First interview with Scale AI’s CEO: $14B Meta deal, what’s working in enterprise AI, and what frontier labs are building next | Jason Droege

0:00 There's been a lot of talk these days about AI not delivering on the promise that we hear, especially at enterprises. These things take six to twelve months to get them truly robust enough, where an important process. Can be automated. Like with any of these major tech revolutions, headlines tell one story and then on the ground, laying broadband means you need to dig up every single road in America to lay it. Someone's gotta dig up the road, or someone's gotta run the undersea cable. Is there anything you think people don't truly grasp or understand about where AI models are gonna be in the next two, three years? The general trend right now is going From models knowing things to models doing things. The next question becomes, What can it do for me? How does the agent make decisions for you? Let's talk about scale and this whole world of AI that you're in. You essentially pioneered data labeling, training data, creating evals for labs. 18 months ago, you would get a short story and it would say, Is this short story better than this short story? And now you're at a point where one One task is building an entire website by one of the world's best web developers, or it is explaining some very nuanced topic on cancer to a model. These tasks now take Hours of time and they require PhDs and professionals. I've talked to a bunch of people that work with you over the years, and I heard a lot about just how high of a bar you set for new businesses from an entrepreneurship standpoint. It truly is about what insight do I have. Why am I so lucky to have this insight? Why in a world of a million entrepreneurs.

1:22 We're thinking, we're smart, we're trying everything. Why am I in the position where I likely have an insight that others do not? Today my guest is Jason Drogi. Jason is the new CEO of Scale AI. This is the first interview that he's done since taking over for Alex Wing after the meta deal. Alex now leads the super intelligence team at Meta.

1:44 Prior to scale, Jason co founded a company with Travis Kalinick. Before he started Uber. Worked at a couple startups. Most famously Jason launched and led Uber Eats. Which went from an idea that he and his team had to what is now a multi billion dollar run rate business. And one that basically saved Uber during the pandemic when nobody was taking rides.

2:04 This interview is following a theme that I've been following. Through a bunch of interviews. Which is the evolution of how AI models actually get smarter. Along with scaling compute and improving the actual model code, Much of the improvements we're seeing in ChatGPT and Claude and every Frontier AI model.

2:22 Is these labs hiring experts to fill in gaps in their knowledge? and correcting their understanding of how things work and basically showing them what good looks like in every domain that consumers are using models. Scale was the pioneer in this space. They created the category And in our conversation, we talk about what is happening at scale and just how this deal with meta worked. What experts like doctors and software engineers are specifically doing to help models get smarter.

2:50 How the whole market of data labeling and evals and data training has changed from when scale entered the market to today, and also just how long will we need humans to keep helping AI get smarter. We also get into where Jason C's models going in the next few years, because they have such a unique glimpse into the future. We also talk about a ton of really unique and really important product lessons from the course of Jason's career, including a bunch of advice on how to start a new business, both startups and within existing companies, and also a bunch of advice on hiring and leadership, and so much more. A huge thank you to Alan Pen and Steven Chow for suggesting topics for this conversation. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It helps tremendously. And if you become an annual subscriber of my newsletter, you get a year free.

3:36 A fifteen incredible products. including Lovable, Replet, Bolt, N8 and Linear Superhuman, D Script, Whisperflow, Gamma Perplexity, Warp Granola, Magic Patterns, Raycast, Chap ERD, and Mobbin. Head on over to Lenny's newsletter dot com and click product pass. With that, I bring you Jason. Drogie.

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5:59 Check it out at Figma dot com slash Lenny. Jason, thank you so much for being here and welcome to the podcast. Yeah, thanks for having me. Excited to be here. As I was researching your background and prepping for this podcast, I learned a really interesting fun fact about you that I don't think a lot of people know. So uh Travis Kalanick, he

6:20 had a startup before Uber. It was called Scour. It was a peer to peer file sharing app. And then I think got shut down. You were his co founder. This was the early part of your career. I'm guessing there are hours of stories we could talk about during this experience. So let me just ask you this one question. What's just a lesson that has stuck with you from that experience that you've taken with you to future

6:41 Places you've worked and built product at. I mean there's so many lessons. How I like to pick one. I think that like the main lesson uh is That In business. And in startups.

6:53 Uh Everything's negotiable. Yeah. I think that's like the main thing because we were nineteen at the time, nineteen twenty, um at the time. We built this search engine.

7:04 In a dorm room. Uh, and we were running it out of the dorm room. And we our first URL was scour.cs.uclot E U. And You know, these things were like not necessarily infractions at the time.

7:20 But We were just being practical. It was a it was basically a project that we had started. And so we built the search engine And you know, people started using it and we thought we would get in trouble. But it turned out the computer science department was excited about it, even though we had like Basically parked a domain on their

7:37 You know, on their servers. Um, and we were using our own computers in the dorms to serve up This website uh and product And and then and then when we got into financing

7:49 Uh the like the financing process was fascinating. Our Um, and this is where the sort of everything is negotiable lesson came from. Which is Uh, it was Ron Burkel and Mike Ovitz were the initial investors in the business. We were in LA, so we were at U C LA. So we were not quite wired into the entire sand hill road scene.

8:07 And as we were doing the deal, the terms kept changing on us. You know, we thought you went and raised money. You know, and and it was like oh we'll get a few million dollars at a five million dollar valuation. This is back when like that was actually a series A like valuation Um And then over the course of the deal, it was like we're doing the deal, we're not doing the deal. Oh, you should give us fifty percent of the company, oh, you should give us seventy five percent of the company, oh if you want to sign the document today.

8:31 Um, this person's gonna show up for breakfast. Um, and if you don't sign today and give us eighty percent of the company, the person's not gonna show up. It was just like completely wild, uh the things that we saw from day one. of what can happen in business.

8:46 And we thought there was like a way to do things. And at a very young age, we realized there is no way to do things. There is just the way that you can negotiate your way through the world. Um which I actually think influenced Travis heavily, and then me later heavily at Uber in terms of You can imagine it. And it makes sense and you can align incentives.

9:06 uh then it can happen. But there is no like way. And to learn that at nineteen or twenty years old, I think was highly imprinting. That is an amazing lesson. What what happened to Scour? It got shut down, I think what happened there. Well, yeah. So at the time so basically what Scour was was is it was a multimedia search engine and then peer to peer file sharing network. But what it was used for was finding free content. And Uh, at the time it w like the laws around this were pretty ambiguous.

9:29 Uh because we weren't You know, like mixtapes were legal. But this was like a hyperversion of that. But we were we were eventually sued for a quarter of a trillion dollars. So I guess if you're gonna experience something that's potentially as life devastating as that, you know, doing it when you're I think we were twenty one or twenty two at the time is the time to do it, but it was just like

9:51 This like very um uh uh uh you know cold splash of water about how the real world really works because the MBAA and the RAA were the ones who suit us, the entertainment industry suit us, um or the associations that represent the entertainment industry, and then they settled it for a million dollars. So we're like Wait, you wanted a quarter of a trillion dollars and then you settled for a million dollars, and of course they were just trying to drive us into bankruptcy, drive us out of the market. Like

10:17 And these are established companies. So we're like if these guys don't have a playbook to follow, they just kind of make up numbers. Then wow, like how should we navigate like the rest of our lives? Let's talk about scale and this whole world of AI that you're in. This is the first interview that you're doing since taking over a CO at Scale. I'm honored to have you here to talk through this stuff. Yeah. Uh

10:37 It's also the first interview you're doing since the whole meta deal, which was very complicated, confused a lot of people. So uh I'm just curious to hear the current state of scale, what people should know. For example, what's your relationship with Meta? What's your relationship with Alex? Uh, what is the current state of scale?

10:55 Yeah. So Scale is a fully independent company. The transaction was uh uh Meta invested a little bit over fourteen billion dollars to get forty nine percent of the company non voting stock. Um didn't didn't take a new board seat. Alex fills the board seats. Um, so the board is the same, the governance is um largely the same, that there's no preferential access to anything that Meta has.

11:17 There's no preferential relationship. I mean, we've had a longstanding relationship with Meta. um uh on the data side of the business for a long time. And even on some business development related things to, you know, maybe work on things in government together, et cetera. And so Those might get

11:34 bigger just as we're closer now, but there's nothing that prevents us from doing things with other parties and they have no access to anything that they wouldn't have had otherwise, like all the privacy still in place, all the data security still in place. Um the that was there before. And in fact Uh only about fifteen people went over in the transaction. So scale has about eleven hundred employees or so now. And we have two major businesses. Um, each of those businesses has uh each of them is hundreds of millions of revenue.

12:01 So we kinda have two unicorns inside the company today that sustains the business has grown every month since The deal happened, which I've read the reporting is not consistently reported. We we haven't talked about it, right? So this is part of getting the word out. And you know, we're excited to continue to build, deliver data, and do what we did before. Okay. So the company today, independent, its own company.

