you know open source in the internet days
1:42:52
there are lots of things that were built on open source and some of it was closed source and some of it is open source and I think the same will be true with with uh with um AI there going to be things where you just want to host it on um a close Source model because you know it has the breath of functionality and there are things where you can only make it work if you use your specific data train it very specifically for you and
1:43:18
you're going to use open source models for that um and just like you know Google built a great business that is pretty close Source on open on open source software like ltic I think the world of AI is going to be anded as well there'll be close
1:43:37
source and there'll be open source I want you to imagine for you're in charge of let's say Canada and the US and maybe the UK and I tell you that we are optimizing to be the best in the world at AI what are the policies that you
1:43:54
think about how do you approach this problem and how do you encourage us to be the world leaders I'm maybe overly optimistic about human nature and so I believe that you want to have as little uh regulation as possible in the
1:44:18
early days let people experiment let people try things and is is it all going to be good no but if we had over regulated the internet it would not have grown to the scale that it is today and do we have problems on the internet
1:44:33
absolutely um and so I believe in sort of having regulation that is more open than not and then slowly close off things that you know is not good or the behavior is not good regulat is often worry about the fact that if you wait too long you won't be able to regulate it I don't know if I believe that and then the on on the flip side is it's always been I I don't know of a time that is ever Worth to fight against technology
1:45:06
and to over-regulate technology you could have over regulated the fact that the scribes were going to no longer have jobs because we came with the printing press you go all the way back in time like that or figuring out how to have a plow so that you need fewer people to seow seeds it's because the plow could do the work of three or four people all the way up to a tractor how have we done trying to regulate or over regulate or
1:45:32
control uh things that sort of make human beings much more productive that's what we're talking about with technology that's what we're talking about with AI um and then you know if you want to start applying regulation there's there's
1:45:49
maybe a slightly different framework that I would use which is you want you know as an example with the combustion engine nobody regulated the engine we regulated what engines can go on the street what can go into a plane
1:46:05
you regulated how is applied but in a lab and people were you know sort of doing research and trying to make the combustion engine even more powerful you being more fuel efficient you don't regulate that you regulate it when it gets in the hands of a consumer so that was a a like removing barriers almost but like what about amplifying what about the push how do we encourage more how do how would you Embrace this as a as a country the
1:46:37
market is pretty good at pushing when they see opportunity you that more and more Capital goes into it more people go into school to you know in almost every single technology Revolution I've been part of there are too there are too few people who understand that technology so when when there was uh when it was the PC industry there are few people there are some people who understand rain FRS very few people understand PCS more and
1:47:06
more people more and more investment went into PCS more more people bought PCS more people start using PCS more people started building applications for PCs and so over time uh there was just a lot more people a lot more investment in it people went to school to sort of write software specifically for the PCO as opposed to frameware the the main frame that happened in the internet most people didn't know how to build um a
1:47:29
website more and more people learn how to program in HTML and Python and wrote and Linux and learn how to use Linux to build uh today and that happened with cloud and mobile look so today we have probably too few people who really
1:47:45
really understand the technology and its application but you have so many people going into it today because they see the future is going to be powered by Ai and so wait a year or two I bet you there's plenty of push today there's
1:48:00
that's why the valuations are high for AI companies um and wait a year or two there's going to be a lot of things that are going to be built in fact the hot take is that many things will be overbuilt so maybe we we're building too
1:48:16
many gpus for a year or two years out maybe there are too many data centers that have gpus is a year or two years out and maybe those things will get cheap and when they get cheap we'll find new applications when it gets really
1:48:30
really cheap that would be sort of the history of Market actually it's interesting that you brought up don't fight technology there's a saying in investing don't fight the FED it's sort of the same sort of and then what the FED is way more powerful in many respects than technology no well I think the FED can constrain or can loosen money supply in a very dramatic way so it it applies throughout the whole economy as opposed to just about
1:49:01
technology and historically businesses have Cycles we tend to overbuild when we're optimistic and then you know you go through that phase you just talked about out of the large technology companies today who do you think is best positioned that's hard well if you want to use don't fight the tape when I when when I started my technology career Microsoft was the largest technology company and today they're the largest
