Gokul Rajaram - Lessons from Investing in 700 Companies - [Invest Like the Best, EP.456]

0:02 And welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper. Check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus along with all of our podcasts at Colossus.com. Patrick O'Shaughnessy is the CEO of Passitive Sum.

0:29 All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, Visit PSUM dot VC Um My guest today is Goko Rajaram. Gokul is one of the most prolific product builders of the last 20 years.

0:58 He's built the core ads and product businesses at Google, Facebook, Square, and DoorDash, working at each company during its most formative scaling periods. Alongside his operating career, Google has invested in more than seven hundred companies, giving him an unusually broad view into how products are built and scaled. This conversation is about how product building is changing with AI. And what remains durable when software becomes increasingly cheap to create but hard to defend. We discussed the one thing Goko believes is truly future proof in AI.

1:25 Why companies like Zendesk and Slack are more exposed than Salesforce and Net Suite? And the few sources of defensibility. We also talk about everything Gocal has learned from helping build the most important ads businesses, including the only three ways an ad business can make money. How those constraints shape product decisions. And what consumer behavior change threatens every major platform?

1:44 Coco shares lessons from working closely with Larry and Sergey, Mark Zuckerberg, Jack Dorsey, and Tony Shu. and what he learned from watching each of them build generational companies. Please enjoy my great conversation with Goko Rajram. Thought an interesting place to start would be the changing nature. of how people are building products.

2:05 the biggest story by far in technology seems to be Claude Code or Claude Cowork as well. The ease with which both technical and non technical people are able to build something that they can imagine. It seems to have been just a complete explosion in their ability to do so. You've built a million things, you've invested in seven hundred companies watching people build things, you're about as prolific as they come as a product person. Maybe just give us your state of the union of how the world feels to you in terms of technologist building products and how fast that's changing. What is interesting about product development is that ten years ago or even five years ago, there were very clearly defined rules.

2:43 product managers articulated what to build. Designers designed it and engineers built it. Over the last few months I've been talking to many companies, but over the last Two months in particular, December and January, December twenty five and January sixth, it's become very clear that something has fundamentally changed. And what that thing is

3:01 Is the Notion of a long horizon, a long running agent. I've experienced it myself. About six months ago I tried to use Cloud Code. In the early days. to build something. I call it a video transcription tool.

3:12 So I tried to build it. It kept failing. And then I had to go in and try to debug it. Ultimately I gave up. Two weeks ago. While watching some episode of some T V show. In one hour. I was able to basically prompt my way to a good video transcription to Because these agents now

3:28 Are resilient to failure. And you don't have to be very technical to use them. This changes the expectation of product teams. After I did that, I started talking to three kinds of companies. One portfolio CEOs of companies I've invested in.

3:42 Second, the large Air Labs. And third. A bunch of AI native young companies. to see what the similarities are between them. A few things that emerge. First.

3:52 Product development as we know it. It's changing because The models and the capabilities are growing so fast. That if you try to Be very

4:02 strict and stringent about describing exactly what you're going to build or prescribing what you're going to build. It is going to not work. So almost everybody has gone to a bottoms up approach where it's not doing by product management anymore. Product managers, the only thing they do now. is they articulate what the customer needs are at the highest level and then they are the guardian of the why. But the actual product

4:23 Is built bottoms up by engineers, researchers. And product managers and designers all working together on the code itself. So capabilities and models are changing very fast. Whatever you think of six months ago? If you continue thinking on that dimension, you're fallen behind. So

4:38 It's very, very important. For the product managers to be Understanding of what these bodies are capable of. And

4:47 To be hands on. So they sit with the engineers and the researchers. And write code. Do prototypes, do anything and everything it needs in a hands on way. The first thing we are seeing now happen is that

4:59 PMs are starting to check in code with either codecs or cloud code. into the actual production repository. Right now engineers have to review the code. But you're going to soon see the plot code, codex, and other tools actually review the code itself before engineers come in. So

5:13 All the companies are struggling with how to evaluate these people. Earlier. There was nothing called a prototyping interview. Now There's explicit interview in the interview loop called prototyping.

5:24 Literally forces product managers to be hands on. Second the product manager and designer role. are merging increasingly. So

5:33 The designer role is an interesting role in particular. A lot of companies are going through headcount allocation this year. And I'm hearing from many teams. But when given the choice between an extra designer and extra engineer, You think?

5:44 Do you know what the design systems are already laid out. Now that we have the design already laid out. We can use AI. To do work around these design systems. So we need maybe a small number of designers at the company level to manage the design systems and the design language. But

5:58 AI can leverage the design language to do designs. So please give us an extra engineer. So the number of designers and product managers, the later number of engineers, When I was growing up in product it used to be One to three or one to ten. It's going to one to twenty now.

6:12 And then I think the other very, very important thing that's happened, which is fundamentally different is When I was growing up Products were deterministic. Where there was a workflow You knew

6:22 If a user did X, why happen? Today. You could do X, Y happens, but if you do slight variation of X, something completely different happens. Non-deterministic software. What that means is You have to be on the other side.

6:35 an evaluation of what is called evals in AI, and someone has to evaluate whether or not what the software is producing is reasonable or not across use cases. Obviously there can be human evals, AI evals, et cetera. But who owns the emails? It's the PMs. is the PMs and the researchers. So the PM's job is to be very clear at a high level of what what the user needs are. and then have a very clear sense of whether this product is good to ship or not by evaluating it.

7:01 Many times you've got to write AI yourself to evaluate the results of AI, because humans can't. So PMs are good at coming up with evaluation techniques. It's the non determinism of software, the speed at which things are going. And Overall, the notion that the capability frontier is being pushed out every two months makes it an incredibly challenging, get incredibly exciting type of product as well. If you think about my friend Zach has this great way of thinking about AI, which is

7:27 We have the industrial revolution for goods. And that basically this kicks off an industrial revolution for services. This is an interesting opportunity to ask about what your philosophy of product is. You're such a product centric person and builder. That's what you've done, that's what you've invested in. As we face down this industrial revolution for services. What is your broadest possible philosophy of product as we enter this era? Very simple.

7:50 A product? Person or product manager if you call them. Their job is to balance customer needs and business needs. The product manager There has to be somebody at the company

8:01 Who's the keeper of the why? Why are we building it? what custom need are we solving? Why is this a pain point? How intense it is how deep it is. And second How does it add value to the company? If you build this thing, solving this customer, how does value add to the company? And I think balancing those two.

8:18 It's a very delicate act. You can build something amazing that adds a tremendous amount of value to the customer. but doesn't build any value to the business. And you can do something that is awesome for the business by raising prices. But it's valuable detracting for the customer. So balancing customer needs and business needs at the highest level is what I think of the product. And what it comes down to, In my opinion.

8:37 over the last ten or fifteen years I've really gone down to this notion of outcomes. Outcomes. I think are what defined the best product people and outcomes have to be defined. in the form of customer behaviour. Because customer behaviors

8:52 are leading indicators for every business outcomes. If you think about it, The simplest thing that a product does is to make somebody go from not a customer state To becoming a customer state. And from becoming a customer state to becoming a loyal customer. And then maybe to become a loyal customer to become a paying customer.

9:09 If you do a poor job, it can go from becoming a loyal customer to becoming a churn customer. So these are all behaviors. Everything you do or build. Should be Attuned to the goal of what customer state change does it lead to? What customer behavior change does it lead to? So I tell every CEO I meet,

9:27 that is trying to hire their first PM or doing their first product review. You need to ask why. The only question you need to ask is why? Why are you launching this feature? And you should not let any feature go out. If there's not a clear hypothesis behind this feature, and the hypothesis has to be articulated.

