Category: Uncategorized

  • 400. How to Hate Taxes a Little Bit Less

    Every year, Americans short the I.R.S. nearly half a trillion dollars. Most ideas to increase compliance are more stick than carrot — scary letters, audits, and penalties. But what if we gave taxpayers a chance to allocate how their money is spent, or even bribed them with a thank-you gift?

  • Judea Pearl: Causal Reasoning, Counterfactuals, Bayesian Networks, and the Path to AGI

    Judea Pearl is a professor at UCLA and a winner of the Turing Award, that’s generally recognized as the Nobel Prize of computing. He is one of the seminal figures in the field of artificial intelligence, computer science, and statistics. He has developed and championed probabilistic approaches to AI, including Bayesian Networks and profound ideas in causality in general. These ideas are important not just for AI, but to our understanding and practice of science. But in the field of AI, the idea of causality, cause and effect, to many, lies at the core of what is currently missing and what must be developed in order to build truly intelligent systems. For this reason, and many others, his work is worth returning to often.

    This conversation is part of the Artificial Intelligence podcast. If you would like to get more information about this podcast go to https://lexfridman.com/ai or connect with @lexfridman on Twitter, LinkedIn, Facebook, Medium, or YouTube where you can watch the video versions of these conversations. If you enjoy the podcast, please rate it 5 stars on Apple Podcasts or support it on Patreon.

    This episode is presented by Cash App. Download it (App Store, Google Play), use code “LexPodcast”. 

    Here’s the outline of the episode. On some podcast players you should be able to click the timestamp to jump to that time.

    00:00 – Introduction
    03:18 – Descartes and analytic geometry
    06:25 – Good way to teach math
    07:10 – From math to engineering
    09:14 – Does God play dice?
    10:47 – Free will
    11:59 – Probability
    22:21 – Machine learning
    23:13 – Causal Networks
    27:48 – Intelligent systems that reason with causation
    29:29 – Do(x) operator
    36:57 – Counterfactuals
    44:12 – Reasoning by Metaphor
    51:15 – Machine learning and causal reasoning
    53:28 – Temporal aspect of causation
    56:21 – Machine learning (continued)
    59:15 – Human-level artificial intelligence
    1:04:08 – Consciousness
    1:04:31 – Concerns about AGI
    1:09:53 – Religion and robotics
    1:12:07 – Daniel Pearl
    1:19:09 – Advice for students
    1:21:00 – Legacy

  • #30 – Reinventing the Energy Drink

    LifeAid’s Aaron Hinde (@aaronhinde) stopped by to talk “vitamins that you’ll enjoy drinking.” He built a new beverage brand from zero to $100m+ in value, taking on the big boys like Red Bull, Monster etc.. He talks about coming up with the formula, and their distribution strategy thru CrossFit gyms. We also chat about his unique decision to live off the grid: chicken, solar & batteries and more. Got feedback? email us at puri.shaan@gmail.com 

    See acast.com/privacy for privacy and opt-out information.

  • Phil Zimbardo: Social Psychologist and Professor

    Dr. Phil Zimbardo, the psychologist behind The Stanford Prison Experiment, looks back at how the experiment was planned, what Dr. Zimbardo’s role was and what he would do differently in this episode of Guy Kawasaki’s Remarkable People podcast.

