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Bill Gurley calls Jaron Lanier's NYT critique of Anthropic's safety approach a "must read"
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3 min read
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104 docs
Gurley uses Lanier's New York Times essay to argue that Anthropic should stay out of AI regulation. Also: Guillermo Rauch on Triumph of the Nerds, a former Tesla president's three books he hands out, and endorsements from Armstrong, Casado, Sweeney, Lemkin and Horowitz.
Bill Gurley: Jaron Lanier in The New York Times
Bill Gurley called a New York Times opinion piece by Jaron Lanier "another 'must read' AI article." He said Lanier "speaks with experience" about Silicon Valley's habit of imagining what its technology can do, "to the point of radicalism" . In Gurley's account, Lanier lays out Anthropic's "unusual & error-prone approach to safety." Gurley traces that approach to a belief that AI will one day run the world and "manage the humans," which leads the company to rely on "alignment" rather than "control & constraint" .
Gurley then makes his own case: Anthropic should be kept "as far away from the regulation process as possible." If it gets to write the rules, he warns, it "will try to kill open-models" . Article
Guillermo Rauch: Triumph of the Nerds
On the Human Verified podcast, Guillermo Rauch recommended Triumph of the Nerds. It's a documentary about the early days of Silicon Valley and the beginnings of Microsoft and Apple, and he has been showing it to his kids. He noted that its maker recently died . What stuck with him was the film's point that founders of that era "needed adult supervision" and rarely stayed on as CEO. He contrasted that with Paul Graham's model of giving technical founders full control. He also suggested the defining founder trait is changing again now that agents write the code . He also called the movie Bison Man "required watching," because his six-year-old is obsessed with it . Video
A former Tesla president's three giveaway books
In "The Impossible Speed of Elon Musk," the former Tesla president being interviewed named the books he recommends most consistently :
- The Goal by Eli Goldratt, for learning operations principles. He said it "totally changed my life" .
- The 7 Habits of Highly Effective People by Stephen Covey, if you want "a life worth living" .
- Unreasonable Hospitality by Will Guidara. It's a book about running a restaurant, but he hands it to businesspeople because giving people hospitality and dignity applies to almost everything: "if you make customers feel that way, you're going to sell a lot of product" .
Shorter picks
- Brian Armstrong quoted a post by @JLunglhofer and summed it up: "The way to combat AI cybersecurity attacks is to use more AI on defense" . The post describes how Coinbase uses early access to frontier models and agents that test its code to find vulnerabilities more cheaply. It argues defenders have an edge because they can give AI full context on the system it protects, while warning that the edge "won't last" . Post
- Martin Casado called a demo by @neilsonks "so so good" . The demo shows Blender 5.3's new gaussian-splat support, which @neilsonks says gets closer to an "insane one-of-a-kind world model workflow" . Post
- Tim Sweeney promoted Will Faucher's EasyWaterscape demo as "a new age of game development." It shows the Unreal Engine 5.9 preview, which brings AI-acceleration improvements ported from Unreal Engine 6 and new support for playing games in the browser . Faucher says the demo runs at 60fps on high settings in Chrome .
- Jason Lemkin re-shared his SaaStr AI deep dive with Higgsfield CEO Alex Mashrabov on how the company reached $600M ARR. Since then, he says, it has passed $1B and is on track for $2B by December. Lemkin notes he is an investor . Video
- Ben Horowitz shared a new podcast episode that includes the story of how Felicia Horowitz saved Scarface's life . Video
Bill Gurley calls Jaron Lanier's NYT critique of Anthropic's safety approach a "must read"
Shane Parrish
Profile
The interview guest says these are the books he has recommended most consistently: The Goal by Eli Goldratt for learning operations principles, including leading operations; The 7 Habits of Highly Effective People by Stephen Covey, which had a major impact on him; and Unreasonable Hospitality by Will Guidara, which he says applies to business and life—the practice of making people feel hospitality and dignity can help a business sell more.
Guillermo Rauch
Profile
- Guillermo Rauch recommended Bison Man as “required watching,” noting that one of his children is obsessed with the movie.
- Rauch also recommended Triumph of the Nerds, which he was introducing to his children as a movie about early Silicon Valley and the beginnings of Microsoft and Apple; he called it “really cool.”
Jason ✨👾SaaStr.Ai✨ Lemkin
Jason Lemkin shared a video clip from his conversation with Lenny Rachitsky on Lenny’s Podcast, recounting how a company he invested in fell from $5 million to $1 million after its founders fired the sales team because they thought sales was “icky”—a warning about the revenue cost of founders’ aversion to sales.
Bill Gurley
Bill Gurley (@bgurley) called a linked New York Times AI opinion article featuring Jaron Lanier a “must read,” praising Lanier’s experienced critique of Silicon Valley’s radical expectations for technology; Gurley highlights Lanier’s criticism of Anthropic’s safety approach as rooted in the belief that AI will one day run the world and “manage the humans.” Read the article.
Jason ✨👾SaaStr.Ai✨ Lemkin
Jason Lemkin shared a SaaStr AI deep-dive video he did with Higgsfield CEO Alex Mashrabov about how the company reached $600M ARR; he highlighted that he later updated the thumbnail to $1B ARR and said Higgsfield was on track for $2B by December. Watch the video. Lemkin said he was among Higgsfield’s first customers and investors.
Brian Armstrong
Brian Armstrong endorsed @JLunglhofer’s X post by arguing that AI cyberattacks should be countered with more AI on defense; the post says Coinbase uses frontier models and code-testing agents to find vulnerabilities at lower cost, and that defenders can give AI the system context it is protecting—an advantage the post cautions may not last. Linked post.
Jason ✨👾SaaStr.Ai✨ Lemkin
Jason Lemkin (@jasonlk) promotes a free guide to AI Sales Agents, linking to the guide and to more information about AI agents; he gives no stated reason or takeaway for the guide.
Elon Musk
Elon Musk called code associated with @tetsuoai “tight”; he said superintelligence will eventually write a better software stack, but has not yet, and the post mentions some assembly.
Jason ✨👾SaaStr.Ai✨ Lemkin
Jason Lemkin linked a SaaStr article about Anthropic employee equity, highlighting the post’s claim that employees hold about $216B at the IPO price, with another $160B reserved for future hires; he framed the resulting stock as a talent-competition challenge for B2B founders.
benahorowitz.eth
Ben Horowitz shared a YouTube link to a new podcast that includes the story of how Felicia Horowitz saved Scarface’s life; the post does not name the podcast’s creator or give a reason beyond that hook. YouTube
Jason ✨👾SaaStr.Ai✨ Lemkin
Jason Lemkin points readers to a free guide to AI Sales Agents: https://saastr.ai/ai-agents-playbook.
martin_casado
Martin Casado praised @neilsonks’s post, calling it “so so good.” The post says Blender 5.3’s Gaussian-splat support brings an “insane one-of-a-kind world model workflow” closer and includes a video.
Tim Sweeney
Tim Sweeney promoted Will Faucher’s EasyWaterscape playable demo, linking to Faucher’s post and praising Unreal Engine 5.9 as “a new age of game development.” Faucher’s demo showcases the game running in a browser; Sweeney highlighted 5.9’s browser-play support and AI-acceleration improvements.
The Impossible Speed of Elon Musk - Ex-Tesla President
The Knowledge Project Podcast
YouTube channel
Shane Parrish
Host
1 of 1
highlight
0:00I think you scaled Tesla about 10x while you were there.
0:03Yeah, literally the physics were impossible. Elon turns to me on a Monday and says, "Marketing budget here is precisely zero and you need to double the company every 6 to 8 months." He believes that speed of all types, speed of decision-m, speed of cash through the business creates decadel long advantages. If you were to create a cheat sheet for decision-m, what would be on it?
0:22First step would be begin with the end.
0:24What is the outcome that you want? Step two is what would need to be true for that outcome. Then third step is what did you learn about communicating with Elon that was different? Most organizations you go up the hierarchy with your question and it comes back down and it looks like an EKG. Elon was like let's make it look like a dead patient. If you need an answer, go to the person that has that answer. Don't go through their boss or their boss's boss. Second key that he said all the time was give me bad news as fast as you know about it. Cuz bad news only gets worse with time.
0:53How did you know it was time to leave Tesla?
1:03What was your first meeting with Elon?
1:05Like first meeting was uh in person was at SpaceX. So it was for this like tech nerd. It was pretty awesome to walk into a rocket factory, get the tour and then sit down with him. And he's got this big huge titanium desk or did at the time and uh we sat and talked and then walked around the factory for hours and just dove deep right away into a problem he
1:34was facing in manufacturing.
1:36What do you think he was assessing you on?
1:38He wanted to get a sense of like how I process problems. Um because when I asked him what success looked like, he said, "Oh, what success looks like is if you and I have the same inputs, we come up with the same answer." I thought that's pretty interesting. Um and I could sort of teased him about that. I said, "You because you're always right." And he said, he said, "Okay, fine. But I want to know just how you think through stuff." And so the best way for him to figure that out was let's go walk a real problem.
2:07What was the problem that you do you remember? They were having a hard time manufacturing the Model X uh Falcon Wing doors and and they've been working on this problem for weeks and uh not making any progress. And so we walked up and down the Model X line for the better part of two hours trying to figure out what was Yeah. Me just asking him questions like, "Okay, what where does misalign where
2:36does the chassis get built? how do you know it's aligned when it comes out?
2:40Where did the doors get hung on the chassis? And we saw something right away uh that he hadn't seen, which was the people that were bolting the doors onto the chassis, the Falcon Wing doors, had to do it blind. They were reaching around the underside and they had to like they had to drill these bolts in upside down and they couldn't see them.
3:03I was like, man, the chances of those things going in straight are pretty slow. It's pretty slim. have you ever thought about a jig? So that they could just follow a pattern.
3:12And he was like, "No, I haven't thought about that. Let's try that." So they literally built the jig overnight. Is that the thing with Elon that separates him from other people is like a lot of people would be like, "Oh, we'll do that next week. We'll Yeah. No, it's like the timing is as fast as you can." um because he believes that speed of all types, speed of decision-m, speed of cash through the business, speed of response time creates competitive advantage because your c your competitors are probably moving
3:41slower.
3:42How do you do that without burning people out?
3:45It's not every sec, every minute, every day you're on to something that requires immediate response. Like a lot of times you're trying to figure stuff out like how would we do this? How would we break down this problem? How would we grow this fast? Whatever. And then once you figure it out, you're going to hit the speed button for sure. But uh but it's not like you're constantly running at that rate.
4:04Did you know at that point you wanted to work at Tesla?
4:08It took some convincing because I hadn't I hadn't worked for somebody else for a long time. I had had six companies of my own. So, number one, I just wasn't sure I was ready to work for somebody else, and I wasn't sure that I was going to be helpful because the company was so big already and had such big growth goals.
