Dan Rose - How Stunning Founders Operate - [Invest Like the Best, EP.316]

My guest today is Dan Rose. Dan is the chairman of Coatue Ventures and has one of the most interesting collections of experiences of anyone I’ve talked to. He spent 20 years at Amazon and Facebook in their early days, working closely with Jeff Bezos, Andy Jassy, Mark Zuckerberg, and Sheryl Sandberg. He’s had a front-row seat to the defining products and founders of our era and his lessons from those experiences do not disappoint. Please enjoy this great discussion with Dan Rose. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Tegus, the modern research platform for leading investors. I’m a longtime user and advocate of Tegus, a company that I’ve been so consistently impressed with that last fall my firm, Positive Sum, invested $20M to support Tegus’ mission to expand its product ecosystem. Whether it’s quantitative analysis, company disclosures, management presentations, earnings calls - Tegus has tools for every step of your investment research. They even have over 4000 fully driveable financial models. Tegus’ maniacal focus on quality, as well as its depth, breadth and recency of content makes it the one-stop, end-to-end research platform for investors. Move faster, gather deep research to build conviction and surface high-quality, alpha-driving insights to find your differentiated edge with Tegus. As a listener, you can take the Tegus platform for a free test drive by visiting tegus.co/patrick. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:03:27] - [First question] - The story behind Amazon’s Kindle and the lessons it taught him [00:09:19] - Amazon’s philosophy of working backwards and the most creative solutions he and his team had to come up inside of that framework [00:13:04] - What he did to convince publishers to get on board with his vision [00:16:02] - His overall experience of the relationship between innovation and constraints [00:18:43] - Thoughts about the fine line between genius and nutcase [00:22:02] - What the key points of his theory on partnerships would be [00:24:28] - When advising portfolio companies becomes relevant [00:26:09] - The dark arts of building companies that could be adopted by partnerships [00:28:40] - Why he thinks the best technology companies drive strategy through product [00:32:23] - Resolving micro management while also giving skilled talent their own space [00:36:07] - Where Javier Olivan fits into his ideal executive team [00:36:57] - What about growth requires its own expertise [00:37:35] - What makes Dave Schneider an ideal sales leader [00:39:08] - The most stressful period of time while working at Facebook [00:42:51] - General thoughts on great versus good business models in tech [00:45:36] - Topics where Jeff Bezos and Mark Zuckerberg would disagree the most [00:47:13] - Defining the platonic ideal of a great investor approaching corporate enterprises [00:50:25] - Overview of the investing environment we’re in today from coast to coast [00:55:07] - What made Sheryl Sandberg so successful; Lean In [01:00:35] - Why he started his career at Life Mastery selling personal growth seminars [01:05:47] - What will define the next generation of leaders [01:07:59] - A product he would build if he could that doesn’t exist yet [01:08:59] - The kindest thing anyone has ever done for him

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

  I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai. This episode is brought to you by Tegus, the modern research platform for leading investors. I'm a longtime user and advocate of Tegus, a company that I've been so consistently impressed

• 0:42Patrick O'Shaughnessy?

  with that last fall, my firm, Positive Sum, invested $20 million to support Tegus's mission to expand its product ecosystem to unify and streamline investor research processes. In addition to the library of 55,000 transcripts, Tegus now combines at-cost, on-demand calls with a full suite of financial workflows. Whether it's quantitative analysis, company disclosures, management presentations, earnings calls, Tegus has tools for every step of your investment research. They even have over 4,000 fully drivable financial models. Tegus's maniacal focus on quality as well as its depth, breadth and recency of content makes it the one-stop end-to-end research platform for investors. Move faster, gather deep research to build conviction and surface high-quality alpha-driving

• 1:26Patrick O'Shaughnessy?

  insights to find your differentiated edge with Tegus. As a listener, you can take the Tegus platform for a free test drive by visiting tegus.co/patrick. Before we transition to the episode, I want to highlight the Founders Podcast, which is part of our Colossus Network. David Senra, who hosts Founders, has devoted his life to learning from history's greatest entrepreneurs and every week he distills the lessons of a different founder. If you want an entry point, I highly recommend starting with episode 136 on Estee Lauder or episode 288 on Ralph Lauren. I hosted David on Invest Like the Best last summer and it's hard not to walk away insanely energized after listening to any episode with him. You can find a link to Founders and those episodes in the show notes of this conversation. You can also search all past transcripts on our website, joincolossus.com.