    See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

  • Direct Listings, Myths and Facts

    AI transcript
    0:00:05 The content here is for informational purposes only, should not be taken as legal business
    0:00:10 tax or investment advice, or be used to evaluate any investment or security and is not directed
    0:00:15 at any investors or potential investors in any A16Z fund. For more details, please see
    0:00:21 a16z.com/disclosures. Hi, everyone. Welcome to the A16Z podcast.
    0:00:26 I’m Sonal. We’ve covered a lot of company building advice, including strategic financial
    0:00:30 milestones for startups from the case study of the Open Table IPO on the show a couple
    0:00:36 of years ago and a list of 16 things CEOs should do before the IPO and shared a detailed
    0:00:42 IPO readiness checklist to also recently sharing the behind the scenes process of the roadshow
    0:00:47 and pricing, all of which you can find at a16z.com/ipos.
    0:00:51 You can also find at that link our explainer about another route to the public markets,
    0:00:56 the emerging trend of direct listings, which is the topic of this episode. There, Jamie
    0:01:00 McGurk explained the process and tradeoffs of the methods in detail for those who are
    0:01:05 interested. But in this episode, we bring together two experts from the front lines,
    0:01:10 the architect of the direct listings and their current form, Barry McCarthy, CFO of Spotify
    0:01:15 and former CFO of Netflix, along with Stacy Cunningham, the president of the exchange
    0:01:19 where they were listed, the New York Stock Exchange, to share more about the what, the
    0:01:25 how, and the why from an insider perspective. We also touch on the big picture and secular
    0:01:28 shifts in the public and private markets, go into the nuances of all the different
    0:01:34 pricings and market mechanisms involved, share some behind the scenes details on the process,
    0:01:39 and throughout, we demystify some common myths around both methods for going public.
    0:01:44 But first, we begin with the differences between direct listings and IPOs. Let’s break down
    0:01:48 what a direct listing is, how it works, some common myths and misconceptions. The reality
    0:01:53 is that both are valid pets. People will take whatever pets they need to go public. And
    0:01:56 there’s some people may go to the IPO route, and then there’s those I may want to go the
    0:02:00 direct listings route. The number one question I want to start with is the main differences
    0:02:04 between a direct listing and an IPO. Because one of the things that Jamie and I talked about
    0:02:09 a lot is that the actual activities are very similar. You still have to engage with investors.
    0:02:13 You still have to provide information, but there’s key differences. And one is that there
    0:02:18 is no O or offering. The filing process is the same. You’re still finally submitting
    0:02:25 an F1 or an S1. So that’s the same. Your obligations as a public company are the same. The differences
    0:02:30 come down to one, it’s equal access for everyone, all institutions and retail, and there are
    0:02:36 no lockup periods. And can we quickly answer the question of why, what is the point of
    0:02:40 doing this? There are a number of reasons why companies would choose to access the public
    0:02:46 markets. One is access to capital. Two is liquidity for early investors or for their
    0:02:51 employees, as many of them are getting RSUs or options for many years and want to have
    0:02:58 access to liquidity there. Three is the currency so they can engage in M&A. And four is just
    0:03:02 the visibility of being a public company so they can go out and attract new customers
    0:03:06 by saying they’re already a publicly traded company and gives them a certain credibility.
    0:03:11 So I mean, those are kind of the four drivers and traditionally raising capital or access
    0:03:15 to capital was the primary driver for companies to go public. Which these days you need less
    0:03:19 because there’s more and more capital available in the early stage markets as well. And even
    0:03:22 late stage investors have come into the early stage markets. As we all know, there’s a lot
    0:03:27 of secular shifts that are also driving a lot of this. And importantly, you can either
    0:03:31 raise it before in the private markets or raise it later in the public markets. If you choose
    0:03:36 a direct listing, it doesn’t mean you don’t have access to capital. You’re just decoupling
    0:03:40 the raising of capital from the moment in time that you’re listing. You just don’t need
    0:03:44 it right now. It’s all about timing. Yeah, I would say if you need liquidity and you
    0:03:49 want efficiency, then pretty tough to beat the public market where price is the ultimate
    0:03:55 clearing mechanism for supply and demand. And you only have to look to WeWork to convince
    0:04:00 yourself that the private market sometimes not very efficient in terms of setting price.
    0:04:04 Bad habits grow quickly with big companies. You start to see that if there isn’t good
    0:04:07 discipline and governance and they’re much larger, it’s much more impactful with a large
    0:04:13 company. You don’t have the same kind of valuation that you get from the public markets because
    0:04:16 there is less liquidity, less buyers and sellers. There’s a smaller subset of the market determining
    0:04:22 the price. But in a worst case scenario, you actually have misvaluations that are intentional,
    0:04:27 right? So there’s a lack of transparency in the private markets that can lead to misvaluations
    0:04:32 and that can impact your employees when they’re part of that transaction.
    0:04:39 The private market doesn’t enable the flow of information nearly as well as the public
    0:04:47 market does because filing requirements. And so oftentimes we would find that the employees
    0:04:52 were being taken advantage of by large investors who were willing to provide liquidity, but
    0:04:57 at less than let’s say the full conviction price. And ironically, they had more information
    0:05:03 about the performance of the business than the employees did. We had no ability to restrict
    0:05:10 the sale of shares in the secondary market, none. And for an assortment of tax reasons
    0:05:15 unique to Sweden, we had relatively short life options. So the company had been around
    0:05:21 for 10 years. Many employees had options that were expiring, they needed to sell them. In
    0:05:27 total, before we won public, there were $3 billion that had traded hands in the secondary
    0:05:32 market in the year before we won public in 2017, a billion to change chance, which would
    0:05:37 have made it one of the largest tech IPOs that year, I think.
    0:05:40 Right. And it’s by the way, just a quick note on this. One of the things that Jamie wrote
    0:05:45 about in the direct listings post that we wrote is that if you think about the difference,
    0:05:48 because I asked why wouldn’t you just do all this in a secondary market versus in like
    0:05:54 the public markets, is that a secondary market is not a true marketplace because you’re matching
    0:06:00 an end of one buyer with an end of one seller, whereas a true marketplace of the public markets
    0:06:05 allows the true market price to be set because you have more volume, more people, more buyers
    0:06:08 and sellers to actually reach that sort of equilibrium of that pricing.
    0:06:13 A traditional IPO is just a financing event. And it comes with lots of public disclosures,
    0:06:20 scrutiny, rigor. But at the end of the day, narrowly from a CFO perspective, it’s about
    0:06:24 raising money. So the question is, can you do it cost-effectively there or are there
    0:06:29 other opportunities that you can exploit to your advantage in a relatively low-cost way
    0:06:34 because of inefficiencies in the capital markets to raise money? Like today, you’d be hard
    0:06:39 pressed to argue that there isn’t a very inexpensive capital to be had in abundance.
    0:06:43 You want to think about the difference between raising capital and access to capital.
    0:06:44 That’s a really important nuance.
    0:06:50 I’ve been at this for 227 years. Companies were not IPO-ing back then. They were direct
    0:06:54 listing. They were becoming public companies and being traded on an exchange, and then
    0:06:59 they had access to capital through that mechanism. It’s only been since the ’70s that there
    0:07:04 is now a offering that is part of that, where raising capital is the only way to come to
    0:07:08 the public markets. And that’s just not true. And so Barry challenged that perception that
    0:07:10 you have to raise capital to become a public company.
    0:07:16 I love this anecdote. I read it first time in an article authored by Alan Patrikoff.
    0:07:21 Nasdaq is founded in ’71, later that year. What we now understand to be tech IPOs happens
    0:07:28 for the first time until comes public. 64 underwriters, they raise $8 million. And it’s
    0:07:32 roughly the same process today as it was then.
    0:07:37 That’s insane given how much things have changed. Can you guys answer the question then about
    0:07:41 the relationship with investors? Because if there is one advantage supposedly of the road
    0:07:47 show process, first of all, the criticism is that it’s handcrafted. It’s hand-allocated.
    0:07:51 It’s not pure mathematical. But the advantage of that hand-crafting is you’re essentially
    0:07:56 selecting in the investors, the big institutional investors you want to hold your stock.
    0:07:59 There’s a lot of conventional wisdom here, which I think is ill-considered.
    0:08:00 Go ahead.
    0:08:07 So what then is the advantage of having those institutional investors hold your stock?
    0:08:09 Oh, actually, that’s my question for you.
    0:08:16 Yeah, I don’t think there is one. I used to think price stability. But then I came down.
    0:08:24 As I watched the average number of shares traded in Netflix over the years decrease significantly
    0:08:32 as the dollar value of daily trade skyrocketed, I realized that the price isn’t set by the
    0:08:37 long-term shareholders. They don’t participate at all. Their shares are on the shelf. It’s
    0:08:41 the high-frequency traders and the hedge funds who are setting the price.
    0:08:45 It’s artificially constrained in an IPO. Even the long-only institutions that might hold
    0:08:48 a stock for a long period of time aren’t getting the allocation that they might want at the
    0:08:53 time of the IPO. So then they’re left coming into the market later. So it takes a company
    0:08:57 more than six months to get to where they finally can have all investors with access.
    0:09:02 Right. They have to build up their position over time because of the such a limited volume
    0:09:07 that’s given up at the actual listing. Yes. It’s artificially constrained because they
    0:09:09 might not get the allocation that they were requesting.
    0:09:14 So the second argument I’ve heard is that, well, if they can’t accumulate a position
    0:09:20 in the IPO, they won’t ever own the stock. And I’ve seen many examples where that’s just
    0:09:21 not true.
    0:09:25 So it’s conventional wisdom that you’re basically saying is just false. These are no longer true
    0:09:26 or they were true at maybe at one point.
    0:09:31 Well, I would say it’s not without its advantages, but the principal advantages you get to have
    0:09:35 conversations with really smart people who make good use of your time because if they
    0:09:38 do decide to buy, they’re buying a lot.
    0:09:41 And those conversations can still happen in a direct listing.
    0:09:42 Absolutely.
    0:09:43 Absolutely.
    0:09:44 And did.
    0:09:47 One of the other differences is because you don’t have an underwriter in a bank, you don’t
    0:09:51 have a stabilization agent coming out of a direct listing, but you do have a DMM in
    0:09:55 both of those cases and they do commit capital throughout that process. And it might make
    0:09:59 sense to just take a step back and talk about how we open stocks every day.
    0:10:02 Every company that’s listed on the New York Stock Exchange has a market maker that’s
    0:10:03 assigned to that company.
    0:10:05 That’s an actual person, not a machine.
    0:10:09 It’s an actual person and a firm behind the person. And it’s known as the designated market
    0:10:12 maker or DMM.
    0:10:17 That person has the responsibility to open stocks every single day and close them every
    0:10:23 single day. And they commit capital when there’s a disparity and they can step in and facilitate
    0:10:29 that process. So every day there’s a reference price. In a stock on a normal day of the week,
    0:10:33 that reference price is the prior day’s closing price. And so the market knows this is where
    0:10:35 the stock closed yesterday.
    0:10:40 In the case of an IPO, it’s the IPO offering price. You know, where do those shares trade
    0:10:41 hands?
    0:10:43 Which is different than the listing price.
    0:10:46 Which is different than the listing price. And in all cases, it’s different than where
    0:10:50 it opens, right? So on the case of a direct listing, the SEC was saying, well, there’s
    0:10:56 no price. What’s the market going to do? And so we tried to explain that those prices,
    0:11:01 whether it’s the last day’s closing sale or the IPO offering price, do not influence where
    0:11:06 the stock opens the next day. The stock opens where supply and demand is offset.
    0:11:07 The true market price.
    0:11:11 Yeah, where there is a market price. That might inform an investor of what the prior
    0:11:15 participants valued the company, but it doesn’t indicate at all where it’s going to open the
    0:11:19 next day. And if you look through history, it’s not at all reflective of anything.
    0:11:23 It’s a funny little vestigial artifact, like the tailbone of the IPO process, this idea
    0:11:27 that you need this reference price in the first place. It’s almost like a psychological
    0:11:28 crutch in many ways.
    0:11:33 We have to file rules with the SEC around this. So it’s set based on secondary trading.
    0:11:38 If there is secondary trading, an active secondary market. And if it’s not, it’s set by the
    0:11:40 New York Stock Exchange in consultation with the financial advisor.
    0:11:44 Do you think that at some point in the evolution of the direct listing, we should just drop
    0:11:48 the reference price altogether and just let the market decide by pure matchmaking and
    0:11:49 transparency?
    0:11:51 We do let the market decide.
    0:11:52 Right.
    0:11:55 This is really just a number, just like it is on any other day. It did turn out that
    0:12:01 it was a useful number to have for many broker dealer systems who are used to inputting a
    0:12:07 number. There is a certain psychology associated with it because it gets used as if it wasn’t
    0:12:12 offering sometimes in the media and you’ll see, in the case of Slack or Spotify, hey,
    0:12:15 this was up or down X amount from its reference price.
    0:12:18 But in fact, it’s finding true equilibrium, which is actually the better point.
    0:12:19 Right?
    0:12:25 The most relevant number is where is it trading now based on demand and buyers and sellers?
    0:12:30 We set the reference price the night before and it goes out to the industry so they can
    0:12:35 leverage that number. But it’s really the morning, the next day where the price discovery
    0:12:38 starts. And that’s when the DMM is looking at what all the buy interest and sell interest
    0:12:42 is. They’re choosing that price. In the case of an IPO, they’re doing that in consultation
    0:12:45 with the underwriter. In the case of direct listing, they also work with the financial
    0:12:48 advisor and letting them know what they’re seeing and where they’re planning to open
    0:12:49 the stock.
    0:12:52 What’s the point of the stabilization? Can you explain that a little bit?
    0:12:57 It’s just intended to provide some stability coming out of the offering so that you would
    0:13:00 commit capital to maintain that kind of offering price.
    0:13:05 The recurring theme that I’m hearing is that there’s a lot of orchestration to make markets
    0:13:08 natural. And why not just let markets be natural?
    0:13:14 And that was one of the organizing theories behind. Wisdom of crowd, Trump’s expert intervention,
    0:13:19 if you just eliminate all the friction that’s been created over time, you’d get to equilibrium
    0:13:20 right quick.
    0:13:26 I do think one of the myths around the direct listing is that there are, that there’s no
    0:13:31 human intervention. And so you still have that market maker at the time of opening who’s
    0:13:36 looking at all the supply and demand and choosing the price and committing capital. It’s not
    0:13:40 just an algorithm because if we’re just an algorithm, you can open right at 930. But they’re
    0:13:45 looking for enough liquidity so they feel like it’s really representative of supply and
    0:13:47 demand and representative of the market.
    0:13:52 So it can take a long time. And in direct listing, it takes even longer. I mean, we had a universe
    0:13:58 of two so far to date. Spotify was 1243. Slack was 1208. Alibaba was the largest IPO of all
    0:14:02 time and it opened at 1153. So we’re kind of in a universe where they’re a little bit
    0:14:08 later. But when you look at the amount of shares that traded hands, that’s where it gets
    0:14:14 really interesting because Slack, as an example, the more recent one where I think now it was
    0:14:18 more well known by the market, there are many retail broker dealers that didn’t allow the
    0:14:23 retail firms to trade in Spotify’s listing because they were concerned that it was an
    0:14:25 untested mechanism and they were trying to protect their clients.
    0:14:28 This is a classic theme to we’re trying to protect these people when in fact they’re
    0:14:31 depriving sometimes some of those opportunities of access.
    0:14:35 I think there were some concern that if things didn’t go well, the retail clients would be
    0:14:36 the ones to pay for it.
    0:14:37 Right.
    0:14:41 So it’s getting a little bit more conservative. With Slack, that wasn’t what we saw. And if
    0:14:46 you look at the amount of volume that traded hands in that opening trade on Slack, it was
    0:14:52 almost $1.8 billion on a company whose market cap was $19 billion. That is the third largest
    0:14:59 opening trade period of all time. And if you look through the three largest, one was Alibaba,
    0:15:05 it was a $25 billion IPO at Facebook and then Slack. That’s real price discovery and it’s
    0:15:10 a much, it was a much smaller company. So to have a trade that size really indicated
    0:15:15 the overall interest, which means you’re getting to a more mature place much more quickly.
    0:15:20 The Citadel handled both Slack and Spotify and did just a remarkable job.
    0:15:27 Yeah, they traded over 20% of volume in those securities and committed a lot of capital
    0:15:31 through that process. So while there’s no stabilization agent, you always have a DMM
    0:15:34 and they’re going to commit capital throughout that process.
    0:15:38 So your point is that the myth is that it’s purely algorithmic when in fact there is going
    0:15:39 to be a human agent in the middle.
    0:15:43 Yeah, there’s a human being that is overseeing the opening of that stock. The model that
    0:15:47 we have in place, there’s a human being that oversees the opening of stocks all the time.
    0:15:53 If it’s not as complex situation that can be automated, the more complex the situation
    0:15:57 is and so IPOs are typically more complex than a direct listing, you increase the level
    0:15:58 of human participation.
    0:16:03 I would say the other myth is that direct listings open differently than traditional
    0:16:04 offerings.
    0:16:08 Yeah, what we do is we collect the buyers and we collect the sellers and the DMM looks
    0:16:12 at that book of business and figures out where is their price. Now they’re looking not just
    0:16:17 for where does supply meet demand, but they’ll wait for a time and this is why it sometimes
    0:16:21 takes a little bit longer to see that there’s stability above and below, that there’s enough
    0:16:25 interest below the opening price and above the opening price so that when it opens,
    0:16:30 it isn’t very volatile, which is why it takes some time to get to a place where it really
    0:16:36 feels like it’s representative and what’s fascinating is one of the concerns that we
    0:16:40 had and there were a lot of people involved in this process who’ve been in the markets
    0:16:44 for a long time that disagreed on this point that there would be buyers and no sellers.
    0:16:47 So when Spotify came to market, I mean I didn’t think it was in your F1 barrier that there
    0:16:51 would be more volatility, it could be more volatility in the listing, but Spotify actually
    0:16:58 traded with less volatility than the typical tech IPO and Slack was, there was so little
    0:17:00 volatility in the first day of trading Slack.
    0:17:04 So what I love about that though, this is where there were of course plenty of headlines
    0:17:09 in both cases that, oh my gosh, the next day or it’s now going low when in fact it doesn’t
    0:17:15 have the pop phenomenon, the performative ticker type of thing where everyone is avidly
    0:17:19 looking at the opening price and does it pop or not and that is the thing that people have
    0:17:23 been so trained that it’s actually, they’re missing the point that, hey, hey, wait a minute,
    0:17:27 that pop thing is an actual distortion when you actually want the true state.
    0:17:32 Yeah, there is a viewpoint that the bigger the pop, the more successful the IPO and it’s
    0:17:34 actually the opposite of that.
    0:17:40 And in fact, as we know, as we all know, many IPOs sort of are artificially under price
    0:17:44 in order to orchestrate the sensation of a pop.
    0:17:46 I don’t know if there’s a good reason for that.
    0:17:51 I think it worked in the existing system because you essentially give people these sensation
    0:17:56 that they are getting a gain, but what is the point of the pop and can the pop go away
    0:18:00 altogether with a direct listing?
    0:18:03 We talked about the fact that companies are coming to market much larger.
    0:18:07 Historically, when they were much smaller and they were lesser known and there wasn’t
    0:18:12 a lot of public market investment in the private market space, shares were being allocated
    0:18:16 in the IPO and investors were taking a little bit of risk with a lesser known company and
    0:18:19 they were taking it with this understanding that they’re going to get some benefit on
    0:18:20 day one.
    0:18:22 That game has changed.
    0:18:26 Everything now doesn’t have the same risk profile with companies that are well-established
    0:18:29 large companies to this date.
    0:18:35 So I think it’s somewhat, the markets have evolved in a way that that first day pop is
    0:18:36 really changed.
    0:18:42 I was out here a couple of weeks ago at a conference, a guy named Jay Ritter from Florida
    0:18:48 done some research over the last 10 years on the size of the pop and ironically the pop
    0:18:56 was the largest for the two premier investment banks and I think it peaked out at 36, 37%.
    0:19:00 So everybody talks about the fee being the cost of the transaction, but in our case,
    0:19:05 we were looking at transactions that had raised more than a billion because the rule of thumb
    0:19:09 is you would issue say 10 to 15% of the outstanding shares.
    0:19:16 So if we had a 20 billion market cap, we would have done a $2.5 billion listing.
    0:19:23 So from 2011, I think there were 11 transactions that have raised more than a billion.
    0:19:31 And if the objective is 100% turnover in shares issued, which it is in a typical transaction
    0:19:40 and say 30% appreciation first day, if the bankers and the capital market experts are
    0:19:46 really expert, you would expect that most of the time they would achieve those two objectives.
    0:19:53 So one of the 11 transactions, 9%, hit the benchmark for first day appreciation, all
    0:20:00 the others were over and under and only two hit the turnover objective.
    0:20:02 So basically they’re all mispriced.
    0:20:03 They’re all mispriced.
    0:20:04 And money is being left on the table.
    0:20:08 And you have to ask yourself, is it happening because they’re really not very capable?
    0:20:10 No, that’s clearly not the case.
    0:20:13 So the world’s leading experts, no question about it.
    0:20:17 It’s because the process is just fundamentally broken in my view.
    0:20:19 So actually, Barry, why don’t you tell us about this process?
    0:20:20 Like what did it take?
    0:20:25 I mean, honestly, it’s nuts that you guys decided, hey, we’re going to use this old
    0:20:29 tool that’s been around that actually is used for companies that are splitting or trying
    0:20:34 to come back from bankruptcy or debt, and we’re going to now use it to go public.
    0:20:36 Tell us more about why you did that.
    0:20:38 We needed to become public.
    0:20:43 We had a billion, 700 million of cash on the balance sheet and no debt.
    0:20:47 If we could find a way to do it without raising capital, which we didn’t need and couldn’t
    0:20:53 deploy, we wouldn’t be diluting our shareholders, our founders, our employees.
    0:20:57 It was in our economic self-interest to explore alternatives.
    0:21:02 And I felt I had my Wizard of Oz moment when I thought about the scale of the business
    0:21:06 relative to other public companies that I had known.
    0:21:11 The lesser CEO wouldn’t have had the courage to be different, being different as part of
    0:21:13 the ethos of the company.
    0:21:19 And so I began the conversation with Daniel by saying to him, hey, I have this idea.
    0:21:21 It’s never been done before.
    0:21:27 And for him, one of his primary objectives was equal treatment for employees.
    0:21:35 So the absence of the lockup, the radical transparency, the equal access, the price discovery, well,
    0:21:37 we never could have done it without the folks at Latham.
    0:21:41 It’s a relatively easy thing to ask the question, how do I do this?
    0:21:44 Could I do this and explore and tease out all the options?
    0:21:46 You mean Latham and Watkins legal firm?
    0:21:47 Yeah.
    0:21:48 Right.
    0:21:52 It took almost two years of prep work to make it live.
    0:21:57 I mean, this is hyper technical stuff and engage the SEC constructively in a conversation
    0:21:58 about how to do it.
    0:22:00 It was in the process of doing that.
    0:22:01 It was a well-trodden path.
    0:22:03 Many people had done it.
    0:22:08 The stocks had performed horribly and you had to ask yourself, well, was it the transaction
    0:22:09 itself?
    0:22:12 It was inherently flawed or was it the companies that the world didn’t care about or was it
    0:22:15 some combination of both?
    0:22:18 If you’re using a well-trodden path, why do you have to spend time convincing the SEC
    0:22:19 about it?
    0:22:25 Well, the backstory here is when we began the process, we thought under section 12 of
    0:22:31 the 34 Act that we could become a publicly traded company.
    0:22:34 And the SEC was dead set against that.