9:44 in the form of a customer behavior change. We believe That by launching this thing the customers will go from doing X to doing Y. Or from spending

9:54 X minutes a month doing this, to Y minutes a month doing this. you have to have a hypothesis which is grounded in some data or something you know about the customer, some secret about the customer. You mentioned at the start the difference between the video transcription tool six months ago versus more recently and how quickly that changed. It's just such a hard future to reason about, given the pace of change. So how do you reason about it?

10:17 Is there anything that can be truly future proof? Yes, the one thing I think that's going to be truly future proof is judgment. Why? Because What is the biggest challenge you have when you have thousand A engineers writing code? You have the big challenge of AI slop.

10:31 Every product that I've talked to is extremely worried that because you have these engines running rampant, they're just going to produce lots of code. Which of the score is even valuable in an era when you can do everything? The question is which of these things matter and you should truly do. On the product side is judgment around what needs to be built. and evaluating the output.

10:50 On the engineer side is evaluating the code because If you don't understand what the code says, I think you can have AI engineers writing beautiful code that could be wrong. that could have bugs in it, that could be vulnerable. Someone needs to review it and make sure you have to have human review at some point, especially your critical code that is in the core of your system. And similarly in design.

11:11 You have to have judgment around Does it make sense in the broader design system? So I think this judgment is the number one thing that humans are going to bring. And of infinite productivity. The question is what are the things we're productive on and are we building the right things? As you evaluate companies today, build things yourself and just think about the trajectory of these tools.

11:30 Maybe walk through how someone should think about building an AI application. There's so many people excited about It feels like a gold rush with this new technology. So many things that we can do that we couldn't do before, or things that specific people couldn't do because they weren't technical that they can now do. How should people think about building an application using AI starting today.

11:50 First and foremost, you've got to start with the deep and compelling problem. The good news is There's a tremendous number of deep and compelling problems to every vertical in every industry. Why? Because till today, till recently Software was used more as a tool by humans. We finally have software that is agentic in nature, which means it can do the job of people.

12:10 The question you have to ask is What industry? Are there roles of people? That are highly paid. That are doing somewhat of a repetitive job.

12:18 And that can be done by software. Every three months the answer gets deeper and deeper. You couldn't have told me that a designer's job could be automated by AI. Six months or nine months ago.

12:30 You couldn't have told me that an architect shop could be automated by AI. A lawyer's job could be automated. It turns out increasingly in every vertical these capabilities are getting better and better. So you want to start with what industry do you want to be in? And what kind of job do you want to do? Second

12:45 You want to target A high value workflow. You want to target a workflow. That is Beep.

12:51 That is Complex. And that requires custom data. I think one of the challenges with this whole space. Is that the models are becoming so good. that if you try to build a company that is light, that is not a hard problem.

13:05 the foundation model companies are going to eat you. I met with the CIO. Of a Fortune finded company a few weeks ago. was asking him over a few startups I had invested in and worked with. He said, look, I don't know why I would use any of these startups. Gemini has an agent builder product, and I also use Chad GPT Enterprise, and they also have an agent builder product.

13:23 And I have a thousand IT engineers who work for me. They all want to be retrained as AI engineers. So I'm just going to put them using these horizontal tools to build my AI agents. Why do you need any startups? And so that's the kind of thing you're going to face that if The CIO of a company of your target customer. can build what you're building using these agent building tools.

13:43 you're not going to be successful. So you've got to really go one step ahead of what can be built or multiple steps ahead. And you got to extrapolate to Where can the capabilities of these agent building products go? And you've got to do something very, very different. So what that means is. You got to have durability because ultimately as venture capitalists or even as an entrepreneur, your time horizon can't be building something that lasts for one year. And that's the biggest challenge. It's not building an application.

14:09 is building an application that's durable. that basically will last the test of time. And I think there are a few things around durability. One, You need to have Ownership of a scarce asset. As scarce as it could be a license of some kind. It could be

14:23 a regulation of some kind where you have unique insight into it. Second You might need to you might basically own a control point. A control point is a Or with data. Third.

14:37 you want to maybe have hardware which is hard to replace. Fourth. maybe you want to be part of an essential workflow. Fifth, you want to have network effects. You want to think about those things and figure out How after you take on that workflow

14:49 You can make it more durable. And finally, I think your ambition has to be To replace Вір систем. In other words

15:00 Increasingly what is going to happen, and I'm seeing this more and more It's every vertical has either a legacy or somewhat new, what is called a system of record. Which is a system where most of the data is stored for that system. For example, in legal, there's a company called Filewine, or another company called Clio, in sales, it's Salesforce. In healthcare it's epic.

15:19 Now for many years These companies all had EPIs. That if you enter that industry You could build an agent company on top of these APIs. In twenty twenty five things changed.

15:31 These companies are seeing that these agent companies AI companies that are being built. they are starting to take on the functionality out of these companies and are treating them like a dumb database. So You started seeing last year.

15:44 that these companies are cutting off access to APIs. Slack has done it most publicly. Slack is owned Salesforce. They cut off access to Glean, where Glean can no longer access Slack data. And the reason is they don't want Glean to build on top of them and then slowly suck out the value that Slack has. And I'm hearing from other verticals.

16:04 that they're doing one of three things. They're blocking access to APIs. They're offering their own agents for free. Bundled. I think that is a great and effective strategy. Or

16:15 They're charging these AI agent companies to access the data. Let just to access the data, the API was free, they're saying now it's two dollars an API call. They're trying to make the model of these agent companies unviable. I think it's going to be very hard for a end customer. to use multiple companies. Where you have a system of record

16:33 And then you have this agent that sometimes doesn't work with it properly. So the agent companies have no option but to also start building and offering a system of records. So every company I know is now trying to figure out how do I build the entire platform and not just a system that does some workflows. I think Last year even was like, oh, we can do workflows, we can build what is called a system of action and live on top of the system of record.

16:57 I don't think that's an option anymore. The Slack example's a good one of last generation software company, which was very big and very successful. one of the most interesting investor questions, and I'm curious for your answer from the perspective of a builder and a technologist. is that the degree to which these horizontal model companies are going to destroy

17:15 Would be very bad for old software companies because Over time it will be trivial to spin up your own Slack that has features that you want for your company and it's very reliable in all the same ways that Slack is, and therefore Slack's in a lot of trouble. How do you think about That

17:32 Question. public markets seem to think software's a lot of trouble. The multiples are really, really low. How much would you be worried if you ran a good solid but older software company today? There are two kinds of legacy companies.

17:44 One are systems of records and one are things that are price based on outcomes. The software companies that should be the most worried right now. It's where they're pricing The product. Based on utility.

17:55 Zen disk is a good example. Literally Zen Desk prices seats. And each seed comes with utility. In other words, Each seat corresponds to customer service agent that back certain number of customer tickets. So that company should be worried because I can have an AI agent sit right next to Zen Desk.

18:10 And you can slowly siphon off instead of paying for fifty Zender seats, you can pay for twenty. And I can have thirty AI agents sitting next to ZenDesk, and that stiffening can happen over time. You don't have to have an all-in-one decision. It can be a two-way door decision. Those are the most endangered companies in my opinion. for these companies, you need to change your pricing model to be based on outcome. And you need to actually build the product to be based on outcome.