12:22 Alex, just to be clear, he works at Meta now. He's no longer at scale. Yeah, yeah, yeah. Yeah. That's right, excuse me. I should've uh I should have talked about that more, yeah. Uh I think that's really interesting. So basically it was an investment. Uh some people left to join Meta. The company continues, you're running the ship. Let's talk about this whole space that you guys essentially pioneered. I don't know best way to call it data labeling, training data, creating evals for labs. You guys were at this before anyone even knew this was a thing. I know even scale pivoted into this market from other things. They think there was like a bunch of stuff they tried with self drive cars and all these things, and then it's like oh shit.

12:55 AI labs need this data. One of the main stories I've been hearing is and I've had a bunch of COs from the space on the podcast is that There's been this big shift from the way from what scale had pioneer and had been doing for a long time, which is generalist low cost labor. Training.

13:11 From that to now labs mostly need experts, lawyers, doctors, engineers doing training, writing evaluations, things like that. I'm curious just what you're seeing, how that's impacting you guys, where you think things are heading, what people should know about this whole market of data training, data uh labeling. Yeah, yeah, totally. I think I think the The the current um positioning out there for from competitors is just bogus. Um you know, so I'll start with that, uh and then maybe to talk a little bit about uh I'll explain w w what I mean by that in a second, but I think it's important to just give thirty seconds on like what the history of scale is and what's the thread going back to 2016.

13:49 So Alex had this insight. um in very early days that the important thing to models was data. And um I think he was nineteen or twenty years old at the time as well. And so he's like, Okay, well, what business would I create around this? And the business that he created around it was, Okay, let's do labeling for autonomous vehicles. Um because if you label the data that um they have the the cars do better. Um you know, and then

14:12 That wave turned into the computer vision wave. which uh we have a relationship with the Department of Defense where we do labeling for them and that was in twenty twenty. And and then you move forward. And uh and And the models are have gotten better over this period of time. And so the model as models get better, they need different types of data. So we've constantly been adapting to the type of data that models need to be successful. And so then the Gen AI wave hit.

14:36 And this went Through the moon. uh you know, or to the moon. Um and So as part of that, that industry is changing constantly too. So

14:46 We I mean, it is correct that when the models came out two or three years ago, the m I mean, we remember using them, they would hallucinate all the time, they would get basic answers wrong, um, they didn't know which poem was better, you know, this poem or that poem. And that was the state of labeling a couple of years ago. And things have changed quickly, and we've changed with it. And now the state Um, for everyone, and we've been at the forefront of all of this. Uh is

15:10 Expert data labeling. um more sophisticated uh uh tasks. So to give you a sense of what the task was eighteen months ago. Um, I've been here about thirteen months so I was interviewing and I remember seeing it. Um, you would get a short story and it would say, Is this short story better than this short story? And then you would edit it and be like, Yeah, it would be better if it was this, and you would give some preference ranking to it, right? It was pretty basic.

15:32 eighteen months ago, and then you had s and you had the rise of some experts. But the models were so far behind that they needed Just even the basic stuff they And now you're at a point where a task is One task is

15:45 Building an entire website by one of the world's best web developers. Or it is explaining uh some very nuanced topic on cancer. to a model, and these tasks now take hours of time.

15:58 And they require pH d's and professionals. So to give you a stat to back this up. Eighty percent of the people uh that we have in our expert network have a bachelor's degree or greater, which is very contrary to some of the positioning that's out there and some of the understanding of this industry. Um, about fifteen percent have a PhD that's greater.

16:16 And we have PhDs on the network earning like significant amounts of money doing labeling, contributing their expertise to these models. Um so We've been doing expert data labeling. Ever since the models need it. I mean, like this game is keeping in touch with the researchers, knowing what they need, coming up with ideas internally. In some in some ways we drove this. Because

16:37 Um we were seeing that the models were Not sufficient. In More expert ways. And so we would go to the model builders and say, Hey, like we noticed that this is a problem.

16:49 If you would like to fix it, like this cadre of experts can do that for you. So Yeah, I like the counter positioning's out there, but I think that's just what peop what competitors say sometimes. Um it like it has nothing to do with reality. Okay, that was extremely interesting.

17:04 So what I'm hearing is yes, there's been a big shift to labs need more Uh expert. tr uh folks involved in training labeling. Writing evals, you guys are very aware of that and have evolved. With that.

17:17 One of the I don't know allegations I guess in the market is that it's hard to find these experts. Uh so all these companies have their proprietary network of experts and how they find them. Is there anything you could share about just how you guys go about that? Because that feels like the hardest part is finding these experts and keeping them from other companies. They are hard to find. Um you have to have many, many tactics, right? So we get you know, as you would expect, there's not one way you do it. The largest way is that they refer to each other. Um, because when you are Enjoying what you're doing.

17:47 Um, and you are using your expertise. to contribute to AI, which is pretty cool. Like, if you're a PhD on this like pretty specific topic and you're using a model and you're frustrated.

18:00 Oh it doesn't matter. It doesn't interact with me in the way that I want. This is a paid way. to have an outlet for that and to make hundreds or thousands of dollars doing that.

18:11 And so a lot of times they refer to each other. Um we also have campus programs where we'll we were where we will literally go onto the campus and talk to the professors, talk to the students. you know, ask about, you know, who would like to do this type of work. Um and then of course there's the more traditional scaled ways of like LinkedIn and Yeah, yeah, you know, places like that. But the best ones come from these sort of grassroots and referral networks. And the only way you get that is providing a great experience to to these people because

18:36 These people like they're doing it partly for money, but they're also doing it because they think that their contribution to the AI models uh is important and interesting and it and and and many times it it solves a problem for them. So something that I've been seeing on Twitter just this week as I was preparing for this is there's this uh Uh the information headline this came out and this mirrored something that Brendan from Marc Our said. that over time the entire economy's gonna move towards just reinforcement learning. And everyone's just training AI is basically the jobs that will be left.

19:07 Thoughts on on that. Is that is that where you think things are going? Is there another perspective? Reinforcement learning is very important. Um and and I think this is a broader Uh comment. about the move to environments. Um, there's these things called RL environments that effectively are sandboxes for A AI agents to play in.

19:27 to accomplish a goal so that they can learn how to accomplish that goal. Um, we've been doing this for over a year. So for example You have a Salesforce instance. How does an AI agent navigate that instance? That instance has

19:41 data that it needs to recognize. It has configurations. You know, sales for highly configurable product. Like as configurations it needs to understand how to navigate. You're you're you're asking the agent to do a business process that needs very high reliability. And then the agent needs to know Hey, if Yeah. uh I can't accomplish what I'm going to accomplish, or I think if there's a low s low low uh accuracy of what I'm about to accomplish, how do I

20:04 uh pop it up to a human being for feedback so I can get guidance. All of those things need to be trained. And there's no uh there's no alchemy to it. You just have to put the AI agent in an environment That

20:18 that represents what uh a human being would be doing. And you can imagine the number of environments in the world and the number of uh uh goals within each environment. Is enormous. So the question is and the

20:32 uh research that we have done Um, over the past year to try to be a good partner to our model builders. our model builder customers. Is Uh

20:42 How generalizable Yeah. each individual task or each individual environment. So if you imagine the world of like environments of like software systems Um configurations, data types, sizes, user counts, complexities.

20:58 It's like the permutations are endless. Soвочі nід і z you need a strategi. that allows a lab Um that is generalizable enough across a broad spectrum.

21:11 of use cases. So that they don't have to collect Forty five trillion combinations. of what should the agent do in this particular situation. So sometimes the work and the data is highly generalizable and by by generalizable I mean

21:25 You have it accomplished. You know, in a simple way. Uh the task might be uh uh find the most uh you know find the meeting on my calendar uh for my um interview with Lenny.

21:36 And the agent goes and it looks through all my calendar and then it pops it out. Right. Very simple example. Like that needs to be generalizable to any calendar search, potentially, or protection or potentially any calendar action. And the more generalizable it is, the more valuable the data is. So our job is to provide the the most valuable data to model builders.

21:56 That uh accomplishes uh the goal of making agents as useful as possible for their end users. I love that you've been sharing these examples of what the stuff is ex specifically that these people are doing the data you're providing to labs.

22:11 So just to mirror back a few of the examples you've shared, one is An engineer building a website. Sharing the code essentially with the model and here's how I would do it. And is in that example, is it just like here's the code or is it like

22:26 Building it. Well, it's It could be um it's Um it could be both. Uh so in some cases it's just the website and here's like an example and then they design it and when it

22:36 Um in some cases, um, it needs to be annotated in such a way that's like I made this decision for this reason or this decision for that reason. Um, or here's how I would think about it. So it depends on what the model builders are trying to accomplish. And so it it can get quite nuanced in terms of uh what they're trying to train on. Got it.

22:56 It's not like here's a website and then it's created doing websites. It's like here's a website, here's why I made this decision, here's why I didn't make this decision, or here's a broken website and here's why it's broken. If they're trying to accomplish I don't know, a debugging tool for a website builder or something like that. And another example you shared is a short story where it's like, here's one short story, here's another, I imagine, generated by a model. And then it's like which is better and then how would you make it better? The other example you just shared is a Salesforce agent where it's like, Hey, uh book a meeting with a prospect and then uh teach it how that happens. I love just how congru these are because it's like, okay, I get it. This is the stuff that these companies do.