    0:22:37 We had a lengthy negotiation about it.
    0:22:42 At the end, they got what they wanted, which was the 33 Act registration, which brings
    0:22:47 with it strict liability for companies different from a traditional 10 to 5 defense.
    0:22:52 I think the perspective being that even though there weren’t shares being sold, it still was
    0:22:57 an offering to be a public company was the SEC’s view.
    0:23:01 And if you made a material misstatement, you were guilty.
    0:23:06 You didn’t need to prove reliance, you didn’t need to prove many of the other nuance things.
    0:23:07 You were just toast.
    0:23:09 That’s what they wanted.
    0:23:11 But what I wanted was radical transparency.
    0:23:18 I wanted to be able to speak openly to prospective investors as if we were already public.
    0:23:23 But traditionally, in a traditional IPO and a 33 Act filing, there’s something called
    0:23:26 the quiet period that ties your hands.
    0:23:30 Specifically, what I wanted was in terms of acting like a public company was to be able
    0:23:35 to hold an investor day, present in great detail the strategy of the business and allow
    0:23:40 investors to see the people who are running the business in order to make an informed
    0:23:44 decision about whether they wanted to invest behind them and the strategy.
    0:23:47 And historically, that’s not done in IPOs.
    0:23:52 There’s a traditional roadshow process, but it doesn’t include that.
    0:23:56 And then secondly, I wanted to give guidance like a public company.
    0:24:02 It was a muscle that we’d been developing over many years before we began the process.
    0:24:07 And instead of the kabuki dance that happens in a traditional offering, I thought we should
    0:24:13 tell investors ourselves, now, after the fact, I came to understand with Michael Grimes help
    0:24:17 more recently, just how important the giving guidance is because if the company doesn’t
    0:24:22 do it, nobody else in the investor community is doing it.
    0:24:27 And if the market has no idea how you’re going to perform, they’ll guess, and their
    0:24:32 guess won’t be nearly as accurate as your guess would be and bad things would happen
    0:24:33 as a consequence.
    0:24:40 I think that work that Spotify and Latham and we did also at times was important to establish
    0:24:46 what the direct listing is today, because now it does offer fair access and full transparency,
    0:24:50 which had they not persevered on that front to be able to have an investor day and have
    0:24:52 that broadcast to anyone.
    0:24:53 So it’s not just a roadshow.
    0:24:55 That goes only to private institutional investors.
    0:24:59 The traditional IPO, there are shares being allocated and there’s a story being told to
    0:25:01 a select group of people, not just to anyone.
    0:25:06 So when Spotify blazed this trail, it was everybody can hear the same information.
    0:25:07 At the exact same time.
    0:25:11 You just go to the Spotify website, you can watch the investor day and you get four hours
    0:25:15 full of what’s their story, what’s going on.
    0:25:16 And anyone can see it.
    0:25:18 And then when it starts trading, anybody can participate.
    0:25:24 There were over almost 19,000 people who’ve streamed that investor day, which would never
    0:25:25 happen in an additional roadshow.
    0:25:26 That’s fair access.
    0:25:28 That is very democratizing.
    0:25:31 My mom and dad could tune in as well as like fidelity and all the big investors.
    0:25:35 Equal access was a very important objective for us.
    0:25:39 Two things I will say that don’t get quite as much attention, but are byproducts of being
    0:25:43 public companies is it does introduce a lot of discipline and governance when a company
    0:25:48 is public, because there is so much transparency and so many aspects of your business are filed
    0:25:49 with the SEC.
    0:25:53 But the other thing that often gets left off and talked about is, is you’re then allowing
    0:25:55 others to share in your success when you’re a public company.
    0:26:00 I’m glad you bring that up, that there is a lack of access for regular retail investors,
    0:26:05 that they don’t have access to that capital because of the company staying private longer.
    0:26:06 I just don’t think it’s particularly important.
    0:26:10 Like in a traditional IPO, the retail allocation is about 10%.
    0:26:12 Their growth in the market after they’re public, right?
    0:26:13 Exactly.
    0:26:19 At a Salesforce IPO in 2004, so 15 years ago, if you had the opportunity, which retail
    0:26:25 doesn’t, to buy into the IPO, that performance is up 5,500% since their IPO pricing.
    0:26:29 But even if you look at the first day of trading where then retail does have access, up 3,300%,
    0:26:32 compared to 163% in the S&P 500.
    0:26:35 That’s a big difference, because while I agree with you, Barry, that the retail allocations
    0:26:40 are so small and already a small float to begin with, the fact is that retail investors are
    0:26:41 deprived of that.
    0:26:43 That’s something very democratizing about going public.
    0:26:48 You both think a really good point about the structural change in the evolution of the
    0:26:49 capital market.
    0:26:56 So by way of comparison, when we took Netflix public in 2002, there were 600,000 subscribers.
    0:26:58 There were 76 million in revenue.
    0:27:05 We had, I think, 13 million of cash on the balance sheet, no secondary sales.
    0:27:11 When I left at the end of 2010, so eight years later as a public company, it was 2.2 billion
    0:27:22 of revenue, 20 million subscribers and 150 of net cash, net of debt on the balance sheet.
    0:27:28 So fast forward, historically, early buyers of the public market have moved downstream
    0:27:33 into late-stage private, and the private market is a washing cash, which is enabling
    0:27:35 companies to stay private longer.
    0:27:44 Spotify is coming public. It’s more than 10 years old. It has 4.4 billion USD of revenue,
    0:27:52 71 million subscribers, a billion to trade it in the 12 months prior to coming public
    0:27:56 in the secondary market, and 1.7 billion of cash.
    0:28:01 So almost twice the size of Netflix after Netflix was public for eight years.
    0:28:04 That never happened before.
    0:28:10 Yeah, we call it the quasi IPO, which is this phenomenon that companies stay private longer.
    0:28:13 Well, I think you don’t get the valuation that you get from the public markets.
    0:28:15 I mean, the public markets is real price discovery.
    0:28:19 You have real buyers and sellers coming together, and that’s exactly what the direct listing
    0:28:21 is designed to address.
    0:28:25 What about on your end when you had to do from the exchange side, I mean, how did you guys
    0:28:26 have to do this?
    0:28:30 Yeah, I think some of the things that Barry touched on, we had to work with as well because
    0:28:33 it was part of what our listing standards require, and so we had to adjust some of the
    0:28:38 rules that we have at the New York Stock Exchange, not too dramatically because it isn’t so unique,
    0:28:44 but a couple of the things that we had to do was introduce the concept of a financial
    0:28:45 advisor.
    0:28:49 The SEC wanted to know that there was a bank or somebody.
    0:28:54 The secret about the stabilization efforts, the market makers would tell you is that the
    0:28:59 banks today don’t really commit capital to stabilize. They don’t really underwrite anything
    0:29:00 anyway.
    0:29:05 Think of the value exchange. It really happens in a traditional IPO. It’s exactly what happens
    0:29:10 in a direct listing except the fees paid in a direct listing bear no relationship to the
    0:29:14 size of the offering because there’s no offering. We’re just paying them for their advice and
    0:29:18 counsel, which is the value they provide in a traditional.
    0:29:22 Well, and also the relationship brokering, but that’s something that in this case, again,
    0:29:26 with the structural shift of the markets and the fact that a lot of late stage capital
    0:29:30 investors are following these companies early on, there’s a lot more public information
    0:29:32 about these companies, what their products are, et cetera.
    0:29:36 I mean, didn’t you guys still do relationship building with some of these institutional investors?
    0:29:40 That’s exactly the point. Most of that is happening regardless, and it has been happening
    0:29:45 for several years. And so by the time you’re ready to go public, you have already formed
    0:29:49 strong relationships with the people who are most likely to buy your offering.
    0:29:56 So in a traditional allocation, I think it’s 26 to 35% of the offering would go to the
    0:30:06 top 10 investors and the next 25 to 30% would go to the next 20. Retail gets 10 and everybody
    0:30:10 else gets a balance, and it’s the same 200 investors every single deal, deal after deal
    0:30:14 after deal. So you already have relationships with the accounts that matter.
    0:30:17 The fact that you’re doing an investor today doesn’t prevent you from going out and talking
    0:30:22 to investors that you want to target. Slack did that. They did like a mini road show
    0:30:24 as well as an investor day. Yeah, it doesn’t prevent you from doing that. It just allows
    0:30:29 you to share information more broadly. Coming back to the road show stuff, we also met
    0:30:33 with them there. So we were in Boston, New York, London, Stockholm, because given the
    0:30:39 scale of the business, you just couldn’t afford to ignore it. And the day of the investor
    0:30:42 day, we had 18 research analysts already writing about the story.
    0:30:45 What do you guys think of this other recurring theme here, that Slack is a company people
    0:30:50 use Spotify? You guys are one of the world’s largest streaming music companies that something
    0:30:54 people use all the time in their daily lives, that only well-known brands can do a direct
    0:30:59 listing, that you can’t be like a wonky software company that only certain businesses use,
    0:31:04 for instance. What would you say to demystify that myth or respond to those folks?
    0:31:10 It probably was helpful for the first one, Spotify, to have a well-known brand. I coming
    0:31:14 out of the Spotify listing thought, “Oh, you need to have a well-known brand, and you need
    0:31:18 to have a distributed shareholder base and lots of holders, so that there will be liquidity.”
    0:31:23 I’ve evolved that thinking after Slack. And it’s less, while Slack is a very well-known
    0:31:29 brand in the tech community, it’s not a household name to many people. And they didn’t have
    0:31:33 a broad distributed shareholder base, but you need to have sellers, right? You need to have
    0:31:38 some liquidity. So that’s really, I think, a myth that you need to have a household name.
    0:31:42 Yeah. And I would also point out that this is where tech has a real inflection point,
    0:31:46 because many, many years ago, my mom would never have said, “I’m investing in Twitter.”
    0:31:50 She doesn’t even know what Twitter is. But they watch TV. Tech has permeated our lives
    0:31:54 in a very different way. So I think we just have to acknowledge another huge secular shift,
    0:31:56 which I think is another underlying reason right now is the time.
    0:32:02 I think the reason there is more conversation about direct listing now is because of Slack,
    0:32:06 right? After Spotify went, it was kind of a yawn. The view was, yeah, they’re different
    0:32:11 through Swedish. It’s big scale. It’s like not everybody can do that.
    0:32:15 It took a long time to bring this thing to life. Barry first came to the New York Stock
    0:32:24 Exchange in 2016. And when I first had a conversation with Barry about this idea he had, I was certainly,
    0:32:29 you know, I was not so concerned about Spotify and how it would go then. I was more concerned
    0:32:33 about the second one, because not everyone has Barry McCarthy kind of at the controls
    0:32:38 thinking about how this is going to go, thinking about all the things might miss something.
    0:32:43 And Slack, I think that really told the market this is a tool people can use and it’s not
    0:32:50 just a one time success story. What about the forward looking guidance? So you mentioned
    0:32:54 that was really important to you to do that. And the difference between a direct listing
    0:32:59 and IPO is in the case of an IPO, the filing does not become effective to like the night
    0:33:03 of, whereas in the case of a direct listing, it can be rendered effective like 10 days
    0:33:08 in advance or a certain period. So what was the point of the forward looking guidance?
    0:33:12 Because I’m kind of hearing mixed messages on one hand where, yes, you guys want the
    0:33:16 market to decide based on the true transparency of the information. But on the other hand,
    0:33:20 we want to give guidance. I don’t quite understand the nuances of that.
    0:33:25 Yeah. Well, let’s just acknowledge that there’s a school of thought that argues against the
    0:33:29 wisdom of giving guidance. And I just think it’s foolish.
    0:33:32 Guidance is definitely a hotly debated topic.
    0:33:39 So the analogy I like to use is if you’re in a relationship and it’s date night, something
    0:33:44 comes up at the end of the day, you’re supposed to meet at seven, you don’t show up till 10.
    0:33:47 If you haven’t called, your night’s not ending well.
    0:33:51 Whereas if you text and give an update, okay.
    0:33:56 Right. Lands much better. Guidance is the equivalent of making the phone call or sending
    0:34:02 the text. Now, one perspective on the wisdom of giving guidance as it relates to an IPO.
    0:34:06 I previously mentioned there was this kabuki dance that happened. So the company has a
    0:34:11 forecast. They don’t want to miss it when they share it with the bankers. So they detune
    0:34:16 it. They hand it to the bankers during the IPO process. The equity research analyst for
    0:34:20 your underwriters will come over the Chinese wall. You’ll, you’ll take them through your
    0:34:27 forecast, teach them the business in preparing their own forecast. They’ll take the forecast
    0:34:31 you gave them, which you detuned before you gave it to them, and they will detune it.
    0:34:36 And then they will, they will basically teach the street because the SEC won’t allow you
    0:34:40 to talk about future performance. They will speak for you to the street and then the street
    0:34:46 will take the forecast they got from the equity research people, which was a dummy down version
    0:34:49 of the dummy down version you gave them, and they will dummy it down.
    0:34:50 It’s like a game of operator.
    0:34:53 And so by the time the institutional investor gets it, there’s good chance you don’t even
    0:34:59 recognize it anymore. But it’s the, it’s the underwriters, equity research people who
    0:35:04 are teaching investors what the future performance of the business might be. So you can short
    0:35:09 circuit that entire process by just telling people what it is you’re going to do. If you
    0:35:14 look to the public market for best practice, most companies give guidance.
    0:35:19 The counter view is that if you’re telling, if you’re providing quarterly guidance, you’re
    0:35:23 managing your business to the quarterly guidance, investors are demanding that you hit those
    0:35:29 numbers and that it creates a short-term view for, for leaders versus long-term and it’s
    0:35:30 debated.
    0:35:34 And my view is you’re getting held accountable for their expectations, whether you inform
    0:35:40 them or not. As long as investors get rewarded based on quarterly performance, public companies
    0:35:44 are going to be under a lot of quarterly performance pressure. That doesn’t mean that’s how you
    0:35:49 need to run your company. In fact, if you do become short-term oriented and eventually
    0:35:52 the performance of business will fall apart and so will your stock price.
    0:35:55 Right. So your point is that you’re going to be held accountable for the expectations.
    0:35:57 So you might as well control those expectations.
    0:36:00 Yeah. So figure out what you need to do over the long run in order to be successful and
    0:36:04 then break it down on a quarterly basis and tell them what that is. And sometimes they’ll
    0:36:08 like what they’re hearing and sometimes they won’t. The only way to manage your stock price
    0:36:11 is to take care of the performance of your business. And if you do that, eventually the
    0:36:15 stock price takes care of itself. But coming back to the guidance thing, if you’re not
    0:36:21 speaking in a direct listing, nobody is speaking in an informed way about what the expectations
    0:36:22 are for the business.
    0:36:28 Now, how the street interprets your guidance is something else entirely. So I was a public
    0:36:36 company’s CFO for 35 quarters before Spotify. And for that entire time, we told the street
    0:36:40 that our guidance was actually what we expected and people came to understand that. And we
    0:36:46 said we were going to manage ourselves the same way at Spotify and still in our first
    0:36:50 quarter, when we did what we said we were going to do, the stock traded down because
    0:36:57 people had learned to expect outperformance in that first public quarter and it didn’t
    0:37:03 matter that we told them that we were going to be different. They just didn’t hear it.
    0:37:08 So there’s some puts and calls, but I think the wiser course is to try to lean in and
    0:37:12 manage people’s expectations, recognizing that in a direct listing, there’s this vacuum
    0:37:17 and it’s different than a traditional offering where the equity research of your underwriters
    0:37:21 plays an important role in informing investor expectations.
    0:37:25 What would you say to the myth that public investors don’t like direct listings?
    0:37:30 During our roadshow, we spoke to a number of large investors and the biggest surprise
    0:37:32 for me was their enthusiasm.
    0:37:33 Why?
    0:37:40 Because if you run a large portfolio, by the time you receive your allocation, it’s so
    0:37:45 infinitesimally small as a percent of the assets you run, it’s completely immaterial
    0:37:46 to you.
    0:37:50 Oh, totally. The assets under management for most of these funds, I mean, how big a role
    0:37:51 IPO is in these stocks play.
    0:37:56 Yeah, so that big first day pop is meaningless for them and they get cut back in the allocation.
    0:37:59 Yes, because of the limited volume.
    0:38:03 So what’s different about the direct listing is if they have full conviction, they can
    0:38:06 back a truck up and buy the whole thing and they love that.
    0:38:07 Which then gets advertised.
    0:38:12 I mean, part of why the process takes longer in the morning is we’re sending out an indication
    0:38:16 of price range that’s much wider than you would in a normal IPO because this is the
    0:38:20 price discovery process happening unlike the allocation the night before.
    0:38:24 And so institutional investors can see that and determine where they want to put their
    0:38:29 interest into the market and over time, it narrows down to a place and they can actually
    0:38:32 attract more sellers by indicating their overall interest.
    0:38:36 This is great because I think a common misconception that I’ve heard from a lot of the lay commenters,
    0:38:40 which is not always fun to read Twitter, but a lot of people complain about the fact that
    0:38:44 direct listings are self-serving for early stage investors because they don’t have to
    0:38:45 worry about a lockup period.
    0:38:49 But it does make a difference in the market side because of the availability of the volume
    0:38:50 of that stock.
    0:38:54 Lockups make a difference in how people trade and look at the stock for a period of time,
    0:38:56 just knowing that there’s going to be shares that can come to market.
    0:38:57 Right.
    0:38:58 So you actually are obviously saying-
    0:38:59 It’s an artificial constraint.
    0:39:00 Yeah, it’s another artificial constraint.
    0:39:03 You guys just short the heck out of the lockup best price and there’s all kinds of market
    0:39:04 manipulation.
    0:39:07 Yeah, you’re removing a lot of that trading that might occur around lockups.
    0:39:08 Right.
    0:39:12 That’s, in fact, the other secular shift we haven’t talked about is the reality of HFTs
    0:39:14 like high frequency trading, hedge funds, et cetera.
    0:39:17 All these things that have also changed the way markets transact around public.
    0:39:21 We have to wrap up, but do you have any advice for how people should think about pricing their
    0:39:22 IPO?
    0:39:26 Because in the traditional IPO, you have the legacy of the sort of fake price that’s set
    0:39:29 and then you have this and dance with the road show.
    0:39:30 You’re not pricing your IPO.
    0:39:34 You’re telling your story about running your business and the market is pricing your listing.
    0:39:35 That’s actually the best advice ever.
    0:39:36 But it’s true.
    0:39:39 I mean, you’re running a business, you’re talking about what you have planned for the
    0:39:43 business in the future and you share metrics and numbers and the market tells you what
    0:39:44 they think your company is worth.
    0:39:45 Barry and you were forced to do the reference price.
    0:39:47 Would you like to get rid of it all together?
    0:39:50 I think it was just completely irrelevant to the process.
    0:39:52 It doesn’t matter whether it exists or not, honestly.
    0:39:53 Nobody pays attention to it.
    0:39:58 I do think, I think it’s been a helpful, from a mechanical perspective, it’s been helpful.
    0:39:59 We worked with the SEC.
    0:40:03 It was important to them that there be some reference out there in the market.
    0:40:08 We introduced the concept of a financial advisor that would work with the DMM as needed.
    0:40:13 We had to introduce a new way to meet our listing standards and we used a market cap
    0:40:16 test because companies typically do that through the IPO.
    0:40:19 So we had to introduce that piece of it.
    0:40:24 And then the other things that the SEC wanted were the transparency and the filing, the
    0:40:25 investor day.
    0:40:30 We should give the SEC credit, especially a director of Corpfinn, Bill Himman, was really
    0:40:34 constructive in trying to find a way to provide new tools in the market.
    0:40:38 And we’ve had many conversations with them about what’s worked so far, what have we learned,
    0:40:40 and what can we do in the future?
    0:40:45 Could you introduce primary raising using the same mechanism if you wanted to kind of
    0:40:48 recouple the raising capital?
    0:40:49 Yeah, I would like to second that.
    0:40:51 He led every meeting.
    0:40:53 They were difficult discussions.
    0:41:00 They went a long way to accommodate some of our disclosure requests in the context of
    0:41:01 the 33 filing.
    0:41:04 And I think the public interest was well-served as a consequence.
    0:41:09 I mean, their job is to protect and ensure that there are healthy markets to protect investors.
    0:41:15 Did you get critiqued a lot on the street or by your peers for this, like after the opening
    0:41:16 itself?
    0:41:17 How did you feel?
    0:41:20 Caught a little bit of the dead cat bounce when people first began to hear about what
    0:41:21 we were doing.
    0:41:23 And no one knew how to understand it, interpreted it.
    0:41:30 And so we spent time on background with members of the financial press and the media helping
    0:41:33 them understand just what it was.
    0:41:37 And then we stepped back and they performed a very valuable role, which is they debated
    0:41:40 endlessly the pros and the cons of it.
    0:41:43 And after that, I just went back to work exhausted.
    0:41:47 I think to date, and it’s only been in universities too, it’s much more work for the company to
    0:41:53 go the direct listing route than a more traditional IPO, where you sign up, show up and get shepherded
    0:41:54 through the process.
    0:41:58 I would say if you’re going to do an investor day, it’s considerably more work.
    0:42:01 But aside from that, it’s pretty much the same.
    0:42:07 And my team did it themselves with the lawyers for the most part, with on the back end, important
    0:42:10 input from the banks, all three of them.
    0:42:13 I was going to say though, for an investor day, just to be clear, that’s a single day
    0:42:17 while it may take a ton of work to plan, prepare, share that story.
    0:42:20 That’s all practice for your future earnings calls and everything else you’re going to
    0:42:22 be doing and thinking anyway.
    0:42:24 One more mechanical detail.
    0:42:26 Why the ringing of the bell?
    0:42:29 Because theoretically, you didn’t have to ring the bell anymore.
    0:42:33 And I think it’s great because Stuart asked his mom to ring the bell for Slack’s idea.
    0:42:35 So there are two different bells that you’re talking about.
    0:42:36 One is the bell that starts trading each day.
    0:42:41 So at 9.30, and that bell rings for 10 seconds, it actually tells the traders on the floor
    0:42:44 that they have 10 seconds to get their orders in before the market is open.
    0:42:45 They’re not looking at the clock.
    0:42:48 And so the bell, they actually are very particular about the bell ringing for the right amount
    0:42:49 of time.
    0:42:54 And then it’s a ceremonial first trade bell that rings when the stock opens for the first
    0:42:56 time as a public company.
    0:43:00 And we give the opportunity for a CEO or whoever they might want to delegate that responsibility
    0:43:01 to.
    0:43:03 I have a question for Barry though, if we have one more minute.
    0:43:05 Do you have the flags displayed anywhere?
    0:43:07 What are the flags?
    0:43:08 We do.
    0:43:11 We have them in one of our large conference rooms.
    0:43:16 So we were concerned that with this new way of coming to markets, things could go wrong.
    0:43:19 And there are lots of things that run through your head.
    0:43:23 At the time, I was chief operating officer, and so you worry about all the things that
    0:43:24 could happen.
    0:43:31 What we didn’t account for was that we would hang the wrong flag outside in honor of Spotify’s
    0:43:35 listing day and an attempt to hang the Swedish flag outside.
    0:43:36 Oh no.
    0:43:38 Somebody grabbed the Switzerland flag.
    0:43:39 Oh my God.
    0:43:44 We hung outside the exchange for about seven minutes before it was realized that the wrong
    0:43:46 country’s flag was put up.
    0:43:52 On listing day, my wife had sent me a picture from the exchange, which I forwarded to Tom
    0:43:56 Farley, and he wrote, he thought I was pulling his leg.
    0:43:58 That was a joke.
    0:43:59 Yeah.
    0:44:00 So Tom was pretty upset about that.
    0:44:03 And I said to him, Tom, this is the only thing that goes wrong today.
    0:44:04 It’s a win.
    0:44:11 We leaned into it a little bit and sent Barry and Daniel the flags, the all three flags
    0:44:12 that hung outside.
    0:44:13 The Swiss one included.
    0:44:16 The Swiss one, the Swedish flag, and the US flag too, hung outside.
    0:44:18 Thank you for joining the A6 and Zee podcast.
    0:44:19 Thank you.