18:33 you're going from a twenty or thirty dollars per seat to maybe charging A buck or fifty cents or twenty cents. But ticket resolve. And you don't know how that's going to turn out. So you've got to change your pricing model and

18:46 I think that's a very challenging thing. That's why I think many of them probably need to go private. because they have to make this business point transformation and private. I think it's gonna be hard for them to say public and The companies that are less exposed are ones where the utility is not based on seeds, but it's based on data that has been collected and captured over a period of time. The more

19:05 Timeless the data is. The more protected they are. Slack, for example, I would say might be in a little bit more precarious state because the data in Slack is not timeless. Half-life is very short. But if you have a ERP is a great example. Somebody uses NetSuite as an ERP. Now, I don't know how NetSuite actually charges, but it doesn't matter how many seats you buy. The reality is it runs your whole business.

19:26 And there is no compelling reason for someone to put their career at stake by ripping out Net Suite. I know over the last year there's been a lot of AI enabled ERP businesses, but There is no compelling reason to take Net Suite and say I'm going to rip it out because it is career limiting to suddenly take Net Suite over when you're a company running on Net Suite. So I think those companies are much more insulated. And I think obviously, and you could argue that Net Suite has more time to build AI agents on top of it because they have the data. They can train the age and top it and bundle it. So Essentially, I think the software public markets are not distinguished between these two types of companies. Companies where the half-life data is low.

20:02 And but you can actually have You can literally take half of the value of this company and put it onto an AI company that sits next to it. Well, something like an ERP system or even Salesforce for sales data and records. Those are real customer records. It's going to be hard. So

20:17 What are AI native companies doing? The first thing you got to do if you ever have to compete against them is you've got to spend a year or two first Building. A system that literally takes, migrates your Salesforce instance.

20:30 to your own company's platform. One of my companies in a native company they literally hired engineers in a European co eastern European country for two years. to build this migration thing, transition tools. So you have to build the migration tool because Who's going to migrate it? You can just present your spanking new system. But this data is still there. Even for square for a small business, I remember They had a point of sale, they wouldn't move to us, even though it was cheaper because they had gift cards.

20:56 Customer data. Loyalty data, payments data, all of that, even credit cards. So we had to build scripts and and it had took us months or years to build it for a simple POS. For something like Salesforce, you can't just say I'm my much better CRM. If you look at CRM

21:12 What does the CRM contain? It contains your customer record. Your customer support system contains what your customers are complaining about. And Gino Ratley. contains what your product development team is building.

21:23 Now all of these things should be linked because There is no linkage. You should be addressing the biggest complaints of your customers, which are in ZenDesk. And those then the customers you should know where they came from, who bought them, who sold them. So all these three systems should be linked together, but they're all three different companies. So they're companies that are trying to unify these things, and it's a great value prop. But guess what? None of your customers is ever going to move.

21:46 Unless You build a simple seamless way. to take the sales force data? And with your instance. The data from GRAN move to your instance is in the data move to your instance. So literally it's a two year effort to build migration. Otherwise

22:00 You've got to get Accenture. How do you think about stickiness in this era, just as a general concept when the friction for creators to build something that new is so low. You can do whatever you want really fast. How's anyone gonna use anything for a long period of time?

22:15 In the age of AI Stickiness I think comes from a few sources. One. You need to have metric effects. So don't dash is sticky.

22:22 Not just because it has this beautiful app, but it's because it's a network of Restaurants and dashers and consumers. So you can't just attack one. You've got to go. You can't vibe code your way to those two, right? Exactly. And so network effects. The second example of stickiness is when you have financial or money moving through you. I think that's another way to be sticky. Many of the system of records for example, toast have payments going to them. And I think that really

22:48 It's interesting because you can't just start building the point of sale. You also have to have money flowing through it. And I think if you look at The banks. Banks are a good example. Once you have something like Mercury. As a business bank? Your money flowing through it is hard to then switch because you have regulations and other stuff embedded. So I like things that are a combination of financial services and software because of that.

23:08 The third stickiness is from hardware. You can actually have hard red. Toast is a good example. Well Those gives you hardware for free. But if you try to give return the hardware, you have to pay them.

23:19 But in the case, the hardware is there. And somebody can't just build software. They also have to take hardware and put it into the thing and rip out the toe's hardware. The fourth one? is access to a Une аse

23:31 I was thinking about a good example and I came up with the example of Sierra, which I think unique acid is Brett Taylor. I mean they have full control of Brett, who's one of the best salespeople, chairman of Open AI. He can make a call to any company, any country. And they'll take a call. You can't really outsell bread.

23:48 There's alpha and that. You need one of these four or five things. Which are Basically indicators of durability. The half life of software today is so short that unless you're one of these things that make it durable,

24:00 Harrison Helmer has this thing called seven powers. And so you got to have A few of those seven powers that basically are embedded in the business model from day one. You've been so lucky to work for some of the most well known CEOs and founders of this modern era. I'd love the chance to ask you a little bit about

24:18 each of them and what you learn from them. And then more generally just things you've learned about what great leaders do to run companies. But maybe going all the way back to Google and starting with Larry and Sergey. What did you learn from watching them operate and lead? One of the most interesting things about all the leaders that I've worked with that have built generational companies is that they have a superpower.

24:37 That is Very aligned with what the company needs to succeed. And the company was really shaped in their image. The company, the culture, the early hires. The product I joined Google in two thousand three.

24:49 The first product I got exposed to actually, which I didn't know about, was a product called Caribou. Calibu was an internal codename for a product that was launched on April 1st, 2003. Publicly it was called Gmail. I didn't believe that this for it existed because in the internal alpha it said This gives you one gigabyte of storage.

25:05 Back then, remember Yahoo Mail was the dominant product and it gave ten megabytes of storage. So this thing had a hundred X more storage. And this really epitomizes Larry and Segate's philosophy, which was Basically built the best technology on the planet. They were deeply technical, and every product was held to technology. and scale. And I'd never forget That sense was the fastest growing product in Google history.

25:29 And we went in to reviews. And Larry would be disappointed in us. And we ask why. He's like, what percentage of all ads on the internet are you? Less than one percent. He didn't care about the revenue. He cared that Google

25:41 is involved in serving every single ad. On the planet. versus making a business of whatever a billion or two billion or ten billion. So the focus on scale. And the focus on technological superiority and that investment

25:55 Google Street View. P PUs. Way more. All of these I think show. the ten plus years of investment to an uncertain future, but knowing that if you invest in technology, good things are gonna happen and

26:07 Good things happened, but it took a decade, and that's investing in technology capabilities. Before we leave Google, you had this interesting idea about communication and Eric Schmidt, obviously another key Google person. Can you tell the story about him presenting the company strategy using nothing but images? This is an interesting example of communication. Eric would give a product leader, we would become seconded to Eric for the weekly strategy or the annual strategy planning session. So I did it, I think in two thousand seven.

26:34 where my job was to go to Eric and say, Eric, how do you want to present the strategy of the company? He's like well It's very simple. I want you to go and interview each of the different leaders of the different teams. There's only one constraint I have. I'm like what is that? You can't use any words to describe what they're doing. I'm like, What do you mean? You have to use words. No.

26:52 You got to use only images. I'm like, why is that? He's like People don't remember words, they remember how things made them feel. And you can put words in the speaker notes I'll use. But I want you to come up with the most compelling image.

27:04 that exists for what they describe. And so It was a crazy because I never thought of doing a presentation that way. So I went to Each of the businesses Advert, Search, YouTube.

27:16 And then Had to come up with A compelling image. That was And easily accessible to the whole company.

27:23 Yet represented what they did. Do you remember a specific image? I'm so interested by this exercise. It seems potentially productive for anyone to try to Jam what they're trying to say into only images. And so I'm trying to pin down an image and how you arrived at it.

