Are tariffs good or bad for founders?

0:00 For all my friends, this is their only business. This is literally their lifeline. And so I find it Very Not cool.

0:08 Yeah. Super uncool by the orange guy. I feel like I can rule the world, I know I can be what I want to

0:19 I put my law in it like a day song on the road, less travel, never looking back. Alright, Sean, Mahalo. My first question is what's it feel like to be an extra on the set of White Lotus? As long as I'm not the guy who dies, I'm good. All right. So that's my uh that's my white lotus game plan. I I thought I'd be festive for you. I think you look good.

0:43 Dude, I was uh so as you know, I don't leave my house. And um take the family on vacation. So we're in Hawaii and I text it, Ben, I go, dude, I'm getting le recognized left and right. And he goes, Really? Yeah, that's awesome. Like how many times? Like ten. Eleven?

1:00 And I go, No, dude too, left and right. I happen twice just out and had it takes you right away. This is amazing. Where did you get recognized at the airport? Dude someone voice recognized me. I was Oh like coming around the corner somewhere, I'm talking to my kids. And some guy just runs around the corner and goes, Hey, are you sho Are you Sean? I'm going, did you just recognize my voice? He goes, Yeah. I listen to like I listen to the podcast a bunch. Dude, there's been so many times where like I've met someone and I'm like, We should hang out. They text me, do we get on this flight? Yeah. Do you have a ticket? Well, like if I'm like flying home and like someone's sitting near me, I'm like, Do Do you want to like be friends and like get together sometimes and then they'll message me a week later and I'm like what are they doing?

1:40 It's like going to the grocery store hungry. Like I'm just like making bad choices. Um can we talk about Tear offs really quick. First of all, I wanna let people know I don't know anything about this. Like I'm not like an economist, which everyone is uh all of a sudden. But I wanna know Did you go to Hawaii because you were sweating and you're like, I need to find peace or or what? Dude, the last time I came to Hawaii Wasn't it like uh a

2:05 Some crypto thing like you Cra I landed and the same day I landed crypto cr had the biggest crash. Uh like uh Luna basically. Went broke and it brought down Bitcoin with it. And I basically landed and then lost a million dollars and was just trying to hang out with my wife and just be like, Okay, cool. Uh

2:24 I'm just not gonna mention this. Like how expensive this vacation just got. And the the worst part was Because I was on vacation. I didn't have like any of my normal like computer hardware or anywhere. You can sell. I can do anything. Yeah. Like you know, oh this cold storage is working out great. So I was I was basically stuck. And then to this time, same thing, window vacation. Oh, the SP five hundred has had the worst, like three day losses since like

2:49 The bubonic plague. And I was like, Oh great, here we go again. I'm not coming to Hawaii anymore. When I've been going through this, as everyone knows, I'm I'm heavy on index. Uh and when I uh have been going through this, my I've just I just don't look.

3:04 I I just ref I just don't look. I don't look. I just I pretend it doesn't exist and I don't look. Although I did I I invested a little bit more than normally I do every month and I went a little bit heavier, but I just didn't look. I just I can't log in. It it it makes me too anxious and it really ruins my day. Yeah. I well I asked a simple question, Am I gonna do anything? Is my plan do I have some trade I'm trying to make right now? Is there some some genius move? Am I just trying to panic sell? No. Okay. If not, then there's really no point in even looking. It's just gonna ruin my vacation. So I I don't look. Um but when I landed, I there was something I had to look at, which is these tariffs. So

3:38 Not only did the stock market crash or maybe because of this. The stock market has been crashing. Which is that Donald Trump has created a new holiday. Sam. Liberation Day. Yeah. Uh somebody was like maybe he meant liberation day in the sense of liberation like the Buddhists think, where we are being liberated of all of our possessions and we just aren't gonna own anything anymore. I don't have any material goods anymore.

4:05 So he came out and he has this giant poster board. Slam. To every country that's basically like his slam board where he's like China, you're getting tariffed. Everybody's getting tariffed. And And then since then he so he came out with like a fifty percent uh or or whatever. It was like a thirty five percent plus the twenty percent uh tariff on China. So it's like, wow, fifty four percent, that's gonna be crazy.

4:29 And then since then he added another fifty percent on top. So now we're at one oh four. And um I suppose there's just no upper limit as to how hard how high this could go,'cause this morning as of this morning, China retaliated with its own Uh escalating retali retaliation eighty something percent tariff. So we're in a trade war. And does that mean for you as an e com owner, when you buy ten thousand dollars worth of goods from um China, or if you do buy'em from China, that now you're be you're gonna pay Twenty thousand dollars.

5:00 Yes. Exactly. Okay, so it's as simple as that. Got it. It's as simple as that. So basically uh And and the the reason to talk about this is not'cause I'm a terrify expert, which I'm not. But because I have an e com store.

5:12 And I have a lot of friends in e commerce as well. And all for all of them. I mean this is like D Day basically. So most of us. Manufacturing China. Oh, I really want to have the lowest cost

5:26 Goods from China. That wasn't really the impetus. In fact, when I started our company we first looked at manufacturing in the US, we were like, Oh, that'd be great. It would be great to manufacture in the US. It'd be a great story to tell to customers. Also, maybe we'll be faster lead times because we're not having to put every item on a boat and sail it across the sea.