    We’ve covered a lot of the strategic financing milestones for startups seeking to build a sustainable and enduring business — from mindsets for startup fundraising to when and how to build a finance functionwith a CFO to what it takes to do an initial public offering (IPO) and stories from the inside out. There’s also a lot that goes on behind the scenes en route to IPO, including how they’re priced and what the “pop” means.

    Yet another route to the public markets is the direct listing, recently reinvented for tech companies (with Spotify and Slack so far). We explained the process and tradeoffs in this early primer by Jamie McGurk, so this episode of the a16z Podcast brings together two experts from the frontlines: the architect of the direct listings in their current form, Barry McCarthy, current CFO of Spotify (and former CFO of Netflix); and Stacey Cunningham, president of the NYSE where they were listed — in conversation with Sonal Chokshi to share more about the what, the how, and the why from an insider perspective.

    What’s the bigger picture here, including secular shifts in the public and private markets? Zooming in closer, what are all the details and nuances involved in true pricing, investor days, forward guidance, and other market mechanisms for “radical transparency”? What did it take behind the scenes to make this all happen, and what’s still happening? And finally, what are some of the common myths and misconceptions around direct listings (and IPOs) as methods for going public? Turns out, there’s a lot that goes into making markets… and market making.

    The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

    This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

    Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

  • #71 Esther Perel: Cultivating Desire

    Relationship expert Esther Perel reveals her favorite strategies for “fighting” fair, rewriting stories that damage relationships, and breathing new life into our romantic partnerships.

     

    Go Premium: Members get early access, ad-free episodes, hand-edited transcripts, searchable transcripts, member-only episodes, and more. Sign up at: https://fs.blog/membership/

     

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    Follow Shane on Twitter at: https://twitter.com/ShaneAParrish

  • #400: Books I’ve Loved — Tim’s Four Must-Read Books

    Welcome to another episode of The Tim Ferriss Show, where it is my job to sit down with world-class performers of all different types—from startup founders and investors to chess champions to Olympic athletes. This episode, however, is an experiment and part of a shorter series I’m doing called “Books I’ve Loved.” I’ve invited some amazing past guests, close friends, and new faces to share their favorite books—the books that have influenced them, changed them, and transformed them for the better. I hope you pick up one or two new mentors — in the form of books — from this new series and apply the lessons in your own life.

    To kick things off, here are four of my recommendations, which I had originally included in the back of The 4-Hour Workweek. I called them “The Fundamental Four.”

    Please enjoy!

    Books mentioned: The Magic of Thinking Big by David Schwartz, How to Make Millions with Your Ideas: An Entrepreneur’s Guide by Dan S. Kennedy, One Simple Idea: Turn Your Dreams into a Licensing Goldmine While Letting Others Do the Work by Stephen Key, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber, Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel by Rolf Potts, and Awareness: The Perils and Opportunities of Reality by Anthony de Mello.

    This podcast is brought to you by The Ready State Virtual Mobility Coach. The first person I call for help with my athletic recovery or mobility training is Dr. Kelly Starrett at The Ready State. Kelly is a mobility and movement coach for Olympic gold medalists, world champions, and pro athletes.

    Kelly created a program called Virtual Mobility Coach. It’s like carrying a virtual Kelly Starrett in your pocket. Every day, Virtual Mobility Coach gives you guided mobility videos. It walks you step-by-step through Kelly’s proven techniques to relieve pain and improve your range of motion. Right now, listeners of this podcast can try Virtual Mobility Coach totally risk-free for two weeks without paying a penny. And after that, you can get 50% off your first six months. Just go to thereadystate.com/tim and use code TIM50 at checkout. Relieve pain, recover faster, and improve your performance in the gym with The Ready State Virtual Mobility Coach. Visit thereadystate.com/tim and check it out.

    If you enjoy the podcast, would you please consider leaving a short review on Apple Podcasts/iTunes? It takes less than 60 seconds, and it really makes a difference in helping to convince hard-to-get guests.

    For show notes and past guests, please visit tim.blog/podcast.

    Sign up for Tim’s email newsletter (“5-Bullet Friday”) at tim.blog/friday.

    For transcripts of episodes, go to tim.blog/transcripts.

    Interested in sponsoring the podcast? Please fill out the form at tim.blog/sponsor.

    Discover Tim’s books: tim.blog/books.

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    Past guests on The Tim Ferriss Show include Jerry Seinfeld, Hugh Jackman, Dr. Jane Goodall, LeBron James, Kevin Hart, Doris Kearns Goodwin, Jamie Foxx, Matthew McConaughey, Esther Perel, Elizabeth Gilbert, Terry Crews, Sia, Yuval Noah Harari, Malcolm Gladwell, Madeleine Albright, Cheryl Strayed, Jim Collins, Mary Karr, Maria Popova, Sam Harris, Michael Phelps, Bob Iger, Edward Norton, Arnold Schwarzenegger, Neil Strauss, Ken Burns, Maria Sharapova, Marc Andreessen, Neil Gaiman, Neil de Grasse Tyson, Jocko Willink, Daniel Ek, Kelly Slater, Dr. Peter Attia, Seth Godin, Howard Marks, Dr. Brené Brown, Eric Schmidt, Michael Lewis, Joe Gebbia, Michael Pollan, Dr. Jordan Peterson, Vince Vaughn, Brian Koppelman, Ramit Sethi, Dax Shepard, Tony Robbins, Jim Dethmer, Dan Harris, Ray Dalio, Naval Ravikant, Vitalik Buterin, Elizabeth Lesser, Amanda Palmer, Katie Haun, Sir Richard Branson, Chuck Palahniuk, Arianna Huffington, Reid Hoffman, Bill Burr, Whitney Cummings, Rick Rubin, Dr. Vivek Murthy, Darren Aronofsky, and many more.

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  • The Stories and Code of Culture Change