23:28 Is there another maybe one or two examples just to give people a sense of what Absolutely. I can actually give you an example from um so So we have two sides of our business. One, we supply data to model builders, we sell the data, and then the other is is we actually do um solutions. We do we sell applications and services to Health care systems, insurance systems, et cetera.

23:48 Um I actually think it would paint a Uh more colorful picture. If I give you an example of one of those. Because it involves data, but But it it involves the use of data, the manipulation of data for a very, very specific goal.

24:01 And so one example there is uh we work with a healthcare system. And they Uh Uh. Health systems have lots of problems.

24:10 Um, this particular healthcare system has Experts that um see very rare cases uh on a regular basis. So you go there only if no one else can figure out your problem. And there's a huge backlog.

24:23 So um so there's a productivity element to this implementation too. So there's a huge backlog. They want to be able to see more patients, they wanna be able to provide better care, and they wanna prevent the number of revisits. Because they want to give the accurate Diagnosis day one and what the treatment should be. Well to do this today.

24:41 Um without the help of AI. Uh y the doctor really needs to read two to three hundred pages of documentation. And it's and it's and it's rolled into one document, but in different formats. And so if you're a doctor How are you gonna read two or three hundred pages of everything?

24:58 So what they do is They do the best they can, right? They scan it, they ask a nurse to look at it, they ask a maybe a more junior doctor to take a look at this case,'cause they want to treat the patient well. Like like Obviously, this is you know, this is why they became a doctor. And then they go into the room and they talk to the person and then they make a diagnosis. Well, we basically built a tool that will read that document for them and point out the top five to ten things that they should

25:20 Take into consideration either allergies that might not be obvious. Um is is you know, is one example where we actually We picked up on an allergy that a patient had that would not have been obvious from reading the document. And and that allergy actually would have but had a conflict with the

25:35 medication that they were gonna be prescribed. And the and so the AI tool basically pulled out this correlation that would have even been hard for a human being to do. To make this tool Better and better. You get to a certain limit with the models off the shelf, and actually the people inside of this healthcare system have to do their own labeling.

25:54 So we talk about labeling for model builders. But Um We actually start we're starting to see the labeling move into enterprises um and into governments because you can only get so far with off the shelf plus rag plus some fine tuning based on recorded data. One thing people often miss about these systems is is we assume because you hear these numbers of like, oh

26:17 this bank ingests two hundred petabytes of data a year or what you know, whatever, fantastical number. Um what we miss is is it the right data? Which of that data is useful to the models? And most of it is not useful. Yeah. Some of it is. But a lot of what we do when we're talking about knowledge work, when we're talking about making judgment Is human judgment.

26:35 based on synthesizing like how would this doctor in this case or how would this banker in this case make this decision. And and how would they make the decision in the context of their overall enterprise? And that might be different bank to bank, healthcare system to healthcare system. Because of The culture, the objectives, the incentives, et cetera.

26:55 And so We're getting to the point now where we see that digitizing judgment, human judgment, true subject matter deep expertise is becoming a bottleneck the war unblocking for our customers. It's really interesting. It's it's like the spectrum went from just l uh low skill, generous labor to experts to now like the specific expert at this one company who it needs to do this work, this labeling. Absolutely. I mean I mean understanding what, you know, I I I there's this broad narrative. We kinda have two narratives. We have like the AGI

27:24 Like everything's just gonna become A GI and then there's the skeptics, which is like you know, hey, this is all bunk, like this is a bubble, et cetera. And of course I uh my view is most things are kind of like there's truth in between and some of the extreme parts of the extreme are probably correct. But you know, the reality is is that Uh it's very hard to get

27:43 uh mission critical use cases In agenic systems where agents are talking to agents. To a level of accuracy. And um that it is necessary to accomplish a goal. And one of the main issues

27:56 Is That A one document e like like think about the problem of even understanding a document. Like A a document that reads the exact same words in company A

28:07 Will have a different meaning and importance in company B. So how do you have a system that knows that? So this has all got to be built. So um Uh if you're gonna make good decisions. This is a good segue to this question that is always on people's minds when they look at companies like yours and the other folks in the space is just how long do we need people to be doing this?

28:26 Like at one point well yeah, I'd be smart enough to do it themselves. I know you're Incentives are to Say we will never run out of people because it's uh aligned with your growth. But just how to how should we think about just like why do we need people, I don't know, in ten years? Like how long do we need these experts telling AI things it doesn't know? First off, the history of data labeling is a history of New beginnings. Right.

28:47 Like the you know, autonomous vehicles, um uh do not need as much data labeling as they did in the past. So the company I mean, like scale as a company That believes that data will always be important. At the point at which you don't need external data, human data in models.

29:03 I think we've gotten to a level of advancement in the world. that is almost like unfathomable. Because You're effectively saying that like No new hu no new human skill and no new human knowledge is important enough to put into these models.

29:17 That feels like pretty far out there. And so uh you know, for a business like ours, we're constantly looking at how do you build operations. That can uh constantly find the new needs. And then work with the contributor network we call the experts contributors.

29:34 to unearth that data, to unearth that information. And sometimes it's new people. Sometimes within our existing base, we find that that existing people have Expertise that we didn't know about that maybe wasn't useful to a model a year ago, but now is useful. So You know These you know, this is this is this is a constant progression of getting more and more data into these models.

29:55 Yeah, yes, we are financially incentivized to believe that humans will always be in the loop. But That's not just a business. Belief. It is a personal belief like these systems need to work for us.

30:05 And if these systems work for us. Then we will need to be on the loop or in the loop. decisions that these systems make. As to the broader point around labor, which I think comes up around white collar apocalypse and these things that kinda come up.

30:19 I'm definitely on the on the more maybe practical side of this. Uh, possibly just'cause of my nature, possibly because I see what's going on on the ground, actually in these customers where supposedly this transformation is gonna happen in the next one to two years. And I just think that like It might happen. The space is moving super fast.

30:37 But I don't think it's gonna happen. I like It's definitely not gonna happen in the next year. Um the idea that it happens in the next two years, I think is like very far fetched, but nothing's impossible. Here. And long term, I think that if you go back through I don't know, like pessimist archive or whatever these like, you know, accounts that post

30:55 The radio was invented and then you know like all of this will be eliminated. There will be change. But the change I think humans are very good at adapting. So I think what we're underestimating in all of the doom and gloom is

31:06 We believe in human adaptability. We ha as a company are highly adaptable, and I think the history of technology has shown that people are adaptable. I really like that takeaway. I'm an optimist as well, so I'm always looking for reasons to be optimistic. Uh I I wanna follow a thread, but before I get there, something very tactical I wanna ask about is Uh e bells.

31:25 Seems to be coming up a lot, especially if with companies in your space. I'm still learning a lot about just what this all is, especially uh in your market. How much of what you are experts are providing are are evals versus other types of data.

31:40 Yeah, a lot of it's evals. And within enterprise customers and government customers, it's mostly evals. Because Somebody's got to establish the benchmark for like what good looks like. That's the simple way to think about emails. What does good look like?

31:53 And and and do you have a comprehensive set of evals so that the system knows what good looks like. It's as simple as that. So in the case maybe of the healthcare example you shared, essentially this doctor would be sitting there Looking at all these reports.

32:08 creating evals that are like this is what this should be discovering in this report, in this uh record. Is that a way to think about it? Yeah, yeah. That's a that's a very big part of it, which is what does good look like? Awesome. Okay. I have to reduce things down to simple terms. It's interesting you say good versus correct. Is that a specific Term you like to use good versus just this is the the correct answer.

32:31 I didn't intentionally use that word, but uh you these are probabilistic systems. And so you know, depending upon yeah, so uh I I can get in some nuance here about the right types of problems. The AI um uh Is good at solving. So If you have a human process

32:47 That is like ten or twenty percent act. Like accurate. Or ten or twenty percent liked. AI is awesome. Because it can get you s y if you get to fifty, sixty, seventy, eighty percent accurate.

32:58 You're in the money, like you're in the green. Everybody's happy. Now now the system then has to know A for the remainder How do I make sure that like humans are involved? for the remainder of the decision making. But from a net value ad standpoint The humans are popped.

33:12 In that scenario. If you have Uh a human process a workflow that is ninety eight percent accurate and you expect an AI system to get you the remainder two remaining two percent. Not totally there yet.

33:24 And so And so when I say what does good look like, a lot of the processes and a lot of the things that people are asking these systems to do and systems for us to build. are making judgments on their behalf. And so just like we would ask a human being, hey What do you think we should do in this scenario?

33:40 The you know, like w what you're looking for is you're looking for the best recommendation or course of action given the current information. To you this is so obvious and to people in your market that I think a lot of people think about AI being trained on just here's a bunch of data, check it out, learn everything you can from all of human history and all of written record. But

34:01 What's wild is basically people are sitting around Teaching AI things it doesn't know. filling gaps. Like that's how AI is getting smarter now. There's no more real data for it to feed on. It's just like here's what I don't know. Okay. Or here's what an expert found you're wrong. I'm gonna teach you this and the fact that it scales and that's what's Keeping models.