• 2:15Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

• 2:40Speaker 01

  Patrick O'Neal is the CEO and founding partner of Positive Sum and the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum or O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 3:12Patrick O'Shaughnessy?

  My guest today is Dan Rose. Dan is the chairman of Co2 Ventures and has one of the most interesting collections of experiences of anyone I've talked to. He spent 20 years at Amazon and Facebook in their early days, working closely with Jeff Bezos, Andy Jassy, Mark Zuckerberg, and Sheryl Sandberg. He's had a front-row seat to the defining products and founders of our era, and his lessons from those experiences do not disappoint. Please enjoy this great discussion with Dan Rose.

• 3:39Patrick O'Shaughnessy?

  Dan, we have a total embarrassment of riches of stuff to talk about, given you've just been at the center of so many interesting business stories in the last 25 years. I really didn't even know where to begin, but I have to pick a product, which is Amazon's Kindle, mostly because I've spent some large chunk of my life as a user of it. Me too. Most of my 20s, effectively, my downtime was spent on Amazon's Kindle products in various different forms. So I'd love you to begin our conversation today by maybe just telling the story of that product within, obviously, a much bigger organization with an eye towards the lessons that it started to teach you about building, launching, distributing great technology products.

• 4:18Speaker 02

  Sure, and it's great to be here, Patrick. Thanks for having me. The Kindle was, for me, actually, the big break in my career. I was at Amazon for four years. I had done a few different things. I started out in business development. I actually dropped out of business school after a summer internship at Amazon to stay on full time. Then I ended up moving over to the retail business and got to experience buying inventory and pricing it and running sales and that whole part of the business. And then Steve Kessel was asked by Jeff Bezos in 2004 to start up this new division. And Steve, at the time, was running the entire media business at Amazon. He was running the books, music, and video business, which was the largest business by revenue. But even more importantly,

• 5:01Speaker 02

  the books business alone was the vast majority of Amazon's profits at the time. And Jeff had seen the iPod come out and decimate our physical music business and had the recognition that the same thing was going to happen to books. And if that was going to happen, we better be the ones to do it, not someone else. He said to Steve one day, "Steve, I need you to come over and run this digital business and get this digital book platform started so that we don't get iPoded out of books." And Steve said, "Great, I'll take one of my best people. We'll put them on it and we'll get a team going and it'll be great." And Jeff said, "No, you don't understand. I want you to do it." And Steve said, "But, perfect. I'm excited. I'm fired up. Let's go build this. I'm going to put this person, who I think is the best executive in org, and we're going to have him go build a team."

• 5:46Speaker 02

  And Jeff goes, "No, Steve, let me make this clear. As of today, you're fired from your job. Your new job is to kill your old business. I want you to put the physical books business out of business by building a digital product that's so good that people don't buy physical books anymore.

• 6:05Speaker 02

  If you run both, you'll never be motivated to do that. So, we're going to bring the head of finance for the media business, a guy named Greg Greeley at the time, and we're going to put him into your old job and we're going to put you into this new job. You can bring one person with you, but I want you to build a whole new team." Fairly early in that process, Steve and I knew each other from our time at Amazon and he recruited me over. Interestingly enough, this is 2004, so keep in mind, the company had just emerged from a crisis where we literally almost went out of business. March of 2000, when the internet bubble popped, through 2006, 2007,

• 6:39Speaker 02

  It was a pretty shaky time and 2001, 2002 was very, very close to the edge for Amazon. There were very smart Wall Street analysts saying that we had six months left before we went bankrupt. So we had just emerged from that. We were still teetering, but getting our feet under us. And Jeff decides that we have to go build a product that's going to destroy our biggest profit center for the whole company. The interesting thing is not only was he fired up and committed to that idea, so committed that he would take the leader of that business and move them over. But at the exact same time, he started AWS and he had Andy Jassy, who was his shadow or chief of staff for a couple of years,