    AI transcript
    0:00:05 Hi everyone, welcome to the A6NZ podcast. I’m Sonal and today I’m so excited since we finally
    0:00:11 have our interview, the A6NZ podcast way of co-founder Ben Horwitz on his new and best-selling
    0:00:16 book, What You Do is Who You Are, How to Create Your Business Culture. The conversation, which
    0:00:21 took place recently at the Computer History Museum between me and Ben, probes on the themes of business,
    0:00:26 culture and tech from the book and beyond, with lots of nuanced discussion on everything from
    0:00:32 common tropes such as reality distortion fields, fake it till you make it, Silicon Valley folklore,
    0:00:37 whether companies and people can change diversity and inclusion and so on. All told through some
    0:00:42 tough stories. On that note, just a note for listeners with kids in the car that this podcast
    0:00:47 talks about historical themes with various mentions of violence. Finally, we try to share some
    0:00:53 practical advice throughout for both leaders and even for employees going through cultural change
    0:00:57 and crowdsource questions from our audience as well that are answered at the end. You can read
    0:01:05 more about and order the book at a6nz.com/whatyoudo. 100% of the proceeds will go to anti-recidivism,
    0:01:09 helping people get out of jail, stay out of jail and towards making Haiti great again.
    0:01:15 We’re here to talk about Ben’s best-selling new book, What You Do is Who You Are, which is really
    0:01:20 about culture and we all know it’s important but no one really tells you how to shape it, how to
    0:01:25 set it, even how to fix it when things go wrong and what I love about Ben is he’s not only a
    0:01:29 builder but a bridger of cultures and that’s why it’s so significant that we’re sitting here at
    0:01:34 the Computer History Museum because this represents the heart of Silicon Valley which itself has been
    0:01:39 going through lots of cultural change and so the first question I want to ask you Ben is a very
    0:01:44 obvious straightforward question to actually define culture because you say it’s not corporate
    0:01:52 values, it’s not perks, but then what is it? Yeah, you know one of my kind of favorite semi-definitions
    0:01:57 of culture or pieces of it is from The Way of the Warrior, the Bushido, which is the ancient code of
    0:02:02 the Samurai. They say a culture is not a set of beliefs, it’s a set of actions which is where the
    0:02:07 title of the book came from so it’s not what you believe, it’s not what’s in your heart, it’s not
    0:02:12 what you tweet, it’s what you do, that’s who you are culturally. But when you get into a company
    0:02:20 context it ends up being really small subtle things that determine your culture, determine the way
    0:02:25 you treat each other, determine the way you treat your business partners and your customers and
    0:02:31 they’re very amorphous, nearly invisible things. Do you return that phone call in an hour, in a day,
    0:02:38 in a week? Never. Do you go home at five or at eight? When you do a business deal it’s about the
    0:02:45 partnership or the price. All these things, that’s your culture and they’re not in your KPIs or your
    0:02:53 LKRs or your mission statement or any of that. And then how do you move and shape them because in the
    0:02:59 conventional kind of method, I can tell you it doesn’t work, which is oh we’ll bring in the HR
    0:03:05 consultants and we’ll have an offsite and we’ll put a bunch of values on the board and then once a year
    0:03:10 in people’s performance reviews we’ll say does he have integrity? What are those values again?
    0:03:14 Well the real thing is like how do you know if you return the phone call, you don’t even know if you
    0:03:20 got the phone call and so like how do you get that behavior going in the direction that you want it
    0:03:25 and that’s you know what the book is about and that was really the hardest, most difficult thing for
    0:03:31 me to learn as CEO so I thought it was a good thing to write a book about. Sitting in Computer
    0:03:36 History Museum, I think of the book as culture as code and you actually use a lot of words, I’ll
    0:03:41 read some of them out loud but you describe culture as code, you talk about programming culture, you
    0:03:46 talk about reprogramming culture, you talk about how it’s hard to debug, every culture has bugs,
    0:03:52 I mean you basically use a lot of digital words but your examples are all analog. I mean the most
    0:03:57 recent one was maybe 20 years ago and it was from prison where there was a lot of technology and
    0:04:01 frankly they go back over a thousand years, specifically the example that comes to mind is
    0:04:07 the samurai. What drew you to that example of culture as code and why? Well it’s interesting,
    0:04:12 the first example is the Haitian Revolution which is an amazing story because it’s the only
    0:04:18 successful slave revolt in human history and it’s a story of how Toussaint Louverture reprogrammed
    0:04:25 slave culture to be kind of military culture which is an incredibly difficult job for many reasons
    0:04:32 but the tragedy of the Haitian Revolution is they lost the culture almost the instant they
    0:04:38 won the revolution and it was a kind of crazy story about what happened to Toussaint who’s
    0:04:43 double crossed by Napoleon and thrown in jail in a diplomatic meeting and Jean-Jacques Desolines
    0:04:47 took over and went completely different direction. That was his second in command. Yeah, yeah, yeah.
    0:04:53 But the samurai code lasted at least a thousand years depending on how you count it and so I
    0:05:00 really wanted to kind of go through all the things they did to make it last so long
    0:05:06 and amazingly so. So with the samurai code lasting so long, it’s another programming word,
    0:05:10 it was a system and I have to ask about this because on one hand in the book you say,
    0:05:15 hey you can’t have platitudes but it was a system of words, like they had a code with
    0:05:19 eight principles and so how do you reconcile that? You can describe your actions in words,
    0:05:25 I’m not anti-word. So one of the things with culture that you run into is things that you think
    0:05:29 that you want to put in your culture can get weaponized against you and they tell a story
    0:05:36 in the book about slacks. So Stuart Butterfield early on had this cultural value empathy and his
    0:05:42 intention was look, I don’t want people to just state their point of view, I want them to understand
    0:05:48 the other person’s point of view thoroughly and then decide if they still want to argue the point
    0:05:55 as opposed to just going at each other. Well, it wasn’t defined where the boundaries were and so
    0:06:00 forth and so what ended up happening is employees would be getting their performance reviews and
    0:06:04 the manager would say, well I need you to improve here and there and they’d be like,
    0:06:09 you’re in violation of the culture, you’re not being empathetic. And so he was like, okay,
    0:06:14 got to get rid of that value if that’s not going to work. And the samurai developed over a very
    0:06:20 long time, but it’s amazing how they had sort of points and counterpoints and where the
    0:06:26 virtues worked in a system that would govern itself. So for example, you know, they were an honor
    0:06:32 culture. If somebody dissed you or insulted you, they had to go. That was it because that insult
    0:06:38 was really could have been a diagnostic to say, is this guy weak? Can I besmirch his honor
    0:06:43 and get away with it? Because if I can do that, I can probably stab him in the head or rob him or
    0:06:51 whatever. And there’s a really great story in the Hagukari about a samurai who has a flee
    0:07:00 on his shoulder. And another person says, excuse me, you have a flee on your shoulder
    0:07:06 and the samurai cuts his head off. And you go, wow, that was like a pretty harsh response.
    0:07:09 And they ask the samurai, why’d you cut his head off? He’s like, look, I’m not an animal. I don’t
    0:07:17 have fleas. Call me that. And so when you have a kind of a virtue like that, you need something
    0:07:23 to balance it. And you know, one of the things that they did is really establish a very elaborate
    0:07:30 system of how they treated each other in this virtue known as politeness. And politeness means
    0:07:35 the best way to show someone love and respect and respect is very, very important because,
    0:07:40 you know, you don’t want to say they’re an animal with a flee. And it’s everything to how you bow
    0:07:48 to how you set up the tea ceremony to every aspect of how you make somebody maximally comfortable
    0:07:55 so that they feel how you feel about them. But right, if that was fake, just so you didn’t get
    0:08:01 your head chopped off, then that really wouldn’t be good either. So one of the things in the code is
    0:08:08 politeness without veracity is empty. It has to be honest. It has to come from the right place.
    0:08:14 It has to be true. And so these are the kinds of ways that they created a system that built a much
    0:08:20 kind of stronger and long lasting culture. That is honestly my favorite example from the book,
    0:08:24 because you describe this interlocking system of eight values in the Bushido code.
    0:08:28 They did them. Let’s talk about the difference between that. They didn’t just put them on the
    0:08:33 wall. Virtue is what you do. Actually, you are trying to rebrand the word values into virtues.
    0:08:37 Well, it’s not so much a rebranding. It’s a different thing. A value is what you believe,
    0:08:43 what you want to be, what you aspire to. A virtue is what you do. And so I think from a chief executive
    0:08:49 perspective and a company, you want to think through not just what you want, but how you’re
    0:08:54 going to get it. And when you talk about culture, people just go, well, here’s what I want. And
    0:08:58 then I’ll just tell people it in all hands, and then I’ll get it. And that never happens.
    0:09:02 Like, then you know what your culture is? Hypocrisy, because I have all these values
    0:09:07 on the wall, and I don’t do any of them. So it’s trying to kind of move the mindset into how do
    0:09:11 you do it? Like, what are the mechanisms? What are the mechanics? What do you think the power
    0:09:16 of storytelling is then in disseminating and sharing that culture? In fact, one of the lines
    0:09:21 in your book is that stories and sayings define cultures. I have to ask what the difference is
    0:09:27 between the story and those sort of hypocritical value statements on a wall. Like, what power does
    0:09:32 story have? Yeah, so, well, I’ll give you an example. Let’s stay with the samurai for now.
    0:09:39 My favorite. So there’s a great story. So one kind of really powerful cultural virtue is loyalty.
    0:09:42 And then there’s kind of a question, okay, well, like, how do you show its importance? How do you
    0:09:49 kind of make that stick? And one way is either in a company or in an ancient Japanese warrior society,
    0:09:54 you can do that through a story that’s so compelling that people literally can’t get it
    0:09:58 out of their head. And so here’s a story I’m going to tell you that you won’t be able to get out of
    0:10:04 your head. Oh, no. So there was this lord in ancient Japan. His name is Lord Soma. And,
    0:10:09 you know, in those days, the status symbols weren’t what we have today. But one of the things that
    0:10:14 they had that like everybody was kind of proud of if they had a good one was their genealogy.
    0:10:20 And it was on scrolls and it’d be written out and generations of who your ancestors were and kind
    0:10:26 of the more you knew who you were, like that was a big thing. And Lord Soma had the best genealogy
    0:10:33 in all of Japan and had a name was the Chai Ken Marikoshi. And then working for him was a samurai
    0:10:40 who was like just a mediocre guy, clumsy, always getting things wrong, messing things up. But he
    0:10:48 was always sincere and loyal. One day, Soma’s house catches fire and it’s engulfed in flames.
    0:10:54 I mean, it is like burning down and there’s no way to deal with it or put it out. And inside the
    0:11:01 house was the Chai Ken Marikoshi, his genealogy. And the samurai runs into the house engulfed in
    0:11:06 flames. Lord Soma was shocked. He’s horrified. They watched the house just burn to the ground
    0:11:12 and they know he’s dead. And they go in and sure enough, they’re looking for him and he’s face down
    0:11:20 and it’s horrible. But then they notice that he’s in a pool of blood and they’re going,
    0:11:24 why is he in a pool of blood? You know, he just ran into a fire and they turn him over
    0:11:30 and there’s a slit in his stomach and they open the slit and inside it is the genealogy.
    0:11:37 He cut himself open, put the genealogy in and saved it. And it was known from that day as the
    0:11:43 blood genealogy. And everybody knew that even if you were mediocre, if you had that kind of loyalty,
    0:11:47 you could be great. So that was the story. No one’s going to forget it. And I am sure
    0:11:53 everyone in this room is wondering quite honestly, why are all your stories so far so violent?
    0:11:59 I’m wondering that right now too. I think I can only answer that with another violent story.
    0:12:06 Some of them I got before I was actually like writing the book. Yeah. Like it’s just me and
    0:12:11 Shaq in the backyard and I’m barbecuing and like he tells me these stories and I’m like, wow,
    0:12:17 when you hear it, just think that’s how I heard it. So Shaq, who’s in the book, went to jail
    0:12:22 for a murder he did commit. He was in jail 19 years, seven years in solitary confinement. But
    0:12:28 this story is about his first day in jail. So in prison, him and a group of guys are in quarantine,
    0:12:32 which is where they keep you until they put you in general population. They come out into
    0:12:39 general population very first day. They’re in the recreational area and a prisoner walks up to
    0:12:46 another prisoner and stabs him in the neck with a shank, pulls the shank out. The prisoner bleeds
    0:12:53 to death, dies. The other prisoner throws the shank in the trash and walks into the cafeteria and
    0:12:59 has a sandwich. And Shaq said, you know, all the prisoners are looking like, where in the hell are
    0:13:08 we at? And I had to ask myself, could I do that? And I said, wait a minute, you murdered a guy to
    0:13:16 get in here. You did do that. And he said, oh, no, Ben, I didn’t do that. I said, I was dealing drugs.
    0:13:22 One of my customers came. He was supposed to come by himself. He brought another guy. The other guy
    0:13:28 is in the back seat of the car. I’m already traumatized because I had been shot like 18 months
    0:13:32 earlier. This guy in the back of the car is supposed to stay in the back of the car. He opens the
    0:13:37 door. He comes out. He comes at me real aggressive. I react. I had a gun in my pocket. I shot him.
    0:13:45 That’s what I did. This guy spent two weeks taking a two liter bottle and filing it into his shank.
    0:13:51 Then he decided, am I going to stab this guy in the stomach and wound him? Or am I going to stab him
    0:13:57 in the neck and kill him? I couldn’t do that. But I had to ask myself, could I do that? Because
    0:14:04 that’s what it took to survive here. And that is new employee orientation. That’s getting indoctrinated.
    0:14:10 You guys laugh. I’m about to explain to you why the book is so violent. That’s how you get
    0:14:15 oriented into such a violent culture with an experience like that. People join a company.
    0:14:19 First thing they do. First thing all of you did when you joined a company.
    0:14:26 Who’s successful here? Who’s the person everybody looks up to? What’s their behavior like?
    0:14:31 Oh, that guy’s making all the money. He’s got the big job. He’s the one, the golden boy.
    0:14:36 Oh, and he just took credit for her work? That’s what I have to do to succeed here.
    0:14:43 That’s cultural orientation. That’s way higher impact than the value statement. And I have
    0:14:47 conversations with CEOs all the time. I’m like, look, you have to take onboarding seriously. You
    0:14:54 have to take new employee orientation seriously. You have to train your managers and your people
    0:14:59 on like what’s expected of them behavior wise in the culture from day one. And they don’t listen
    0:15:06 to me. So I needed a real story that they would remember and understand that would get them
    0:15:11 to do the right thing. Because culture, it feels very invisible. You’re like, why do I have to do
    0:15:15 that? Like I see that person doing something wrong, but it’s not that wrong. And I don’t want to hurt
    0:15:20 their feelings by calling them on it. But you’re not looking at the knock on consequences, the knock
    0:15:25 on cultural consequences that you’re setting up by not addressing it. And so a lot of what the
    0:15:29 book is about is, you know, can you recognize culture? So a lot of the examples in the book
    0:15:35 are things that people are not familiar with. And the reason for that is nobody can see their
    0:15:40 own culture. Like it’s just, that’s just my way of doing things. That’s my culture. That’s my
    0:15:45 behavior. Well, like maybe it’s not, but you can’t see it because it’s you, but you can see prison
    0:15:51 culture. You can see slave revolt culture, these kinds of things. Yes. And something to borrow from
    0:15:56 and think about and kind of riff on in your own way. I want to let people know that Chaka is
    0:16:00 actually a wonderfully kind, empathetic person. No, he’s amazing. One of the great stories in the
    0:16:06 book is how he transformed not only his own culture from that super violent culture, but also the
    0:16:10 culture of the Milanics, which was a gang he ran. And you know, a lot of the guys, his guys that
    0:16:14 got out and you know, it’s an amazing transformation that somebody could do that. I want to ask you
    0:16:19 about that. I know Chaka because he’s a friend of yours and both actually just a plug for this. Ben
    0:16:25 and Chaka co-host a podcast series called Hustlin Tech, which is guides to technology for everyone.
    0:16:30 You can find that on our website. But what’s really amazing is that in the book, the story was
    0:16:37 about how he took a group of outcasts and built a more cohesive team. And that’s how you described
    0:16:41 it in the book. For me, I wondered coming at it from again, this theme of the vantage point of
    0:16:45 Silicon Valley, I understand what you’re saying about the, you know, using examples that are
    0:16:50 shocking and strong that you can learn from. But part of me was like, why is there a jail example
    0:16:56 in a book about business culture? And so then I wondered, well, maybe can we draw an analogy
    0:17:01 between a group of outcasts, like technologists, like in this room, and they can do the same thing,
    0:17:06 and we can draw lessons from that? Or is that too far a stretch? Look, so let me tell you where
    0:17:10 the analogy doesn’t work. You know, people in Silicon Valley, some people may be outcast, they
    0:17:16 may have like not fit in as a kid and, you know, spent more time with the computer or what have you.
    0:17:23 People get to prison very often because they’re really severely abused as kids. And so the thing
    0:17:30 that prison culture or prison that I thought was very instructive was, we can tell you culture
    0:17:35 for granted here, because when you hire someone, you can expect certain things. You know, you can
    0:17:41 expect them to be reasonably on time for their interview. You can expect them to be literate.
    0:17:46 You can expect them to, you know, there’s just a lot of cultural things that you can take for
    0:17:51 granted, like more functional things. Yeah. Whereas in prison, you know, there’s really nothing you
    0:17:57 can take for granted, including things like literacy and so forth. So when you go through the way
    0:18:04 Chaka built the culture of the Milanics, he really had to start from first principles. And
    0:18:09 sometimes in a culture, in a company, you’ve got to do that same thing. So one of the things that
    0:18:17 Chaka did to kind of create loyalty is, you know, he just had the guy spent a lot of time together,
    0:18:23 eating together, working out together, and it was required to be a member. And these things,
    0:18:28 just that proximity and the nature of how they did it and so forth, kind of built the culture.
    0:18:34 So one of my portfolio companies, a nation builder and the CEO, Leah Andres calls me up one day,
    0:18:41 and she’s like, Ben, we just, our cash collections are always late and not a hundred percent.
    0:18:46 And I said, well, you have like big customer satisfaction issues. She’s like, no, no, no,
    0:18:50 like we’re just not collecting the money. And she’s like, but I don’t, I tell them, you know,
    0:18:54 like we need to collect the money and it never happens. And I get it. And I was like, well,
    0:18:58 you know, you have to start from first principles. I took her through what Chaka did. And I said,
    0:19:03 like, this is how we’re going to apply it here. I want you to hold a meeting every day with the
    0:19:08 cash collections team, every day, eight in the morning, everybody comes to work, like we’re
    0:19:13 having a meeting. And in that meeting, the very first thing that I want you to say is, where’s my
    0:19:21 money? And then what you’re going to find out is they’re going to have all kinds of weird reasons
    0:19:26 why they can’t get you your money. And they’re all going to be very easy to fix because it’s a
    0:19:31 cultural problem, not an actual problem. And so sure enough, she goes, she calls me up after
    0:19:34 the first day. She’s like, you’re not going to believe it. You know what one of the biggest
    0:19:39 things is? We have an email that we send to collect the cash and auto email that’s really
    0:19:45 poorly written. And I’m like, you know, it’s not a big company. And so she every day has this