1:49:30
company and so they seem to have figured out through their ups and downs how to stay relevant and stay on top um I think Google Google's having some challenges with their own regulatory issues and Apple don't ever count Apple out
1:49:54
because back to they weren't the first to come up with the PC they weren't first to come up with the mobile phone they weren't there's so many other mobile phones they just wait until they can create a great customer experience
1:50:07
and then when they do they pounce they weren the first to come up with an MP3 player or a phone yeah or a phone how do you uh think of Nvidia of I I think Nvidia is uh is a very great company for a variety reasons one of which is it went from a
1:50:34
graphics Processing Company to being the way we power all of AI and they fought for so long about this idea of parallel processing where the CPU worked a certain way the G GPU worked a different way and the GPU is
1:50:55
now shown to be more powerful after we sort of uh got to the edge of Mo's law the GPU is winning out because they can they can process things much more efficiently but I worry about um that they've only had one leader in their whole cycle I worry about what happens when Jensen decides not to uh be at the head of Nidia yeah that is the question I guess right I think that's the question a lot of people have Jensen's a remarkable sort
1:51:28
of CEO Jensen's a remarkable CEO and he does things very differently than anybody else we had him speak at our base camp which is our annual Retreat for our Founders and he just came out with so many great stories about Nvidia about his personal life but also about his management style that is so different I remember being there and that was that was awesome yeah sometimes you you've said in the past that sometimes the path to Greater
1:51:55
efficiency is doing things sequentially and sometimes it's doing them in parallel can you explain that well I think most people are trained to do things in serial they they take a problem they break it down into pieces
1:52:06
and they do one piece at a time step number one solve the problem number one solve problem number two because we need the solution to problem number one to feed in problem number two and they eventually uh go down the path and a lot
1:52:23
of like if you're an individual contributor you just you write code you just keep writing the code and you finish the code and you submit it um but if you're managing a team you need to break down this piece of software into
1:52:36
components so that you can give it to your team members you have all 10 of them working on it um as opposed to you write it write it yourself and if even if you're a really good software writer you literally have to be a 10x engineer
1:52:53
on top of your 10x engineer so you have to be 100x engineer to do it in the same time frame that 10 10x Engineers can do it and sometimes it's just more efficient to just break the problem down so that you can put them in parallel and then stick them all together how do you think about companies and time span and specifically maybe with an angle towards positioning yourself to rapidly adapt to whatever the future brings versus trying to the
1:53:22
future and running ahead of it I think the consensus would tell you that it's very very hard to predict the future and you're un your ability to predict the future is uneven because in the world that you know you may be able to be very good at predicting the future but the world is not stationary and the world changes and in this new world trying to predict the future when you don't have many facts or many patterns that you can go against uh it's
1:53:57
much better to have machine that knows when to pounds than to try to predict what's going to happen go deeper on that a machine well your company is in some sense a machine and so you're trying to figure out when you should pounce on an opportunity um You're Building You're Building you're building and you decide I'm going to take this path now and you're going to make your company go in this direction because you see the
1:54:28
opportunity in this in this path um maybe make it the the example more concrete perhaps you know as an example door Das started with food delivery but specifically restaurant delivery and they waited until they
1:54:44
figured out an advantage that they can have in grocery but the mechanism by which to deliver restaurant food and grocery food were pretty much the same and figure out when to enter the grocery Market had a lot to do whether the company was ready
1:55:04
the customers were ready the market was ready the Grocers were ready and you can predict that customers want this before they want it or you can just wait until you see lots of customers bang on the door riding into door Das hey can you also get my groceries and so it's a matter of what do you want to be pushing the customer to do what you want or do you want the customer to to pull you in the direction that they want to go is the biggest risk
1:55:39
there that you try to tackle two problems at once like they I'm assuming they knew they wanted to get into groceries so part of the risk at the start is like if we're focusing on restaurants and groceries all the time we're spending on one of those two things and not all of it but a lot of it's coming at the expense of the other or do you see that as as no it's not it's a very sharp Insight that you have I think the one the one thing that
1:56:03
you'll find is that there are lots of examples that um that I could use to support your conclusion there because before door Dash um happened there are plenty of other Ser Solutions and most notably there was GrubHub mhm that was just the website and then they passed the order to the restaurant and the restaurant delivered and Tony's observation was that's not deep enough of a solution and so why was it not deep enough well there are a lot of