4:27So, it really took some convincing on his part and really my part to figure out if that was if that was the right next step for me. My first concern, which sort of proved out in our first few weeks of interaction, was that I would overstep my bounds because I just wasn't used to having check-in with somebody. And turned out that I did. In my first two weeks, I overstepped oversteppet my pounds and it turned out not to be a fatal footfall. Uh, it was okay.
4:51What happened?
4:52I was trying to figure out if I could be helpful. And um, so I asked him like, "What's your biggest problem right now?"
4:59And he said, "Demand." And so I said, "Well, how many cars have you promised the street for this quarter?" And the number was something like 12,000. And we were a month and a half into the quarter at this point. And I said, "Well, how far in are you?" and he said, "We've only sold 3,000." And I was like, "Oh, that's a big problem." I said, "Okay, why don't I work on that problem for like a week and I'll come back?" And then I went out on a blitzkrieg. I went to eight different stores,
5:27took a test drive cuz I had heard that the test drive was the big thing in buying a Tesla. Like you hit the accelerator, it's like a rocket ship. You never forget it and you buy the car. So, I went to eight stores, did test drives, I used eight different email addresses so they wouldn't know who I was. And funny thing happened, I didn't get a call back.
5:46And after like a week, I hadn't been called back. So, I called the head of sales ops. I said, "Am I blacklisted in the system for some reason? Like, why would nobody call me back after a test drive? Cuz that is supposed to be when you're asking me for the sale." And he looked in the system. He said, "You're not blacklisted at all. you used a bunch of different email addresses so that we couldn't even track you basically. I said, "Well, can you look up for me how many people have done a test drive in the last 30 days who haven't been called back?"
6:14And he's like, "Yeah, give me an hour." So, he called me back uh and said like 10,000. And I'm like, "Oh my god, like you can make your number for the quarter. You just have to call people back and ask for the order.
6:29Why aren't people doing that?" And he said, "Well, people are incented to do test drives, but we have no incent. We have no commissions here, so they're not incented to make the sale." I said, "Yeah, the hardest thing in sales is asking for the sale. So, you're not incenting people to do that. I understand the behavior. So, why don't we do this? Can you shut off anybody's new test drive leads until they call all their prior test drives back for the last 30 days?" He's like, "I can't." I said, "Okay, how long will it take?"
6:56He's like, "Worldwide? Like, I can do it like right now. It'll take several hours uh to proliferate around the world, but I can do it right now. He called me the next day and he's like, "You wouldn't believe it. The orders are coming in left and right. It's" and I said, "Yeah, cuz you just your people are asking for the sale. This is how this works." And then I went, "Oh gosh, I don't work for Elon yet." And I just made a decision in his company. Like I shut off all new leads. So I called Elon and I said, "Hey, look, I'm really sorry. I haven't worked for anybody for a long time. And
7:25I was afraid of this and I just stepped across the line. And I told him what I did. I said, "Your problem in sales uh is that people aren't asking for the order." And so what I did was I shut off all new leads until they asked for the order. And it turns out the sales are coming in. I think you're going to make a quarter. I got to apologize to you though. I don't work for you yet. This isn't my company. It's yours. I should have checked in and I didn't. Just out of habit, I didn't check in and I'm sorry. And there was this long silence on the other end of the phone. And then
7:55he finally came on and he said, "That was a great decision. You're going to fit in here just fine."
8:02So he didn't mind you overstepping at all.
8:03Not in that case at all cuz it was speed of decision. Uh which I got to know was what he was after. He wasn't after a hierarchy or checking in. He was after as long as you're following first principles, just go as fast as you can.
8:16Do you remember what was going through your mind during that pause?
8:18Yeah. I thought first of all I didn't even know if he was on the phone still because uh it was it seemed like forever. It was probably less than a minute and literally I was asked ready to ask him were you still there when he uh when he jumped in. I got to know that that's how he processes. He kind of shuts down all other sensory stuff going on and just thinks that's what he was doing but I didn't know that on the other end of the phone.
8:40That would kind of freak me out.
8:42It freaked me out a little bit too.
8:43Yeah.
8:44How did you go about building a winning culture there? I think all culture comes from founders and the culture was was built and the culture was a first principles culture. It was a culture of rapid communication. So you didn't have to most organizations you go up the hierarchy with your question or your suggestion and it comes back down and it looks like an EKG the communication pattern in a company. Elon was like let's make it look like a dead patient.
9:10Go straight across the organization. If you need an answer go to the person that has that answer. don't go through their boss or their boss's boss, go directly to them because that's going to help with speed of decision-m so that kind of culture was already set. What the business needed was a bunch of scaffolding. So I went about building a team and then building approach so that we could have a mechanism to essentially double the company every 6 to 8 months like super rapid growth. And in so doing, we kind of built a culture. We
9:39built on the culture that Tesla already had. But we we really wanted to create a meritocracy where people that were contributing got big new assignments and we called them battlefield promotions.
9:51Like if you were if you were performing on the battlefield, we could literally grab you and say, "Hey, look, how would you like to run this worldwide?" And uh people would say, "I don't know how to do that." We'd say, "Well, nobody's ever done it before." So good. Welcome to the club. And we'd give them huge responsibilities, big remats, big assignments, and more often than not, they would come through and become fantastic leaders.
10:11What an incredible way to do that.
10:13Yeah. Yeah. It was super fun and still is cuz I still work with a number of those people today.
10:18What did you learn about communicating with Elon that was different?
10:22It has to be concise.
10:24And um and so we had this kind of fun we had fun with our communication in the sense that we gave each other a challenge. I don't know who came up with it. And uh I think it was his idea. He said, "Do you think we could we could try to run the organization on three sentence emails?"
10:45First sentence is here's my problem.
10:48Second sentence sentence is here's what I think the solution is. third sentence is here's my next step and if I need resources or permission ask in that sentence and so we we started to experiment with this and it was really the key to to communicating with him because he likes that sort of concise get to the point what's the have you super thought about the problem have you really thought about the solution and you thought about the next steps and that was kind of key to communicating
11:17with him the second key that he said all the time was don't sit on bad news give me bad news as fast as you know about it. And he said this to everybody. Um because bad news only gets worse with time. So like give me bad news fast. And the way that you could get on his on his bad side was saving bad news. And I watched that over time. Uh and so those were the two keys to communication like be concise and be rapid with bad news.
11:44How did you guys handle disagreements?
11:48We talked through them. Cheryl Samberg introduced us and so both of us quiz Cheryl on how do you and Mark manage your relationship and she said, "Okay, we meet once a week religiously for at least an hour.
12:05We open with here's here are here are things you've done that have pissed me off, frustrated me, uh disappointed me, whatever." So you clear all the good, you clear that stuff first and then you get to, oh, let's talk about the business strategy, whatever. So we sort of followed that and he's not shy. Like if he's upset about something, it's like right away the phone's lighting up. What the hell's going on? And I learned to be not shy, too. Uh, and it helped because I was a
12:34conflict avoider before Tesla and I'm definitely not a conflict avoider now.
12:39Wait, go deeper on that.
12:40I was more of a pleaser.
12:42loved to have teams that were productive and happy, but uh but I would wait on confrontation, especially if I was upset about something. And um and he didn't. And it taught me that was aokay because actually it's kind of the way a lot of organizations work outside of business.
12:58It's the way you know if you miss a note in an orchestra, the conductor is letting you know right away. Uh if you miss a play on the field, your coach is letting you know right away. And I started to appreciate that that was a very effective and helpful way to uh to keep a team learning rapidly. And you're talking about mistakes as much as you're talking about victories.
13:19A lot of people who who don't avoid the conflict don't necessarily say that in the most receptive way to other people.
13:27Right. Exactly.
13:28What have you learned about sort of communicating those messages to people as somebody who used to avoid it but now is trying to be more direct? I had a mentor who said, "If you're gonna, this is a kind of a coarse way of saying it, but he said, 'If you're going to slap somebody, they need a kiss, too." And so, I just learned to say, "Hey, look, I love working with you. I think you're super capable, but you you just failed in this moment or you're failing to solve this problem or you're failing to lead your team and
13:56I want to help you with that, but we have to address this." It is super harsh. I think to your point when you just leave it as, "Hey, you're failing and I'm so disappointed in you and you may not have your job." That's leaving somebody flapping. I'd rather say, "Hey, look, I respect you and I want to work I want to work you out of this, but you got to we got to get out of this uh whatever this tough tough spot is."
14:20And would would you be specific with that person? Oh, 100%. Yeah, because clarity really matters, I think, both on the positive side and on the negative side. If you're giving somebody feedback, you got to be super clear about here's what I'm pleased about. You did this super well.
14:34I watched you. Uh or you did this super not well. I watched you. How would you do this differently? Or let me give you some input how I think you probably should do it differently. We talked earlier about sort of how the sales people at Tesla weren't following up because they had no incentive to follow up. Yeah. I'm curious what you've learned about getting incentives right that you didn't know five years ago or 10 years ago. Yeah, I think I learned a lot from reading Charlie Mer uh and
15:03Charlie's this wisdom from Charlie that if you want to know how a system works, follow the incentives and and uh in that case there was a real incentive that was lacking and once you put that incentive in place now the incentive doesn't have to be monetary it can also be cultural and so Elon felt really strongly in that situation that we not have commissions because he wanted stores to be as opposite of car dealers as possible and you know when you go into a car
15:33dealership everybody's on commission and you feel that as the customer he did not want that feeling so then I the challenge was okay we as a team I as a leader have to figure out how are we going to get that behavior without a monetary reward and we stumbled across this thing we put a leaderboard up on every store and the leaderboard was number of sales that month and we drew a line almost
16:01arbitrarily in the middle of that chart and people would do a lot to get above that line even though nobody explained what the line was for.
16:11Exactly. It was just a well it was called, you know, the performance threshold or something like that. But there was no money involved. There was no commission. It was just, oh, I get it. The currency here is I need to not only give test drives, I need to sell cars. So that means I need to ask for the order. If I ask for the order, I move up that list. I'm above the line.
16:29I'm in the safety zone, whatever that meant. Um, and so it doesn't always need to be monetary, but you need to understand the incentives for sure. In that case, we created a non-monetary incentive. How did Elon think about risk?
16:43He thought, and I agree with this, he thought that the highest skill in business is allocating capital because as a capital allocator, you have to assess risk, assess it correctly. So, you're making a bet that ends up building your capital over time.
17:03And and so I started to think about that like poker. Um, oddly in every hand of poker, you can sort of run the math and understand whether you've got a bigger chance at upside or downside in that hand. And that then tells you how to bet. So, I started to look for asymmetry on the upside or asymmetry on the downside.
17:27If there's asymmetry on the downside, we're not making that bet unless we can address the downside and get rid of it.
17:33And if there's asymmetry the upside, of course, we're making that bet. And that helped give people a framework, a construct that they could then easily process decisions because they knew my first question was going to be explain to me is there asymmetry to the upside or downside here and show me where it is. And if it's asymmetry to the upside, let's go um and let's allocate capital and let's uh let's run. But if we're unsure, then we have to ask the questions like how would we create asymmetry to the upside so we could
18:01write this check, take this risk, etc.