    0:19:49 meeting and works through it. And like pretty soon they were, you know, collecting literally
    0:19:54 twice as much cash as they had been previously. And it was just a culture change. But it was a
    0:20:00 culture change taken from a prison example. And because you can’t make cultural assumptions when
    0:20:05 you’re in prison, so often CEOs make cultural assumptions they shouldn’t. I love that you
    0:20:11 brought up first principles because I’m fascinated by first principles type thinkers. I think some
    0:20:16 of the greatest CEOs, scientists, innovators are first principles thinkers. And one thing I often
    0:20:22 wonder, I always ask myself this when I observe the evolution of technology and innovation is,
    0:20:26 are there maybe two camps of people, people who can be first principles thinkers,
    0:20:31 and some who can’t and a Silicon Valley folklore story of Reed Hastings CEO of Netflix. You tell
    0:20:36 this briefly in the book of how he wanted to pivot the Netflix business from DVD streaming.
    0:20:41 He would say he didn’t want to pivot it. He said the plan was always to be a network.
    0:20:47 He wanted to evolve the network in his view from the outset to a streaming service.
    0:20:50 Yeah. So I shouldn’t use the word pivot because that’s even more powerful, frankly, from a first
    0:20:55 principles perspective that he had the vision upfront and the confidence to know that I’m
    0:21:00 going to pace myself by doing the DVD business before I do the streaming business. But then he
    0:21:06 built a successful DVD business and then he kicked out the leaders of his DVD business from the room
    0:21:10 when they were talking about the streaming business, which felt like a very bold first
    0:21:14 principles move as Silicon Valley folklore. You tell the story in your book. I read that and I
    0:21:20 was like, would you really advise your CEOs to do that? Was there something about him uniquely
    0:21:24 that he could make such a bold move or is this really advice that people in this room should
    0:21:29 actually go translate into their work? No. It was actually analogous to the move that
    0:21:34 Toussaint Louverture made in the Haitian slave revolt. The leader of the, you know,
    0:21:39 as I said, the only successful slave revolt in human history. He was obsessed with culture and
    0:21:47 one of the things that he wanted to move from a kind of a broken slave culture to a world-class
    0:21:53 military and not only military, but like societal culture because he thought, hey,
    0:21:57 he could be a first-class country. And one of the decisions he made just to make that priority
    0:22:03 clear because like the default culture in a slave revolt is revenge, a revenge culture.
    0:22:09 When it came to the decision of what to do with the plantation owners, the slave owners,
    0:22:13 you know, he could have executed them. He could have seized the land. He could have done a lot of
    0:22:19 things. He actually left them in place, let them keep the plantations, but said he had to pay the
    0:22:23 workers as opposed to have them as slaves. And in order to facilitate that, he lowered their taxes.
    0:22:31 So that was a decision to set the culture away from revenge and towards reconciliation and caring
    0:22:37 about the economy and caring about the go-forward. Reed wanted to get to streaming. His big fear
    0:22:43 was that a pure streaming company would come along and he would be stuck in the DVD business.
    0:22:47 And he couldn’t figure out how to change the culture to do that. And then one day he said,
    0:22:52 even though the DVD business is 100% of the revenue, like imagine that 100% of the revenue,
    0:22:56 I’m going to let everybody know that streaming is more important. And the way he did it is he
    0:23:02 kicked all the DVD people out of the executive staff meeting. And anybody who knows about companies
    0:23:07 knows that’s a meeting everybody wants to be in, that executive staff meeting. They’re like,
    0:23:13 that’s going to really hurt feelings. But it wasn’t like Reed was so great that he got to do it and
    0:23:18 people would be okay with it. He was just willing to take that because the principle was so important.
    0:23:22 And the same way people were mad in the Haitian Revolution when Toussaint did that,
    0:23:28 but they were working towards something, you know, a higher cultural principle.
    0:23:34 – You described it as creating a shocking rule that does that kind of a reset. One recurring
    0:23:38 theme I noticed in the book, and for those who haven’t read it, this is just something people
    0:23:42 in marketing and brand talk about too, which is the power of the why. And I noticed almost every
    0:23:47 other chapter, every other sentence, every other paragraph, you kept emphasizing this message,
    0:23:51 the why matters more than the what. The why matters, the why matters. And it seems obvious on the
    0:23:58 surface, but I really want you to share with us why the why is so important. – So I’ll give you two
    0:24:03 very different examples. One is, well, Andrews and Hearts. One of the things that we wanted in
    0:24:10 the culture from the outset was we wanted to respect the entrepreneur and the entrepreneurial
    0:24:16 process. Now, there is not a venture capitalist in the world who won’t say that, but there’s a big
    0:24:23 cultural force that screws that up in venture capital, which is this dynamic. I have the money.
    0:24:29 You want the money. In order to get the money, you got to come see me and ask for the money.
    0:24:35 And then I get to decide whether you get the money. So that could make a person disrespectful.
    0:24:40 And I’ll tell you what it does, because anybody here raised venture capital money.
    0:24:47 How often did the VC show up on time for that meeting? Okay. – No one’s raising their hand.
    0:24:52 – You know, why is that? Well, they say it, but they don’t believe it. They aspire to it,
    0:24:59 but it’s a value, not a virtue. And so I set a rule early on, which was if you’re late
    0:25:07 to a meeting with an entrepreneur, you owe me $10 a minute. And oh, you have to go to the bathroom?
    0:25:12 No problem. $50. Oh, you had a really important phone call on the deal. We all want to close.
    0:25:21 No problem. $100. And people would come to me and they’d go, why? – Why? – Why am I paying you to
    0:25:28 work here? I’m like, look, because I need you to know how important and valuable an entrepreneur’s
    0:25:32 time is when they’re trying to build a company, and you’re not going to waste any of their time
    0:25:35 if you’re here. You’ve got a plan when you go to the bathroom. You’ve got a plan when you have
    0:25:39 that phone call. And I know you can do it, because if you were getting married, you wouldn’t be five
    0:25:49 minutes late to the altar. You would have gone to the bathroom already. But every time somebody’s
    0:25:53 got a plan, when they use the restroom, when they make their phone calls and so forth, which is
    0:26:00 every day at the office, they have to say, why am I doing this? Oh, I remember why, because we
    0:26:07 respect entrepreneurs and what it means to build a company. And so that’s a kind of technique to
    0:26:11 move the culture, right? – Yeah. I said to tell everyone in the room, since you gave that A6NZ
    0:26:16 example, they actually formally call those breaks biobrakes. They actually schedule in
    0:26:22 bathroom breaks into the schedule. But anyway, onto your other example. – So a different one,
    0:26:28 ethics turns out to be really tricky in a company. And people make fun of Dara at Uber for saying,
    0:26:33 like, we’re going to be ethical. Our new corporate values just do the right thing, period. It’s
    0:26:40 like, what the hell’s the right thing? It actually turns out to be fairly subtle, much of the time.
    0:26:46 So in a company, you could imagine, okay, we made promises to all the employees about what
    0:26:50 their stock was going to be worth and to Wall Street about the numbers we were going to hit.
    0:26:56 And like, we live up to our commitments. In order to make the number, we got to get this deal.
    0:27:01 In order to get this deal, they need this feature, but they need a quarter and we’re
    0:27:07 not going to deliver for a year. So is it ethical to whiff the quarter and have lied to all the
    0:27:12 investors and the employees? Or is it ethical to stretch the truth to the customer and like,
    0:27:18 get the money? Well, you better be clear on that and you better get to some kind of higher
    0:27:22 principle than do the right thing. And so a great example of this is in the Haitian Revolution,
    0:27:28 this is a war over sugar. It’s the British Army, the Spanish Army, the French Army,
    0:27:35 and the slave army all fighting for control of this colony. And so it is the most mercenary
    0:27:41 kind of endeavor that you could ever imagine. All of the European armies are letting their guys
    0:27:49 pillage all they want. And Toussaint makes the decision that he’s going to not allow any pillaging
    0:27:57 in the slave army because you can’t fight for liberty if you’re taking people’s liberty.
    0:28:03 And it was an amazingly powerful thing because the stories of some of the stories in the book,
    0:28:09 but the story would be of like the Spanish Army going in, setting the plantation on fire,
    0:28:16 killing all the animals, robbing everybody, raping the women on the plantation. And then
    0:28:23 the slave army would show up starving and they would not touch the thing. No violence, no pillaging,
    0:28:33 no nothing. And the knock on effect of that ethic was that Toussaint had the support of the locals,
    0:28:40 including the white women in the colony, who referred him as father, like amazingly, to that
    0:28:44 level of loyalty. He didn’t say do the right thing because to the right thing is pillage.
    0:28:51 You pillage, the guys get paid, they fight harder, they win the war, you end slavery.
    0:28:56 Like that seems like pretty legit. So you can’t just say do the right thing. You have to say
    0:29:01 here’s what we’re doing and here’s why we’re doing it. And that’s why I emphasize the why.
    0:29:06 The power of the why. I have two follow-ups on this and I want to actually shift gears to more
    0:29:11 practical techniques based on these wonderful principles and violent stories as well. In
    0:29:16 the Dara example and the values and why the why matters, I also read it and heard it a little bit
    0:29:23 as maybe mistakes of omission are more important than mistakes of commission, that what you don’t
    0:29:27 say is more important than what you do say. And so then it wondered like practically,
    0:29:32 does that mean as someone in this room, for instance, wants to write their, figure out their
    0:29:38 code, their Bushido for their company, do they start with what they’re not? Or is there room for
    0:29:42 them to figure out what they are? Like how does that sort of play out practically? Well, now I do
    0:29:49 think one like the universe of what you’re not is too big. Yeah, sure. But here’s the thing
    0:29:54 that is true in every culture. And this is the thing that Toussaint did. So effectively you have
    0:30:01 to make ethics explicit. If it’s, oh yeah, we’re going to do the right thing. Oh yeah, like it’s
    0:30:10 going to be like, yeah, don’t don’t be evil. That’s just not good enough. And you know, a great example
    0:30:16 of this is Uber under Travis. Travis would get criticized for building a bad culture, but he
    0:30:23 actually had the bestifying culture in Silicon Valley. And if you read the original values that
    0:30:29 he had, always be hustling, you know, super pump, toe stomping, whatever, like they, they were all
    0:30:36 really creative, well crafted, energizing kind of set of principles that they worked on. But he
    0:30:41 went way beyond that. They really trained people on them. They had Uber University and they trained
    0:30:47 people on the culture. And it really stuck. And probably the most powerful virtue that defined
    0:30:53 the company was competitiveness. They were like massively competitive. And really great at that.
    0:31:00 But what he did not do is he didn’t say where the line was. So ethics were just like unstated
    0:31:08 completely. And so a lot of people would interpret that competitive virtue to be like
    0:31:14 whatever at all cost, you know, even say hashtag winning, right? And so when Susan Fowler joined
    0:31:20 the company, she gets sexually harassed her first day on the job by her manager in writing,
    0:31:27 like she snapshots it sends a HR. Now anybody who knows anything about HR law knows if you get
    0:31:31 any kind of complaint, let alone one in writing with proof, you have to investigate it. Like
    0:31:35 that’s not like a practice. That’s the law. That’s the law. Yeah, you like you just have to do that.
    0:31:42 But this HR person said, Oh, that manager is a high performer. So like we can move you. But like
    0:31:46 we’re not doing anything. There’s no way like Travis wanted that manager to do that. It’s just
    0:31:51 like a dumbass thing to do. Like even if you didn’t care about sexual harassment, like that’s
    0:31:58 idiotic. That’s ridiculous. But when you don’t counterbalance the culture, if you don’t say
    0:32:02 what the ethical line is, which we won’t cross, particularly in business, because every conversation
    0:32:06 you have is how do we make the number? How do we get better? You know, how do we get more customers?
    0:32:12 How do we grow the user base? All that. And so if you don’t have any countermeasure on that that
    0:32:19 you talk about out loud, then it can run away from you like very hard and very fast. And so that’s
    0:32:24 why when you talk about what not to do, it’s really like, where is the ethical line in this
    0:32:30 company? And then particularly in Uber’s case, it was tricky because they were flirting the law
    0:32:35 on a lot of things. So the law wasn’t even the line, right? Because they’re challenging the
    0:32:41 regulation, the laws of the land in place. And so what is the line? Definitely not something that,
    0:32:45 you know, every employee would just figure out on their own. I loved that because one of the
    0:32:51 things that I think is a through line through the book is this idea that the very strength you
    0:32:56 have is also your weakness. And that it’s all a difference of degree, not a difference of kind,
    0:33:00 which I think is such a powerful idea because there’s a fuzzy area between the yellow and the red,
    0:33:05 you know, strength weakness. So it’s kind of on a continuum. I do have one question for you about
    0:33:11 the Uber example. I’m just curious about it because I love a comeback story. And the idea that you
    0:33:19 can change, do you think that Travis himself could have led that change at Uber or that they needed
    0:33:24 to bring an outside person or that he could have come back like 10 years later, like Steve Jobs
    0:33:31 at Apple on his second time? I guess my question is, can the same person actually make that change
    0:33:36 of a culture? Does it have to come from the outside? Yeah. So look, I think that Travis could have
    0:33:40 done it, but Travis would have had to change if that makes sense. When Chaka changed the prison
    0:33:47 culture when I go through it in the book, it couldn’t change until he changed. And I think that,
    0:33:53 you know, with Travis, he may be changed now, but he didn’t change then. And I don’t think he ever
    0:34:01 saw the lack of explicit ethics as the problem, getting the medical records from the women in
    0:34:09 India or the sexual harassment or the hell application where they hacked the lifter. Like
    0:34:14 all of those things were individual incidents. They weren’t systematic, I think in his mind. So
    0:34:20 like, unless you believe it’s systematic, and you know, I go through the story in the book where
    0:34:25 they have the confrontation with the nation of Islam where Chaka realized that it was systematic,
    0:34:30 the violence was systematic, and that’s when he changed and that’s when they changed.
    0:34:34 And he turned his whole group, the gang of the Milanics around.
    0:34:40 Yes, yes. And I think that that’s very unusual and difficult to do. There are other things where
    0:34:47 there’s a competency issue. So, you know, there’s a lot of Boeing in the news lately on the 737.
    0:34:51 And I think anybody who’s been in a company knows that there were people in Boeing that
    0:34:55 knew that thing wasn’t safe. Like, there’s no question. There were engineers that knew it wasn’t
    0:35:00 safe and they think it’s come out even that they told the CEO it wasn’t safe. But somewhere in the
    0:35:06 culture, whatever it was, being on time with the product release or earnings or whatever became
    0:35:12 more important than safety. And in a place where lives are on the line, you probably can’t have a
    0:35:20 leader that lets that stand culturally. So, in that case, I would probably say you have to remove
    0:35:24 them because you have to shock the system hard enough to reset the culture to the point where
    0:35:31 they value safety over whatever it was that they were valuing. If he or someone else in this position
    0:35:36 who’s trying to turn around or reset their culture did actually become to your point self-aware,
    0:35:41 what would they have to do then to then communicate that to their company? Or how do they sort of
    0:35:49 convey that this is a shift? I think that it’s very, very hard and detailed work. I don’t make
    0:35:55 light of it and probably the best example is kind of, you know, shock in the book. I hate to say
    0:35:59 read the book, but like that one’s complicated. I actually do want to tell people to read the book
    0:36:04 because I actually think no matter how much we talk about it here, it doesn’t do justice to the
    0:36:09 nuance and the layers of meaning within meaning within meaning without reading that. You can
    0:36:15 actually almost only convey that in the written form in some ways, but one thing about this idea
    0:36:21 that you have to be self-aware have truths that you know. I also wonder if it’s at odds with the
    0:36:27 sort of Silicon Valley technologist culture of reality distortion fields to use the phrase that
    0:36:32 Walter Isaacson used to describe Steve Jobs, but the other thing is we work in venture capital.
    0:36:36 We see founders every day. There’s a certain will to power that you need to get through and punch
    0:36:42 through an industry that is hard to penetrate. And you kind of have to have some lies that you
    0:36:47 tell yourself. So for me, it felt like a bit of a contradiction between lies and truth and being
    0:36:53 self-aware. Like how can you be a founder and also self-aware at the same time? It feels like
    0:36:58 they’re at odds. So look, when you talk about a reality distortion field or like a founder who
    0:37:05 like, you know, has a crazy idea or whatever, that’s innovation. And so on those ideas,
    0:37:13 what you’re really saying there is 99.999% of the world believes X and the founder believes Y.
    0:37:21 But when it’s really a breakthrough, the founder is actually right. So these people were all deceived
    0:37:25 or thought they knew the truth, but didn’t. And the founder did. And that’s always what
    0:37:30 innovation looks like. But that’s believing something but not knowing it. And that’s different
    0:37:38 than lying where you know something and then you say something else to try and move things.
    0:37:43 That’s why I hate the term fake it till you make it because that’s like lie to get what you want.
    0:37:49 That’s got all kinds of bad cultural implications that’s going to come back and eat you alive in
    0:37:54 your own company if you’re not careful. So I think that those are two different concepts. I don’t
    0:37:58 think you have to reconcile. Yeah. So some quick lightning round style questions with you on a couple
    0:38:03 of things. So one is superstars, 10 X engineers, brilliant jerks, you know, other outliers in a
    0:38:11 company. When is cultural cohesion more important than those types of special unique individuals
    0:38:16 and their performance? Like, is there a tension between the two? Yeah. So almost all the time,
    0:38:20 John Madden had a great line on this. He said, look, on a football team, there’s one guy
    0:38:26 that you can hold the bus for. Like everybody’s got to be on time, but that person is so great.
    0:38:30 It’s okay. We’re going to hold the bus. Yeah. And the reason it can only be one is
    0:38:34 you have to make it clear to everybody else that you’re going to let that person be
    0:38:38 outside the culture. They’re clear exception. But you have to have great skill. Like John Madden
    0:38:45 was an amazing football coach and so forth. So generally you wouldn’t do it, but if you want
    0:38:51 to do it, they better be the one. Okay. So pirates versus Navy. And you’ve actually talked a lot in
    0:38:56 your other writings about wartime versus peacetime CEOs. I love that because it comes from the
    0:39:00 Godfather, the wartime peacetime conciliary, one of my favorite movies of all time. By the way,
    0:39:03 I’m a big fan of Godfather one, not Godfather two. And there’s two camps on that. Godfather two
    0:39:07 is good. It’s good, but it’s not great. It’s not as good as Godfather one. And Godfather three,
    0:39:13 let’s not even talk about it. Well, because you’re an editor, Godfather one, the editing was way
    0:39:18 tighter. I agree with that. I’m glad we agree. Or someone on that. But pirates versus Navy.
    0:39:24 Is there a phase when every startup and inevitably starts off as pirates and becomes a Navy?
    0:39:29 How does someone navigate that cultural transition? So, you know, there’s a great story
    0:39:34 in Andy Groh’s book, only the paranoid survive about this. So when they had the, whatever the
    0:39:41 floating point error, which was like, you know, and Andy Groh’s was like, it’s not going to affect
    0:39:47 anybody. These guys are all stupid. F off. Because Andy was, he didn’t suffer fools. But it was a