5:44 So I called all the manufacturers I could find in the US and I was like, Hey, like, do you think you could do this? And Most of them were just like no. And one guy in LA was like, Oh yeah, we could do this. Do you want it for double the price, half the speed, and half as good? Is that your sales pitch? He's like, look, I'm just being honest with you. He's like,'Cause if you're going to parry factors, you're gonna find this. He's like I was like, how could it be half the speed? You're there's no boat. There's no sitting on a on a boat for a month. They would explain this, he was like Number one.

6:13 All of the inputs to anything you're gonna make. So even if we make it. We're gonna import all the parts. So we still have the parts on a boat. For a long period of time. Secondly, we don't have the labor that's skilled at doing this uh Third, we don't have the machines. He was like, Actually it's the machines, not the labor that's the problem.

6:30 It's like basically when we kind of de industrialized all of the best machinery to do this work went to China. There's only like so many machines that do this right now. To get a new machine takes like a year and blah blah blah, it's costs a bunch of money. And so we don't even have the machines. And I was like

6:45 Okay. So then how does this guy answer the phone? Is he like F you, this is Derek. You know what I mean? Like I don't want your business. How are you? Is there anything I cannot get for you? Yeah. All right. Have a good day. Bye bye now. Go after yourself. Like that just how that's just how they do they answer the phones. Honestly great a great gig as far as I'm concerned. Like maybe he's like a retired guy and he just wanted to keep that going. And so uh what are your friends thinking in the industry?

7:23 Dude, you guys just get beat up constantly. You know what I mean? You just get punched all the time. Yeah, it's like okay, bake again. Where's the great part? What's happening? Where all we're doing is putting like all these small businesses out of business and raising the price on consumers. Right. So here's what's happening. So just to give you a scenario, I have a friend Who is doing really well with his business.

7:46 And the business has been growing. And so prior to Trump Taking office. He's you know, he was growing the business. Trump takes office, he says he's gonna have a tariff. He says it's gonna be a twenty percent tariff. So we're like okay, mentally prepared for twenty percent tariff. So we places an order. Now just to give you a sense, like orders have like a Forget about moving your manufacturing.

8:04 Which is a multi year process that may not even work. By the way. Just like Changing your like sourcing from one place to another. Is

8:13 You know, six months to a year to get it up to scale. This guy you know but you see he's operating on a four month lead time, meaning From the day he knows he needs an or he needs a an order. He has to place it four months in event. So he placed it four months ago. Now four months ago is basically Yeah, before Trump even took office.

8:31 Right. So he placed that order. And now as that order is he's got five containers out at sea about to land. Yeah. It's a hundred percent tariff now. So he has to pay a million dollars in tariff. He doesn't have a million dollars.

8:48 So he's like l he's like dude, I literally don't know what I'm gonna do. I I don't have a million extra dollars run lying around in my business. That I could just pay this tariff. I also have five containers, I have thousands of units just sitting there.

9:01 They can't be rerouted. I can't tell them to go back to China. I can't I can't he's like what do I do, I shut down my business? Like he's basically like totally screwed. And so and this is common. There's a lot of people are dealing with this. You and I have a mutual friend. He said the same thing. He was like uh he's like my container, you know, the price per container got screwed during uh a bunch of stuff in the last two or three years. There were so many different things. There was the Panama

9:23 Or what Suez Canal I forget whatever there was the k. Ship got stuck. Yeah, a ship got stuck, then there's this, and then there's that. And then now he's like this thing. He's like, I don't have enough money to buy the goods that I have coming in because I placed the order like a month ago. Like all like it was like in transit, it changed the price. It's sort of it's like when a parent's like Uh You say another word, five more minutes of time out. There's five. What what did you more. Five more. You just got yourself five more. Totally. In fact, I'm gonna stop call start calling it tariffs with my kids. I'm just gonna start using that lingo. Maybe maybe maybe it'll be fun to be on the other side of the tariff for once. And and there's a little bit of uh so now people are trying to find you know, whether it's workarounds or you know try to figure out, hey, does this apply?'Cause it's kind of unclear even how this applies.

10:10 You know, does it matter if I got my goods on the boat beforehand. Either way, whether you whether this shipment gets tariffed a million dollars or not. Point is It's very hard to survive as a business when you're c you operated let's say an e commerce business that has Ten to fifteen percent profit margin. If you're doing things right. You know, twenty if you're really kicking ass.

10:29 And you've been business have been in business for a long time. You have economies of scale and You have a large returning customer base? But like ten to fifteen percent profit margins and then your cogs go up by one hundred percent. is not gonna work. Like they're gonna go broke. And so the all the only alternative is

10:44 You have to pass that to the customer. So now you have to tell the customer, hey What this what this means to the customer, the math is If a normal Let's say a unit of your thing cost a dollar. And now it's gonna cost two dollars.