18:03And when Elon and I were getting to know each other, one of my hesitations was I I said, 'I'm not a big company guy. I haven't had that experience. Why don't you hire a big company person to come in and run this company? And he said, because they don't know how to assess risk. Entrepreneurs do. It's a skill you build over time as an entrepreneur. And I want a fellow entrepreneur because chances are we're going to assess risk really in a similar way. And then we're going to allocate capital in a really similar way. It's interesting you talk about that because I mean millions of
18:33people including myself put their hands in Elon every day when we turn on autopilot.
18:38Right. Exactly.
18:39In our car and the updates come fast and I'm like I could imagine a a more corpo type CEO being like, man, we can only release two a year. like kind of like the Apple cadence, you know, of totally we have to test this and test it and like make sure that every version and every iteration, every possible combination, whereas he's more like, nah, we tested it, it's good, let's go.
19:03Yeah. Well, that gets run through a gazillion simulations before it gets released into the real world. So, they can literally say, "Hey, Shane, you stopped autopilot uh just with some pressure on the steering wheel cuz you were uncomfortable. So, we're going to take those images from your car and we're going to try to figure out why you disengaged and we're going to run that through a simulator over and over again. And we're going to try to put then a corrective action in place, train
19:31the system on that corrective action.
19:33And as long as that corrective action is running through the simulation perfectly every time, yeah, we're going to put that in the next build and release it tomorrow. But when you think about products that get released that instantly affect tens of thousands of thousands of people of lives, right?
19:48Exactly.
19:49Yeah.
19:50And his whole that's just his speed mentality like get it out, start the learning loop, start the feedback loop, make sure the corrective action has worked and keep tweaking, tweaking, tweaking. And if you wait six months to do a release or uh you're you're going to stop the feedback loop. So, why would you give up six months of learning to be sure when you're 99% certain today and you can get six months of learning?
20:16Like, we're just going to get so much better so much faster is the idea.
20:20A lot of people wait for perfection. I guess that's sort of like the core of what we're talking about.
20:24Yeah, exactly. And that idea is don't wait for per like definitely don't make bets that are stupid. Like if you have a 10% certainty that that update's going to work, don't release it, of course, because it's going to could potentially break the cars and it's going to kill your reputation. So don't do things that are foolish. But if you're like 99% comfortable this is working and in that case like in simulation, release it.
20:50Start the feedback loop. Make sure that it's getting in the hands of people. Uh and don't wait. And that rapidity of release is a is a purposeful discipline within this uh within the software and autonomy teams there like probably like you I get two or three updates a week uh with different stuff that they're adding fixing etc. Makes you feel great as a customer because you're like these people are so responsive and when you read the release notes you see wow like a lot of this stuff is useful um and
21:19stuff that I have wanted on to happen on this car. So, it makes you feel great as a consumer that a product that is typically depreciating while you own it because it's static is actually getting better while you own it. Uh, and that is very different than the way car makers think about their product.
21:40I had never heard it phrased that way before. That makes a lot of sense.
21:43Yeah. Like our whole deal was like, could we add features that would appreciate the car versus depreciate the car? And every once in a while, we found things that would like you could get more range out of the car, more speed out of the car, uh less uh wear and tear out of the car, like all kinds of stuff that you could you could put into a release over time that would cause it to appreciate, not depreciate, which is completely counter to the way the industry thinks.
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23:37If you were to create sort of a cheat sheet with the principles of good decision making on it, what would be on that cheat sheet?
23:43I think first step would be I' begin with the end which is what is the outcome that you want. Decision- making gets flubbed up because people aren't clear on what problem they're trying to solve or what they're trying to solve for. So I found that you have to be super clear on okay here's the end state that we want to achieve. Does everybody agree with that?
24:04Okay, if that's the case, now we can back up on this decision. So, on the way in here, we I was talking with one of my partners. We were talking about an offer we've gotten for one of our companies. And we said, okay, what does success look like here? Well, it's a it's a return hurdle. It's a valuation and it's an outcome for this business.
24:24And we said, "Okay, with that in mind, now we can have super clear decisions because this offer doesn't meet a return hurdle and this company's probably not the right place for this business to land." So, super easy. Let's not waste our time. Um, and that clarity helps with speed and I think quality decision.
24:44So, first step is you design and define what success looks like. Then you work back from there and say, "Okay, step two is what would need to be true?
24:54for that outcome.
24:56What would need to be created? What would need to be different about our product, our process, whatever. And then third step is what's the investment that it's going to take to make those things true.
25:10And when you quantify the investment, which is kind of hard sometimes, sometimes you're taking a swag, sometimes you can be more precise, but then you can answer the fourth question, which is what's the impact on us doing this? Like if we achieve this end goal and let's say we develop a new product and that product is going to have $100 million in revenue but it costs us $200 million to build the product. Now we really have to be thoughtful about are we going to get the return on this? Does it have the impact
25:39uh versus the effort? And so the last step of the decision process is literally creating that 2 by 2. What is the impact versus the effort of doing this? And then how does that stack up against the other stuff we have on our plate? because we may have super high impact, super low effort stuff that we had to just do. Uh, and we don't have endless amounts of calories to burn. So, we now have to choose where we're going to allocate our capital and time. And that last effort versus impact chart for me helps me figure out where we allocate
26:08uh where we allocate our capital and our time.
26:12How do you think about opportunity cost?
26:14Opportunity cost is within that last step because you can't do everything. So uh so you've got to choose okay which if we have a finite set of time or a finite set of capital like we have to allocate with that finite mentality so some things aren't going to make the list and that's opportunity cost and and so in Elon's world he was like well let's raise more capital so that we don't have that constraint because he's a prolific capital raiser so he can unconstrain that chart in a really interesting way
26:42as a leader because he's providing more capital to allow you to do more and so that reality distortion field is kind of fun. Uh if as a leader if you can increase the capital into the business then you can actually hire more people and increase the time that you have to allocate too. So you can get more stuff done but there's always an opportunity cost because there's never infinite resource. So you got to figure out the stuff you're not going to do. And Cheryl Sandberg taught me that your no list ought to be a lot bigger than your yes
27:11list. And you ought to be decisive about what goes on that no list. So there's no lack of clarity when you get down to that impact versus effort in which things you're saying yes to. You got to be really clear about things you're saying no to. And that no list is your opportunity cost.
27:26I'm curious about we talked about making decisions fast in the workplace. What about making fast decisions in life? I think broadly a lot of people have a need to have perfect information so that they can feel good about a decision. And what I found is you're rarely going to have perfect information. And a lot of your suppositions at the start are going to be wrong. So you might as well just get started. Don't wait for perfect
27:55information. Just get started and you'll kind of figure it out as you go. That is a uncomfortable for people for some people uh who definitely want to have more certainty before they start. But I found if you just get started, you're going to find you're going to find the parameters that will lead you to more comfort around the final decision that you'll make.
28:18Action creates information.
28:20Action creates more information.
28:21Information creates more certainty. And you don't have by definition you don't have information at the start. So you have imperfect information. and that there's a reason why you're feeling uncertain.
28:32I was thinking about this the other day because if I wait and you don't, by the time I get started, you've already learned things that I couldn't even learn in advance of doing it.
28:43That's that feedback loop speed. And so like you start to learn and you're building an advantage as long as you're moving, as long as you got started.
28:50But to your point, if you don't get started now, you're way behind on the learning curve. And a lot of learning curves accelerate. So, you definitely want to get started so that you start to build the experience of even making mistakes ahead of your competition because they're going to make those mistakes, too. If you make them and learn, you're going to be several steps ahead in the race and hard to catch.
29:14How did your process differ from Elon's when it came to decision-m? The way I describe his decision-m is he's very rational and uh I would try to be rational too in my decision-m
29:31but he's unconstrained. He's very unique in that he's unconstrained by by constraints really. And so I remember sitting with him in 2017, 2018 and they'd had a string, a long string of really unsuccessful launches at SpaceX, but rockets were blown up in the air.
29:55And unlike typical people who would have done a bunch of reflection on that and may have gotten bummed out and thought about the company can be out of cash before we are actually successful. He was totally focused on here are the two things that have to be true for that not to happen again so that we can get a successful launch. And he's just very unique on to shut off the negative and focus on what has to be true uh and achieve that. He's one of the most unique people I've ever met who's like
30:24who has that ability to shut off failure essentially and it just doesn't impact him at all.
30:30No, he's really like Isaacson talks about this in his book. He's uniquely wired given all the challenges he's gone through and yeah, I don't think he's he's impacted by that at all. Typically has a very different way of looking at the world and doesn't care.
30:41How did Elon run product meetings?
30:44He started with and I think this is something any CEO can learn from.
30:51He turned to me and uh first because my primary responsibility was the marketplace the market and he would turn to me and and say in front of the rest of the team as engineers manufacturing etc. He'd say what does the market want and that's where the meeting started. So I think a first principle that a lot of CEOs can use or leaders can use is if you're going to talk about product talk first about what the customer wants because that grounds the that grounds the whole discussion.
31:18So an example that a dry example of that is we release the Model X it's selling okay but not great. And so in the weekly product session Elon turns to me on a Monday and says what does the market want? I said like I've heard this all around the world. Mom's wanting a bench seat. We've put these two captain's chairs in the second row. They want a bench seat. They've got three car seats to line up and uh and we don't have a bench seat. So, he immediately goes to
31:46the whiteboard and starts to draw how we would attach a bench seat to the existing Tesla chassis. It turns out that is not an easy problem because it wasn't designed for that and there aren't attachment points that are obvious. And sure enough, the head of engineering is right up next to him and they're and uh and they're drawing and they're starting to they're starting to work through the engineering and then the supply chain leader is looking at that saying given the direction they're going, I need to start to light up the
32:15supply chain to see if we could get these kinds of parts underway and it's happening like in real time. But that's the way the product meetings worked. It was what does the customer want? How do we solve this? And let's go right into solution mode. Let's not debate the obvious. Let's go right into solution mode. And you've got the leaders of the company who are at whiteboards designing solutions. And the junior engineers that are in the room are watching this and they're saying, "Oh, the currency in
32:42this place is getting stuff done. So if I want to be successful here and look like that person, I need to act like that person. So I need to get stuff done." So the whole speed mentality is kind of built into the DNA of the way the place runs all the way down to the product meetings. I would have thought from the outside looking in naively obviously that there's like presentations and like like presentations are a no no actually like uh slides are kind of a no no. They have
33:10their place in like if you're doing financial analysis and stuff like that but if you're doing product we wanted to be hands-on and so you couldn't present like slides of your uh software designs.
33:21You had to like show the software. We wanted to have it in front of us and we wanted to be playing with it. uh so we could give real feedback which you can't do on slides because slides tend to mask the problems. You can't really see them. You can't certainly can't interact with it. So presentations were a big no no. A lot of stuff was just hands-on.