1:56:41
restaurants out there that don't have their own delivery staff yeah and why don't we just you're creating problems for them in a way exactly and so the only restaurants that would be on grubhub's website were all the companies that already had delivery staff available so what door Dash did was to expand the market and by expanding the market they were very focused on that problem because like really you'll you'll deliver you'll take
1:57:11
the orders I cook it and you'll deliver it for me I've never heard this before so you just like educating the market for a period of time because you're just focused on that problem as opposed to um besides GrubHub which didn't do that there was Postmates originally Postmates wasn't just in um restaurant delivery they were doing anything they would pick up from anywhere and they would deliver it to anywhere and they would even pick up
1:57:39
something from I don't know Bloomingdales or from Walmart but in that example there's to many different things that you could be you could do and it wasn't focused and even more broadly than not there was task rabbit where you can run errands well one of the errands you can have them run a someone who's on task rabbit is to go pick up food from any restaurant so Simplicity of the solution is the reason why I think um you want to start with a very
1:58:09
focused problem it's much easier to tell people this is what dord Das does and then over time you expand that you expand the remit because you've earned the trust of the customer to allow you to do more things one of the problems when you were saying that is like how did door Dash find drivers in those early days yeah it was hard because if you um the the one thing that um you know if you sort of beli that it was
1:58:39
more profitable to to transport humans than deliver food every then you would come to the conclusion that Uber and Lyft would get all the drivers and door Dash would not get any of their drivers and it turned out that well a there's
1:58:56
some people who would prefer to deliver food or package over delivering people they didn't want to have to have social interactions and then they're seted people with perfectly fine cars but they're not perfectly fine cars to to
1:59:10
transport humans and so um early on we thought it was going to be a problem but it was less of a problem than we we had originally imagined one of the the s that I anticipate or maybe from the outside looking in I can be completely wrong is when you sign up a grocery store customer they want to work with you in a particular way but it might not be a standardized way and then you might say yes because you want to sign up that
1:59:36
customer maybe it's like Albertson's or something but then you go to the next largest grocery store chain and they want to work with you in a different way how do you think through the standardization which is like know we work in this way versus creating all of these one-offs and I see a lot of startups do this where they want to sign a customer so they'll violate sort of like their standard procedures they'll create these one-off contracts and
1:59:58
Technical Solutions and then they go to and they're trying to get Revenue so that they can still exist how do you think about that tradeoff it's a very I think it's a I I use I use the accordion example um often which is you know you you you pull the accordion too far and then you have to push it back in and you know at some level if you are super rigid you're not going to win your first few customers so at the very beginning the accordion is
2:00:30
completely folded and you you you do pull the accordion and you allow things that you may not have allowed you you may not want to allow in that very early days and it gets super far stretched and you're like oh shoot I need to
2:00:43
standardize a bunch of things and then for you're not going to go back on these customers so you or or Merchants so you're going to go back you're going to go into the next inning with a lot more standardization or you break up your 100
2:01:00
customers into three personas or four personas and try to have four different standardizations but trying to be overly standardized at the beginning is generally not a great idea um and the the opposite of that is have a standardized product and then allow customization on the edges um and I think a lot of software companies try to do that when build a platform look the platform is not changing you're buying the platform but
2:01:30
on the edges we lock for customization and you allow you do it at the beginning you find other uh developers who are willing to do the Professional Services on the side um and you go from there it's almost like you earn the right to do standardization when you're sort of trying to be the back end where you have to accommodate at the start and widen the accordion and then as you get scale and network effects and and more and
2:01:55
more benefits to the the merchant or partner that you're partnering with you you sort of can more standardize is that true that is true and I also just think it's very there's a lot of huus and thinking that you can standardize at the
2:02:09
beginning when you don't even know whether that's the right solution for everyone to standardize on and so bring some customers they'll tell you your standardization doesn't work for it's not only just because doesn't work for
2:02:22
them it may may be that it doesn't work for many people and at least learn from that what's the difference between working backwards and working forwards so working backwards was this um idea that Amazon um popularized which was you
2:02:39
start with the vision of the world that you want to imagine and you you think about if everything goes right what is this what is the world that we live in and what do this product become um that you're trying to build