10:57 Well, before you sold that one dollar thing for let's say three dollars or four dollars. Let's just say four dollars, a four X markup, right? So your cog's just twenty five percent over. Four X is is is I would imagine is very normal. Yeah. A standard markup, let's say. And that sounds like greedy, oh you're already marketing it up four X. Well, no, because you have to pay for marketing and advertising and your staff and the fulfillment and all all this other stuff. You end up with a ten to ten percent, fifteen percent profit margin by the end of it, which is like restaurant territory. And so you know, it's not some we're not some fat cats over here in the ecom land. Go go look at ecom. You just see a bunch of tired, scraggly fools who like are just playing the wrong game. And so you

11:36 You take that dollar item now, it's two dollars. Well d that means you have to raise the price instead of being Instead of it being four originally, now you gotta raise it to five. To make up for that. Right. So your all your goods are gonna go up by twenty five to thirty percent. So that's inflationary, right? So you if you thought you know inflation was bad before the price of eggs and all this stuff.

11:53 Well wait till Christmas season comes and nobody could buy a toy. Because all the toys are made in China, right? All the shirts are made in China. All the toys are made in China. And if they're not made in China They're made in Vietnam, which also got tariffed. And so it's like uh you know, th there's a few countries that make all the stuff. And this plan really doesn't make a lot of sense to me. Now maybe I'm just being sensitive because

12:15 I have a business in the space for the lifeline. Yeah. Yeah. So Less so for me because I have a lot of businesses, but for pe for all my friends, this is their only business. This is literally their lifeline. And so I find it um Very

12:31 Not cool. Super uncool by the orange guy. I think you you need to create like a Sean's homie private chat uh lobby. Uh and you guys could spend literally thousands of dollars to lobby the government to change their opinion. Dude, I'm going to go to the lobby of this hotel and just see if I can get someone to change their mind. I don't declare bankruptcy down there by yelling it and declaring it. Exactly. So by the way, I don't know if you've read uh Molson, who uh I don't know if you know Molson.

13:09 He wrote a great post on uh X that I think is worth reading. It's basically called the America underestimates the difficulty of bringing manufacturing back and he gives fourteen reasons about like Why even if he took the generous side of this like policy and you're like oh you know what? Short term pain for long term gain.

13:27 Right, because I think we can all agree they're short term pain. Right? the business owners have short term pain, the consumers were gonna have their prices raise short term pain. Um the factories on the other side have short term pain. The stock market is crashing, that's short term pain, the four one K's are going down.

13:42 So That part's pretty unambiguous, the short term pain. The question is, is there even long term gain gain? And he wrote a post that basically outlines like You know. Very uh you know, thoughtfully.

13:52 Why there's some Problems with this. You know, one one argument after another. It's sort of like Um Not only does moving a manufacturing plant back to America take a long time, like by the time somebody

14:06 By the time a business owner who today is getting hit by these tariffs Assuming they could somehow survive. Spend millions of extra dollars. Opening up manufacturing in the United States, which It's not gonna happen.

14:17 And it's a multi year period before they get it all online and then they magically find the labor to do this because we don't really even train people in America to do this type of work anymore. Um there's gonna be a new president. And like you don't even know what the terror situation is gonna be, but then it might be a totally full a total fool's errand to do it by then. So nobody's really gonna be able to make that move. Most likely what's actually gonna happen is like he's like you know, we tried to do this

14:40 And Trump's first term and all we did was make Vietnam great. Again. low cost Asian countries that has lower tariffs. Is what's gonna actually happen. There's not gonna like magically bring jobs back. Oh, and by the way.

14:54 You don't want to sit there and knit t shirts either. Like this is not a job you want. These are jobs China doesn't even want. Dave Chappelle was like I wanna wear Jordan's I don't want to make them shit. Exactly. Perfectly said. Like there's these memes going around of like You know, uh it'll be like Chamath, like out of like a sewing machine trying to make a shirt. So true. It's like is this what you think is gonna happen? Is this America being great again? I'm not sure. And so you know, political stuff aside, I think that the

15:26 The tariff situation is really crazy right now as a business owner It is very, very tricky how to navigate this. Amongst your friend group, is it gonna put anyone out of business or is it just going to destroy their margins? Like is this like um Uh uh complete. Huge risk or is it like you've just made my life more challenging?

15:46 It's gonna for sure puts the people out of business because You had to like I was telling my fr my friend with the stuff already at sea or She's trying to scale their business. They might not be able to sell their product. for an extra let's say there were a hundred dollar product before.

16:01 And now they're a hundred forty dollar product. In order to maintain Yeah. I've still some profit. So on one hand, demand is gonna go down. Right. I'm gonna have less customers because I had to raise my price.

16:12 My cost went up. my cash flow that I had in the business went down and maybe down to a point where I'm needing to borrow money. In order to just pay the tariff bills that I have of stuff I've already in flight. Um It's a very, very tricky situation. You know, what we did in our business was

16:29 I was like, okay, here's how you deal with situations like this. You have to create like a immediate SWAT team. And let's open up a Google Doc. Let's make six bullet points. It's like what are the six levers we could pull? Okay, so uh pricing. We're gonna have to create a uh some sort of tariff surcharge. Um and we think it could be in this range that'll offset some, but not all of the amount.'Cause we can't pass a hundred percent of it to the customer. It'll kill you.