33:39I talked to somebody at at GM and prep for this and they mentioned that uh you had an impact on the product meetings there, but getting rid of slides. Is that I hope so. like I I don't know if I did, but uh but it it's what I found is it's super helpful not to be talking about the theoretical with slides, but be talking about the actual product. In one of the last product walkthroughs that we did, it was in a lab with the new software designed vehicle and we could
34:09literally touch, we could see the wiring, see the connectors, see the software and that for me that's great comfort. Like that's how I was used to doing product presentations where we could literally interact with the engineers who were designing each step of the system and we could literally see it. You could see how the wiring harness was going to work uh weave its way through the car. You could see if the connector pods made sense if you could see where the zones made sense because you could literally see it and touch it.
34:35It wasn't on an image on a slide that was in a sim somewhere that may or may not reflect reality.
34:41Do the leaders dog food feed their own products at these companies? It's like does Mary take home the top new model and drive it herself and like go through all the challenges that customers go through?
34:52It's a principle that is super important. And we used to we used to drive a Tesla off the line every night. So people wouldn't know which car we were going to grab.
35:03I couldn't dress it up. Like literally, we'd come and say, "Okay, that one that's fifth from being finished, I'm going to stand here until it comes off the line. I'm taking that one."
35:11oftentimes you'll see like people people will know, okay, somebody's coming down, some executives coming down. They're going to pick a car. Let's go pull a car. Let's polish the heck out of this thing. Make sure there are no warts, no issues, no bugs, and we're going to give them the perfect product. We said, "We don't want the perfect product. We want the product the customer is going to receive off the line. So, I'm going to come down. I'm going to pick a car at random and I'm going to immediately take that car and I'm going to drive it home and I'm going to take notes and then I'm going to drive it back to the factory
35:40the next morning. Typically super early in my case because the shift started at 6. I'm going to then write down my return drive notes. And so by the time an engineer hits their desk at 8 a.m. in their inbox are notes from a number of executives saying, "Here's my experience with this product. Here's what was awesome. Here's what I couldn't stand.
35:59Can you please fix this?" And it's daily. It's a daily feedback loop where we are saying, "Hey, we're consumers, too. We want the product to get better." So those weekly or bi-weekly software releases you get, a lot of that's coming from eating dog food. And we would not only eat our dog food, Elon said, "I'll take the Twitter feedback, the X feedback." I said, "Great. I'll take the Reddit and the forums."
36:24And so I was both of us were interacting on a daily basis. Like I would carve time out in between meetings. I'd be reading like Reddit feedback on on us and I'd be able to walk into a meeting and say, "Guys, Reddit is lighting up because something is goofed up with our last software release. Can we just can we get on this?" And we would often joke around, I don't think our competition's executives are this in tune. And it was helpful for us because we owned our own stores. We weren't selling through dealerships. We owned our own service
36:52centers. So, we saw the data about what was getting fixed on a car immediately. And we had these feedback loops that would help us be responsive to the marketplace. And that was the whole idea. So again, this whole theme of speed, speed, speed. And speed comes from feedback loops. And one of those feedback loops is using your own product.
37:09How important is that frontline data?
37:11Like when a customer goes into a car and they have feedback or comments on it, does that get collected along with repairs and damages and faulty parts?
37:19100%. And all that's getting analyzed and then served up and saying, "Okay, here here's the stuff we got to work on." And we knew that because we were users of the product. So often times we'd know it too.
37:29How else do you figure out what customers want? Like you mentioned that being a key to how the product meeting started. There's a lot of people who I mean you could Jobs didn't ask what people wanted in a phone. No, he he had design instincts. And I think there's this balance between being instinctual and also being informed.
37:52And um and so to be informed, I think a lot of us as leaders have different ways of doing that. My way of doing that is is going out into the stores. I learned this from uh from Sam Walton. Actually, I read his autobiography and one of the things that really struck me was how much time he spent in his stores asking his people like what product is moving, what product isn't moving, what do we need, um what do we need to get rid of, what does the competition have, and then
38:20he'd go shop the competition. Uh and and so my method was to go one day a week to the front lines somewhere in the world.
38:28So, I'd go to a store, I'd go to a service center, I'd go to a competitive dealership, and and I just ask customers like, "What do you like about this product? What don't you like about this What would cause you to to to finally come across the line and buy this uh buy this product from us?" And that was a form of input then that helped me under helped me round out the data that we were getting from, you know, pretty standard sources with standard ways of
38:57analyzing that data. It helped bring color to it. Um, and I could say like, yeah, I've talked to like 20 moms who want this bench seat and I've seen the fire and the energy in their eyes and if we deliver this, they're going to buy it. I can tell you like that. So that's part in being informed and part instinct. Like I'm seeing the energy behind this personally. I think I think this is going to go.
39:17And then you have immediate data to course correct if it's exactly if it's not. Yeah.
39:22What are the key tenets of a great product? When you think about a great product like a Tesla or other products, what do you think they have in common?
39:30I think they're simple uh in their design which gives gives them a chance at being elegant. Uh, and so if you think about like when the iPhone came out, it was such a step forward in design. We all had flip phones with keyboards and black screen. Exactly.
39:52And all of a sudden this beautiful thing came out was because a designer Steve Jobs said it should have no buttons and it should be beautiful in the palm of your hand. That's a very s simple construct from which Johnny IV and the team created beauty. And I would say that it works similarly at Tesla in the sense that Elon kind of constructs in his mind here's the simplicity of what I want
40:20this vehicle to do. Then he goes to his version of Johnny Ives which is Fron the head of design and Fron can bring that to life in a very beautiful way. And so you have this pretty simple car, the Model Y, that is the number one selling car in the world. It outsells Camry. It outsells Rav 4s. And it's utterly simple in its design.
40:45Uh its interior has no bells and whistles. Uh really doesn't even have a dash that you look at. It's got one screen that sits in between the passenger and the driver. But that kind of simple beauty allows you to execute, I think, a great product. And the definition of a great product in Steve Jobs's mind and Elon's adopted this too is it you don't need a sales force. It sells itself.
41:09And we found that when we went to hire salespeople for our stores, if we hired people out of Apple stores, they really didn't know how to sell because they knew how to take an order. People were clamoring for those devices and they didn't have to sell them at all. The people that you wanted in the stores were people that were at the Microsoft stores because they had to sell a Surface tablet next to an iPad. And if they could sell a Surface tablet, they probably knew how to sell. And I think great product does at the end sell itself. Like it flies off the shelves cuz there's pull out of the market
41:38versus push.
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43:16You mentioned Jobs. There's a story about Elon and Steve Jobs meeting.
43:22Yeah.
43:23Do you remember that one?
43:23I do.
43:24As Elon tells it, they met several times and Steve kind of blew him off a ton.
43:30And then uh one night Elon had him cornered, I think, at a sushi place in Menlo Park. And uh and said basically, just give me your design philosophy. And Steve said that's that's easy. Uh if the product is perfect, it will sell itself. So you have to work on perfect product. And that stuck with Elon.
43:51And a few months ago, I got to sit down just for breakfast with Steve Jobs as head of his chief of staff at that point. And he described for me like how product design worked because I said, "James, I want to know like how did you really design product?" He said, "We started with utter simplicity and requirements, but they had to be right." And I said, "So give me an example of that." He said, "Okay, get in the Wayback Machine.
44:19MP3 players were coming out. People could have portable music on a disc drive for the first time in their hands." And we wanted to come out with a product. And so Steve and I got in a room, and this is the way product design happened. We spent a week in the room. We didn't come out until we were absolutely certain we had nailed the primary two or three requirements for the product.
44:39And I said, "Okay, what were they for the iPod?" He said, "We came out and said two things had to be true." And we announced this to the engineering teams that were working on it. Number one, it had to hold a thousand songs. Nothing could do that at that time. And you had to find the song you wanted in 4 seconds or less.
44:56And those are two things that had to be true about the product. And lastly, it had to be beautiful.
45:03And so the engineers heard these two requirements and like first of all, we don't know how to do that. There's no disc drive the size of your thumb that's going to hold a thousand songs. And there's no OS that gets you to a search on a device that big with no chip essentially that gets you a search uh algorithm that will work that fast. And so they had to invent both of them. So they ended up inventing a new form of solid state drive that was as big as your thumb that could hold a thousand
45:31songs. And they ended up inventing a chip that had the clock speed to index those songs and search. And then the the UX team invented, you remember the wheel where you could search with the wheel like and so you would you would immediately get to the first three letters of the song and boom, the odds of your finding that song within 4 seconds skyrocketed. James described to me as they were working through the engineering on the product. The engineers would come and say, "Hey, look, Samsung has an FM radio on their
46:00MP3 player. Should we have an FM radio?"
46:03And Steve would look up with a little bit of anger and say, "Is that a thousand songs or 4 seconds?" No. Okay, then it doesn't go in the product. These are the two things that go in the product. Solve these two things, we have a winning product because it's what the customer wants and we could describe it to the marketplace super simply. And so I think those are the principles that Elon pulled from. A lot of Silicon Valley has pulled from jobs, but Elon definitely pulled those from jobs and it goes right into the design ethos at
46:33Tesla.
46:34I want to come back to marketing for a second. Tesla doesn't do any paid advertising that I noticed. Anyway, I think they do now, but they didn't while I was there. And uh it was one of the challenges in this job. Elon said to me, "Hey, like there's something in this job you ought to know about. It's something you probably haven't faced before." I said, ' Okay, what is it? He said, 'The marketing budget here is precisely zero, and you need to double the company every six to eight months with no marketing budget. I'm like, you're right. I haven't seen that before. How do you do that? And he's
47:02like, I'll show you. And he was great at at V. He still is today. He's great at capturing headlines and those headlines get preserved. They're searchable and then they're repurposable on social. And that today is still the marketing model at Tesla. Have you learned anything from that that you take away% like I'm very suspect of large marketing budgets now?
47:23Um because I've seen one of the world's largest companies get built with almost no marketing budget.
47:29How do you go about marketing that way without being Elon Musk then? Like what are the other things that Tesla was doing that we like Elon wasn't Elon back in 2014 2015 when we started doing this? He didn't have 100 million followers on X and we had to build up his audience which we did purposely. So we built it up first through space because there's a lot of space fanboys uh on X on Twitter at the time. Build up his fan base and then we started to build more car
47:58content in and he was super involved in this. He would coach us on like this is the only kind of stuff I'm going to release because I got to watch my brand and be aware of my brand and Tesla's brand here. So, we got to be really careful.
48:12Wait, he would coach you on that?
48:13Oh, 100%. Like, he's got a very good brand.
48:16He's got his tweets.
48:19I know. Well, like if you think about though with Tesla back in that time, if you go back and look at those tweets, it was only only uh product marketing. If we came up with a new product feature, all-wheel drive, boom, that was getting released. If we came up with a new car feature, Ludicrous, boom, that was getting released. And we were being very thoughtful and and almost with scarcity having him blast these things out. And
48:47we would use the press around this uh and then we would repurpose all the press we got. And that was enough to create a buzz uh around the globe that this stuff, this car was really different, this company was really different. Um, and all we needed to do was have you come check out the product online or in store. That's then when we could pull you through the funnel.