34:19 Improving so Mind boggling. Yes. No, I yeah, I agree. I mean, like with any of these major tech revolutions. You know, the headlines tell one story and then on the ground You know.

34:30 Laying broadband means you need to dig up every single road in America to lay it. Like like like there is the there is the like, yeah, it's as simple as that. Someone's gotta dig up the road or someone's gotta like run the undersea cable. Like there's always some operational Chiseling that's going on in all of these industries. I mean, if you think about how magical these models are. I mean, Like they're remarkable that like

34:55 If you've been in technology long enough, it's like it blows my mind even today that they get the punctuation right consistently. I mean, that sounds like almost daft to say, like at this point in the market, but if you were to go back three years and think about that from a technological standpoint. Like I like like a lot of things that we think are trivial now are very sophisticated. And it's a combination of I mean. Like the real answer is is it's a combination of computational power

35:20 model improvement. And data. And all three are getting better at once. Let's hold that thread. You've been at scale for a long time, CO for you said thirteen months.

35:29 I feel like you see a lot more about where things are heading because you work with labs on things they haven't even announced yet. You see more than most people. And I know there's only so much you can share about what models what companies are doing, but just Is there anything you think people don't truly grasp or understand about where AI AI models are gonna be in the next two, three years? Look there's so much talk. Yeah. I think it depends on how much X or uh news you consume. Uh so I think it's like what sort of our perspective. I the general trend right now is going from

35:59 Models knowing things to models doing things. And uh, you know, we're pushing the boundaries of knowledge, like the benchmarks that we put out and that others uh put out, um are showing that the knowledge, uh, you know, the knowledge that these models have is getting It's quite robust. Um, and then the next question becomes, Well, what can it do for me?

36:19 And as soon as you get into that world That's where the ar like the environments we were talking about start to come into play. How do you navigate a Salesforce instance? How do you navigate A healthcare system, how do you navigate um even like a weather app on your phone? You know, uh and how does the agent make decisions for you? Uh the we're just getting into the beginning of that.

36:38 Uh, it'll be very interesting to see how quickly that happens, and I think that's where A lot of the speculation has a wide variance. Because because we're at the beginning of it. people take different trajectories on like how that's gonna improve. And so if you take a trajectory of like the most aggressive trajectory, which is like, oh, it's actually gonna be quite easy to train on these things, and then it's just a change management exercise in the economy.

37:01 Which by the way, change management exercises are not to be underestimated. Like Um Uh you know, there's still people in the world w not without an email address. And so the uh uh the adoption curve then becomes like a human and policy issue. Not a technological issue. We're not there from the technology standpoint.

37:18 But I do think in the next two to three years if I Yeah. you know take the bait and like have to make a guess. is the technology will get to a point where it will push the change management and policy

37:29 Makers to say like ooh. What do we do with this?'Cause it's getting pretty close. That's probably two or three years away. There's been a lot of talk these days about AI not delivering on the promise that

37:40 we hear especially at enterprises, there's this like MIT study that just showed that uh there's all these pilots that people are excited about and then they don't Work. And companies aren't adopting these tools. There's data showing engineers are not actually as productive with tools, like it actually slows them down sometimes. You work with a ton of companies implementing all kinds of AI.

37:59 What are you seeing on the ground? What kind of gains are you seeing do you feel like Uh it's overhyped, underhyped. There's a lot of hype out there. Uh and our job is to actually build products that work that deliver value for our customers and figure out where the rubber hits the road.

38:13 And uh to get a sophisticated, you know, my health hair example is one Um we do other Sophisticated workflows, claims management for insurance companies. Right. This is a financial decision that's happening, but it's an automatable process. But basically what happens

38:28 Is the POCs get to like sixty or seventy percent of the way there and the human mind goes, Oh, the rest is no big deal. But it's kinda like uptime in data centers where like every nine is like you know, an order of magnitude investment, you know, in terms of like reliability, back up, et cetera, you know. One nine is like basically, you know, a web server in a dorm room like we had at UCLA. Um, you know, and then five nines is like this crazy uh like high bar, but it just seems like a very small movement.

38:55 So you kinda have a similar dynamic going on here where You have A bunch of people you know, one of the reasons why the POCs have failed, one one, there's a denominator effect. Because it's so easy to do.

39:07 Hey, I spun up a project. I spun up a project. I spun up a project. So like the you know, it's it's really easy for people to try. So I don't necessarily know that like the n yeah, the ninety five percent number I think is a bit of like Um, it tells the right story, but it is a little bit hyperbolic because If you take the efforts that happen in a company where they actually get a get it, you know, get a quality partner, like we are.

39:29 Um if you get You know, you know, or if you do it yourself, if you have engineers who've worked with models before and they put in the time Um and I'm talking about like months, not like minutes like you see on these videos. to actually get legal approval. Policy approval.

39:44 Regulatory approval. Um uh change management. Like an accuracy that everybody's comfortable with. If you actually do that, you know, these things take six to twelve months. To get them truly

39:55 you know, robust enough where Like an important process can be automated. So I think that's where like The hype is right. The

40:03 When you do it, the impact is like Whoa. Like I never would have figured that out myself. And and I'm one of the most educated doctors in the world as an example. Uh but the time to get there is just longer. than what people are selling.

40:17 Such a good point that it's not only is it easy to try these things, it's just like everyone's doing it, so everyone's feeling film, like I gotta try these things, I gotta try all these. Prototyping tools, cursor, all these things just'cause everyone's doing it and then You just rush into it and it doesn't actually work out. Yeah. Easy to learn, hard to master. That's that's like that's my summary. Yeah.

40:36 This episode is brought to you by Mercury. I've been banking with Mercury for years. And honestly, I can't imagine banking any other way at this point. I switched from chase, and holy moly, what a difference. Sending wires, tracking spend. Giving people on my team access to move money around so freaking easy. Where most traditional banking websites and apps are clunky and hard to use, Mercury is meticulously designed to be an intuitive and simple experience. And Mercury brings all the ways that you use money into a single product.

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41:36 Mercury is a fintech, not a bank, banking services provided through Mercury's FDIC insured partner banks. For more details, check out the show notes. Okay, let's uh Let's move on from AI. This could be an endless discussion about AI, but you've got a lot more uh lessons to teach us. You've uh helped build

41:53 Uh Uber Eats uh You've had a couple startups in the past. We talked about Scour for a bit. Uh There's a bu I've talked to a bunch of people that work with you over the years and I got a lot of really interesting insights into the stuff that you're extremely good at. So I'm just gonna kind of go through a bunch of these.

42:08 One is Your obsession with being close to customers, talking to customers. And Oh I love this topic because it's something everybody thinks they are great at. And they feel like they completely understand how this is important, why this is important. They all feel like I'm doing this. Don't even don't worry about it. Everyone else is not doing this, but I am.

42:25 Talk about just what you think maybe people miss about how this looks when you're doing it well and just why this is so important. I mean, I probably fall in the category of what you just described, which is maybe you know, maybe part of the hub hubris you need to start anything new. Um but uh Yeah, I mean my Uh

42:45 I don't think it's like a clean process. Uh I think My process is I'm constantly questioning every single thing that I'm hearing. at the beginning of anything. I don't take what a customer says. Like literally. Um and there's been a lot talked about on this topic.

43:01 from like a product management standpoint, in terms of like, oh don't do what they say, do what they mean, and look at the real problems on things. I think I think the way that I look at it that might may be additive to the discussion. is I look at the underlying incentives of the customer. And the underlying incentives of customers are not always financial. Sometimes it's

43:21 Ego. Sometimes it's career growth. Right. If you're selling enterprise software to you know to someone, there's an executive sponsor as an example, that person needs to trust that like you're gonna do a good job for them. How do you get them to jump with you on this like big project. Well that's part of the journey of like

43:37 Not just the product, but What do they need to hear from us? What do we need to supply them? What do we need to Do to actually unlock the opportunity to implement the product. So

43:47 I think there's like an incentives alignment baseline. Like I'm a big believer that like Yeah. Yeah. It's cliche, but you know, show me the incentive and I'll show you the outcome. I think that's absolutely true. And even when customers will tell you things

44:01 Like I'll give you an example. I've been out of game for a while so I can be open about it. Who breeds? So when we launched Uber Eats. I looked at the business, you know, we Yeah, i i in terms of being close to the customer.

44:13 We actually couldn't get a restaurant tour. I I I knew nothing about this industry. So at Uber, my job is to figure out what other businesses we should get into. And so we looked at a billion businesses and Uber Eats, you know, like food delivery was the one that we thought was most interesting, which turned out to be right. Oh so good for us. Very And yeah, we couldn't get a restaurant tour to help us understand their unit economics. And you know, they'd say like, Oh, it'd be this percentage or that percentage, or why do you want to know? And then we go to a different restaurant tour and they and they would kind of explain it, but they were a little suspicious of like why are these Uber guys talking to me about You know, like how much my ham costs.