• 7:20Speaker 02

  who really incubated that idea with Jeff, came over and spun up the AWS business. And Andy and I knew each other as well. Andy was actually the person who gave me my break to get in the door at Amazon originally. He was a friend of a family friend and I harassed him until he finally gave me an interview. And so Andy was starting AWS and Steve was starting Kindle. And I was interviewing with both of them to decide where to go next. And Amazon was a great culture where you could kind of move around the organization. I'd already done that a couple of times. Ultimately, I decided to go work on Kindle with Steve for two reasons. One, I just thought AWS was too technical and I wouldn't be as effective over there. Amazingly, Andy was a marketing guy, so the fact that he was able to stretch himself into

• 8:02Speaker 02

  running this highly technical platform is actually super impressive. But I just didn't know if I had the same chops. But more importantly for me, I just was passionate about books. My grandfather was a book file. He used to go into the public library and literally hand copy by hand books that he loved because he couldn't afford to buy them himself. And he taught me to really love books and I loved reading. So to me, this was a dream opportunity. I joined Steve and our job was to build the Kindle and my job specifically was to get the book publishers on board with producing more books in a digital format. At the time, there were about 20,000 eBooks in the world. And Jeff gave us a goal of launching the Kindle with 100,000 books in a digital

• 8:43Speaker 02

  format. He knew that one of the important things to this platform is going to be selection. And there had been ebook devices before the Kindle that had failed. And there were a couple of reasons he believed that they had failed. One was that there just wasn't enough selection, that when you take your device out, if you can't find the book you're looking for, you're not going to pull it out again. And two was that the screen wasn't really designed for reading a book. LED screens are not great on your eyes. And most people read books in the sun when they're on the beach or in bed at night. And he just thought, we can come up with a better technology for this. And so that set us down the path of developing this new platform and really internalizing the innovator's dilemma, I think, in a perfect way that shows that you can think about that idea intellectually,

• 9:28Speaker 02

  but to actually do it takes a lot more courage.

• 9:31Patrick O'Shaughnessy?

  One of the things that Amazon is so famous for is this idea of working backwards, picturing even writing the press release for the ideal end state for a given product, and then solving from that backwards versus saying what technologies are available today and building forwards from what's possible. In the case of Kindle, if you think back on the technical or business challenges of getting that thing to work, what stands out in your mind as the most creative solutions that you and the team had to come up with? And maybe tell one of those stories, because I just love these little mini examples of conquering something that everyone says can't be done in order to achieve like some idealized outcome.

• 10:08Speaker 02

  There were three things that Jeff really charged the team with. All three were going to be extraordinarily difficult. And frankly, at the time that we got started, it wasn't clear we were going to be able to do any of the three. But he was just committed to it, so committed to it that he delayed the launch date three or four times until he felt like we had the magic formula. The first was selection, and that was my job. And I can't overstate how difficult it was to convince book publishers to put real energy into digital books. And it turns out, the entire process of publishing a book is analog. It seems crazy to think that, because every book is written on a digital device, but it then gets converted into an analog format before it goes to the printing press. And

• 10:49Speaker 02

  book publishers don't really have an incentive to publish digital books, because their whole cost structure is tied up in printing and packaging of physical books. We had to go out there, and I spent a lot of time in New York, selling them on why this was a good idea. And the other thing, I had a hand tied behind my back, because Jeff Didn't want to tell him we were building a device.

• 11:11Speaker 02

  He was worried it would leak and he wanted to be the big Apple-type moment when we launched the product. That was really hard. The second thing was the screen. We talked about that. At the time, there were no devices with e-ink screens. We took a big bet on e-ink. We thought this was a big part of the answer to making the digital book as comfortable to read as a physical book. And we always said, and Jeff started the whole thing by saying, "Physical books are an incredible invention. They've been around for hundreds of years. In order to convince people to put them down and pick up a new device, it's gonna have to be better. It can't be better in some ways, but worse in other ways. It has to be better across the board." And then the third, which was a total stretch, but again, classic Jeff Bezos, was he wanted it to feel magical.

• 11:52Speaker 02

  And magical meant that you clicked a button and the book showed up on your device. And that, at the time, iPods, you plugged them in your computer to download songs. He wanted it to happen over the air. He didn't want you to have to plug in your Kindle. And so we said, "Okay, we can figure that out." And we had a great technology team that built that. But then he said, "No, that's not good enough because if you're not in a Wi-Fi zone, then you can't get your book. And what if I'm on the plane and I'm just getting ready to take off? And I forgot to download a book and I want to download it. I want to be able to get that book." And we said, "But that doesn't work because to do cellular downloads is gonna cost maybe $20 a month. And if we charge $20 a month, then nobody's gonna buy the device." And he said, "Well, let's just pay the carriers for the cellular coverage, but give it away for free to the customer."