49:09I think you scaled Tesla about 10x while you were there in terms of sales. I'm curious what goes into the physical infrastructure with that velocity of scaling. My experience was in software and it was much easier to plug in servers while you were growing. But to 10x a car company, you've got to do the obvious things that you would know. You got to build factories, you got to build supply chain, you got to build delivery, you've got to build uh distribution,
49:36sales, and all that stuff is physical things that have to be built. So sometimes we would creatively reinvent those things. So rather than like building service centers, we discovered that 80% of what you could repair in a service center on a car could be done in a customer's driveway.
49:58So we invented mobile service so that we didn't have to build sales or service centers anymore or as many. And so the creativity of the team helped us bend some of these assumptions. But yeah, we had to build physical stuff. There's no getting around building a factory. If you're going to make cars, you got to make you got to make a factory to bank the cars.
50:17But I used to think that would be sort of like the critical path, but Elon has shown that you would build factories and times that we would not think even possible.
50:27Partly because the factories are utterly simplified. So compared to competition.
50:31So like if you take a car factory, it's almost a mile long uh and it's a long rectangle. And if you sat on the 50-yard line in the middle of the factory and you looked right, you see a sea of robots welding the skeleton of the car called a chassis. And if you look left, you see a sea of humans hanging parts on that skeleton. That's called general assembly.
50:54And so Elon gave the challenge to the management team. We have to cut 50% of that out. And we have to do this because we got to be competitive with the Chinese. They're ultra costs advantaged right now, etc.
51:11So Doug Field, who was the head of engineering, came up with this method to replace half of the factory. And that was rather than welding the skeleton of the car, he invented literally his and his teams invented a way to cast that.
51:27So to pour liquid aluminum into a mold that was impossible to produce before they did this, they would take 1600°ree aluminum and and mold it and allow it to cool into the form of the chassis of the skeleton of the car. So the reason that Tesla can build these factories so rapidly, it could because Doug and his team figured out how to eliminate half the factory. So now, yeah, you can build these things a lot faster because now I don't have to have hundreds of robots
51:55get synced up, deliver this perfectly welded 300piece skeleton. Now I've got two parts that come together and I don't need that half of the factory anymore. So that means you can build factories faster. So we were just the whole team was figuring out how do you optimize and invent to make this a reality where we could 10x a company in 20 or 30 months.
52:16Uh and it just required incredible creativity on the part of the people that were making that happen and inventing these new ways of doing things. So Doug invents uh invents castings and we don't need half the factory footprint. Kusta and and his team invent mobile service. We don't need that footprint. Uh and we just were able to unleash growth through being really creative about changing the
52:46model. Is it true the casting problem was fixed like with a Hot Wheels car?
52:50Well, that was Doug's original uh communic It's the way he communicated what was possible. He's like, "I have the answer." And he rolled a Hot Wheels car across the table and he's like, "Here's the answer. Here's how we're going to get rid of half the cost and half the factory." And we're like, "That's a Matchbox car." Like of course you can mold something as big as your thumb, but the physics of molding something the size of half of a car, the pressures that it takes to hold that
53:20aluminum in place and the mold materials that it takes so that that thing doesn't like explode are were impossible at the time. Nobody had figured out how to do it before they figured out how to do it because it was literally the physics were impossible.
53:35People didn't know how to do it. So, you could say that was physically impossible and be accurate, but they figured it out. And it's created an 8-year competitive advantage for Tesla cuz just now cars car manufacturers are getting into casting. And that is the whole kind of character characterization of speed. Like when you invent at that speed, you're creating these multiple year maybe decadel long advantages versus your competition by going after
54:03these hard technical problems. I think you were in the car when Neurolink started.
54:08Yeah, when when that seed or kind of German of an idea started for sure.
54:13What happened?
54:14Eli and I were traveling together to China. We just landed uh in Hong Kong.
54:21We're in the back of a Model S and we're both like uh catching up on our uh on our inbox on our phones. And he looks at me, looks over at me and says, "How fast can you type with your thumbs?" And I said, "I have no idea. I've never timed it. He's like, "Well, the average human is like 18 words a minute." He said, "How fast can you type on a keyboard?" I said, "Like I think it's like 60 or 70 words a minute when I was in high school. I'm probably as good as I was then, maybe better. So, let's call it 60." He said, "Exactly. So, you are more
54:49than three times faster on the keyboard than you are on your phone. So, the this device has slowed the input into the machine." And I said, "Yeah, it has by 3x." And he's like, "Yeah, that's a big deal.
55:03because you can't get speed of answers and decision-m if you're going three times slower. I said, "Yeah, that's you're right." He's like, "What if you could think into the machine?" I was like, "Well, that would blow this constraint away because now we don't have keyboards and thumbs to go through. Now you're like thinking in real time into the machine." He's like, "Exactly.
55:24That would pull the front-end constraint off of the compute for humans. That's a big deal." So he didn't sit on these ideas. Uh he's very unique in this in this way. And uh he said to his chief of staff uh Sam Teller who was in the front seat he Sam can you track down the top neuro computer science interface researchers in the world get their papers I want to read the
55:53papers while we're here in China and on the flight back and I want to meet with these people next week because I want to start to work on brain computer interface and just like that fast. So by the next week he's meeting with some of the top minds in the world on this topic and he doesn't let go until he starts nurling.
56:13I mean multiple insights there. I love the speed to actually taking action.
56:18Yeah.
56:19Um and now we have chat with like AI where you're sort of like voice mode.
56:22Right. Exactly.
56:23Uh which is much faster than typing.
56:26Yeah. Like one of the hottest companies is Whisper Flow right now where you just talk to your computer and you kind of give up the type the keyboard and you can code and you can design and Yeah.
56:34That's amazing.
56:35Your book is called the algorithm. What is the algorithm?
56:38It's a formula that we use or really a framework I would say that we used to create these breakthroughs and to create innovations. And it was a framework that we developed by doing postmortems and on a series of big mistakes that we'd made and asking ourselves, how do we not make this mistake again?
57:00And we came up with over time this five-step algorithm that would help us not repeat mistakes. And the counterfactual was it would drive innovation. So it turned out to be a really powerful framework that's in use today. Like in the SpaceX IPO in the first few slides there's a slide called the algorithm uh where they say hey like if you're going to invest in this company you need to know how this company runs. And we run on this framework of the algorithm and it's what led to the advancements from Raptor 1 to
57:29Raptor 2 to Raptor 3, the engine. Um, and very much Tesla is built that way too.
57:35Can you maybe double click on that? Walk me through the five.
57:38It's all a journey in simplification.
57:40Uh, and so you kind of get that with five steps for the first step of simplification. You want to remove all requirements that aren't real or dumb. And so you question every requirement.
57:51And so that means things like if you have a 12-page loan doc, you question why you need every paragraph in that loan doc and why you can't get it down to one paragraph. So you eliminate as many requirements as you can is the first step. Now you've got a simpler set of requirements and then you design a new process to deliver those and you delete as many steps in the process as you can. And the hack that I would use with my teams is I would say map the process out. Like literally put sticky notes on a wall for each step of the
58:20process and then go circle the ones the customers pay you for. And it turns out in almost any business process, a super minority of those the customers pay you for. They don't pay you for documents. They don't pay you for communications.
58:35HR benefits. All kinds of stuff. They don't pay for that. And so you got to figure out, okay, how would I deliver this in a way that is totally maximized around what the customer is paying for. That's step two. Step three is now you have a brand new process that has been very simplified. Now you need to start to run it and optimize it and polish it manually.
58:58And step four is you apply the great kind of revealer to that process, which is speed. When you speed up a process, it shows all of its warts. It shows where it breaks. It shows its uh its failure points. It shows quality points.
59:12And so you've got it. Speed allows you to like see all the failure points. And you can then scrub those out of the process. And then once you've got a process that's working at speed optimally, then you automate. And so the last step of the algorithm is you automate last. And we had made mistakes like automating first. we'd made mistakes like just not questioning requirements and ended up in like multiple month loops on problems that wouldn't go away. And so this whole framework allows you to not only solve
59:41problems but innovate um because you're you're eliminating requirements that your competitors think exist but they might not need to exist outside of manufacturing. Can you give me like a recent example of how you've used that to solve a problem? Yeah. So like I uh this is so crazy example this in in financial products. Uh so I was being interviewed on CNBC about two years ago about super cycles about how lucky we are to be alive right
1:00:10now. There's so many super cycles happening that make it a great time to be an investor. So if we live 100 years ago we got the industrial revolution. That's all we got. But we're alive today and we get AI, electrification, robotics, space, biotech, all this stuff happening at the same time. So, it's great time to be an investor. And uh the interview stops and Joe Kernan and Andrew Ourin turn to me and say, "How do we invest?" And I said,
1:00:38"Well, I'm sure there are thematic ETFs on each of these super cycles. I'll tell you what, I'll look at a few. I'll text you back some ideas." So, I get in the car to come across town from Times Square uh down to our office in the meat packing and I start to look at different exchange traded funds, ETFs. So, it turns out there are more ETFs than stocks traded. It's how people trade uh and invest these days. And so, I open up the largest electrification ETF
1:01:07and the top five holdings are Amazon, Google, Microsoft, Nvidia, and Apple. And I looked at those, I'm like, those have nothing to do with electrification. There's none of that in the grid. There's none of that in an electric car. Uh we can't put a $20,000 chip Nvidia chip in a car. We couldn't afford to sell the car.
1:01:26And that's like the Mag 7. So why would somebody pay for an electrification supercycle ETF and get the Mag 7 and not get exposed to the people who are actually building the grid? Well, first of all, I called Andrew and Joe. said, "Don't invest in these products because they're terrible, but I have another idea." And so I started with the first step of the algorithm, which is question requirements. And the whole ETF business is built up around the first ETF, which
1:01:52was Vanguard, who had the S&P 500 ETF.
1:01:56And they did the AS&P 500 based on market cap weightings. So big companies get bigger weights in that index and small companies get smaller weights. And since that time, almost all ETFs have been built on a market cap weighted basis. My idea was that doesn't work for emerging industries because you might have one big company like Nvidia in the AI super cycle who's worth $4 trillion. You may have one little company that's providing all of the
1:02:25fiber to these AI data centers who gets no exposure in that ETF because of a market cap waiting approach. So, I started to call everybody I knew in the ETF industry and I could get introduced to and said, 'Wh do you build these ETFs with market cap weights?
1:02:43Isn't there another way? And they all said, "No, no, this is the way it's done. It's all it's been done this way since Vanguard." Uh, and so everybody does it this way. It's the only way you can do it. I'm like, I don't really agree with that. I think like if I wanted to give PE investors exposure to profits, I'd take the build sheet of an AI data center. I' I'd figure out who provides the fiber, who provides the power electronics, who provides the networking software, who provides the high bandwidth memory, and I would weight the
1:03:12ETF on their contribution to like the AI data center or their contribution to the grid or their contribution to the satellite. And so just take the build sheet in manufacturing terms, we call that the bill of material. So uh we started to build ETFs based on the bill of material. It turns out in an AI data center there are 60 stocks that provide all the stuff that go into an AI data center. 30 uh international 30 domestic.