    0:39:53 huge catastrophe for Intel. And what he said he learned, and it was kind of this transition from
    0:39:59 pirates to the Navy is when you’re dealing with consumers, how they feel matters, these things,
    0:40:04 these other things matter more than the actual technical answer. And so, you know, he had to
    0:40:08 make that transition. I’m going to skip some of the other ones until we have time for everyone’s
    0:40:13 questions. I’m going to ask some of the questions that came from the audience. So the first question
    0:40:18 is, Ben, given the importance of culture in any organization, how would you evaluate candidates
    0:40:24 for culture fit? Yes, I think that’s very tricky, because people can change their culture. So one
    0:40:30 thing that you can get with exact culture fit is a lot of homogeneity, right? We went to the same
    0:40:37 school, we read the same books, we believe the same things, you know, and there’s a power in that,
    0:40:46 but it’s a slippery thing. So you have to be careful. So what I find to be powerful is to
    0:40:50 really define your culture. And, you know, like, we have a very comprehensive culture
    0:40:55 document at the firm. And one of the things that we do, which actually learned while writing the
    0:41:02 book, is we don’t let anybody sign their offer letter without agreeing to the culture, saying,
    0:41:08 I’m going to live in this culture. I’m going to adhere to these standards. So, like, if somebody
    0:41:13 says, oh, they’re not a culture fit, it’s like, why? Like, what exactly about them doesn’t fit
    0:41:18 into our culture? And it’s that element we want in our culture or not want. And, like, you have to
    0:41:24 be able to have at the conversation at that level. And so I would just say, like, doing it in a fuzzy
    0:41:29 way is very dangerous. Doing it in a specific intentional way and knowing that people can change,
    0:41:35 I would say, would be the correct approach. This is a follow-up related question from another
    0:41:40 person. I’m just kind of theming these. You talked about building culture. What do you do if you
    0:41:43 walk into — this is now from the employee perspective — what do you do if you walk into a new
    0:41:47 company and you find yourself a misfit in terms of culture? I don’t know if you have any thoughts
    0:41:50 on that, but I’m very curious for what you think about that. Well, like, if you don’t believe
    0:41:57 in the behaviors of that company and you’re coming in at the individual contributor level,
    0:42:03 you probably want to move on. I think it’s very difficult because what’ll end up happening is
    0:42:06 that culture will change you. And I know a lot of you have probably worked in organizations where,
    0:42:11 you know, people be rate each other. And then what happens, right? Like, if you’re in that,
    0:42:16 like, you’ll go home and do that. And, like, you’ll pick that up. And so you don’t do that to
    0:42:20 yourself. Don’t become a person you don’t want to be. I would also add to that, because I’ve heard
    0:42:25 this from you so many times, and it’s in our values, too, that we celebrate difference. It shouldn’t
    0:42:29 be — the assumption should not be that someone following a code means that everyone’s in the
    0:42:33 same cult mindset. Like, there’s room for a variety of people in different ways of being.
    0:42:38 So, you know, and we talk about at the firm, which is what I always say is, like, if you have an
    0:42:45 NFL team, you’re going to have players that weigh 350 pounds, and you’re going to have players that
    0:42:52 weigh, like, 180 pounds and run fast. And if you have all 350-pound players, you’re going to lose.
    0:42:56 And if you have all skinny guys who run fast, you’re going to lose. And so we have to value
    0:43:01 each other’s strengths. And it can’t always be, like, I only value the strengths that I have.
    0:43:06 And that’s basically where people screw up the whole diversity and inclusion equation is
    0:43:14 they can’t see the talents that they don’t have. And so then they try and use a proxy,
    0:43:20 like race or gender or whatever. When, like, if you could see the talent, like, you’ll get diversity,
    0:43:24 you just have to be able to see what people can do. And I talk about this a lot in the book,
    0:43:30 but, you know, that really is important. But you have to see and value the things that you can’t
    0:43:36 do. Right. So this is also related. I don’t know if you have a different thought on this angle.
    0:43:41 What can I do to change a culture at my company as a rank and file employee? Like, do they
    0:43:47 go to HR? Do they talk to someone? What advice would you have for this? Well, to change the culture.
    0:43:53 Yeah. How can they change it from that perspective? I think the thing that that’s different companies
    0:44:02 versus a society, like, in society, like Jay-Z can change the culture. Yeah. Companies, the hierarchy
    0:44:10 has a heavier weighting to it. So if the, like, let’s say you wanted to change the culture so that
    0:44:15 everybody was, you know, on time and respectful about each other’s time. And the CEO always showed
    0:44:20 up to everything a half hour late. Like, it’d be really hard to do. And so I think that if you’re
    0:44:25 an individual coming in, you kind of have to compel the top of the organization to do it for
    0:44:29 starters. Otherwise, like, you’re just going to be fighting the tide. Yeah. And I have to say,
    0:44:33 I actually appreciate that you’re someone that I can come walk into your office and tell you the
    0:44:36 truth of what I’m thinking and you don’t actually get mad at me for that. Yeah. And then, you know,
    0:44:41 as a leader on the other hand, like, everybody’s culture is broken in some way. Like, I never
    0:44:46 met a company that has anything close to 100% cultural coherence. Like, and people who tell
    0:44:50 you they have or just literally don’t even know they’re lying to themselves. They publish it.
    0:44:56 Like, it’s a mathematical terms. It’s a complex adaptive path dependent system. Like,
    0:44:59 everybody’s behavior is moving the culture all the time. And you’re going to have breakage and
    0:45:04 you’re going to have slippage and you’re going to have regressions and all that kind of stuff.
    0:45:08 So as a leader, if somebody says, like, I think we have a cultural problem,
    0:45:13 you know, you can’t tell them to pound sand or like you can, but that thing is going to
    0:45:17 fester and grow. We call that a kimchi problem. That’s great. My Korean friends.
    0:45:22 It’s funny, too, because you say in the book, the goal is to be better, not perfect,
    0:45:26 which I think is a much more attainable thing for someone to do, which I loved.
    0:45:31 So here’s another employer-oriented question. How can I evaluate company culture before I
    0:45:34 join? How can you tell from the outside if you don’t have a culture doc and the kinds of things
    0:45:41 that we and others do? Well, you know, like, I think you have to ask specific questions
    0:45:48 about the kinds of, you know, behaviors that you’re concerned about. If you ask about a behavior,
    0:45:54 people won’t know even to try and like head fake you on it. If I send somebody an email here,
    0:45:59 like, how long will it take to get back to me? Like, that’s a, that’s a very telling thing in a
    0:46:03 culture, right? Like, because people are either responsible or they’re not. If I go to a meeting
    0:46:07 or people are going to be listening to me, are they going to be like on their laptops and computers?
    0:46:11 Like, because in different companies run differently that way. And so you just have to
    0:46:15 think about, okay, where are you going to be effective? And what are the behaviors that, like,
    0:46:20 you want to be part of? And what is going to drive you bananas?
    0:46:25 Right. Here’s, oh my God, I love this question. In the blood genealogy story, you mentioned the
    0:46:29 samurai was a mediocre performer. Yeah. How do you decide whether or not to keep that mediocre
    0:46:37 performer without he or she having to demonstrate value in such an extreme way in an extreme situation?
    0:46:42 Yeah. You know, I love that question. That’s a great question. Well, it’s interesting because
    0:46:52 in the story, if you’ll recall, the Lord Selma really had an affinity for the samurai,
    0:46:57 despite all his issues. And I always say, one of the things I really believe in is
    0:47:03 you value people on the magnitude of their strength, not their lack of weakness. And that’s in kind
    0:47:08 of hiring. And as you go forward, and the late Raiders owner used to say something I really
    0:47:13 like, it says coach them on what they can do. Like, not everybody can do everything, but like,
    0:47:20 if what they can do is world class, and you need that, then that’s a real thing. And, you know,
    0:47:28 he would do his level best at whatever you needed him to do 100%. And, you know, that shows up more
    0:47:32 than just when he went and got the genealogy. It’s how you look at people. I would always
    0:47:37 rather have somebody world class it’s something that I really needed than like, above average at
    0:47:42 everything. And, you know, and horrible at something else. We have people in the firm like that, as
    0:47:48 you know, like, and I value that. And I’m okay. And you do have to have that conversation. No,
    0:47:53 you can’t go do that job, because you’re no good at that. I love that. Yeah, I love that. And I
    0:47:57 love that we’re all really honest about that. And we allow that I have it because we just because
    0:48:01 we talked about Godfather earlier, I have to say that I call this my capo theory of management,
    0:48:07 which is that there’s a capo layer in every company. And I sometimes wonder to myself that
    0:48:11 kind of loyalty, does it actually really pay off? Like sometimes with the that what I love about
    0:48:16 that question that person asked was, it almost made me wonder, like, I don’t want to be that blood
    0:48:21 genealogy person, like I’d rather be excellent at something than mediocre and have to prove myself
    0:48:26 that way. But not everyone. Anyway, that was a real test. Okay, so this is a great one as an
    0:48:30 investor and board member. This is kind of a governance related thing. How do you keep your
    0:48:36 company management responsible on the question of culture? Is it something that you actually even
    0:48:41 ask? Like, is it around processes, KPIs, priority versus profit? Does it come up at a board level?
    0:48:46 Yes, I know, like it does at least it does for me, because I spend a lot of time,
    0:48:52 at least with the CEOs in my portfolio, talking to them, and it starts with hiring, like,
    0:48:59 let’s not I don’t care about like your close rate on your candidates and all that right now.
    0:49:06 What I want to know is, how are you onboarding them? How long does it take them to get productive?
    0:49:11 What is your in place satisfaction? What are your attrition rates? And this is actually,
    0:49:18 this is the biggest mistake people make on diversity is they measure how many
    0:49:24 women underrepresented minorities are coming through the door. Yeah, that’s not the metric.
    0:49:31 The metric is, what do promotion, attrition, in place satisfaction means around across race and
    0:49:36 gender? Yeah, can you see the talent? Do you value it? Do people enjoy their career there?
    0:49:42 Because if they do, then you can get the talent. But if you don’t recognize the talent and you just
    0:49:47 force people in so you can get the gold sticker that says you’re not racist and sexist, then you’re
    0:49:53 going to make everybody miserable. All your employees. So anyway, sorry. That’s great. No.
    0:49:58 Okay, a couple more and then we can wrap up. If you could be world-class at only one thing,
    0:50:02 culture or product, which do you choose and why? And by the way, for those in the audience who
    0:50:06 haven’t read this book, one of the recurring themes Ben does talk about is this tension that
    0:50:12 culture is this abstract thing. So how do you make those choices? Let’s not get confused about one
    0:50:16 thing. You have a great culture and you build a product that like people don’t want. Your company
    0:50:22 is going out of business. Nobody’s going to worry like that’s that. So like the product has to work
    0:50:31 for you to have a business. But having said that, and I talk to entrepreneurs about this all the
    0:50:38 time, the most important thing about your company isn’t necessarily going to be the success or the
    0:50:45 deals you won or like the customers you had. It’s going to be what that time was like, you know,
    0:50:50 that time of your life and the life of all the employees who spent most of their waking hours
    0:50:57 with you at your company. What did that feel like? How did you treat each other? How did you treat the
    0:51:02 people you work with? Did everybody’s lives get better? Did they become better people or worse
    0:51:07 people? And that’s your culture. And so that’s like a real thing with incredible value. So I don’t
    0:51:13 want to say, you know, just because you can’t succeed through culture alone doesn’t mean it’s
    0:51:22 not incredibly important. Okay, so last one. If starting a VC fund like A6 and Z today, what would
    0:51:28 be the most important to build the right culture? Well, you know, like it depends what your business
    0:51:34 strategy is and not every culture is for everybody. And one of my favorite examples that I have in
    0:51:40 the book is, so you take Amazon. Amazon, one of their cultural things is frugality. And you know,
    0:51:45 they used to have, your desk used to be a door like in the old days at Amazon, so just to let
    0:51:50 you know, we’re not going to buy you a desk. That’s how cheap we are. But their business strategy was
    0:51:56 to be the low cost leader. So that from a customer perspective, if I went to Amazon, I didn’t have
    0:52:01 to price compare because I knew they had the lowest cost. And to get to that, you need to not waste
    0:52:06 money. You contrast that with Apple. Apple doesn’t have that strategy. They’re not trying to be the
    0:52:13 low cost, low price leader. They’re trying to build the best product possible, the most beautiful,
    0:52:19 best designed, spare no expense. Steve Jobs even got fired by sparing no expense his first time around.
    0:52:24 And to be like, you go to their campus, it like costs $5 billion. And it’s like gorgeous. And the
    0:52:30 doorknobs cost like thousands of dollars, all that kind of thing. And that works for them.
    0:52:35 You know, that culture kind of produced the products that they produced. And Apple’s products
    0:52:39 probably will always be more beautiful than Amazon’s products, which are not very beautiful.
    0:52:45 But they’ll also always be more expensive. And so that culture was right for Apple and
    0:52:49 the other culture was right for Amazon. So, you know, and for Apple to take Amazon’s culture
    0:52:52 wouldn’t have been productive for them because it didn’t go with their business strategy.
    0:52:58 That’s great. So I have one question that the Computer History Museum asked us to do as well.
    0:53:03 So you made the best seller list. And it’s in the category for advice and how to, which I personally
    0:53:07 love, the business category is not out yet, but I love that because I found the book very therapeutic
    0:53:11 and reading it. And there’s something about personal development as well as career development
    0:53:17 and leadership in it. On that note, for you sitting where you are today, knowing everything you know
    0:53:23 now and what you could tell your younger self, the Computer History Museum has a one word initiative
    0:53:28 where they ask you to reveal one word of advice to a young person. And it could be for yourself or
    0:53:34 to any young person today. Could you share what your word is and the story behind it? Sure. Do I
    0:53:38 have it here? I don’t even know what it is. I don’t know if you’re going to read it. It’s persistence.
    0:53:44 This is for entrepreneurs. Because like entrepreneurship makes you want to quit all
    0:53:50 the time from fundraising to like everything going wrong to problems with customers to your
    0:53:59 employees telling you your culture sucks. And like if you’re not absolutely committed to getting
    0:54:07 better and learning and changing and making it go, then you’re not going to get there. And if you
    0:54:13 think about the top, top entrepreneurs, they are amazingly persistent people. This is something
    0:54:17 that I think if you want anything in life, this is what you need. One last question. I want to
    0:54:22 ask you about the process of writing the book because of course as an editor, I have to know.
    0:54:27 And also frankly, before I met you and came to Andres and Horowitz almost six years ago,
    0:54:30 I thought it was kind of sticky and gimmicky that you would put rap lyrics at the top of your
    0:54:34 blog post. I was like, no offense. I’m just going to say this out loud. But I’d be like, who is this
    0:54:40 like white guy putting rap lyrics on his post? Judged by my culture, not my color. I agree. I
    0:54:46 agree. But I had that thought in my mind. And I was like, what’s up with this? And you also say
    0:54:51 in the book that the majority of your entrepreneurial and business and culture ideas occur to you
    0:54:55 when you’re listening to hip hop. And so what I want to ask you because now that I know you and I
    0:55:00 know that there’s layers and layers and meanings behind what you do, what specifically about hip
    0:55:05 hop culture draws you and what’s the bigger cultural context for the rap lyrics that you put
    0:55:11 at the top of your blog post? Yeah. So rap music is very entrepreneurial in nature. The original
    0:55:17 rap music, because they created a new musical art form out of nothing. And nobody would put it on
    0:55:21 the radio. MTV won’t play the videos. Nobody would sign the guys for the first 10 years of rap
    0:55:25 music. Nobody would sign them. And so they did all these things. They sold records out of the
    0:55:29 trucks of their cars, that kind of thing. And they kind of built this whole thing that it ended
    0:55:36 up being the biggest musical art form in the world currently. And they tell those stories in
    0:55:40 the songs. And they’re very related to the entrepreneurial journey. So I have a lot of
    0:55:45 those things in it. And then, you know, and of course now I listen to so much rap music. A lot
    0:55:50 of other things come to mind. So if you think about the opening quote for the culture and revolution
    0:55:54 chapter, it’s from Nas, who I spent hours and hours talking about the Haitian Revolution with.
    0:56:01 And he had a song on his album, Stillmatic, the introduction to the album. And this album,
    0:56:07 you have to understand, his career, like they had buried him, like he was dead. And Jay-Z came out
    0:56:13 with this like very aggressive diss rap against him, which he countered with a song called
    0:56:21 Ether. But the opening line is Blood of a Slave, Heart of a King. And I was like, that’s too sound
    0:56:28 overture. Blood of a Slave, Heart of a King. And so those kinds of things. So it’s kind of telling
    0:56:33 the hidden story in the book, you know, the rap lyric in the Chaka chapter from a young woman,
    0:56:39 Dejloff, really describes the culture he came from, well, but she’s also from Detroit. So it’s
    0:56:45 just kind of the backstory on the book. It’s how I tell that for the really avid readers.
    0:56:49 One of the things I’ve learned from you, and I agree it’s about judging a person based on their
    0:56:56 culture, not on their color, is that the influence of hip hop is outsized in our culture. And we
    0:57:01 did, you did an episode, you did an event with Dapper Dan. And that was a great example of how
    0:57:08 a man from Harlem, his design, his influence, many, many, many other great designers. And
    0:57:12 there’s a riffing culture, but sometimes it’s also a borrowing culture, a remix culture, that’s
    0:57:17 TikTok. So I think what I love about it is that hip hop has had an outsized cultural influence in
    0:57:22 our world today. And it’s very powerful because you constantly bridge these cultures for us too.
    0:57:27 Yeah, so I want to go back to culture in that color, because that actually comes from something
    0:57:35 that Toussaint did. So in 1797, he was actually running the colony as part of France. There was
    0:57:42 a guy, Vincent Vaublanc, who hated the idea of a slave running a French colony. And he lobbied a
    0:57:48 French parliament. He said, look, the colony’s been overrun by ignorant and brutish Negroes.
    0:57:54 And Toussaint had to counter this argument. And the counter argument was really interesting
    0:58:00 because he said, look, black people are not savages. It’s slavery that makes them so.
    0:58:06 And then he went on to basically break down point by point why the Haitian revolution was far less
    0:58:12 bloody and brutal and savage than the French revolution. And some of the things I talked
    0:58:17 about, like they didn’t pillage, made his case. And he won that argument with the French parliament.
    0:58:21 But it was so interesting to me the way he phrased it, because it was the culture of slavery
    0:58:29 that created the perception of these guys that had nothing to do with it. It just got a color
    0:58:34 assigned to it. And I think that with hip hop, it’s the culture of entrepreneurship. And it has
    0:58:40 nothing to do with being black. It has to do with that culture. And that’s why I think that a lot
    0:58:47 of entrepreneurs resonate with it. And we get divided up into these dumb demographics, age,
    0:58:53 gender, color, zip code. But what you do is who you are. That’s your culture.
    0:58:57 That’s fantastic. I want to say to everyone, thank you for joining this episode of the A6NC
    0:59:02 podcast. We’re here at the Computer History Museum. Thank you, everyone, for coming today and joining
    0:59:03 us. Thank you.
    0:59:06 (audience applauding)
    0:59:10 (audience applauding)