44:44 And so What we did is we Ordered. Just a bunch of food from these places. And then we got a s uh, you know, a restaurant supplier to give us like a base catalog. And we just matched up like Much does the ham weigh? How much does the cheese weigh? How much does the bread weigh? How many pieces of lettuce were on there? And we tried to actually just compose our own independent view.

45:03 Of like what's the ingredients cost versus what's the labor cost? And then and then we sort of triangulated like what was our ground truth. And then what are we being told by restaurateurs? And then what is like the the site guys telling us about restaurant economics. And if those things like all overlap, then we're like, okay, we have an insight about What to do here. And how does this relate to Uber Eats?

45:23 Well What we found as part of this is that roughly a restaurant pays twenty to thirty percent of every meal to ingredients. And they pay roughly twenty percent, twenty or thirty percent to labor. And they pay roughly 10% uh real estate and a bunch of other anyway. So kind of goes on the chain. But the important parts is what's the value of incrementality. And so we came in and we said, We're gonna charge you thirty percent of the bill.

45:45 And they were like, Oh my God, is this group on all over again? This is way too high. Oh my gosh. And we explain the economics to them. And they were like, Okay, we'll give it a try, but this is way too high. And They were right. The real number the like the real clearing prices aren't twenty five percent, but we weren't that far off.

46:03 And so when you go to find like product market fit or you know, you know, be close to the customers, it's a combination of like what's the most valuable thing. Well in a like in a restaurant tourist case. Sh give me incremental demand because if you were to take a restaurant location and triple demand based on the same labor, the same ingredients. Uh the same labor, but you're just scaling ingredients, you've got a seventy to eighty percent incremental gross margin product.

46:27 restaurantist would hate when we s we would say this because it doesn't work out exactly like that in reality. But Like because we had that insight, we had confidence that we could go to market. With we need to charge you this so that the delivery fee can be that. And then

46:40 If the delivery fee is that and we charge you this, then we think the consumers will adopt. And that's what you need to get your incremental demand. So and then we could pay the driver this. And so you kind of fit this whole puzzle together. without totally satisfying any in the case of a marketplace, you're not totally satisfying any individuals Like a hundred percent of their needs.

47:00 What you're satisfying is is like you're getting a clearing rate for them to participate in the market in the case of a marketplace. So that's like one example. Yeah, I love this example as you almost You figure out how to help them. Uh Something they don't even fully

47:15 themselves know yet. So it's you think through their goals for them, like as if you were them. Break down the economics and then here's the solution. versus hey, what can we do for you guys? Yeah. Yeah. I mean, if you walked into a restaurant, they would tell you a bunch of things. They would say, Oh, labor schedule is in like an issue.

47:31 They would say. Um, my rent is an issue. They would say all these, you know, my my ingredients prices are an issue. That's twenty or thirty percent. If you could g shave off three percent of that, that would be huge. You might then take that and go, I'm gonna go build a business that's gonna save you ten percent of your ingredients costs. Well But that doesn't actually get into their head on like what's truly important day to day. That might be important for them on an annual basis. But on a daily basis

47:54 What are they doing? They're looking at their numbers. They're looking to people show up. How did d did I make money yesterday? Am I gonna make money tomorrow? So like the urgency, I think the biggest thing people miss when they're building new products is the urgency of the buyer part of it.

48:09 You can build something that provides a lot of value, but if it's not the top thing that the customer is thinking about in their busy days, then you're just gonna have a long road to a small town. Mm. This touches on just the theme I heard a lot about you, this idea of independent thinking and how much you value that. And this feels like a really good example. of that is is there anything else along those lines of just like why this way of thinking is so critical?

48:30 I think as a founder's job, and I mean I stretch that term because at Uber we had all of the benefits of Uber. So I wasn't really a founder. I just sort of ha started the business there. But Uh but there are some elements of founding there. Um is you're looking for alpha in the market. Like w when we started our first company in ninety seven, it wasn't that cool.

48:49 Like it might have been cool in Silicon Valley, but it was definitely not cool in LA. Now it's super cool to start a business. So as a result, everyone's kind of trying everything. So how do you get Alpha on that market.

49:01 i you know, if you're just if your research is highly influenced by What the world is saying around you. You're not gonna have an independent insight. Like you kinda have to go off and do your own thing. And this is why from an entrepreneurship standpoint

49:16 Like I like I have a very I have very strong feelings about like what the approach to founding a company should be. And it's probably very particular to me. But

49:26 Um it truly about What insight do I have because like why am I so lucky to have this insight? Why? In a world of like A million entrepreneurs who are thinking, who are smart, who are trying everything.

49:39 Why am I in the position Where I likely have an insight that others do not. And then why am I the one to do it? And like The answer might be I'm in this narrow, far falling place.

49:50 The the other answer might be like I am inherently a contrarian personality type, so I'm just constantly looking for the You know, the Yeah. The thing that's true that people don't believe is true, which sometimes worked. But then the second part of that's super important, which is like, why do I want to work on this problem for five to ten years?

50:06 And like people get this wrong all the time. They go and talk to a a customer and they go, Uh, they have a problem, I'm gonna go solve it. And it's just like not a great way to like start a business. Like you really have to have this burning desire to constantly be questioning yourself. The other thing about independent thinking is is that You can't fall in love with your ideas. And and and I do not proclaim to be the world's greatest independent thinker for what it's worth, these are the this is this is what you've been told. Um but

50:30 uh is is just like part of that is basically throwing away who you are Who you've been, all your ideas. for the mission that you're on, which is like Trying to accomplish something for a customer. This is great. I'm glad I'm glad you went here. This touches on the other theme I heard often about you is just how high of a bar you set.

50:49 For new businesses. And I think this this advice is useful both for founders, as you said, and also people starting companies. Within companies, new business lines. Uh so you've talked about this a bit already, but is there anything more there just how high that bar needs to be for you to

51:04 For it to likely work out when you're starting something new. Look, if you want to give yourself the best chance, and this isn't always how it works. But if you're like in my position twenty five plus years in their career, if you think of yourself, you have the best chance. I think there's two ways that uh uh companies end up working out.

51:19 Um and the first way, which is probably the most important, quite frankly. Is that the founder is just a force of nature. Over a long duration of time. Because you're gonna have to pivot, you have to have that energy to pivot, you have to go years and years and years with it being hard.

51:34 And that's probably the most important thing. But the second most important thing is that You can easily educate yourself. on like what are good business models, what are bad business models, what are good markets. What are bad markets?

51:46 And even if you're this force of nature Having the knowledge If you're gonna go into a bad market. With of with with all your energy? You should at least know.

51:56 You know, maybe ignorance is bliss because you just throw yourself into it and it just kinda works out with time. But like that's not how I would operate. Which is marketplaces are good businesses. SaaS, at least historically, we'll see how this changes, but like SaaS historically, great businesses, recurring revenue businesses, sticky businesses, network effect businesses. And if you look at What um the top VCs invest in. Um yes, there is a lot of like portfolio building.

52:19 But there are similarities in terms of the types of business models that they believe Could be worth tens of billions of dollars, and they have network effects. They have lock in. They are more valuable at scale than uh a big scale than low scale. So

52:32 If you just take a filter on a new business, you know, th this is what I did at Uber, which is like if yeah, if you just have a filtering mechanism on a new business. It doesn't take that long to eliminate the bad ideas. And then like of what's left, you can pick Oh, I'm very passionate about this, even though it might have more problems than this other thing that on paper looks better. And and then you have to have passion about it.

52:54 But yeah, y like I think people just miss like a basic understanding of like What businesses even have a chance of being worth a hundred billion dollars? So you launched Uber Eats, you figured out this is the place to go and bet. Uh outs as an outsider feels obvious. Of course, this is gonna be a massive success. Of course, food delivery is such a good idea.

53:15 Uh I know you looked at a ton of ideas in that Process. What you explored and why you ended up picking your breeds. I am definitely not the smartest person in the room when it comes to like figuring these things out. And so I keep a very, very wide aperture on ideas for as long as I can until I'm like, Okay, everything is coalescing. And I think there's a bunch of reasons why you have to keep an open aperture on considering ideas that might seem bad at at at the start, but you just keep digging and see if you're right that they're bad or you're wrong.

53:42 So Just as a general flip philosophical principle, I'll start there. We looked at Um we did some crazy stuff. Um

53:48 Uh uh we put You know, I like I went walking around San Francisco one day. And I I looked down Market Street and there was like a C V S a seven eleven, a C V S a Walgreens, a seven eleven, and I'm like How many SKUs could possibly be inside one of these things that people want? And couldn't you just put that into a van?