1:03:38Turns out about the same number that provide the grid uh infrastructure about similar number provide the defense infrastructure space etc. So we built a series of ETFs that were the first not built on a market cap weighted basis but built on this bill of materials weighted basis and it turns out it's pretty superior because you're exposing the investor to these profits. So we have the number one performing AI infrastructure ETF that is traded on the market. We have the number one
1:04:08electrification.
1:04:09We just released robotics in space. So that's a really not recent non-manufacturing example of how you can start with questioning requirements and end up with a very different product idea and invent something that hasn't been invented before turns pretty superior. So like for investors we like I feel great because with somebody that invested a dollar a year ago is up 158%. Because this is a superior way of exposing profit pools to investors.
1:04:36What goes through your mind when you're trying to simplify something? I start with the first step of the algorithm which is why does why does this appear the way it appears? What are the requirements or base assumptions that have gone into this product? Why couldn't it look different? And I start to pull the string from there. I often don't start with a vision of what it could be. I start with how would I just take apart what currently exists. Uh and in that process you start, this is something I learned
1:05:06from my grandfather. he had this auto repair shop and he would often say to me, if you don't know how to fix something, you will probably know how to fix it if you take it apart. So, that's typically the way I approach a problem is I start to take it apart. Um, like my grandpa taught me to do. And then, and then once I'm now into it and see what the critical parts are, then you can start to say, does this really need to exist? What could this work differently?
1:05:30And you just start to pull the string on what could work. What percentage of the time do you think when you dive into requirements that maybe they once were needed but they're not needed but nobody even knows why they're there anymore?
1:05:42You actually used to talk about this like we used to compare it to a garden.
1:05:45You plant a garden and in business like nobody goes out to weed these gardens and so weeds just grow. So the garden being a process and so weeds just grow up and nobody's back there with the weed whacker whacking them out. And every once in a while an executive will say, "Well, this is totally broken. Let's go back there with the weed whacker and whack it out." But that happens like once every five years, 10 years. And so he wanted to and he wanted to build a culture where we we had the weed whacker
1:06:14out a lot. Like we were looking at current process and questioning why we're doing it. And so like he an example of that is he came to me one day and he said, "What CRM do we use?" And I said, "Salesforce." He said, 'Well, it's a tax on growth. Every time we add a seat in this company, we pay a subscription. That's a tax on growth.
1:06:37Do we really need Salesforce?
1:06:40And that was a typical like question I like the kind of question I would get from him on a weekly basis where he's like looking at a garden that hadn't been weeded in a long time and saying, I'm just going to take a weed whacker in there and start asking questions and like, do we really need this? Could we rebuild this ourselves? Uh could we approach this in a different way? And that is definitely part of the uniqueness of the culture of Tesla and SpaceX for sure.
1:07:08How did you know it was time to leave Tesla?
1:07:10My family. Uh they had a bit of an intervention with me. To his credit, Elon gave Walter permission to write about his mental health struggles in Isacson's book on Elon. And uh I was right in the thick of that. And um I I'm okay in terms of my skill set of handling technical problems and handling manufacturing problems and distribution
1:07:38problems and brand problems, but I'm I'm super illquipped to hand help somebody with mental health issues. Like I just don't have the skill set. And so in trying to help him through that period, which is pretty rough, I was becoming more and more stressed out because I wasn't able to help my friend. uh and wasn't effective, I felt like at all.
1:08:00And um and my family, I didn't realize how that was manifesting itself. So my family sat me down uh over the Christmas holidays and said, "Hey, look, we don't we want to hold a mirror up to you. We don't like who you're becoming."
1:08:13Oh, like you're moody, you're I'm moody. I'm mean, I'm I'm grumpy. Uh and I thought I was like masking all that stuff. I was con compartmentalizing it and containing it. Turned out I wasn't and it was leaking out. And so that's when I knew it was time to go because I literally sat down with Elon a few weeks later and said, "Look, I can't help you with these problems. Like, you need somebody who can and I can't, but I like this it's having an impact on me
1:08:41and it's time for me to now go." Uh, and um, it was a tough conversation to have, but he really did need a catalyst to get help and I needed to to get myself out of an unhealthy pretty unhealthy situation. Kind of the only situation I'd been like that in the work or professional in my professional life.
1:09:01Was that hard for you? Did it feel like a failure for you?
1:09:04It didn't feel like a failure. It felt like I was giving up something. I I literally loved that company, loved that job. And uh that was the hardest part for me was I love the people, I love the job, but the situation was kind of killing me and I couldn't um that's what caused me to have to make the hard decision to leave as hard as it was. It didn't feel like a failure. It felt like I was leaving something that really meant a lot to me. And it turned out it did because I loved being in that environment. I loved working with people
1:09:34who were we would say we're doing the best work of our lives together. And um I luckily a lot of those uh same teammates are uh I get to work with today. Um so those relationships continued which was great. I didn't see that at the time but I'm super glad that they have.
1:09:49What is it about some people like Elon and Steve Jobs that allows everybody around them or a lot of people around them at least to say that they do the best work of their lives. Say I think it's the challenges that they get like it's Doug Field who I described earlier used to have this mantra uh that history is changed by unreasonable men.
1:10:12And and I would tease him because he worked for Jobs before he worked for Elon. I was like, "Man, you must be a glutton for punishment." He's like, "No, history's changed by unreasonable men.
1:10:21Do you want to work for these people that just have an unreasonable view of the world because they bring out the best in the people around them?" And he's like, "I like working for people that bring out the best in me." And both of these both of these guys have. And so I think that comes to like just the challenge that they give people. And so like if you're really great at your craft, I think you want to be coached by, led by um somebody who is going to bring big challenges to you. So you you end up
1:10:49saying, "Geez, I I didn't know that I had that within me. Uh I didn't know I could do that." And then you feel super super good about the leader that you're uh that that you're following that's giving you those challenges. I remember when the Isacson book came out about Steve Jobs. Uh, everybody where I was working sort of read that and then started to be effectively thinking that was the key to to success.
1:11:14Yeah.
1:11:15Do you witness any of that?
1:11:17Yeah. I think over time as you mature as a leader, you realize you got to you got to lead with your own authentic style, not somebody else's. And when you start mimicking somebody's style, like the people mimicking jobs, doesn't really work well because people see it's inauthentic and it doesn't really work for who you are. And and even though I was working for a big personality like Elon, I couldn't like mimic that. I had to I wasn't going to be authentic.
1:11:40People weren't going to follow me. I had to lean into who I was as a leader. And um and I think that's super important.
1:11:47And when people start to fake that, uh it just doesn't go well. And to that point, like I asked Walter one night, we were at one of the stops on his book tour and I got to interview him, which was awesome. And I said, "Do you have to be an to be successful?" Like he jobs, you read this book and it's it's pretty clear the guy was big a-hole. You've written about a number of these people, Einstein and others who are kind of a-holes. And um
1:12:16he said, "No, you just have to like you you have to master your own style." He said, "Do you think Sachi Nadella is an asshole?" I said, "No, he's not." He said, "Do you think he's effective?" I said, "Yeah, I think he is." He's like, "Are you an asshole?" I said, "Hopefully not." He's like, "You're pretty effective at what you do." I said, "People tell me I am." He's And he said, "It's not that you have to be an It's you have to be authentic to who you are."
1:12:40You have an exercise that you do called fire yourself. What is that? Walk me through it.
1:12:44I uh It's actually not mine. I got to give credit where credit's due. This came from Calvin McDonald who was uh who was the CEO of Lululemon at the time.
1:12:53And he asked himself he he would go away in the first quarter of every year to really kind of prepare and gird himself up for the year to come. And one of the questions he would ask himself when he went away by himself is if I was hit by a bus tomorrow or if I was fired, what are the immediately obvious things that my successor would do? Like they would come in, assess the situation and say, "Oh, this was obvious. Got to do
1:13:22this, this, and this." Like right away.
1:13:24And so he would list out those things like what would my successor do?
1:13:30And then he would ask himself like, "Why aren't you doing this?
1:13:34And often times it was because other things seemed more important, was fearful uh that it could be a big risk or might not work, whatever. Uh he's fearful of making a change because he would be replacing people, maybe uh disappointing people, whatever. But he he did this fire yourself exercise so he could come back within the first month of the year and say, "You know what? here are three things we got to do cuz these are
1:14:04obvious and if I was hit by a bus there are three things that you guys would do without me. So like let's just get them done. And it was a real refresh uh for him and for his leadership team to kind of keep the ball moving downfield. Uh and it was super healthy. So yeah, I borrowed that from Calvin.
1:14:23You're on the board at Lulu. You mentioned Lulu who has just hired a new CEO.
1:14:27Yeah. walk me through when what went into the hiring that CEO. I would imagine that there's a difference having you on the board, an ops person versus financial people versus Yeah. And so we all bring a perspective and and Heidi O'Neal's the new CEO. We knew that we needed somebody who uh who had an eye for product because product is core to every company, but it's certainly core to an apparel company
1:14:56who had an eye for talent who had an eye for scaling and in the uniqueness of Lulu had an experience with a vertically integrated organization. And what I mean by that is Lulu not only designs its product and uh and manufactures its product, it sells its product in its own stores. Like it doesn't sell through a wholesale relationship through Dick Sporting Goods
1:15:25or Nordstrom or anybody else.
1:15:27So it's somebody that has come out of a world where you have stores which are deeply operational.
1:15:33Stores are almost a mini factory. How many people come in on a daily basis?
1:15:38What do they see? How do they interact with the product and do they buy? And there's a whole operational science to how do you get a store to work really well? So, we needed a leader that understood stores and understood the product machine behind the stores. And Heidi had both of those. So, but as we sit down to select a leader, we put the parameters around here's what would make the core skills of this leader to be successful. And then we're interviewing candidates each from our perspective.
1:16:07for me as a sitting executive who scales. Uh we've got as you mentioned finance people, we've got tech people, we've got uh product and marketing people all around the board who are assessing the candidate from a bunch of different angles, but essentially we're agreeing, hey, here are the four things that need to be true about this person uh and why we're hiring this person and why we're going to have faith that this person is the right person for the next chapter of this business. What's your instant tell when you're you're interviewing somebody for sort of
1:16:37talent, worldclass talent?
1:16:39It is their detailed understanding of what they're describing. Go deeper on that because the thing you want to make sure that you're understanding is did they did did they do or do they do the work?
1:16:53If they have a deep understanding, they're going to be able to do that work here and lead that way here. But if they're claiming responsibility for somebody else's work, it becomes evident really quickly when you start to dive into tell me how you did that. Tell me how you broke this problem down. Uh tell me what the solution was. Tell me what your role in that solution was. And that's the first clue that you're talking to somebody who is actually a practitioner versus maybe a paper pusher. Uh and I'm
1:17:22definitely looking for the practitioners.