27:36 For YouTube it was a graph. It showed that the number of videos being uploaded every second. how it had changed from the time Google brought them. So it was not even a graph, it was literally showing. This incredible hockey stick that happened over the last eighteen months. And then it had I think we couldn't even show the number. So the thing had to be compelling enough that the line would have to be like a U or something like that, but it went like that. Because if you just showed like this, you had to say something hundred X or something, but you couldn't say that.

28:02 Google search appliance, I think we wanted to show that Google search appliance has gone from being used by small and mid-sized companies to being used by the largest companies on the planet. We showed the logo. a very large Fortune hundred or Fortune fifty company that they'd acquired. What did you learn from Zach? Zuck was

28:18 And is actually I think the greatest Mind on Growing, building growth and engagement in consumer building consumer products broadly. I've seen him basically sit in a room.

28:29 And critique. But product team would have come in with a very well thought out Consumer product flow. And he would look at the flows and he'd say That

28:38 is not going to be compelling to users. That is not something that the user is going to engage to. Change it to this. And You say, My God, why didn't I see that before? So he's very, very good at thinking about

28:49 How Consumer product should be designed to maximize engagement. And maximise Just growth is probably the best way to put it. The second thing he's amazing at is learning by following

29:00 When it joined. My task was to lead the ads product team. And Zach at that point knew a little bit about ads. because he had worked with Cheryl quite closely. Cheryl had worked on Aps before. But then within

29:12 I think About a year. He shadowed us, hi came to the ads team, hi basically sat with us. He came to many of her meetings. And within a year.

29:21 He got to the point. Where he was generating ideas for the ads team. One of the most foundational ideas of Facebook ads came from what is called custom audiences. Custom audiences.

29:33 is the foundation of most ad systems now. Is the idea that That's an advertiser. You want to reach people who are similar to your customers.

29:41 So if you're a bank And you have say a hundred thousand customers. How can you give this set of customers to your ad platform and say, look. Instead of describing these customers. What did I just do before?

29:53 They would describe the customers. I think they are. twenty five to thirty four year old women, that's not good enough. Instead If you can just tell us who your customers are and we can map it to our users, we can then find people similar to them. So uploading

30:07 That data into our system securely. And doing it in a way that doesn't compromise any PI was the key thing. And it all came from Zuck. How because Mark Pinkers of the CEO of Zinga. Zinga was the largest editor on Facebook.

30:20 So Zinga basically wanted to like most gaming companies, they were very focused on acquiring whales. Because Wales for any gaming company, casino, et cetera Eighty percent of all the revenue for any gaming company comes from Wales. So

30:33 He was very frustrated at us we would do these quarterly reviews with Zinga on the ads side because there were large spenders and ads and They're constantly being yelling at us saying, We want to get more whales. We were like, Yeah, you are getting users. Your idea, you need to figure out how to get wheels from your games. What do you want us to do? We can it help your users. So he once I think Doctor Zuck and Zuck came to us and said

30:54 Why can't they just upload their wheels? Into our system. We know who the whales are. Why can't we just find them people similar to those whales? That's interesting, but we actually didn't know who the whales were, so they needed to tag it for us.

31:07 And basically we started doing it similarly. We started finding users similar to the whales that they had and it worked. So well. Then we said, why don't we take this approach and use it for other types of customers who we didn't have data on.

31:22 It became truly a transformative thing for ads and it was all Zach's idea. He just has something about making connections between domains. Which is pretty amazing and unique. What did you learn from Jack and Tony? Jack is, I think, on par with Johnny Ivan, Steve Jobs, in terms of his thinking about design. I understood what good design means.

31:40 Good design doesn't mean visually pleasing. It means A product that is designed so well. that you don't have to give your customers a manual on how to use it. They should be able to see the product and use it.

31:51 Think about your point of sale. Every point of cell except square And things that have copied square. You have to train a barista still. for several days after his join and how to use the point of sale.

32:03 Square is something you can download from the app store and start using it as a point of sale to run your business. A category where you had to train somebody. That's the example of a good design. he brought that to every part of the company and Removing friction.

32:19 from what is traditionally I mean Square's whole premise was removing fiction from small businesses applying for financial services. And that extended to the product and also extended to risk. One of the most interesting things that I didn't realise is that Square at its school is a risk company. When you apply it to a bank for

32:35 Payment processing. In fact, the company was founded because Jack's co-founder, Jim, was rejected many, many times to accept Amex. by banks he was a fairly successful glass blower in St. Louis and He basically was selling two three thousand dollar glass sculptures to people who would send him checks. So woman called from Panama one day and said, I want to buy this on his website. He had this beautiful glass. He said, Great, they agreed on the price. And she said, Can you take my credit card number? He said, I don't accept credit cards.

33:02 So she said Sorry, I can't send you traveller's check. So he lost the sale. So he went to his friend Jack Dorsey. They had never built hardware. They've never done any of that stuff, but they brainstormed and realized that the iPhone which had just been released

33:15 Couple of years ago. had this thing called the audio jack. that could be used to put a piece of hardware in and process cards. I can't even imagine the leaps you had to make to get there. But

33:26 The number one thing that they realized is Most small businesses are denied by banks. When they apply. Square instead said. We are going to accept ninety plus percent of people but what they did.

33:37 was they put risk at the transaction level. So they accepted you as a person, as a business. But then once you started processing transactions, they would then run machine learning models on every transaction, this transaction is risky, this is not. Shifted the level. And so that kind of lazy But brilliant onboarding is something that characterizes a lot of good thinkers. Sergey

33:58 Very simple, right? When we're gonna launch AdSense In two thousand three. I'll never forget this. We were doing our final launch things. Sergey was our sponsor. He came and sat in the meetings. He said, What are you guys building here? We're like website publishers are going to apply from all across the world. It just sells a product. We have to review them and say we should approve them, not approve them, to run ads and he's like, Why do you need to approve them?

34:18 We're like, what do you mean? Our ads are going to we are going to Be running ads on these things, Google ads, or ads powered by Google. You don't want to be on a porn side or something else. It's like why not? We don't give a good answer to why not? It was like well, you know. standards or policies.

34:34 Okay. But what if they lie? He was right. What did they lie? We had so many people applying with Nike.com, for example. It's true. It was very hard to know who owns a domain. I could apply with your domain and you know get accepted. He was right in some ways. We were just doing it to cover our asses, turns out. And so he said up kill all this.

34:52 So we had literally spent Half of our engineering team building this complex approval system with ops and so on. Ops are super excited, they hire a lot of people. And now he's telling us not to do it. Instead? Do it in real time.

35:05 For every page. That loads. Because we had the JavaScript on it. We know what URL it is. Look at the content of that point.

35:13 And we were like It's too slow. We won't be able to look at the content because there's billions of pages. That's fine. Let it do it for hundred times. And after a hundred impressions, if any URL hits a hundred impressions,

35:24 Then start reviewing it. It actually makes sense not trying to put lots of checks up front. But being intentional would wear? And why? Most things don't even get to the level where you care about. In both these amazing examples, and then you also said that Jack would do this across the company, not just in the product.

35:40 How would you sum up the process of great design? that you've observed from the people that are the best at design. What is the method that they're going through? over and over again as they apply it to different parts of the company or product. The number one thing I've seen is they try to minimize the number of steps.

35:56 Everything should be in one page. And you need to cut down things. In fact Jack called the product manager role product editor. Why? Because he believed rightly so.

36:06 But the role of the product manager is not to add more features. Any of us can look at a product and say here's ten things you should build. the best designers, the best product people And Similarly.

36:16 We have hundred features. What are the two things that really matter that will drive the customer outcome. So the best designers Really is to take Ten paves of design. And say cut out all the experience. So I think it's the process of editing.