• 12:37Speaker 02

  And we said, "Well, we can't make the math work. There's not enough margin on the books and the device to do that." And he said, "Well, why don't you go back and make the math work?" And we came back 15 times. And we just couldn't make it work because we said, "Okay, we'll charge more for the device." And he goes, "No, nobody's gonna buy it. We have to charge less." "Well, we'll charge more for the books." And he said, "No, then they're not gonna buy the books." So finally, we modeled together to barely make the math work. And it turned out that he was completely right. I think the combination of those things is what made the Kindle such a successful product and why everybody who owns one feels like it truly is a magical product.

• 13:11Patrick O'Shaughnessy?

  I have to ask two follow-up questions. The first is what you did to convince the publishers ultimately to do this. The selection thing is so true. Very quickly, if you didn't have the book you wanted on there, you churned fast. Well, this thing's useless. I can't get the book I want. How do you get a big incumbent like the publishers? I've written a book, so I know that world decently well and can imagine what a hellhole it was trying to negotiate against at that time period. What did you say or do or promise that unlocked that?

• 13:39Speaker 02

  It was a combination of a couple of things. One, we were fortunate because we were already a large customer, so they had to listen to us. I would go out there and fly to New York and meet with them and they would say no. And then I would come back a couple of weeks later and they would say no again. And they could keep saying no, but they couldn't not take the meeting with me because Amazon was a really, really important distribution channel for them. So that was a huge advantage that I got to continue to build the relationship with them. And my personal style of partnering is to really try to understand the other side and understand where they're coming from and figure out creative solutions to the problem. And they had legitimate reasons for not wanting to do this.

• 14:20Speaker 02

  It wasn't like they were just being obstinate. They had tried and they had seen other digital book efforts fail and they felt like it was a waste of time and energy for them. They legitimately had concerns about their own business and if digital books were successful, what that would mean for their cost structure and how they were going to manage through that. There were a lot of reasons why they were resistant and it was going to take real work for them to do it. It wasn't like they just flip a switch and suddenly you start generating ebook versions of your books. But on the flip side, we were making a case to them that, look, this could be really good for you because it costs a lot of money to print a book. And if we are able to sell digital books, it could remove a lot of costs. And if you think into the future, if you're worried about piracy, we're going to take that really seriously and we're going to do this right. And we bought a company that was really

• 15:04Speaker 02

  good at DRM and we built that into the Kindle from day one. So we had a lot of good arguments, I think, for why what we were offering was actually something that they should consider. But ultimately, there were two things that we did, I think, that really made a difference. One is We developed on our side some technology that allowed us to digitize physical books. Before we started this effort, we already built search inside the book. So we were able to actually take that product, which wasn't sufficient for reading a book. It was good for searching, but not for reading. And we were able to refine it and actually make it better so that a lot of books that you were able to get on your Kindle on day one, weren't produced by the publishers. They were physical books that we had engineered into digital books

• 15:47Speaker 02

  and were good enough to get us over the hump. And then two is ultimately, finally, after a lot of arm wrestling, I was able to get Jeff to let me tell the publishers about the Kindle. And when I showed him the device, they suddenly went, oh, now I understand why you're being so persistent on this. We just couldn't understand why you kept harassing us about publishing books so that people could read them on their Palm Pilots. Nobody's going to do that, or their laptops. But now you're showing us that you're making a real investment here. And with this e-ink screen, maybe it has a better chance of succeeding than the last generation. And so they were a little more open to it at that point.

• 16:23Patrick O'Shaughnessy?

  The third point you made about three miracles that you had to have to make Kindle work was this cost equation that Jeff kept pushing you on. Can you say a bit more about just your overall experience of the relationship between innovation and constraints? It just seems like this genius, I always have that Apollo 13 scene in my head where it's like, to make these guys live, we got to make this fit into this using nothing but this. And they figure it out. Necessity breeds invention. But where else have you seen that? Do you think that that is just a generally powerful tool that entrepreneurs and business people should apply more, create more constraints to produce more innovation?