1:17:25You spent a lot of time at Tesla interviewing people. you were one of the final interviews for 40% of my time was interviewing cuz in in any business, especially in a high growth business, talent wins. And so you got to be really devoted to talent selection.
1:17:40And uh this works again outside of business. It works in the arts, it works in sports. The best executives of teams are really great talent selectors and they put great talent on the floor or on the pitch or the field at the same time.
1:17:56And that in a growth business I feel like is one of the primary responsibilities of the leader is the is talent selection setting the bar and then also attracting the talent uh that meets that bar to come into the org and make a difference.
1:18:10So a lot of times when people do that there's a final interview and somebody's gone through four or five interviews before then it's kind of a rubber stamp or a culture check or I don't get that that vibe with you. What was that interview like? the final interview is they to your point they've been through multiple interviews to prove they're world class. Uh and so I probably if in some in a lot of cases I want to do a double click on that and understand that for myself like why why did the team believe this person is world class? I
1:18:39want to I want to understand that. So I spend first half of the interview really diving deep into are they world class?
1:18:47Do they have this experience? Do they do the work? Do they have this detail orientation that's going to help them be an effective leader? Then if they check that box, then we flip to the second half of the interview, which is okay, now I have to do cultural imprinting.
1:19:03And what I mean by that is like every entrepreneur struggles with, hey, as we grow, how do we preserve our culture?
1:19:09And one of the hacks that I learned from Elon was that, oh, you do this final interview where you're cultural imprinting on everybody and you're explaining to them, here's how the culture works. Here's the currency of success here. Uh, and here's the attributes of people who are successful and here's what we expect from you in this role.
1:19:31And that cultural imprinting is the reason for the last interview because it's your one chance as a leader to interact with this person who you may not see all that often after they're hired depending on their position. But you at least want them to have the secret decoder ring to success and to describe here's what success looks like here. So if you behave this way, if you deliver this way, you're going to be successful here and we're going to see each other again for sure. um and this is a behavior that I'm going to expect from you and that your whoever what team you're working on
1:20:01or that leader is going to expect from you. That is the purpose of the final interview uh is to do that cultural imprinting. And so we were growing from 4,000 to 40,000 people. We were doing a lot of final interviews of managers and above doing that cultural imprinting.
1:20:17If I started working for you tomorrow as one of your direct reports and I asked you how do we build trust? What would be your answer to that? We need to communicate with clarity. Uh and so I would say like one of the currencies here is getting things done.
1:20:35And so our talk do ratios are kind of inverted. But when we do talk, we're concise, we're clear, we're factual. If we have an agenda, we just put that out.
1:20:44Uh because it's super frustrating if somebody has an agenda and they're sort of cleverly trying to hide that agenda. I would just rather you be frank and clear. So that's the kind of discussion we would have. I was having a discussion with a member of our team yesterday.
1:20:59They were kind of beating around the bush on an issue that really mattered to them and I said, "Hey, just what's your ask? Just tell me what your ask is because then we can have a real discussion." But right now, I feel like we're kind of dancing around an issue that I really don't understand. Can you give me clarity? And so often I'll say to somebody like, "If we're going to work together, the best gift you can give me is clarity. If I'm messing up, just be really clear about it. If you see an opportunity, be really clear about it. Uh just give clarity, which
1:21:26means again, you got to stop, simplify to be concise, and be really super clear about what it is that you want out of that conversation.
1:21:35Can you walk me through a time you failed at something that mattered a lot to you?
1:21:39Oh jeez. Yeah. Trying to like sort through the many examples I could give you. There was a a a startup. This is my second company.
1:21:51and and I'd formed this company with people that I'd worked with in my prior job, including my boss. And the guy was he's a great guy. He's 10 years older than me, very strong personality. And I had written the business plan for this business. And I had a vision for growing this company organically. And he had a vision for growing the company through M&A and so growing it inorganically.
1:22:22we started the company and we didn't reconcile that difference of in strategy and approach. And part of it was because I was just young. I was 26 at the time, 27. And I really hadn't learned how to how to communicate and resolve difficult issues. And so I'd lay that on me. But we let that conflict just sort of grow unchecked for the first two three years of the business. And luckily we were each having success.
1:23:00Me and the organic side, him on the M&A side and the company was growing. So from the outside in it looked like a huge success and it was a very successful outcome.
1:23:08But the people in the company were caught in between these two battling visions of the company and they knew it all the time. and the tension was on all the time and we never really reconciled that for them. When we sold the business, I remember like it was a great outcome for investors and I remember talking to a few of the key people that were on the team and they're like, "I'm just so relieved that this is over."
1:23:35And instead of celebrating like we were all having a win hitting the finish line together, people are like, "You guys were terrible as leaders because you never reconciled two very opposing views." And you just let that tension blossom within the org. And the result was some people chose sides, some people were battling all the time, you guys were battling.
1:24:01And uh and I really regret that. like it was it was something that I never wanted to be a part of again. And uh and yeah, obviously you don't go you don't get a redo on that company, but I've tried to like I've tried to break that pattern in in companies cuz I felt like that was a real leadership failure on my part that I I knew was there. I can't blame it on on being inexperienced and young because I knew it was there and I probably could have better figured out the tools to
1:24:30reconcile that um and confront it, but we didn't.
1:24:35What are the the top three business books that you give away to other people and what's one lesson you take from each of them? The top three books that I've recommended most consistently are a book called the goal which is by Ellie Golrat who's an MIT professor if you want to learn about operations principles like leading operations.
1:24:58So it's that book like totally changed my life. Second book is if you want to live a life worth living. Uh Steve Steve Cubby's old book the seven habits of highly effective people really impacted me. Uh and then the third book that I've read over the past couple years is unreasonable hospitality by Will Guerrera. I think it applies to every business almost applies to every life.
1:25:26If every aspect of life, if you make the person across from you feel hospitality and dignity through that hospitality, it's powerful. Like if you make customers feel that way, you're going to sell a lot of product. And so I hand people this book on running a restaurant and people are like, "What?
1:25:44I'm in business. Why you handing me this book?" I'm like, "You'll get it once you read it." So those are the three that I probably that have affected me uh significantly that I pass along to others. Can you double click on the concept of vertical and horizontal mentors?
1:25:59Yeah, I think when people ask me like what what's the great hack of a career?
1:26:04The first thing I that comes to mind for me is mentors because mentors are such a accelerator unfair advantage. In my experience, there's two kinds of mentors. There's a vertical mentor uh which means somebody has been down the path ahead of you. They're maybe a generation ahead of you. They're an older leader. They've seen they've seen the movie before. And so when you come to them and say, "Hey, I'm like dealing with this. Have you seen this?" They're like, "Oh, yeah. I've seen that movie.
1:26:30Let me let me help coach you through this." Then there's horizontal mentors, which I found to be equally valuable, and those are peers that are going through the same stuff you are, the same challenges. Um, it's best if they're in a similar situation. So uh I would build over time groups that were in similar businesses, similar size, similar growth rates so that we had a common set of problems.
1:26:58And with those mentors, it's different like we none of us have seen the movie before. But you when you look kind of at a side angle through to somebody else's business challenge, you often are teaching yourself is and so we would get together on a quarterly basis for a day and a half or two days, lay out the biggest problem we were facing. Total Chattam House rules, nobody, it's total confidentiality.
1:27:24And I found that those five or six people could totally help me work see a problem differently because they were looking at it through a side angle um where I was looking at it head-on. And so the combination of horizontal mentors like that and vertical mentors are super important. So you need to have both in your life constantly if you can and it's a total hack.
1:27:42What makes for a good vertical mentor?
1:27:45I think the ones that come to mind so I've had three excellent vertical mentors. a guy named Scott Porter who's my first boss, guy named Fred Mason who ran one of the largest manufacturing businesses in the world and uh and Scott Cook who was the founder of in it. All three of those individuals are unbelievable teachers.
1:28:09And Fred, the second one I mentioned, would tell me over and over again like when you become a really good leader, one of the signs of that is you've become a very good teacher.
1:28:24Because you're multiplying your skill set, your insight, your method, whatever that is. And Fred was a great teacher to me and Scott is an unbelievable teacher to me. Uh and uh and I think that's the difference in that kind of mentoring is they're just super patient teachers.
1:28:45Scott's into it, right?
1:28:46Yeah.
1:28:47What has he taught you?
1:28:48I really want to constantly I want to get better product development.
1:28:52And so I came to a session with Scott. We would often either meet at his house or we do bike rides together. And one morning I asked him on a bike ride. and I said, "Can you explain how you run product development, product management to me?" He's like, "Yeah, I'll do that when we get to my house." So, we eventually get to his house and he describes this tool set to me that he uses called Follow Me Home.
1:29:19And uh and there's two parts of the tool, but one that he uses is that he brings actual users of the product into a conference room where those users sit at the table and on the uh walls of the conference room external to the table, the management team sits and they watch him do this exercise.
1:29:43So basically he goes to the whiteboard and says, "What are the three things that you think we need to fix about this product?" And so people, each one of them lists their three things. And the second half of the whiteboard, he's like, "What are the three things that drive you crazy that you wish our product had, but it doesn't have today?"
1:30:04So three corrections, three builds. And then he says to them, he goes, "This full list." And he says, "Okay, you get five votes.
1:30:14You can stack them all in one thing. You can spread them out, but go to the whiteboard and vote." And he said, "A miracle happens every time you do this exercise. Everybody votes for the same things. It becomes ultra clear. You emerge with the three things you need to do because all the votes are on not on the 60 things, but on the three things."
1:30:34And he says, 'The miracle is the management team is in there and they get the emotion and energy of the customer who's frustrated or wants this or whatever and the product roadmap becomes absolutely clear.
1:30:49And I was like, Scott, that is brilliant. And I was uh transitioning from Tesla to Lyft at the time. And so I remember sitting down with a key leader at Lyft, Woody Hartman, who has been the COO at Lime uh uh since then and said, "Can you do this with drivers? Can we run one of these exercises? Can we get drivers in the room and figure out what would what needs to be true about our product?" And so I remember Woody and
1:31:17his team ran this exercise, the Scots Follow Me Home exercise with uh with our driver team. And they came they came with these brilliant insights that led the product roadmap for Lyft for about a year. And I remember Woody coming out of that session. He's like, "This was so simple. I can't believe it." And I was like, "Yeah, you just got to thank Scott Cook." Like he taught me this literally in 20 minutes one morning and it's ultra effective. So it's example of like one of the things you can get from a vertical mentor and I got that from
1:31:46Scott. Uh and it's completely helped me be a much more effective product leader.
1:31:51That's an incredible idea. Thank you.
1:31:52Totally. Super simple. Yeah.
1:31:54Yeah.
1:31:55You were at Lift. You're the COO during a 18-month period. I'm curious what lessons you took away from that experience.