    There are some common tropes that can kill your company culture — whether it’s that corporate values can be weaponized; “fake it til you make it”; the “reality distortion fields” of visionaries vs. liars; and so on. All of this just reveals the confusing, sometimes blurry line between the yellow zones and red zones of behavior, because the very things that are strengths can also become weaknesses (and vice versa!). The fact is, in any complex adaptive system (which is what a company is), even the seemingly smallest behaviors will move the culture where the loudest proclamations do not.

    That’s why so much of culture — whether building and setting it or fixing and changing it — comes down to the difference between actions and words, to the tacit vs. the explicit, to the difference between what you do vs. what you say (and what employees see vs. what they hear). So in this episode of the a16z Podcast, based on a conversation that recently took place at the Computer History Museum in Silicon Valley, Sonal Chokshi interviews Ben Horowitz about his new book, What You Do Is Who You Are, probing on all the tricky nuances of the themes covered in it — and also how to practically apply principles from it to the tech industry and beyond.

    Are mistakes of omission more important than mistakes of commission, when it comes to ethical lines? What can employees, not just leaders, do when it comes to culture? Where does the idea of “culture fit” come in? What happens when startups go from being the pirates to being the navy? Drawing on examples of culture as code from a thousand years ago to today — spanning empires, wars, revolutions, prisons, and even hip-hop — Horowitz shares the power of song and story. Including even violent, “shocking” ones that reset cultures… because they make you ask, WHY?!

    100% of the proceeds from the book will go to anti-recidivism, and to making Haiti great again

  • 364: Public Domain Publishing: $100,000 Selling Classic Books on Amazon

    Looking for a part-time side hustle where you get can your inventory for free and there are almost no startup costs?

    This week, I’m excited to introduce the side hustle of public domain publishing.

    This is the art and science of republishing classic literature – where the copyrights have expired – and earning passive royalties when your version sells.

    Because these works are so old, they’re available online for free – but many Amazon shoppers and Kindle owners will pay to have them delivered straight to their device.

    I think any business where you can get your inventory for free is pretty compelling!

    Since 2013, Aaron Kerr has pocketed over $110k in royalties through this very part-time side hustle. You can see all his public domain projects over at TimelessReads.com.

    Tune in to hear how this business model works, Aaron’s advice on what to publish and how to get past Amazon’s gatekeepers, and how to differentiate your public domain books from everything else out there.

    Full Show Notes: Public Domain Publishing: $100,000 Selling Classic Books on Amazon

  • #399: Adam Grant — The Man Who Does Everything

    Adam Grant — The Man Who Does Everything | Brought to you by Zapier and Peloton.

    “When you feel like you’re not productive, it’s not necessarily because you’re lazy or because you have bad habits, it’s because you’re not working on the right projects and you haven’t found the ones that are intrinsically motivating and meaningful to you.” — Adam Grant

    Adam Grant (@AdamMGrant) is an organizational psychologist at Wharton, where he has been the top-rated professor for seven straight years. He is an expert in how we can find motivation and meaning, and lead more generous and creative lives. He is the #1 New York Times bestselling author of four books that have sold over two million copies and been translated into 35 languages: Give and Take, Originals, Option B, and Power Moves. His books have been recognized as among the year’s best by Amazon, The Financial Times, Harvard Business Review, and The Wall Street Journal and been praised by J.J. Abrams, Richard Branson, Bill and Melinda Gates, Malcolm Gladwell, and Malala Yousafzai.

    Adam hosts the TED podcast WorkLife, and his TED talks have been viewed more than 20 million times. His speaking and consulting clients include Google, the NBA, and The Gates Foundation. He has been recognized as one of the world’s 10 most influential management thinkers, Fortune’s 40 under 40, and a World Economic Forum Young Global Leader, and received distinguished scientific achievement awards from the American Psychological Association and the National Science Foundation. Adam writes for The New York Times on work and psychology and serves on The Department of Defense Innovation Board.

    He received his B.A. from Harvard and his Ph.D. from the University of Michigan, and he is a former magician and junior Olympic springboard diver.

    Please enjoy!

    This podcast is brought to you by Peloton, which has become a staple of my daily routine. I picked up this bike after seeing the success of my friend Kevin Rose, and I’ve been enjoying it more than I ever imagined. Peloton is an indoor cycling bike that brings live studio classes right to your home. No worrying about fitting classes into your busy schedule or making it to a studio with a crazy commute.

    New classes are added every day, and this includes options led by elite NYC instructors in your own living room. You can even live stream studio classes taught by the world’s best instructors, or find your favorite class on demand.

    Peloton is offering listeners to this show a special offer: Enter the code you heard during the Peloton ad of this episode at checkout to receive $100 off accessories with your Peloton bike purchase. This is a great way to get in your workouts, or an incredible gift. That’s onepeloton.com and enter the code you heard during the Peloton ad of this episode to receive $100 off accessories with your Peloton bike purchase.

    This episode is also brought to you by Zapier. If you run your own business, think about all of the hours you spend moving information from one software program to another, or one window to another, one social media platform to another, copy and pasting, all because those things don’t easily work together. With Zapier, now they do, automatically.

    Zapier is one of the best pieces of automation software I’ve ever come across, and it supports more than fifteen hundred business applications, so the possibilities are virtually endless. It is the easiest way to automate your work. Best of all, it’s easy to build the exact solution you need in minutes, without writing code or asking a developer for help. Join more than 4.5 million people who are saving an average of 40 hours per month by using ZapierGo to Zapier.com/tim and try Zapier for a free, 14-day trial.

    If you enjoy the podcast, would you please consider leaving a short review on Apple Podcasts/iTunes? It takes less than 60 seconds, and it really makes a difference in helping to convince hard-to-get guests.

    For show notes and past guests, please visit tim.blog/podcast.

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