36:30 And this goes to judgment. In an AI age. humans with amazing judgment, which is really editorial capabilities, are the ones that are going to do well and thrive, I think. Fairly Rick Rubin. Would say that he wasn't a producer, he was a reducer. Great example. Producer. I like that.

36:46 I wonder how that applies also to communication. Maybe this is a fun opportunity to ask you about the format that you've alighted on that a leader can send to his team on a weekly basis, I think. It seems like this idea of reducing And simplifying can be applied in so many ways by great leaders. Talk about it in terms of communication.

37:05 From leadership to a team. One of the things that people Especially founders of startups don't realize this. Initially most startups Start with two or three people.

37:14 And then they go to people who are all sitting in a room together. Everyone can hear what you're saying, but as soon as a company goes into I think I call it two rooms, where they're not in the same room together. then you have to communicate, you have to let people know what's going on. And there are a few artifacts that companies need to p start putting into place. One is the notion of an all hands. It seems cliched and unnecessary, but even with a fifteen, twenty person company just getting together once a week and basically just sharing

37:42 what people have built and been working on in a way and then having the leader address Everyone or one of the leaders address everyone is a great way to get people together. The second thing The Viki C your email. And I think this

37:57 For the CEO to get across to the team What is on their mind. The best way I think is that I've done myself. Is during the course of the week You start jotting down things that you think you want to communicate.

38:09 And then you'd spend Sunday taking all of those things and adding it to two or three things that matter that you want to get across. Most businesses I think can be communicated along three dimensions. Product. Business and team. What's happening in the product?

38:23 How is it becoming more remarkable of serving the customers better? What's happening on the business side? How are we doing better as a business? And then what's happening on the team front? Who have we added, subtracted, what changes have we made? And most importantly Don't be afraid of repetition.

38:36 Because repeating it once, twice, thrice, four times That's when actually it seeps into their bones. What is the literal format that you do? In your email, what is the structure that you do personally? I've used in the past and what I recommend and what people I've seen now. I've seen at least

38:50 fifteen COs adopted and to good effect. Yes. Three sections. One is called Top of Mind. So this is product, business and team. Doesn't need to be all three.

38:59 What's keeping you up at night? I think this is the thing that literally everyone is hanging on to. I mean, because I remember seeing it from Jack, from Mark, from Cheryl. Seeing it. Put in paper or put in an email. It's just so powerful. That's one.

39:13 The second thing is Performance update. I think everyone wants to truly understand how's the company doing. How's the company doing on the dimensions? This is where Especially being a startup, I think most people are one dimension removed from how the company is doing. They all want to know that they're doing well. I think this is the big

39:28 And the third is miscellaneous. It's things like recognizing specific people, it's quotes from customers, it's maybe an off site announcement. But the most important section where you should spend Sixty or seventy percent of your time on is top of mind. How transparent should one be in that?

39:44 As a leader of a business. I can tell you what's top of mind, but a lot of it Either might be sensitive. Or I would worry about scaring people or worrying people about something that I'm thinking about or worrying about.

39:55 What keeps me up at night. Might create stress. In the business. Where should one draw the line in terms of how candid they are? I personally think more candid is better than less. Why? Because if you're more candid, you can actually ask people to suggest ideas.

40:08 If you have good talent at the company, If you actually ask them, what do you think I should do, what do you think we should do in this situation. I think people will Rise up to the occasion. Especially when the company's small We want people more input and there's a one way road decision that we're going to make.

40:23 Where making it takes us one way or the other, I think it'd be great to get feedback from more people. I wanna talk about ads and everything you've learned about building an incredible ads product. You built the two most important ad systems in the world. I always say as a company, you either die or you live long enough to become an ad company. And so we are seeing now with open AI. It's happening.

40:43 Now how do you build an ads business? There are three fundamental ways to succeed in the ads business. Three. And only three. One.

40:52 You need to own. A very coveted Group of users and you need to have a surface. on which those users interact. Google search is a great example. It's a surface.

41:01 on which a very coveted set of users interact with. Obviously they express high intent, so Google is one of the most profitable ad businesses. Facebook, very similar. It took us a while to figure out what was coveted about these users. Turns out what was coveted was the identity. We knew who these users were. And we could match them to customer and other data. And so you could precisely target these people with messages you wanted. And you could find people similar to that. Chat GPT. The combination of intent and identity data is unparalleled. I mean, Google had intent data, but not identity, Facebook identity, but not intent.

41:32 These things been brought together. It's the dream of any advertising person. And these are complex multi-phase searches. That's the other beautiful thing. You search when each of the queries is kind of like a search, and then you search again. And you're just building up searches. At Google you typically Search and then you lose the person because

41:50 They go off and click and you don't hear these are natural language queries ripe for amazing, amazing targeting. So that's one example. That's one way of making money, but you have to own a first party product. You have to be the first party. Second You have to drive outcomes. That's another way of making money where you don't own any inventory, but you can drive outcomes for advertisers. The best example of this is a company called AppLin.

42:12 Apple Wing is a hundred plus billion dollar company. They drive one outcome really well. Mobile app installs. And no one believed that People would need that many mobile app and so it stands out.

42:22 Everyone wants to get mobile app installed. was initially only restricted to gaming. But now every mobile app where the salt one mobile app installed. So app loving us built a massive infrastructure. Now they control the buy side, they control the sell side, they even control the middleware. So you could argue that they control the auction for most mobile apps in a way that almost Google used to control or people say they control.

42:45 For the web. But Apploving has built an amazing engine to deliver you mobile app installs at a certain cost. So That's the other way, second way to do it. You deliver an outcome. At a certain cost. The third way to do it.

42:56 Yes. If you are the exclusive Provider. for a large advertiser or a large source of demand.

43:05 A good example is a company called the Trade Desk, where Proctor and Gamble, for example, go to the trade desk and say, I spend with Google. I spend with Facebook all my other display budget. Trade the sky you go? you can figure out how to distribute and how to run it.

43:18 And so those are the three ways, but you've got to be exclusive. Those are the three ways that you can make money. No other ways of making money. What business ideas don't work in advertising? What are the business models that just are doomed to fail? Trying to be a middleman on top of these large platforms.

43:34 From my understanding, work trade desk kind of doesn't work on Google or Facebook at all. Doesn't work with Google or Facebook as a first party. But that loving I think only little bit works on Google and Facebook. Mostly they do their stuff on the unwashed web, basically outside. So you've got to stay out of Google and Facebook's ecosystems, because if you're trying to build your business on top of Google and Facebook, Or probably soon. Open AI as an ad company.

43:58 You're going to get squeezed. Every time you build a new capability on top of Google, turns up Google learns what you're building. And Google has the best engineers on the planet, so Facebook. They will take your capabilities and corporate into their platform. Let's see if I'm proven right or not. My take is that there's going to be almost certainly a cottage industry of companies that are going to come and say, I'm going to help you optimize ad and chat GPT.

44:18 And there's already companies that help you optimize placement. in what is called these answer engines called AEO instead of SEO. All of those are not going to create durable enduring company. What would you be worried about if you were one of these fairly monopolistic owners of a massive ad network like the ones we've discussed.

44:35 We could throw Uber and Amazon in the mix, store dash. Facebook, Google If you were there running their ads businesses, what would scare you? Consumer behavior change. Where

44:45 They don't open up the apps anymore. But the use Agentic interfaces. They use AI interfaces which are not owned by my company, uh this company. If you assume that.

44:56 A big percentage of things are repeat. then could you put those repeat things on autopilot through an agent? You never open the app. And so you lose opportunities with them advertise. And you lose a relation with the customer over time because the customer starts trusting the AI agent.