16:51 Demand. And so we're gonna pass, you know. A few bucks to the customer this way. Uh, the next thing we could do. We're trying to source from another country. Okay, it looks like You know, maybe it's Mexico or it's India or it's a one of these lower tariff countries. Okay, you're you're working on that.

17:06 Um you over here, you're gonna work on um You know, figuring out how we're going to lower our cost to go, you're gonna have to go negotiate with the factory, ask them to share some of the burden with you. You're gonna have to look up the talk to the lawyers and see what's going on with the stuff that's already in flight. Hey, we're gonna have to bring down the purchase orders because we have to be way more conservative. Hey, you're gonna have to go secure more debt. Because we're gonna need a line of credit to make sure we can withstand the the storm here.

17:30 And so we created this plan. I was like, we're meeting every day. These five people, like the five core people in the company, whatever other priorities you had. They're gone. This is your priority now. We're gonna meet every day and we're gonna work on this plan. For the next, you know.

17:43 N number of days until this plan is executed. I think it's gonna take that level of of intensity. I think A mistake I made in the past is when things like this happen And you sort of take a little bit of a wait and see approach. I think that could be very um

17:57 C every day that you don't act can be very costly as a business owner. And so I think One of the key things to do. Um and like in our business, we have a CEO, we have a full exec team. But

18:09 When I heard how they were planning to approach us, it was like Yeah, this is like really important. Just like these other four really important things we have. And I go No no no. You need to like Have a public

18:19 You know. PSA that this is the most important thing you could do. We're gonna wait every morning. There was there's a name for this team. And this this is the most important thing we're doing and this is your top priority. You need to cut off some of the shit. Right, like I think just li raising the level of intensity is very key in a situation like this. Or people will go out of business.

18:36 So you gotta go snorkeling? Yeah, and I'm as so funny. I'm on the call talking about how we have to like you know raise the intensity and there's literally just like Aloha. There's like calming like Hawaiian music behind me and like clearly like palm trees. And I'm like guys. Guys, this is life or death. And I like I like going down a water slide on the Google Meet. I didn't plan it this way, all right?

19:16 That's awesome. Um Well that sucks. Uh is there a world where Is there any type of how like What are they what a what a George Is there anything I could do? No, no, no. Dude, I ha I met with a guy the other day and I thought I was like, Why do you want to t I never take phone calls with people, but he wanted to talk and I thought he was gonna end the conversation with like look like You know, I've loved watching you get big and be on the pod and you know, is there anything I can do? And I thought he was just like

19:46 could do to help and he said, Is there anything I could do to be a guest on the podcast? Uh and I was like, Wait, what? Uh, I thought you were gonna ask me how you could help me. And then he just ended it with, Is there anything I could do to be on your podcast and to have you promote me? Uh No, there's nothing that you could do. Hell of an ask. Yeah, that it was a bold ask. Um Do you want to talk about something more fun?

20:15 Please. All right, let's talk about something. More fun. Yeah, I think this is actually gonna be really fun. I I'm gonna try and take your mind away from um The fact that the company that you've spent decades trying to build

20:28 I'm gonna try and uh take you uh take your mind off of that. Uh it just you know, four decades you spent building this company now it's gonna banish. Never send Sam to like the cancer ward. The Belfide Manor. We don't have time much we don't have a lot of time left, uh so let's get to it. Sorry uh I meant you don't have a lot of time left, so let's already have to get to it. Alright, but I did I did I read something interesting that I when I read it, I was shocked by it. And the reason I read this thing was because my company, Hampton, it's basically like an events company. We host hundreds of events a year. And so I'm trying to learn how other like event based businesses operate. And I found one that I totally didn't realize how amazing it was.

21:14 Uh and I just forgot about it. Have you ever heard of the m uh medieval times? Generally, yeah. Yeah, sure. No, the restaurant series like the restaurant franchise. No, you are gonna love this. Okay, Google. Oh, there's like basically it looks like a small castle like the Excalibur Hotel in Vegas. And then inside there's like People on horses jousting.

21:41 Dude, I always thought this was just like a joke. I thought this was a joke in like nineties movies like for where people were going. Uh for dinner. I didn't realize it was a real thing. So let me tell you the story. So medieval times it's basically dinner theater. And so they do a two hour show where you go with you, your wife, and your two kids and you spend something like eighty dollars ahead. And you see people host a medieval show. There's like two hundred actors and they like do jousting.

22:08 They do, um Mm. like some type of theater stuff. It's it's it's almost like circus sole, but it's medieval stuff. And it's like it's like W W F or something like wrestling. Like it's all like uh acting. I did not realize how big this was. So let me tell you the story. So the guy who started it, his name was Jose, he was a Spanish guy. He had a small restaurant in Spain. where he would uh like have like medieval like circus performers like doing juggling and just really small stuff at inside of a barbecue joint in Spain.