1:32:03I think a lot. It was a really unique special moment in time in that we had you had a competitor Uber who was 80% of the market share and Lyft who was 20 and uh I had arrived right in time for a delete Uber. So the CEO of Uber had totally offended the customer base and people were looking for an alternative and and so we
1:32:32were luckily positioned as the nice brand and the trusted brand and so we were able to double market share with some really good execution on the team. This wasn't obvious how to do it but we figured out how to do it. We doubled market share and doubled revenue and then we're able to take the company public.
1:32:49So I think the lessons from that lift era for me are product positioning super important uh and especially product positioning counter to the other alternatives in the market in a positive way. Super important. Second lesson of ride share specifically, but then can be applied more generally is Lyft and Uber began early on to compete on price.
1:33:18And any business that competes on price ultimately is called a commodity. There's no difference between a copper really from producer A, B, or C. They compete on price. And uh and no brand positioning in the world is going to save you from that. And so once you're competing in a commodity market, now you have no basis from which to collect rents and so your profit margins collapse.
1:33:42Well, not only that, they both had stickers on cars. They basically told customers the products are interchangeable.
1:33:49Exactly. And the apps are interchange they told the drivers the apps are interchangeable. The the markings on the car, you're right, with the stickers told the customer that they it was interchangeable. And so all that mattered was price. And uh and so one of my lessons from the ride share industry is be very very very very resistant to competing on price. When you start on price and promotion, you're you're
1:34:17changing the whole nature of the product and the brand.
1:34:21If you could go back and make one decision differently that you were there, that would have massively altered the future. really tried to pound on the table to to to convince the founders like we have to if we create a brand position here this superior we'll be able to command superior economics but by that time they they were multiple years already into the price competition mode and getting them to see that wasn't it
1:34:49just wasn't possible but if I could if I had magic dust I'd change the dynamics of the competition in the market uh so that you could have a business that made money. At that point, neither company was making money on a gross margin basis because they were underpricing the product to compete.
1:35:07That's just insanity. What are you like as a board member? Because I'm I've grown up my entire career has been a CEO. I'm a very CEO oriented board member where I want to be helpful and useful and be a sounding board to that CEO. And so I'd say to them like if you need to call me into action, you can call me into action. Like if you want to meet me meet with your engineering teams and be a part of the feedback loop on your product, I want to
1:35:34eat the dog food. Of course, I carry the fiduciary responsibility that a board member carries to the shareholder. Um, and that's my primary thought. Like if if if I'm building into the CEO and being helpful, we're going to build enterprise value that's going to be reflected in the stock price. And so that's how I reconcile those two things together.
1:35:54Not a lot of board members do mystery shopping. Why? Why do you do that? What do you get out of that?
1:35:59Because I get what's really happening.
1:36:01What do you ask people when you're when you go into a Lululemon?
1:36:04See, like I've now refined it down to one question. Like if you had the keys to the place, you were the CEO for a day and you could only do one thing, what would you do? And you don't get like 500 different answers when you ask that question. you typically get a pretty tight set of issues because people have to be thoughtful about it. They they're the CEO. They can only do one thing. Um but it doesn't take them long to come up with, oh, I would do this. I would do this. I would do this. And that's the question I ask.
1:36:33And then I bring that back to the CEO. I say, okay, like I was in your stores the past couple of weeks. I ask the question, here's what came back.
1:36:42This may or may not be valid, but hopefully it's an input you can use. At DVX, you've created a method for starting companies, like almost like a framework for it. What What is that?
1:36:51What does it look like?
1:36:52This has been developed over time. We want five things to be true about an idea before we really start to take it seriously. Uh number one is there's a big addressable market. There's a big TAM.
1:37:04And uh we we confirm that with a bunch of customer interviews. So it's not like we're pulling numbers out of studies or thin air. We're literally calling customers and saying if something like like this existed would you buy it and what would you pay for it? So that's thing one there's a addressable market. Thing two is uh there's a gross margin that is north of 50% in the business.
1:37:26We've as a team have spent time in high margin software businesses and low margin businesses like rid share and car manufacturing and we love those businesses but it's a hard way to make a living. So, so we'd much rather have software type margins. So, second thing has to be true is software type margins.
1:37:44Third thing that has to be true is the the reason this opportunity exists is because there's a really hard technical problem that hasn't been solved.
1:37:53And if we solve it, it could create a moat. So, if that's true, then we're on to thing four, which is what's the competitive dynamic in the space? And this is where we're a bit contrarian. We don't want to go where everybody else is going. So, we don't want to be like the 26th legal AI platform.
1:38:12Uh competing it out with 26 that are already in there that are already battling for the comp the product positioning in the space. Would much rather be the first entrance into supply chain optimization software or uh cyber security for small business. Turns out not many people in that industry. And the last thing that has to be true is is there liquidity uh propensity in the space. There's some markets where people just there's no liquidity in the space.
1:38:41People don't want to own these companies. Uh and so if all five of those things are true, that helps us filter ideas. And so that then we got a research team that proves those out and then we will take that idea off the shelf. We become the first CEO. We develop the product and the first test is can you get somebody to pay you for this? And that's our measure of product market fit. So if we start to get contracted ARR heading towards a million dollars, we say, "Oo, there might be something here."
1:39:10And there's good signal in that because you have no sales force. It's not like you got no marketing dollars. You're putting a product out and people are agreeing to pay for it. If we have that, then we go look for a team and that's the next step. And we will look for a second or third time entrepreneur who's had success in the domain. So, they know the grittiness of taking a company from zero to its first five million in sales, which I think might be one of the hardest things in business. And uh they've been through that. They know how hard it is. They've seen their way
1:39:39through. And they often bring not only market insight, but talent because the thing that we look for in those leaders is do they have a following because good leaders tend to have a following. And then we'll bring a leader in and they typically bend the curve of the company and then we're off to the races. But that's the basic formula of who DVX is.
1:39:58We invent these companies. We've got a method uh and we've launched 17 of these companies with these methods and we're about ready to launch the next three.
1:40:09How do you think about time management?
1:40:11It really comes down to like this is what Steve Cubby taught me in the seven habits and it's really all about how you structure your day. And so I think about time management is around the things that are most important. And so I kind of have blocks and uh they're literally blocks in my calendar. If like we if I pulled out my Google calendar, it would show here's an exercise block, here's a family block, here's a work block, few
1:40:37work blocks. Uh and I manage my time around those work blocks. Part of the method to the madness with those blocks is is work blocks where I can like to totally concentrate. I shut down everything else and I just work that one thing.
1:40:55And uh it tends to be higher quality because I'm not switching back and forth and I've got a longer period of time so I'm not time pressured to to make progress. I've got two or three hours to like really wrestle with something and get it off my plate. Uh and I use just different techniques within the like one lean manufacturing technique rule is you touch it once. So that means if I open an email, I'm answering that. I've touched it. I only want to touch it once. I don't want to like put it back
1:41:22as unread and then touch it again later. So, uh, so I try to be super efficient with my time with little like hacks like that. Like touch things once, process it, get it out. Uh, and uh, and then concentrate your time on the stuff that really matters.
1:41:36What are some of the other lessons you learned from Elon that didn't make it into the book?
1:41:41I think a lot of entrepreneurs have taken inspiration from him to work on big stuff that matters. And we used to joke about some of the best minds of our generation were focused on getting people to click on ads and we and and that made me want to do something bigger because I was like, "Yeah, I don't that doesn't satisfy me.
1:42:02I want to do something bigger that's more helpful and useful." And so I think his tackling big challenges like space, like robotics, uh like artificial intelligence, etc., like he just doesn't shy away from these big challenges. He's very commercial in the sense that he finds a way to make to make to create wealth and and to make real businesses out of these things, but he he doesn't shy away from the big big problems. Which is I think why Larry
1:42:31Page said, "Hey, like rather than giving all my uh all my wealth to a a philanthropy, I want to give it to Elon because he's actually going to create jobs. He's going to create tens of thousands of jobs, if not hundreds of thousands of jobs." And that really has direct impact on people's lives.
1:42:50And uh so I think that's one thing that I take away from him was it was the challenge to work on big stuff that matters.
1:42:57But it's not only big ideas that are pulling you forward. It's like big challenges internally.
1:43:02Exactly. So you look for the challenge.
1:43:04You look for where people have shied away because the challenge is big.
1:43:07And it's typically like at DVX my firm when we start looking at a business opportunity or company opportunity because we invent these companies from scratch. We look for a big technical challenge that exists and that's why the opportunity is still there because it hasn't been solved and a lot of people shied away from it. So we we're crazy enough to say that means we probably ought to look there. Um because if we solve that problem we've got the beginnings of a moat, a competitive moat. Uh that makes it very difficult to
1:43:35follow us. And moes tend to make really valuable businesses. So let's start with if there's a real challenge here, let's not shy away. Let's go dive into that challenge. just run towards it.
1:43:45Has the source of your motivation changed over time?
1:43:48Yeah. Yeah, it definitely has.
1:43:50What was it before and what is it now?
1:43:53So when I started to build companies, I just I came from a pretty poor economic background. Uh and so I wanted to like make money and so I initially I thought I just want to build something that's a that's very valuable.
1:44:10And then when we the first company had its had its first outcome, I remember walking into the office and the first person that greeted me was the receptionist and she was in tears cuz she had stock and she said, "We just bought a house." Then I walked into the office and another guy grabbed me, gave put me in a bear hug and he's like, "You just paid for my kids' college education by this stock." I'm like, "No, you did it because we all did this together." My motivation switched after that. I was
1:44:40like, the reason we're building companies is to create jobs. And when you create jobs, people, there's all these externalities and second order effects that you don't see as a leader. But walking through that office that day was way more satisfying to me, indescribably more satisfying than looking at my bank balance.
1:45:00And over time, what that that satisfaction has become the currency that fuels me. It's like, let's go create long-term companies. They're creating great jobs for people that are impacting the world in a really positive way because I want to go back to these companies in 10 or 15 years and they're still thriving. They're still employing people. Um because that's what matters.
1:45:19That like it really mattered to be able to buy groceries in the family that I was growing up in. Um it really mattered to be able to buy a pair of shoes and at its raw sense that's what I really enjoy doing is creating jobs.
1:45:31We always end these interviews with the exact same question which is what is success for you? Success for me is kids that want to be around me. Like that that's my key beacon of success, wife that wants to be around me, life partner, and then I have time to create companies which I really enjoy and just do the things uh non-professionally that I really enjoy which typically is just be outside. I I love to just be in
1:45:59wilderness. Uh and uh and so if those boxes are checked, I feel successful.
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Shane Parrish
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The interview guest says these are the books he has recommended most consistently: The Goal by Eli Goldratt for learning operations principles, including leading operations; The 7 Habits of Highly Effective People by Stephen Covey, which had a major impact on him; and Unreasonable Hospitality by Will Guidara, which he says applies to business and life—the practice of making people feel hospitality and dignity can help a business sell more.