45:11 You can't bury your head in the sand. You have to go and experiment. That's why when Chad GPD opened up their apps. platform. All of the commerce platforms are in experimenting. And the thing I would look for very carefully is There are going to be early adopters in the app.

45:25 Obviously they're going to connect their Uber account with the Chad GBD account. I'm going to look to see these people who are connected. How's their behavior on my app? Are they going to my app or not? Are they opening up much less frequently? Because if that's the case.

45:37 Then Obviously this experience is so compelling that I wouldn't have a choice to make. How do I make this experience maybe not as compelling as my app experience, or how do we incentivize them here?

45:49 Opened up my app. There's a new battle happen for that first category, which is a new interface. To be owned. We know Chat GBT is I'm curious if you think being the first mover matters to build a new ad network,'cause there's Gemini, there's Anthropic, there's a bunch of people that

46:04 have tons of users using this new interface. How do you think about the landscape of the new potential entrance? To build. The next dominant. that network, what advice would you give these various parties?

46:15 The good news is being first doesn't matter. Because Especially if you're in category one, which we described, you control your first party inventory. In fact, being second or third, you can learn from the iterations and mistakes that the first one makes. Your inventory is not going anywhere. Now, some might have more urgency to monetize than others, but Gemini doesn't need to monetize anytime soon. So they can just sit back, they have a lot of ads expertise and data. From Google, they can sit back and wait. In fact.

46:42 A good strategic move for them might be to say, I'm the zero ad. platform. Google can claim that Gemini has no ads in it. And there's a certain set of customers or consumers who care about that. The biggest thing is and OpenAI has done a good job of articulating this. That should not influence the content that is served to me.

46:58 are the recommendations that AI gives to me. I think they should be relevant. But they should not be influencing the recommendations. And second You have to keep a high bar. for engagement and usefulness. Unfortunately, however relevant ads are

47:13 The reality is that this wasn't proven. Is that once you start showing ads in an previously unmonetized zero ads surface? Engagement of users goes down over time. Because some of the engagement gets siphoned off by ads. And some of it gets siphoned off in different ways, but there's many hold out groups across many companies have proven this.

47:30 So the question for Any one of these companies is How much engagement are we willing to take in exchange for monetization? First, you need to have a whole group of people who never ever see any ads, because that's your fresh group that never sees ads, and you need to understand that's their behavior. And then you need to always understand how

47:48 People with ads of behaving. And then you need to figure out what the engagement hit is. From each quantum of ads. And you need to then give your ads team a certain engagement budget. So that's what at Facebook

48:00 There was an engagement budget every year. that between the newsfeed team and the ads team, we had to adhere to. In other words, yes, we wanted this much revenue, but the check metric on the revenue, What? We can't take more than X percent dip in engagement overall for newsfeed. Picking that well.

48:15 You've talked about like a North Star metric. What are the attributes of a good North Star metric? What advice would you give someone that's trying to pick the thing around which the company is gonna optimize? The Nordstar metric is a metric that It's an indicator of

48:28 Company Grote. and customer value. So it actually balances customer value and business value nicely. Nostrum metrics, in my opinion, should not be revenue. It should be something that Yes.

48:39 Directly correlated with customer value. So, for example, if customers are doing well, the Nordstometric should go up and to the right, but it should also lead the business doing well. For example, for square the not symmetric was GP V but just volume of payments processed. It was not correlated to revenue it was somewhat correlated to revenue, but it most importantly showed that the number of the amount of payment processed to the company was continuing to grow.

49:02 At Facebook the North Star metric was DA Us it was actually monthly active users, then it over time went to daily active users because it was an indication of how engaged Use this word. Now one of the most important things about an NSM Is that it needs to be coupled?

49:15 With what we call check metrics. In other words, incentives drive behavior. So if you tell a team, Go and optimize this nostril metric, it's going to go up 100%. But then Many things that you don't want to go down could go down. So for example, in the Doodash case You could say, I want to grow GMV, which is the gross merchandising value, which is the North Star metric. Now, GMV is the total order of total value of all the orders that go to the marketplace.

49:39 No, I could make it grow up by setting the Luriphy to zero. By setting everything to zero. And what happens then? The company's revenue goes to zero. So you basically want A checkmatic around the health of the customer and a check matrix around the health of the company. That are the guardrails. And this non Starmetric.

49:55 So in the case of DoDash, it might be I want to maintain a certain gross margin percentage or I want to maintain a certain customer retention percentage. Margin is typically a good one to use because in some ways that is a indicator of the company health. There's these two ideas that we talked about when we first met. One was the need for the very best software companies to stand alone in the sense that someone can just go use it without talking to a human and it just works for their problems. So like fully, fully self serve. So I'd love to hear you talk about that. And a related idea was That's sort of on the builder side. On the investor side. You mentioned to me that

50:28 All the great investments that you've had, the companies that have really had explosive growth, have had a high number of one of four qualities, which is I think was Gross margins, low cost to acquire the customer. high retention and a tight sales cycle, which maybe maxed back onto the self serve thing. Talk about the relationship between those two things. The self notion actually came from

50:48 Google was the first company I worked at which achieved massive scale. And what happened at Google was within the ads team. We basically had a wide number of customers using us, the millions of customers using us. There were a lot of small businesses, but there were also large companies. What we ended up doing to serve the large companies, large companies didn't want to use the product themselves. They had agencies using it for them on their behalf, and they also had internal people at Google support and sales and operations people using them. So On the product side, we built a lot of tools for our internal colleagues, for our sales and operations colleagues to manage the system for our large customers. One day, I think we were at a Larry Review.

51:24 And we were showing these what we called ICS internal customer systems to Larry. We were not meaning to show it, but I think to show him a demo, we somehow got into it. He was like, What is that? Well, it's a system used by our internal teams. It's like why'd you build it? We're like, well, we have to Help a large customers. You said

51:40 You mean our small customers don't have access to it? We're like no. I want to make sure that Everything you're building for large customers. is also available to small customers. So

51:51 We basically had to Take everything we had built over years in this ICS system and make it available. And turns out an interesting thing happened. Tons of the smaller customers adopted it much faster because some of these things we were building had advanced knobs and so on that we didn't think they would use. Turns out The self of customers

52:12 Well the most sophisticated users Because If you do something that's interesting. There's all these small agencies, entrepreneurs. Hustlers.

52:21 If you can help them make more money. It's a testament to human creativity and ability. They exploit the system in ways that you never even know and you learn a lot from working with them. So I've seen it Every case When you open up your system to self serve

52:34 You learn so much more about the capability of your product than if you basically it's your sales team doing it on their behalf. In fact, I'll never forget. In AdSense, I think we had some of the largest publishers in the world. Sign up. And start using us. On a self so basis, and then we engage with them after that. And I think

52:52 Companies like Atlasian Square, I think we had Nike. Signed up for a square device and sell so onboarded and start using in one of their stores. It makes your product better. Because these folks They

53:06 Use the product in ways that you don't expect or anticipate. And it forces you Because what is the definition of self serve? The definition of self serve Is the customer can Onboard, not just use, but onboard and use the product without ever talking to or engaging with a single member of the employee base of the company.

53:24 So when you do that, that means you have to think about How do they actually get set up with the product? So it really puts a lot of effort on onboarding. Because onboarding is one of those things where most people drop off if you don't do a good job. And then you've got to get them to a moment of delight very quickly. All of those things. If you're not building a cell product, you don't even think about. With a cell sub product, you think about it every day. It's like a consumer product or a cell sub business product. And then second, what it does for you.