22:39 In the eighties For some reason he decides to move to America and he's like I wanna create what I did in Spain, which was a really small thing. I'm gonna do it in America. And he convinces a couple bankers to uh invest eight million dollars into his first restaurant. And that first restaurant was in Florida. And he creates what is now Medieval Times. And he creates this thing where the idea is we're gonna host something like twenty to forty shows per month. I'm gonna hire two hundred actors. He spent a year training these guys how to sword fight, how to joust uh how to like be like legit actors. And he's like, we're gonna serve you

23:14 Turkey legs and other medieval food like whatever like the stereotype like stereotypical medieval food is, and we're gonna create this dinner experience. And that's what he launches in nineteen eighty three. Well Fast forward. almost forty years now or forty plus years. His son has taken it over and they were recently sued because a bunch of their performers tried to unionize and apparently they were preventing them from unionizing.

23:38 And so there's a ton of articles written about this company. And a lot of people were talking about their financials. They're enormous. So this company does so the so basically they have It's estimated around two to two point five million people a year. Coming to the restaurants, and they make something like 150 to 200 million dollars a year in 10 locations hosting these dinner theater shows.

24:00 It's amazing. I had no idea this was this big. And since nineteen eighty three, they've hosted close to eighty million people. At these events. Have you ever been to one of these? No. So there's ten locations and I haven't lived in any of the places, Dallas, Myrtle Beach. Uh Scotsdale Uh like places uh

24:19 That I've for you know, haven't really lived in so I've never been to one. Uh have you? No, I've never been to one. Say the numbers again. So how big is this? So te just on ten Ten locations? On ten locations during the union lawsuit and things like that, reporters were doing back of the envelope math and they were like, We think the company does between a hundred and fifty

24:40 And two hundred million dollars a year in revenue, and there's ten locations. And each location hosts something like Depending on the the how popular it is, but the lowest one does something like twenty million uh twenty performances a month, all the way up to sixty performances a month. So two a day for thirty days. It's insane how much demand there is. And it was estimated that it was around two million people a year attending. And on their official website, they say something like eighty I think they say seventy six million people have ever attended a medieval times restaurant for one of their performances.

25:15 Exactly. So you know, ten to twenty million dollars per location. And they might be making, you know, one to two million dollars of profit per location, something like that. So that that's my guess. Or more. So the way it works is uh it's not a normal restaurant. And so you don't order the food. It's all pre selected. And so it's like uh it's like an assembly line. At the same time, all one thousand guests get the exact same food. So like there's a lot of like maybe Potentially significantly more efficiencies than a normal restaurant because there's not like, you know, uh a whole menu uh of stuff to do. And get this, their performances, they only change their performances every five to seven years. So they spend a lot of time like making the performance and then everyone else just goes and learns it and they

25:59 perfect it over the course of five to seven years. So they don't even change it that often. And it takes like two hundred performers for every show. Yeah, it's pretty rough for uh you know, night performers, right?'Cause you have like To step down between Game of Thrones. And the Medieval Times restaurant. So vast. Like the second place uh it's it's real it's pretty rough out there. So this is hilarious'cause you were like

26:24 You were like looking this up as an analog for Hampton. Are you thinking about getting in the turkey leg business? What's going on? Well, the way that we uh are gonna grow is through launching cities. And I'm like, you know, uh trying to study like how launches work, how Do you have like general managers of each city, of each region? Do you I'm just trying to understand like the logistics of it and I'm looking at a variety of unrelated but still in the event space just to figure out how do they do it? How do people do it. And so I'm just looking at a ton of different ways. And I was just curious about uh for some reason I came across these guys and I started thinking about they have ten locations and are they franchises, how do they work? And uh it just caught my eye and I was shocked at how big they were. Can I tell you a a a goofy story that's kind of similar to to what you just described?

27:09 So I've been writing this book like on the side. I'm not sure if I'm I'm gonna actually publish it or not, like but I kind of Got I went down a rabbit hole. I got interested in it. And it was um It was around how uh creativity works. So how people how to be more how to be a more creative person and ultimately like make hits. So like where do the hits come from? What's the title? Uh bad art. Bad art, okay.

27:32 Yeah. So it's like a'cause there's one of the key, like obvious uh sounds obvious in in hindsight, but like When you go look at the creative process of the world's most successful creative people You would think Oh wow the ones who make the hits, the things that we all love, the high quality stuff. They just nail quality. And if you

27:50 Listen to any of their interviews, you watch the process. They don't give two shits about quality. Uh directly. what they do is they focus on quantity and their belief is basically that quantity is the only way to get to quality. So they're They play a volume game and they're like we produce a lot of bad art.

28:06 And that's where the one or two things that are real gold come from. If you just sit down and try to make gold, it doesn't work. You actually end up not creating at all. And so one of the things I've been looking at is like how some of the big breakthroughs came from doing what you're talking about, which is like You learn from an adjacent space. So you go and you know the Wright brothers who ended up creating the first airplane. Dude, George, I uh I read their book and they're amazing, but George Mack summarized their book amazingly in his high agency blog post.

28:34 Yeah, yeah. Yeah, exactly. So they you know, they were a they were not funded, they had no education, they had no team, they had no no specialty, no experience doing this, no nothing. And like meanwhile, there's a guy over there funded by the Smithsonian, had two million dollars in funding, had tons of engineers and scientists on his team. had all the press and the fanfare, it was clear that he was gonna be the win. He was the favorite. Uh so how did the underdog win? Why did the underdog have the creative breakthrough? And like one of the reasons why is The two brothers, the right brothers, they owned a bike shop. And so they they

29:05 Because they had no money. They did like two hundred prototypes in the time that the other guy did two. And their two hundred prototypes were basically like They weren't even they didn't even look like planes. They were just testing like individual parts of a plane.