2:02:54
and at at sey we call that the pre parade and you know if everything goes right with this company what has it become and then you work backwards from there what what is you know one one year before that what does it look like two years before that what does it work look like and Amazon popularized by working backwards meaning that go from the future all the way to today um and I love that Concept in a sense um but I've also seen lots of
2:03:26
Founders struggle to take it from the future which they have this great vision of the world and really map it all the way back to today they map it somewhere five years out 10 years out but they can't map it today and I also tell Founders okay we that's the future that you're aiming for here the realities of today what does it look like one year ahead two years ahead three years ahead that's working forwards and if the two don't
2:03:54
match it probably you're not on the same trajectory and so I believe in having Founders work both backwards and forwards often when you don't when you work backwards and you think you have a great plan and then you mis executes and
2:04:10
you don't know that you don't you don't you're not executing it's because you haven't worked forwards on what the year one two and three look like to be on that trajectory what are the two or three three mental models you keep coming back
2:04:24
to most when you're making a [Music] decision huh I'm GNA ask you that question this is your interview nobody's here to listen to me I want to know what your three two or three mental models that you use I think the one that I learned from Amazon is whether this is a type one or type two decision and you know if it's a type one decision I've learned from Brian chesky to run out the clock because you can't go back as a type two
2:04:53
decision and you you know you just move the move forward make a call and of course CFT along the way type one being irreversible and type yeah so if it's irreversible run out the clock meaning like get all the information make sure that that's a high confidence decision type two if you can always change it make a fast decision and keep iterating that's one model the other mental model I think about is um you know working backwards working
2:05:28
forwards that's also top down versus bottom up is a similar sort of idea some problems are better solved thinking top down some problems are um more easily solved just working bottoms up uh another one generally is to break
2:05:49
up hard problems into smaller and smaller by size problems and solve each of those individually and just the way I live my life this is not a mental model it's a lot about consistent compounding and just build just every single day doing
2:06:06
the little things that sort of improve myself on on self or the company that I'm working with talk to me how you think through the the breaking problems thing because some you mentioned um bringing it into smaller problems solving those and then you get the solution how do you think of that versus the individual like the optimal solution for that particular sub problem might not lead to the optimal solution for the bigger
2:06:37
problem yeah so I think there is local optimization and Global optimization you're talking about that's a much better way to work it if you want to solve a global optimization problem you need to pop up and if you're trying to solve a local optimization problem you want to go down and um you so I think the problem first and foremost has to be at the right altitude and then you can break the problem down from there is there an example that
2:07:05
comes to mind for your your thinking if you're trying to climb a mountain and you know the top down problem is what's the path so even before you climb the mountain you're you're going to plot the path before you get onto the
2:07:22
mountain but once you're on the mountain then you have a path you're just going one step in front of the other on that path and if you find that the path is not right hopefully you've had some backup paths and backup plans that you
2:07:36
can go one foot in front of the other path a doesn't work well path B might be a little better because I plotted the alternative plot to path it to path B so that's an example of like planning top down on your path and your Alternatives
2:07:52
and doing a bunch of scenario analysis and then when you're executing on a day-to-day period you just literally just go execute um and I don't see that any differently than a company you have a plan for the year you have some scenario
2:08:06
planning around it and so the more scenario plans that you have the more easily you can course correct uh you know you're you're supposed to be on path a you decide that you're still going on path a you're slightly off let's go back on path a path a turns out not to be the right thing we're going to pick path B because that's the second alternative we're going to go right one foot in front of the other plotting against um path B we
2:08:35
always end these interviews with the same question which is what a success for you I know that this come this question was coming and um to me the the success is just the process and having a good process because if you live the if you have a
2:08:57
process that consistent to who you are and your values and you live that every single day and you get up every day and follow follow through on that process you're already successful um you know lots of people
2:09:11
talk about success is not the destination it's the journey I think it's just the process before the journey which direction you going to go what why did you decide to go in that direction how fast you want to go in that direction before you can go on that Journey hopefully you've planned things out and you have had a process to sort of plan that out and if you did that right you know you're going to be successful