• 16:58Speaker 02

  I think it's something that the best founders are really exceptional at. There's something about a founder CEO that they have the right to ask for completely unrealistic things of their team and to be stubborn about those things and wait until they get to the answer that they like, rather than accepting the compromise that the team insists is necessary in order to deliver the end result. And I saw Jeff do that over and over again. He was just incredibly stubborn about his vision for what he believed was necessary for something to be successful. There's been lots written about Alexa, which I wasn't there for. I left before that product got started, but there's just great stories about him insisting on things that the team

• 17:40Speaker 02

  Also insisted we're impossible. And then ultimately, when you put that goal in front of people, they find a way through. It takes longer. Sometimes you have to be super creative, but you get there. We certainly did that with the Kindle. And I saw Mark Zuckerberg do it at Facebook as well. And it was one of the things that I really just admired Mark for his stubbornness and his willingness to stick to his vision in the face of resistance from executives who, in his case, were usually much older than him and had a lot more experience. When I joined Facebook, he was 21 years old. Yet he had this in his DNA. And I saw this, I pattern matched it with Bezos. And I thought, gosh, at 21, if this guy has this level of conviction

• 18:23Speaker 02

  about what he believes is going to work, and is willing to push through to get to the outcome, even if it's really hard and is going to create a lot of brain damage along the way. But he knows that if we get there, it's going to be magical and transformational. Imagine what he's going to be able to do when he's 30, which is how old Jeff was when he started Amazon. I think great founders are able to do that. They trust themselves enough and they believe in their conviction. And as a founder, you have the right to do that. You can tell people, look, we're not going to ship until we get it right.

• 18:55Patrick O'Shaughnessy?

  With your investor hat on, how do you suss that out in someone that is not yet successful? It's very easy to imagine a lot of other Zuckerbergs at 21, who seem really smart and talented, but they're just not going to have the credibility. Like you said, with an older, more experienced group of executives or teammates or whatever. And the line between visionary and genius and nutcase is pretty thin. How do you think about that? Because obviously, you're now in the business of hopefully backing people that ultimately have that same trait of a Bezos or a Zuckerberg. But how do you tell that ahead of time?

• 19:28Speaker 02

  It's hard. And I would say, You're right, there is a fine line there. Sam Lessin and I have laughed about this as well. I think you have to do two things to get over that line. To emerge into the category of credible founder who is going to be able to attract the best people around them and really build something substantial. And the first thing you have to do is, you have to articulate why it is that you're so insistent on this thing that you believe is so important. And that articulation has to resonate with the people who are going to go build it. And it has to resonate with people who are smart and thoughtful and are ultimately credible enough to make that happen.

• 20:11Speaker 02

  The best founders are able to attract the best people, full stop. When I was joining Facebook, I talked to a lot of people in my network because it was a big decision for me to leave Amazon. I knew I was only going to be able to leave Amazon once and I wanted advice from different people in my network about where I should go. And I was talking to a lot of startups in Silicon Valley. I ended up getting introduced to Peter Thiel. And I said, Peter, I'm interviewing with these six companies. And by the way, four of them are companies that you've invested in. What do you think I should do? And he said, you should go to Facebook. And I said, why? And he said, simple, they have the best people. And the companies that have the best people are the ones that ultimately win. Mark was able to attract incredible people because he was able to articulate his vision in a way that resonated.

• 20:55Speaker 02

  The second thing you have to do as a founder to emerge in that category of credible is you have to be right over and over and over again. And that just takes time. You just have to prove that your insistence and stubbornness was actually the right answer. And not just being stubborn for the sake of being stubborn. Sometimes that's a little bit of luck. Sometimes you just catch a break here and there. But if you do it over and over again, eventually you realize it's not luck, it's skill. And both Jeff and Mark were so difficult to work for. We would oftentimes sit around complaining about them. Just how impossible it was to satisfy them or to work for them.

• 21:36Speaker 02

  But at the end of the day, I would always say to the people who were complaining, yeah, but... They've been right a lot more than they've been wrong. And the times when I thought they were wrong and they were right have been transformational for the company. And so I'm willing to give them the benefit of the doubt. Now, that doesn't mean that I'm not going to disagree when I think they're wrong. And I actually think it's really important to have a culture where you encourage disagreement and debate, and both of them did that. But once the decision's been made, you disagree and commit. And you commit because you believe in the person and you believe in the vision and you trust them because they've proven that they're capable of doing it.