53:47 If it opens up the aperture Because with say a hundred salespeople, Yeah, you can reach maybe ten thousand customers. But with a self-so product with the right word of mouth, you can reach millions of customers. Look at Cursor, for example. It is used in every large company, I bet.

54:03 Only maybe one percent of companies is maybe the top-down motion. 99.9% of companies, some engineer got it. Great example. is a company it's Figma actually. After I invested in Figma, I joined Square one and a half years later. I tried to basically push Sigma top down into the design team because I need design. I said you got to use Figma. Designers refuse to use it. They're using a tool called Sketch.

54:24 And they said we're not going to use it. Sketch is much better. And so I felt okay, it's not my place to tell them what to do, so I backed off. Two years later A mid level design manager came in. And they brought in Figma from their private company.

54:37 And they got it to be used across and it kicked out sketch. So I think with self serve you can get into these things where even there's an incumbent But you can infiltrate and be an insurgent. in a unique and powerful way, which a direct sales motion could never have produced then.

54:50 One of the other dimensions that's changing fast is careers. I'm curious what you think about the sorts of people that will thrive best in this new era. So if you're a person hiring someone, What are the sorts of things that you would place extra emphasis on now in the AI era.

55:08 The number one thing I think is going to be the focus on doing and building. I think CEOs have gotten too comfortable over time and I think this is changing. hiding middle management very, very quickly. And hiding sealed people. Instead of the

55:21 I think you're going to see the rise of AI agents doing a lot of work. But then humans who manage the AI agents and are ICs. So I think what Number one skill That is going to be relevant.

55:31 two years from now, probably even one year from now. Yes. to become a functional expert that knows how to build AI agents And

55:40 Orchestrate an army of AI agents to do that function well. There was a great article the other day I read about an PM at Meta. who's non technical But who basically built a bunch of AI agents to do his job as a PM so well that even if engineers like Teach me how to use AI agents well.

55:57 And so I think that's what you want. You want somebody who Is it. Essentially acting as a manager. But not of humans. But of AI agents.

56:05 And management has to be a full time job. What I mean by that is If you manage three, five, ten people, that's not enough. You either need to do anything Fifty humans. All you need to be an I C. There's something called span of control, which means how many people you manage.

56:18 And so span of control less than ten should not be allowed at any company at this point. Because think about it, if you're managing even fifteen people Maybe you meet with them. Once a week that's fifteen hours. What do you do for the other twenty five, thirty, forty hours? You should be working.

56:32 So I think you've got to go back to doing. So I literally and on the company side. Don't hire managers. As long as possible. Higher doers, higher. What is your favorite way to assess whether or not someone is is that?

56:46 interviewing them or learning about them. Best way is to give them a project. Engineering does a great job. Engineering has always done a great job. Every company I've been at, They would have engineering coding interviews, programming interviews. Yeah, do stuff. Everywhere else you can just BS your way without doing stuff. So it's square. We established work projects where even for Cordev, our work project was

57:06 Give me one company that Square should buy. And analyze the company and tell us why we should buy it and tell us what the synergy should be. So the best candidates are to do that. Every function needs to have a work project, then you need to put them in a room without AI. and get them to do the project, get them to do the work. That is ideally very similar to the work they're going to do. For product managers, we would take a product we were thinking about and we would just say, Here's a product we're thinking about, figure it out, should we build it? The first and most important thing you want for these kinds of things is.

57:34 Especially for customer facing growth, they need to take the voice of the customer. In other words, they need to justify the why. The best PM candidates rejected the premise completely and they did it in a beautiful way. They went and talked to ten customers on the street. So brilliant. They said I top to then customers, they were all square users, and we found that none of them want this premium size product. So we don't build it, we're going to build this other thing instead. It was amazing. That's what you want to see.

57:58 You want agency You don't want people to just say, Give me what to do and I'll do it. You want people to reject the premise or question the premise in the first place. Square should not buy a company. That would be great. Why? Tell me why. And so that's the kind of thinking you're looking for. What was Tony's thing? Dodash had the best work project ever. He would give people either$10 or$20 and ask them to acquire a thousand customers. A thousand customers for Dodash consumers. And literally some people would say,

58:26 I'm not going to take this challenge. I'm not ready for it or something. And great. If you are proud of it. And then some people would take it. Nobody even came close to acquiring a thousand or even a hundred, I think. But the goal was to see how many different things they were able to try in the course of a few hours. Someone went to the gym, printed flyers out, and gave it out. People tried all kinds of things, but it was a brilliant way to just filter out people. Who didn't want to do stuff. Is there any other advice that you would give the person building the career. We talked about evaluating and be a builder and all these sorts of things.

58:59 How should one think about managing a career? And the AIR. Stay at every job. long enough to have impact. Over the last

59:08 eighteen, twenty four months I've been seeing this phenomenon of job hoppers or job optimizers, I call them. who stayed a job for twelve to eighteen months. And then they move to the next job. And then they say twelve to eighteen months and move to the next shop. That is one of the biggest red flags as a hiring manager.

59:23 That I see because I don't think you can achieve anything. of value. You can't have any impact on a company in twelve to eighteen months. I think it takes minimum three to four years to have impact at the company. So my top advice is Stay long enough.

59:38 Build a network. Have fun. From the moment you start a job. Don't be thinking about what my next job is.

59:45 Once in a while, maybe one job it didn't work out. amongst a series of jobs, okay, you left it eighteen months, but if I'm seeing two or three jobs back to back Immediate red flag. You can do a massive disservice and you won't even know. The problem is you'll get rejected, you won't know what happened. It's that people want people who stick around and build. Who's going to hire you if they see that's your behavior? So I think it's very short term

1:00:07 Thinking. you've got to build something of value and that comes with time. So much of the theme here has been identifying a superpower, having one in the first place, evaluating one, matching it to a problem with a leader, and so on. With your investor hat on. And you're new for Marathon.

1:00:22 How do you assess the capacity or existence of a superpower in a person. How have you learned to do that? Well The most important thing I look for is founder authenticity.

1:00:33 Three of the four countries I worked with. Google Facebook and DoorDash. Most are in colleges. And they all started as a way to just a toy problem almost that the founders are curious about.

1:00:44 And they started with an authentic curiosity, can this be built? It got built and it started and similarly with Jack and Jim they started solving real problems. So my first question to every founder is Tell me your founding story. Why do you decide to start this company? The founding story in my opinion expresses why they chose this problem.

1:01:03 And ideally touch on what the superpowers And what compel them to work on this problem. I've had many people work with me or for me who have gone out to start companies, with the only reason being Well I have my buddy and we both want to start a company together. I really advise them not to do that because

1:01:18 Just going out and starting a company because you want to start a company with your friend is the wrong reason. So I want to understand, is there an authentic Lived eksperience. that they've had in their life. That compels them to work on this fellow. Dylan from Figma.

1:01:31 If you talk to him. He's seeped in design. He thinks about the design of things. He thinks about how to make things more compelling. It was very clear that He had a vision. For what this thing could be.

1:01:43 A good example is a company called Fair. It's a m B to B marketplace. Max George the C of work for me at Square. And Max when he left square. He actually Tried many different ideas.

1:01:53 And turns out and none of them were authentic to him. And to fair turns out the idea that worked. Was fair. When he was a undergrad student He had an umbrella company that he created.

1:02:04 And this umbrella company He was trying to get distribution for it in local retail. it was extremely hard for a brand. How do you get local retailers? There's so many of them. How do you go in and pitch to them? So you realize that that problem is the one he wanted to focus on, other manufacturers who wanted to get access to local retail. Are there any other questions that you love to ask in a first meeting learning about a company other than tell me your origin story?