29:18 Uh, like they'd make a glider or a wing, and then they would make the wheels and they would try to f find different ways to test these things out. And even Kitty Hawk, even the selection of where to go, they were like thought from first principles, like where should we launch this thing? Like oh, maybe we should launch it from this spot where we're gonna have the best way and then et cetera, right? So they They weren't like tied to anything that was like There was no they were not tied to anything. Everything was first principles thinking.

29:40 Similarly, I don't know if you've heard the story about the uh the Yankees bats. Have you seen this? You'll have to enlighten me, but basically the bats are heavier in the area where the ball mostly hits, is that right? Yeah, like the story, I mean, uh take the physics of it aside, like the story is just kind of interesting because Here you have baseball, this game that's been around for like I don't know.

30:02 Hundred plus years or whatever. And Then you know, just kind of in a a a bit of a high agency way, the Yankees were like, Hey, can we just make a better bat? Like within the rules of the bat, like you know, we're not gonna make a heavier bat, we're not gonna cheat. And they hired this MIT guy to think about it and he was like

30:19 Oh yeah, you could just like move more of the barrel. To this one sweet spot. And if you hit that, it's gonna go way further, way harder. Um and you it you'll have less misses, uh less near misses because you're gonna have the thicker part of the bat right there. And you'll have more barrels.

30:35 And Sure enough, the Yankees start the season off with like way more home runs than anybody else this year. I don't know anything about baseball, but is it statistically significant or do they just have ballers on their team this year? Is it like It is the bat. I think it's the bat, uh but I don't know if it's statistically significant. They started talking about this when it when they like jumped out to a big lead and home runs, like fourteen home runs already, and it was like nobody else was even close. So we'll see. You know, we'll see if this ha this lands. But the important part'cause like who gives a shit about baseball? The important part was like dude, if

31:08 If baseball, that's like hundred year old sport that like you know, people spend the teams spend hundreds of millions of dollars a year trying to like Find any edge they can. If there's still like an edge like this to be found. It just proves how like So much of the world is like un unoptimized and under thought about.

31:24 And like if you actually just took a lot of focus and intensity to any one problem And you don't assume that people have already figured it out. That's you know, one of the key things you need to have a breakthrough. And so like the way you're talking about studying these other models. Um I think it's so important to do that. I remember But we did our

31:42 our restaurant. This is my first startup, but we did pretty much everything wrong. Like every Now that I look back, I'm like, oh my God, so embarrassing. Every like the way we did our business plan, we wrote a three hundred page business plan. It's like, dude, now nowadays I write one page, if not if that. Um, we literally printed it out on a binder. We were so proud of it and we thought that that was like uh, you know, a mark of our Brilliance when actually it was just a mark of our stupidity. Um

32:04 Our marketing, you know, I used to just go door to door knocking on doors trying to sell sushi like an idiot. Like yeah, I didn't know anything about Facebook ads or Google ads. I didn't know anything about anything. But one smart thing we did was we were like We were a delivery only restaurant. So today they call that cloud kitchens. Back then that didn't exist. Door to door sushi, I think, is the worst idea I've ever heard. Right? But I was like, Oh, let's try it. Actually, by the way, who doesn't want to eat this at ten thirty in when it's ninety-five d degrees in Dallas? No, what we I did was I went door to door uh I went floor to floor, really. I went into a skyscraper and went

32:37 I just went in the elevator, pushed a button. One, two, three, four, and I'd get out. And I would just talk to the office manager of each floor. And if I could get her to cater the lunch. It was like getting fifty orders. And it's actually actually worked pretty well. So that was kind of like a bit of a bit of an example of this of Ignored.

32:52 thing that we did was we were looked at delivery. So traditional food delivery, like you were talking about city to city expansion. We looked at how all the all the big restaurant chains did the delivery. And what they did was they were basically Have a delivery driver at the restaurant. Kind of waiting and waiting for a batch of orders. So you would order, but they wouldn't just take your one order. They wait until there's like five or six orders to go, right?

33:15 If I leave then with one order that's inefficient. So they would first wait for five or six orders. Then they would drive out they'd go one place at a time trying to deliver these things. And then they would drive back. And what I was so confused about, I was like, How is this restaurant that's one mile away?

33:31 Why does delivery take forty minutes? It just didn't make any sense. Like The route is like two minutes. So like how how is it possible that It takes forty minutes for the order. And so I watched them and I studied them and we had our buddy Dan become one of them. And it was like Dan, you work for Noodles and Company now, you've got to figure this out. Well you were doing the deal move before Deal did it?