54:05 And like, you know, you hit the button on the van and the van comes around and you get whatever convenience items you have. And They're convenience items. So like why would that be a problem? And we launched that in DC. We put like ten of these trucks on the road. We put like two hundred fifty SKUs in them. And I mean

54:21 Crickets is An understatement of how bad it was. I mean we did we couldn't get an order to save our lives. And what we realized was that we hadn't really done the research on what convenience stores really were. It was, you know, if you didn't have cigarettes, you didn't have beer, you didn't have slurpes, you didn't have these things, like, for example, like you didn't bring P people in to sell all the other things. So we didn't know anything about retail. We were clueless. Um so that's like one idea. We looked at grocery, but honestly the uneconomics just terrified me of like all the pick packing and everything like that. I think Instacart did a remarkably good job at getting the uneconomics to a a good spot and like probably the hardest operational problem.

54:55 You could tackle. Um we did generalized delivery, like point to point delivery, what's now Uber's product is called, but like Uber Direct, I think it's called, um, where you you have something that needs to go point to point in a city. That was kind of a flop from the beginning because the truth is is like how m Consumers don't really have this needs. Business sort of have this need. And in two thousand fourteen when we were doing this, no one had this need.

55:16 So But like We k we tried like fifteen versions of all these things before we eventually just said, Okay. The food delivery thing is just popping off on all signals. And we can make the union economics work.

55:29 People seem to want it. It's a super cool problem because we can like enable independent restaurants with like all these tools and allow them to compete with the big guys. We can take the real estate out of the equation. So you can have a real estate location that's non prime, but if you have prime food, then you get to compete. So we're like, Oh, this is a very interesting problem. And we can really help local economies. And this ended up being uh if I remember correctly, this basically saved Uber during Covid. Lyft didn't have something like this. And uh how big does is his business at this point? Anything you share about just the how important this turned out to be for Uber? Yeah, of course. Well, we launched it in uh December of twenty fifteen in Toronto and within like two hours we had done like

56:08 twenty thousand dollars for the sales. It was crazy how quickly we saw that that it was the right idea. Um and the unit economy for good. And then four and a half years later, I was a new for about six years, but it took us about a year and a half to figure this out. Four and a half years later, it was about twenty billion dollars. So zero to twenty billion in four and a half years, which is pretty good. Um Uber was very good at scaling things.

56:27 Uh but competitive market, you know. Um others did well. We beat a lot of people, some people beat us. And then now I think it's pushing eighty billion. Um, and that's been for another four and a half years since I left. I think Covid turned it from twenty. I left right before Covid. Total coincidence.

56:42 Um uh uh twenty to fifty in like a year. So yeah, I mean ride sharing went this and You know, food delivery just went like Pluto. What luck. Well done.

56:54 Yeah. Luck is part of the game. That's the other thing that's important to realize. Luck is part of the game, so do not Do not begrudge people for luck. Like this industry is hard. All these things we're doing are really, really hard. Luck is just part of the game. One of your maybe speaking that, maybe not. One of your colleagues, Steven Chow, who uh I'm an investor in his new company, he worked with you at Uber Eats for a long time.

57:15 Yeah, well, I'm not sure. She told me to ask you about the McDonald's story. Uh. I imagine that was just a the big milestone, a big moment I know for you guys. So why'd you decide put McDonald's into breeds? And there's apparently a story of how you won that deal. Yeah, so it was kinda interesting. Uh and this just goes to maybe like where Sometimes

57:32 Uh uh ignorance leads you leads you to accidentally the right answer. Um so we had launched Uber Eats. And Uber had a global footprint. And we were the only food delivery network with a global footprint, excluding China. And so Uber was

57:45 Everything in Uber needed to be launched globally. That was a very big part of the culture, et cetera. So so which which is a lot of work and you can spread yourself too thin and cause other problems. But In this way it was good. And so My vision was Okay, let's let's help the little guy like

58:00 Um compete with all these chains. You know, they have these systematized food systems and like Food is what makes a city amazing and no one talks about the chain restaurant that they visited. In Paris You know, they talk about the local place that they found and like let's be part of that. That's who we wanna be.

58:17 And so McDonald's actually approached us. And they said, Hey, we'd love to do food delivery with you and I'm and I said no. And they're like, Hold on a second. Like we have like eighty million consumers a day. Like you don't we don't want to do this together. I'm like, it's not really like our vibe right now. And so I push them off. for like four or five months until my team is like you're insane like

58:37 These people are gonna put marketing behind it. They really wanna do this. They wanna lean in. So we actually had an I Because of that, I think I think it's hard to correlate these things. Like we ended up with this exclusive relationship with them. Got an insane number of customers. Um of chains at this point actually weren't really on food delivery networks because everybody was so worried about the unit economics because they're so sensitive to the basket size.

59:00 And My approach was like, Yeah, figure it out, right? Which is a very Uber culture thing. Like, okay, the basket's seventeen dollars. It's our job to make that work. reduce the radius on the delivery, figure out the economics, maybe mark up some of the food some places. You know, like there's always a way to figure it out. So we did it and then, you know, three months later the business just Right.

59:19 started hockey sticking again at like a different level. And my team is just like, dude, you are so like uh you were so um stubborn on this point, but I think it actually ended up being a net benefit because we got a great deal with them. So the fact that you pushed them out helped you get a better deal is what I'm hearing. That's amazing. Yeah, I think that's the story he would be referencing. And then the onboarding of it was crazy because you know, we basically went global with them in like six months. And at this point the business was less than two years old. So

59:46 You know, activating this you know, I don't even know, uh eighty year old company that expects processes to be in place. And we have like two of our office managers in New York managing it. Here's just mayhem. Uh I'm still set in and out is not still not on any of these apps. Yeah, me too. I rem I remember someone was hacking it. There's all these ways people found a way around and they're like, No, no, okay, your postmates, we know we're not gonna give you any food. Yes, love in and out.

1:00:13 You've touched on this idea of gross margins and margins, how obsessed you are with this. I wanted to spend a little time on here. I think I think uh I've heard just you're obsessed with understanding gross margins before going in on anything. Most founders have no idea what they're doing here. What have you learned about just what people should be paying attention to, what they're might be forgetting when they think about just the feasibility of a business? Yeah, look, it's one filter like many filters. Um there are certainly businesses

1:00:38 that have low gross margins that are great businesses. Uh, Costco, Walmart, et cetera. You know, Amazon talks about this all the time of like there's companies that increase prices and there's companies that lower prices. But I would say that by and large, High gross margins. Uh combined. With Healthy churn curves.

1:00:55 Or a very healthy sign. For the business. I mean think about it. Like If I were to sell you something and I can't mark up a lot How much value am I adding by like like beyond what's in my hand.

1:01:07 And if I'm not adding that much value, then what am I in the business of doing? Um and and I'm in business of adding value. And it's not quite that simple, right? This is just a litmus test of like when someone comes to me and they go, Especially in a new business.

1:01:21 And we deal with this I deal with this at Uber, I I've dealt with it everywhere. Um they you know, someone comes up with an idea and they go, We can get into this business. And I think we can charge this and it will get us to a forty percent gross margin. And then my next question is

1:01:34 Start at a sixty percent gross margin. Why does that not work? And they go, Oh, well the customer and immediately You short circuit to like what the real problem is. Oh, the customer has an alternative.

1:01:45 Oh, okay. Well who's the alternative? Oh, it's some offshoreing company. Well what's their gross margin? Oh, we don't know. You go find out. It's like twenty percent. And they've been around for a long time and they have scaled operations. And you're like, okay, so like your gross margin is gonna to go from forty to twenty. quicker than you think and you're gonna be in a war like a world of hurt.

1:02:03 Unless you do something to differentiate. So I take gross margin as just like a very coarse instrument, not a perfect instrument to think about Am I adding enough value? Am I differentiated?

1:02:15 It's not perfect, but it's like a very quick short circuit filter to like even to see if someone's pitching you an idea, have they thought through this dynamic? Because if the response is, yeah, gross margin's super low right now, but here's the dynamic I'm going after. And then you're like, Oh, okay. And sometimes it's like we'll just make it up with volume and then the gross margin will go negative for a while and you're like, Wait, this doesn't work. So what I love about this is this is just a lens into is my idea good enough? If uh studying can I keep a high gross margin, can I Is there a reason why people in this space haven't been able to have a higher margin?

1:02:48 Yeah, exactly. And and and like I said, it's It's meant to disqualify Like Just like You know, you you're doing these large for larger companies and everybody has ideas. And so

1:02:58 You just it's like like it's a way to cut through. Like, do you understand like the the machine that is going to be need to be in place? In two or three years. a seventy percent gross margin now because because the next question is is Why can't someone else do this? And if you have an answer of like, well, they can now, but they can't in two years if we run really fast.

1:03:21 Okay. We might have something. Um If they can now and they will be able to in two years, you're gonna have margin compression. Along these lines, I was just listening to uh I think it was the A C sixteen Z podcast, Alex Rampell, I think, was sharing this story about Costco.

1:03:35 How As you said, there are strategies actually to keep Margins very, very low. because all their revenue comes from their subs their membership. So they have something like fifty million

1:03:46 Members charge paying a hundred bucks a month. And that's their entire business and so they don't plan and They don't want to make money off the products. Yeah, that's right. I mean, they're playing a slightly different game. Not an expert on Costco. Um uh have spent some time with the company, but like, um they use price as a way to get to scale.