1:02:27 The other one is idea maze. Tell me about how you navigated the idea, Mace. Yes, you want to tackle this problem, because again, this is a classic product thing. You start with the problem, but then there are many different solutions, many different ways to solve it. Why did you choose this way versus the other way? You could have chosen I will basically try to throw them off course or off kilter by asking them

1:02:45 Five, six other ways to solve the same problem. understand if they are students of either history or their industry to say why this problem could not be better tackled in this way. So I want to Understand that they have studied alternate approaches, historical approaches, sold this one. I think a good example is the Collison's, I think bought a book on payments, and they studied exactly why all the payments companies did what they did and how they failed and how they succeeded. And I think the best founders

1:03:10 Uh, students of history. in that industry and they understand why All the private companies took the decision and I did they stand on the shoulders of giants and build this company. A dimension we haven't talked about is the role that

1:03:23 Not just the role, but the perspective that being on boards offers. You're on lots of interesting boards. The big ones Coinbase, Pinterest, and Trade Desk. Maybe from those three What lessons have you gleaned from being a member of those boards, watching how boards operate, the role that they play?

1:03:39 Anything else that comes to mind from that unique experience. One of the most interesting things about being on boards is that it gives you a much better perspective of what it means to be an executive by being on a board. Once a company gets a certain size, I think the CEO Needs to try to see if they can join a board. Because I think it helps them.

1:03:55 figure out how to deal with their board by being on the other side. A good board. Is composed of people who can help the company in the things where the company needs the most help on an ongoing basis. For example, every company needs

1:04:08 Somebody with maybe one or two people now increasing with product and engineering experience. In fact, every tech company cares Ten or fifteen years ago. You would probably see zero product or tech people on boards now. Every good board has one or two product to tech people.

1:04:22 Second. You need a voice of the customer on the board. You need somebody who represents customers. So at Square, we got the CEO of Shekh Shak Grandi Guruti on the board, and he was amazing because of the voice of the customer. The other thing I always recommend to CEOs is A board role is like a marriage.

1:04:38 Once you get into it, it's very hard to get out of. So never, ever, ever Invite anyone to join your board. Before spending at least a year with them. Have them join an advisory board. have the meet with everybody on the management team.

1:04:52 Spend time with them, have them come to a few board meetings, have them meet with the other board members. We have three or four people. in your advisory board and then make one of them a board member. If you like them, if you feel they're adding value, if your team feels they're adding value, et cetera. The other thing I've seen with board over the last fifteen years is the management team getting involved. Fifteen years ago, it would just be the CEO, the co-founder, maybe, and the board.

1:05:14 We'd meet for four or five hours, discuss topics, maybe we'd bring in the management team person for one slice. CFO. And then they would leave. Now Most companies, they have the management team attend the entire board meeting. I think that is awesome.

1:05:27 Because I think management team and board get to meet each other as part of a board. You want to understand Who's on the management team? who could be successor to the CEO. What are the capabilities of different parts of the management team?

1:05:38 And then As the management team, you want the management team to be able to leverage the board. For help. I think one of the best practices I've seen done, I've now tried to push other companies to do it, is the notion of a board body. So everyone on the board

1:05:51 Should become a buddy. to managing team member. And they would then meet with that management team member multiple times between board meetings, so once a month, or even text with them and anything, they're almost like a sounding board. Anything the imaginary member has. You can see that the different board persona describe the map nicely. So I generally am the buddy for

1:06:11 the head of product and the head of engineering, somebody else is the buddy to the CFO, someone else is the buddy to the CRO. I think that meetings in between the board meetings are actually just as important as the board meeting themselves because there's a lot of things going on. That's the other thing I realise. It's not the board meeting that truly matters is all the things between the board meetings that are the real thing when things get done.

1:06:31 I think the only thing we haven't talked about in this grand art of company building and product creation. is the job of acquiring the customer positioning the product, marketing the way it presents itself to the outside world. What's the dispatch from the cutting edge that you're seeing of how people do this? One of the most interesting things now, it's different between enterprise focus and consumer focus. So consumer focused companies. The big thing is how to scale influencers. They become much more powerful and how people, especially younger people

1:07:01 consume products and even choose products. Somebody said that TikTok is the best local search engine. But I think that's right. My kids have discovered when it do traveling crazy restaurants on TikTok that Google Maps would not really show or yet doesn't show it. So how do you reach influence on TikTok? And there's a set of companies that's coming out that's essentially making it easy. The problem is Influences on TikTok, obviously there's head influences, but there's a long tail that goes viral for different reasons, and you want to capitalize on those viral waves.

1:07:28 possible. So there is a set of companies that is building products. to see if they can help Brands. connect with these influencers in scalable base. On the enterprise side the most interesting thing I'm seeing it's not really a acquisition channel.

1:07:43 As much as it is a onboarding channel, it is basically Presenting an outcome to customer and saying let's collaborate on outcomes. Palantir does that very well. Palantir goes to customers and say, What's your most important business problem?

1:07:57 Oh, here it is? Okay, great. Give us six months. to solve it, engage with us. If we can't solve it, fire us. Don't pay us anything. If we solve it pays a lot of money. So it's truly

1:08:06 Taking ownership. This goes to outcome based pricing. how your product is priced and your confidence in your ability to deliver that outcome. So I think outcome based selling. This one of the most interesting ways of

1:08:17 Changing and in fact One of the top pieces of advice I have For founders reaching out to companies is You cannot leave with what your product does anymore. you got leaded. What is the outcome you can deliver or ideally even have delivered. I'll never forget this example.

1:08:32 What is crazy is that companies always look to other companies in the vertical. This never will change. So for example, if you get JP Morgan to use your product. I promise you. Every single bank will then evaluate your product. But if you get Propton Gamble, JP Morgan doesn't care if Propton Gamble uses your product. even when you go to market, you got to target instead of trying to be

1:08:52 On a sales side, you've got to try to go after one or two very specific verticals because there is a very cleathouse effect. You want to go after the best one. And get the best one. And then you basically win all the other ones in your word in that vertical. I think you might know my traditional closing question that I ask everybody, what is the kindest thing that anyone's ever done for you?

1:09:11 There are so many. A guy called Bob McDonald. I was a business school student on the East Coast. I was on a visa. I wanted to get a job in Silicon Valley. I was somewhat unqualified. I had never been a product manager before, I'd been an engineer, and never worked in photonics, optical networking before. And Bob saw a spark in me and said, You know what, I'm gonna make a bet on you.

1:09:30 And I'm going to hire you and I'm going to bring you to Silicon Valley. It was a Sequoia funded company, one of the hardest companies in the Valley. He could have had a pick of anyone. But he bet on me. So I basically Have taken this approach that I Try to pay it forward and

1:09:44 I have no expectation when I do something with someone. What created the spark in you? Where'd the spark come from? For me it's all about just knowing how fortunate I am. To be healthy, to have a family that loves me.

1:09:56 And to know that In almost every run of the simulation. I could be in a million different worst circumstances. than I am today. And so just gratefulness and gratitude about where I'm sitting. I mean, we are sitting in literally the top one percent of the one percent of the one percent situations right now.

1:10:13 So literally I think I feel Pain when I see somebody suffering. As they say, therefore the grace of God go I in some ways and But for the grace of God, and you basically realize that You're very lucky to be given this one life and

1:10:26 You have a responsibility to the world and yourself to be grateful and to lead the best life you can. Coco, this was incredibly fun. Thank you so much for your time. Patrick, thank you, my friend. If you enjoyed this episode, visit Colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn at Colossus.com slash subscribe.

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