33:50 Yeah, we sent it we sent to the spy. Yeah, yeah. All we came back with was just like dude don't eat the food and noodles because there's so much salt. We're like, but what about the delivery? Oh, I didn't even get delivery. I got a sign soup. So I could make a tomato soup. He's like so much salt in this soup, it's insane. So but we've we figured out a breakthrough. The breakthrough was basically we realized that the it was act the slowest part of the delivery was not the drive. It was Um

34:15 The driver doing that last kind of not even last mile, like the last two hundred feet to your door. So like finding the exact house. Oh or or apartment and you go there and you knock and you wait and then they come out and then whatever. That was the way the slow part was. And so what we did was in downtown Denver, we created something called the drop zone. So in between a whole bunch of skyscrapers, we just had one guy stand there. He was our delivery guy on the ground and then the driver just kept going back and forth, dropping off orders to him nonstop.

34:42 And this sped up delivery like crazy, and suddenly our delivery times were like fifteen minutes, sixteen minutes, eighteen minutes. And we were just crushing everybody on delivery. And like the restaurant failed, but the learning of like You can't really take for granted that like Everything's just figured out. And if you just do the first principles thinking of like You watch.

35:00 You look for the slowest part. Then you think, Okay, what can we do, even if it sounds a little weird that we're gonna have a We're just gonna put a dude there at the bottom and he's gonna stand there holding the orders. The delivery guy is just a stationary dude. But that would t eliminate all of the lag of the driver having to wait la for that last you know, to do all those last mile deliveries. That was the key uh for us. I found when doing this, there's a few hard parts. Like just doing the exercise, the hard part

35:24 One is Knowing what things to question. And what things to accept. For example uh let's say you're creating Tesla and you're like, well an electric battery that that probably can go long enough. Like if I look at the s the math behind it. But they didn't like change.

35:41 The shape of the wheel. That's a very obvious one, but when you're running a company, it's very hard. to decide what to question and what not to question. It's also incredibly challenging To get yourself into that mindset of first principles thinking and more challenging to convince your staff or your coworkers or ever to just like come with like an open mind and and actually get on board and being open minded to trying this exercise. I found that to be hard. What's hard about it and then how did you try to tackle that?

36:09 For example, just like the um People saying like, Well, it it has to be this way for these reasons. And it's like You have to say to them, I know, but just like I know you think that, but just try to get beyond that just for a few minutes and let's just have a conversation where it doesn't happen that way. What would happen? There's this book called The Six Ways of Thinking for Design. I forget exactly. Uh do you know I'm talking about that book?

36:32 No, I haven't read that. Basically it's like an exercise where there's six different colored hats and you're like, all right, your green hat, when you put your green hat on, that means you're just thinking a profit. When you put your red hat on, that means you're gonna come and be very pessimistic and po poke holes and everything. Your black hat means you're open minded. And so it's this way of saying, Uh right now I'm gonna put this hat on, which means I'm going to by default, I'm not gonna hate on anything,'cause a lot of people default to This is why you can't do it. Two I'm gonna figure out All the reasons why this could work. Yes. Yeah.

37:02 And so you do that, you try that? Yeah, and it helps, but it's still I I guess what I'm saying is that no, I didn't have any hats. No, it it it helps. But there's still like It's still a challenge to get into that mindset, at least for me, and also to like convey that to teammates. It g having an open mind and questioning everything is actually way harder to do than it sounds. You know what I mean? Yeah. Yeah, yeah, yeah. I I found that people like it. Like so once you give people permission to do it, they actually get excited about it.

37:29 Um you're right that you have to sort of like If you just go into a meeting and your hope and expectation. Is that people are gonna be like open minded and creative and come up with a novel solution? It's like Not gonna happen at all. Like you have to either Tell a story at the beginning.

37:45 That gets them in the mindset, I've s I've done that before. Which is basically the the Yankee bat thing. I mean, that was pretty good. Yeah, like it'll be one like that. Or it'll be like I remember I back in the day I watched this um thing on YouTube that was like really inspiring to me. I don't know if you've ever seen it. It's the IDO grocery cart challenge. So IDEO was just this design thinking lab. There's this group. So companies go and pay them lots of money to come up with like novel

38:10 Innovative solutions and designs. So I think sixty minutes or somebody went to them, some T V show and they were like, Hey, we wanna understand how you guys think. And so we have a challenge for you guys, uh, as part of the show. And they were like, We want you to redesign

38:24 Reimagine the grocery cart in a day. You have twenty four hours, forty eight hours to do this. And so they break up into two teams and they show their process of how they do it, right? So like There's like a process of like fact gathering. So they first they go get a grocery cart. Right, or they're gonna watch it in a grocery store. They wanna see how the customer uses it.

38:42 They don't want to take anything for granted. So they're like, Oh, like certain set of customers actually use this as like a kid babysitter. It's like your kid sits inside it, they need a thing to play, and that's like a key part of this. Like if you lost the kid seat. You would lose that mom as a customer. Um Oh other people are loading up and they need the two racks and then you know, so you're seeing how people use it. Then they were like cool, you s and you state those observations, they put them on index cars, you start throwing them on the wall.

39:06 And the guy sets the tone. He's like, We're in the diverge phase, and basically he draws this little cone. I don't know if you've ever seen it. It's like a Like a cone going out, and he's basically like during the diverge phase, it's like whatever, a predetermined set of time. Our team knows how to do this. Which is when your super crazy wacky ideas Free play. What if mode.