1:04:05 Right. And so they're basically saying if we discount, same with Walmart, right? Like we will get so much volume that we will just take the air out of the room for all of our competition. And so then the question of Okay, so if you have a low gross margin today, in two or three years, once you land one of these centers in a market, like why won't your margins get eroded? The answer is because we will have already absorbed like all of the demand. Like you you try to go to eight percent versus ten percent gross margin, which I roughly think is what their gross margin is, like That's gonna be really hard business if you already have a habit with a customer, they have already built their weekly trips around you, you already have relationships with suppliers, you already have general managers that like know how to stock inventory. That's not a straightforward exercise. So So so they are like first to scale.

1:04:46 And then good luck competing with it. Mm-hmm. Okay, just a couple more questions. One is there's this term that I've heard uh that you uh often say and believe in is this idea of not losing is a precursor to winning.

1:05:00 Yes, yes. Talk about that. Are tech is a culture. Where uh portfolios are built are built. By investors. And a lot of the narrative is controlled by investors, frankly.

1:05:12 Um founders obviously participate, but Um this idea that you should just go for it. is consensus. Just go for it. Who cares? Um Well, I don't know, if it's my life and I only have one moment

1:05:25 Every you know, to like take a shot. I might wanna just not just go for it. Like I might wanna think for a little bit. And Uh uh and I think the best entrepreneurs I have no data to back this up, but just the these are my friend. This is my friend group. I think the best entrepreneurs and the best business owners look at the risk profile of the decisions that they're making and they try to make asymmetrically

1:05:48 um positive decisions like all along the way. And So um oftentimes I feel like we forget about the risk. Of a decision. And there's more to unpack there because I actually think taking highly risky decisions and then having it work out is a weird cultural thing too, because then how do you train people to do that? Cause it's a very hard thing to take high risk decisions and be right enough because it creates a lot of volatility.

1:06:09 But It goes back to my comment about like the most important thing in founders, which is just this ability to persevere through, right? Survival is just part of the game. And most people just give up before they could get their timing right. before they get the right insight with the customer, before they get the right product in the market. And

1:06:27 And life can change quickly in tech. You you can go from being a dog to being a hero in like a very short period of time, but but you're on this very, very long journey, but you have to survive. For that condition to be met. And so then and so then the question is is like When you're in a hype cycle I would argue that we are right now.

1:06:44 Everyone wants to go for it and then go for it more and then go for it more and go for it more. And you don't realize like Guys. These all of our customers are gonna be around in five years. Like They just want us to solve their problems. Like we have to be around to solve their problem.

1:06:59 For for them. And so survival is a precursor to that. So let's not put ourselves in position that could potentially like compromise the enterprise along the way. Doesn't mean don't take risk, but Think about how you calculate. I love how clear it is that this lesson and the many of the lessons along these lines have come from just failure and things not working out and things breaking.

1:07:18 Did you ever get on the other side of a high a high reward, high risk decision? It is so painful. Because you were just cooked. You are done. And and and often there's no way out. Is there a is there a story along those lines that comes to mind or an example of that?

1:07:35 Well, this is where I mean, you know, this is bringing us together on like why I try to be so like I think you can spend a a little bit of time thinking. Up front to save yourself a lot of pain downstream. I had this business Um not worth detailing it. But but after the bubble burst in in two thousand one, I'm like, I'm gonna self fund a business, I'm gonna build a profitable business, I wanna prove that I can do this. And we had started Scour, which uh had all the things we talked about. And so what I did is I'm like I I was a golfer and frankly there was nothing to do in tech. So

1:08:04 Uh I started selling used golf clubs on the internet and I was making real money. Um and I might have learned more from this business than any other because I started on ebay. And like I was twenty two and I I didn't really understand. That like my margins would come down because anyone can do this, but I was one of the first ones to do it. So I was making a ton of money, and then I built this business. And then I just failed to recognize

1:08:26 I had a lot of hubris. I was like, Oh, if I could just buy all the used golf clubs in America, I can be the market maker for for for For prices and don't people. That's great. Yeah. And it's just like it's madness to actually think about the practicality of that. And so I just didn't spend the time thinking. And then I ended up in this business. The business was profitable. It did got to a couple of million of revenue or whatever, paid me a dividend for a while. But it was painful the entire way.

1:08:51 I love the spectrum of experiences you've had. You've uh sold golf clubs, you're helping uh Achieve AGI, you could say. Uh, there's also a whole business uh part of your career we haven't talked about where you built tasers and body cams and drones and all these things. Uh

1:09:08 Also pure pure five file sharing before anyone else. Uh Final topic I just wanna spend a little time on based on this experience is hiring. and building teams, something that I know you have a really strong take on that I've been hearing a lot on this podcast recently. is this idea of it's more important to build the right team than find the most optimal

1:09:26 Top talent. Talk that. Why that's so. Interesting and important. As of late, I've developed a more m more nuanced view of this.

1:09:34 Um uh which is for certain roles you absolutely need the right experience. in this current market. You know, you see this with researchers, right? Because the the market's moving so fast you don't have time to train up some people. So you actually have to go find people either who have the right relationships with customers that you want to get, or you have to, you know, who might not check other boxes, but like

1:09:54 you know, are awesome at that. Like might not check the classic boxes that I think you're referencing of like They're a problem solver. They can grow with a company. They have a high trajectory, et cetera. Um I would say that that's like five percent of the roles in the company, but like very important whenever speed to market is important.

1:10:09 And then for interviewing, I just interviewed for three things. And I have to interview across all kinds of like Expertises. Um, which is hard. You know, I can't be an expert in everything. And so I reduce it down to just three things, which is like Are you a curious problem solver?

1:10:24 And Can you articulate that verbally? Um can you work? Across People? Like are you humble enough?

1:10:32 And are you um Uh a good leader. And if you just do those three things You know.

1:10:41 I think you have a pretty high chance of success, at least in an organization that I'm running. Um, because the world's changing, right? So you do need people that are adaptable. So all the experience is not necessarily like one to one. Relevant. And then and then and then the working across to your team point. Uh, this actually came up at Uber Eats. So like when I was building the Uber Eats management team, I'm I'm I'm not sure if this was mentioned to you from that group, but like um

1:11:03 Uh whenever I would hire people I was trying to compose Almost like an organism of strengths. Um and then like minimize the conflicts. Uh, that management team for the most part, outside of some of the operation side, but like for the most part, that management team was the same management team from day one when we had nothing.

1:11:20 to twenty billion dollars. And I just believed that the team knowing each other's strengths and weaknesses and being able to compensate for each other was more important. Then the classic advice you get around like well that person hasn't seen this much scale. And you're like, Well yeah, but can they learn it? Like I learned it. Like So you do have to kinda believe in people a little bit.

1:11:40 Which is my job, not necessarily their job. Um And so you know, I mean these are people systems. They're not They're not straightforward rules based things you can apply. And I especially love this advice because there's all this talk about what skills will matter in this world of AI doing all our jobs. And it feels like these three

1:11:56 Buckets or Maybe maybe the same thing, just are they good at solving problems, are they good leaders? Can they collaborate well with other people? Yeah, I don't think that the core like rise of humanity it will change. Um, and I think that these things are pretty core to like how humans have been successful for a long time. Speaking of that, I'm gonna take us to a recurring segment on this podcast that I call AI Corner.

1:12:15 Where uh I ask folks this question. What's some way that you've found uh a use for AI in your day to day life and your work that makes you more effective. Get more done.

1:12:26 Get better stuff done. Honestly, like uh when I came into scale Uh, you know, so my history was in consumer and I'd done some application level stuff with government and this space is moving so quickly. Um, AI is my uh you know, I use it as a tutor. You know, as these new concepts come up.

1:12:43 Uh, you know, I have a lot of people in the company who can educate me on the nuances of the technicals of like all of uh exc excuse me, like the technical nature of like the data and the products. But they only have so much time. And honestly, like There's new concepts coming up all the time and I need to stay on top of it.

1:13:01 So I Like It might sound crazy, but you know, a large percentage of my job is not dealing with the engineering issues related to AI. Um, I'm managing an organization. But I I love understanding it. It's like one of the most enjoyable rewarding parts of my job is to learn from all these AI researchers, but they don't always have the time to do it. So I use it as a tutor, like like I turn on voice mode.

1:13:22 and talk to it on my way into work. So I think that's probably like the most impactful thing that I use it for um that's also relevant to this topic. I do exactly the same thing, especially when I'm preparing for these podcasts, like

1:13:35 What exactly is this? Uh yeah. I think about when you say this, I did a interview with the founders of Perplexity a c few years ago. Uh asking about how they worked at Perplexity. And the founders said that before they were ruled before they ask

1:13:50 A question of anyone on the team they have to ask. AI first, and I was just like, That's crazy. Like but like now it's so obvious. But back then I was like that's an insane neat way of working. I've never heard of this before. Uh just a sign of how ahead of the Card they were.