39:24 And you don't judge the ideas during this phase, you're just trying to riff off riff as many ideas as you can. And then we're gonna switch modes, switch hats. narrowing down the set of possibilities of where we might go with this. But we we distinctly have two phases because you don't want in the one phase the one brave person to be courageous and throw out a a half baked idea.

39:45 And then somebody immediately, smart guy slammed them and be like, Why that wouldn't work? And now nobody wants to suggest ideas again for the rest of that hour. So you have to like really explicitly do like w what you're allowed to say during this hour is only You know, yes and then during this one it's a no but. And then they end up with this redesigned grocery cart where it's like It was basically like th I don't know, you could look at the image of it online, but it was like a a thing that was designed for uh a new type of grocery cart. And yeah, I thought about that I was kind of inspired by that'cause A I just thought, wow, what a cool job. These guys get to be creative for a living.

40:19 They're still making us watch this for school, by the way, in two thousand twenty four. Yeah. I I actually think there should be a Netflix show of this. Uh like you know that when you have Chopped where they give them a random basket of ingredients, you gotta make a meal out of it. I I would love to see like two teams that are like you know engine designer types. And you basically give them like a challenge, like redesign the grocery cart, like redesign uh make make the inside of an elevator more entertaining. And just see what they do. Like I would find that super fascinating as like a TV show. And I think it would inspire a lot of people to become like. Engineers or designers, if you watch that, the same way like Shark Tank.

40:54 Although it's like totally like bogus in terms of like the entrepreneurship that they show. It's super accessible and it gets people excited about the idea of entrepreneurship. This book sounds pretty great. Bad art.

41:04 It sounds it sounds like a pretty good idea. It's a great book. I I'm excited about it. My my only hesitation I had on it was like I feel like I already got a shit ton of value out of it doing the like research and the kind of the prep like of outlining like, oh, here's the big ideas and crystallizing them in my mind. So you're gonna be like Derek from LA and you're gonna just say, F you, reader, I don't care about you. Do I need to go the extra mile with publishing it for other people to benefit? I'm not sure that I I care about that. Like I'm not gonna

41:30 I'm not gonna make any money off this. I'm not trying to get famous off a book. What do I why do I need to do that? So I might publish it. The other problem is like I'm not sure how many other people nerd out about this idea of making great art, making Making great products. Just insanely great things and uh caring about being The like Wanting to learn the creative process. What about that guy like that's a feeling. Uh yeah, yeah, yeah. You you you got you caught you got me on the hook. Uh you got the compliments on the hook. Because what about that Austin guy, like uh you know, artist what was it called? Great artist deal. Do I wanna just be that Austin guy? You didn't even know it was the guy's last name.

42:08 I know the book cover. What's isn't it like uh what's it called? Great artist steel. Yeah, like I know that a lot of smart people whose books I read, they always say that that like we had uh Jack Carr on the podcast, he wrote all these amazing fiction books I love and he talked about it. Ryan Holliday talked about it. Mark Manson, who I know you like, talked about that book. Everyone likes that book. I wrote this, I wrote this thing because I was studying how to do this because I wanted to write a book. I didn't want to write the book about this, but that that's just where I landed.

42:36 It's for sure super important for anybody who's like an author, screenwriter type of person. It's just that's such a small percentage of the population that I'm not sure it's worth the pain of of uh publishing. But Dude, it's the comments of YouTube. Persuade me enough, but it might be open to public publishing this. If Sahil Bloom can convince everyone on Twitter to share his book, you can too. What he's what's hilarious about Sahel, because Sahel's great and Sahel's such a achiever. He brought the PE energy to totally to author it. He bought the the the Ivy League energy, right? He like P he like achievered his way into Stanford.

43:12 A cheered his way to being a good athlete, like a like a D one athlete. Achieved his way into private equity successfully. Achiever his way into a six pack. Achiever his like he's just basically he's like all right. Give me a target and I like. Show me a show me a ladder and I shall climb. And it was like when we were like, yo, you should do Twitter, dude. Like your posts are kind of interesting. I think you can do this. He's like, Well, Monday through Friday.

43:34 Six AM. Get up. Cold plunge. Right thread. Published thread every day for the next nine hundred days straight. And they did, he got like a million followers. He achieved the shit out of Twitter too. It's amazing. Yeah, now you're gonna have to do the same with bad art. As Elon once said when they asked him Are you afraid of failure? he said.

43:53 It is not in my nature. That's how I feel about chevering. It is not in my nature to do this. Dude, how sick is that phrase? How how how like timeless and alpha is that phrase? All right, is that it? Are you gonna go and enjoy the um Enjoy the sand or doing whatever you do. Do you even leave your apartment when you're in Hawaii? Yeah, dude. I'm in the ocean. I'm in the I'm at the beach. I got kids, dude. They wanna do everything. Are you gonna wear a tweedy button? We're just doing the same day every day for six days straight. Like it's the same day.

44:30 But they love it so much that I I can't help but love it too. Alright, that's it, that's the pod. I feel like I can rule the world, I know I could be what I want to. I put my law in it like my day song On the road less travel never looking back

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