1:14:04 Yeah. I think number two would be I'll take the internal documents. And I'll ask What's the most important thing in this document? And I'm shocked. And then I'll read it and just double check. Um, but I'm shocked at how good it is at just pulling out. There's so much in organizations

1:14:19 But it's like I don't know what you want me to Say And I don't know what I need to know. But like we each have our own agendas and so this matching of and so then there's like this huge broadcast problem. Where it's like of all of the information you might want to receive.

1:14:35 Like how what's actually important to you? And so I use it a lot for that, too. Amazing. I that's a really good tip. I use it for legal documents. Just like what's really not about what they're trying to do here for me or against me. Jason, is there anything else you wanted to share or leave listeners with, maybe double down on a point before we get to our very exciting lightning round.

1:14:54 Yeah, yeah, absolutely. I mean I I think the really important the reason why I'm doing this, the reason why um you know, want to spend time here outside of wanting to be on the show for a while and, you know, being a long term Um listener. um is uh or longtime listener, excuse me. Um Is you know

1:15:10 There's a there's a lot of amazing work going on at scale. Um, the teams are working super hard. We're delivering a ton of value for our customers. the the public narrative has not represented the work that the people here are doing and and the work that our customers are doing with with what we're doing uh for them. And I just think that deserves the respect and reward that um all those people are putting in and you know we

1:15:30 You know, we'd like people to know that. I appreciate you saying all that. With that we've reached our very exciting lightning round. I've got five questions for you. Are you ready? Yeah, let's go for it. What are two or three books that you find yourself recommending most to other people?

1:15:44 Uh something's gonna sound interesting. Uh the selfish gene. is like one of my favorite books. Love that book. I love I don't know if anyone's ever mentioned it. It was one of the most influential books for me too. So sorry, keep going. Yes. Roadless traveled I've read more than once. Just uh I mean, it's just a like one of the classic human psychology book.

1:16:04 And then I think in business, I think uh uh like good to great. It's It's not the like It's not the read that you're gonna be most excited to you know, enjoy on a vacation, but like

1:16:15 It's pretty much right. And I think we should take advice from people who have analyzed these business problems before'cause not a lot's changed, but we keep acting like everything's changed. What's crazy about that book, you look at all the companies they talk about. I haven't read in a while, but just Like Old Book is about companies that last, I I believe. Uh or maybe that's the other bug, I don't know. But anyway, all the companies that they talk about, I don't know if they're still around. It's like so hard for a business to last a long, long time. I would also recommend uh uh uh thinking slow and fast, right? That's the yes. Thinking fast and slow, I think fast and slow, excuse me. Sorry, it's been like a decade since I read it. But just in terms of point there being like human biases are very important to understand.

1:16:51 What's really crazy to me about that book and Counteman in general, someone asked him just How has your life been impacted by learning all these biases humans have? Not not much. Like I I have the same biases. Knowing them doesn't really help me avoid them.

1:17:05 See, I find myself checking myself whenever I get super convicted on something now. I will like be like okay. What is the list of things that I'm like inclined to do? To try to like catch myself because Yeah, I think we're most um inclined to have

1:17:20 These bad decisions impulsively. Uh which is which is what I think the book is largely about. I mean it's a long book. So long. Oh my God. Uh feels like that's where AI can help us in the future, just like Hey Jason, have you sure this isn't uh Framing a fact or whatever.

1:17:37 Yes. Okay. Okay. Uh next question. Do you have a favorite recent movie or T V show that you've really enjoyed? Most of the movies I watch are with my kids. So um I wish I had something deep and profound, but now kids kids' content also is a very acceptable. I mean You know, it's a classic, you know, classic action movie. I don't think it informs anything in AI or business, but uh it's good to check out from the craziness of tech once in a while.

1:18:04 Is there a product you recently discovered that you really love? Could be an app, could be clothing, could be a kitchen gadget. Anything along those lines. V O three, right? Not totally new. But um Uh when I was in high school

1:18:18 I wanted to be a screenwriter. This is I actually grew up in the Bay Area and everybody was an engineer, but like I want to be a screw. And so I went back And I got the first page of one of my old scripts. Um, which not good scripts. But like, you know, I got the first page, I took a picture of the script and I fed it to VO3. And I said make this scene. And they got it right.

1:18:38 Wow. I was shocked. I was I was just like absolutely shocked that you could just take a picture of a script. Um And so now I'm thinking about that for like You know

1:18:48 How do I use these tools for like family videos? Like You know, um Uh Uh some of the Grat tools now with like, you know, live you know, making live images.

1:18:58 Um uh more active, I think are like really interesting. Like I think they need one more step of iteration. But Uh, I think those are gonna be really like emotionally life changing for people. Because you because just

1:19:10 Like a little bit of movement. in an image from a grandparent or a relative or whatever you haven't seen in a while, it really does make a big emotional impact on you. I love that when you play with these tools, you probably can think about, oh, here's like the people that help train this thing. Here's the people that helped unfix the problem that it had. I was actually talking to someone who was who was working on VO3 and I told them the script thing, and he goes, Oh, actually scripts, yeah, no, like the way the data is formatted in a script, that would actually be very good. Because you know, they start with like, you know, set looks dark, interior. This uh character says it in this raspy voice, and so he gives you all the instructions in the script. Oh man. Just unlock the whole new business unit right there. Yeah.

1:19:49 Okay, two more questions. One is do you have a favorite life motto? that you often think about find useful in work or in life. Yeah, uh the end is never the end. That's like my favorite like internal saying.

1:20:02 Um, and it goes to the comments uh before about survival being a precursor surviving being a precursor to thriving. You know, you gotta survive before you thrive. Which is your brain tells you And along these entrepreneurial journeys, I think this is most applicable. It I mean, this is the hardest journey anyone can go on. Like if you go on this journey for five years, like you are mentally harder than like ninety-nine point nine percent of the population. Like people don't understand the Chinese water torture of like having self doubt and like having things go wrong. Et cetera.

1:20:31 And so Um, you know, more tactically, you get this when you're working out and you know, like like in a day, like, Oh, I'm too tired, like I need to stop. But the truth is is you can keep going. Um, and the world's gonna keep spinning. So I find in the moments where it's just like the hardest, where you have this hard decision that seems impassable and your body

1:20:49 You have this visceral reaction to like This is not a this is impassable. Just just to remind yourself that like I'm gonna wake up tomorrow. Like this isn't the end, there's another end somewhere. I just find that to unlock me to be like, Okay, there might not be a perfect solution, there might be like an imperfect solution, but it's a solution, so let's just keep going.

1:21:06 Final question. You helped create Uber Eats, I imagine you're still a power user of Uber Eats. You're a restaurant and it reads that Maybe people should know about maybe that you order most from. I order a shocking amount of McDonald's, actually. Despite my surrounding like like original story. Um

1:21:23 Uh It's i it's sort of the family treat in the house. I would say that that's Uh That's probably the tough thing that we order. Oh man, I'm worried for your health, but I love I haven't had McDonald's in so long. This is like maybe I should give it another. I mean I mean more practically we will order like mixed greens or tender greens or something like that, like on a day to day basis. But like, you know, I think that like the more notable surprising thing is that you despite m my initial aversion to working

1:21:51 Um with a global chain like It's a good treat once in a while. You just shouldn't have it all the time. Jason, this was incredible. I really appreciate making time for this. I'm really honored to be the first chat you've had since taking over at Scale. Um Where can pick folks find you online if they want to maybe reach out and learn more about what you're I don't know, maybe look for

1:22:09 Maybe a join skill. Uh, where do you want to point people to? And how can listeners be useful to you? Yeah, absolutely. Uh I'm at J Drogie, uh J D R O E G E at uh you know on on X, that's probably the easiest way to follow me, keep up with things, and you know, you can shoot me a DM if you like. And Uh so I think that's how you would um keep in touch. And sorry, what was your other question? Uh

1:22:31 If you're hiring, I don't know. Where should people go check it out if you are and then also just go to scale.com, go to our careers page, and we have two hundred and fifty open roles. Uh to the point about You know. We're in business and we're growing. Uh you were hiring a ton of people. Um, our applications business, you know, our data business is growing, our applications and services business is growing like crazy.

1:22:51 Um, and so we're gonna need a lot of people to help us on that journey. You guys just signed some insanely large contract with the government I was reading. Two one hundred million dollar contracts. One hundred million dollar contracts. Yeah, we didn't sign just one, we signed two in one month. Yes. No, the our um Our federal business is doing well, our enterprise business is doing well, our our international government's business is doing well. Um, there is a lot of demand out there.

1:23:16 Some salespeople are getting some great commissions. Good job, though. Jason, thank you so much for being here. Yeah, thank you. Yeah, yeah. Honor to be a guest here. Um, you know, super excited to be with you know be with you, especially So early in the journey, um, or at least my journey here, uh, Lady Scale. Appreciate it. Thanks for thanks for coming. Thanks for joining us. Bye everyone.

1:23:37 Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show. at Lenny's podcast dot com. See you in the next episode.

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