• 22:14Patrick O'Shaughnessy?

  One of the things we were chatting about before hit and go today was this idea of building the perfect Frankenstein of executive talent or leadership talent. We'll come back to that. But I think if you were to insert yourself into that Frankenstein, or if I was to build the Frankenstein and have you as part of it, certainly the idea of partnerships would be one thing that I would consider you as the canonical leader of. If we were building the Dan Rose Theory of Partnerships, a philosophy class, a GSB or something, what would that course entail? What would be the key points of your theory of partnerships?

• 22:46Speaker 02

  I'll give you a simple anecdote that, to me, in a nutshell, describes what partnerships is all about. In negotiation classes, you'll often hear this idea that when two parties are negotiating over an orange, over time, it might be a long, drawn out negotiation, but usually the solution they come to is they split the orange in half. That's just the most natural outcome of most negotiations. But great negotiators are able to get to a solution where oftentimes it turns out one party is looking for the meat of the orange and the other party, for whatever reason, actually wants the rind. And so if you can get to that insight, then one plus one equals much more than two.

• 23:29Speaker 02

  I always go into partnership discussions with that attitude. How do we get to an outcome where we both get not just half of what we want, but all of what we want? And we're both perfectly happy with the outcome, not partially satisfied with the outcome? It's not always possible, but a lot of times, if you're willing to keep digging, and what it takes ultimately is just dialogue.

• 23:51Speaker 02

  It just takes time getting to know somebody and getting to really understand their motivation, not the surface level motivation, but the much deeper level motivation to realize that actually you may be much more aligned than you thought and there may be ways for you to each get exactly what you're looking for. I'll give you the example we talked about in the Kindle, which was that the book publishers didn't want to do the work to publish these digital books, but they were certainly willing to give us the rights to do it ourselves. And it turned out we had some technology that allowed us to do that. And so I went in asking them to publish these books digitally and I came out asking them to give us the rights to publish the books ourselves. And that was a great outcome for them because they didn't have to do the work and a great outcome for us because we couldn't do it without their permission.

• 24:36Speaker 02

  So that was part of the solution to getting to 100,000 titles on the Kindle at launch.

• 24:40Patrick O'Shaughnessy?

  As you think about advising portfolio companies now at COTU and them thinking about engaging in partnerships as they start to grow their business, maybe say a little bit about the appropriate stage where this starts to become relevant for a company. I would worry a little bit if a company came to me of a seed deck or something and said, "We're going to partner with X, Y, and Z." I'd say, "Well, that's for later. Like, we got to build something unique first." So when does it become relevant in a company's lifecycle? And then I'll ask about the steps to do it well.

• 25:08Speaker 02

  It's one of my favorite parts, by the way, about ventures. I've gone from player to coach and it's been a real blast. Honestly, the answer to that question is it's different for every company. You're right, for the most part, super early-stage companies aren't thinking about partnerships, but it depends on the company and the product that they're building. A lot of times, they will need an early partnership to get them started. In many cases, these days, that might look like a partnership with one of the cloud companies, for example, certainly in AI. That's been a very hot topic and a lot of our AI companies have been coming to me for advice on how do I work with Amazon or Google or Microsoft and how do I navigate this whole landscape? And you've seen what OpenAI has done with Microsoft. And so others are now thinking about how to try to replicate something like that.

• 25:50Speaker 02

  And that's a great example of where partnering can be totally transformational, a total win-win for OpenAI and Microsoft and a lot of other AI companies, I think, will be. Able to strike similar types of arrangements. So it depends on the company. It depends on the stage. You're right. As they get bigger, companies tend to start to need partnerships more. Facebook, early on, didn't do a lot of partnerships. I joined when we had about 130 employees. The company was a couple of years old and they were starting to think about things like, how do we work with media companies who are calling us saying, hey, we want to have access to your users and we want to publish content into your system. So those were some of the reasons that they ultimately brought me on to help with that.

• 26:30Patrick O'Shaughnessy?

  I love this phrase. I think about it all the time, the dark arts of building companies. Dark arts, not in a negative way, almost feels like a secretive formula that once you have it, you're like amazed at how effective it is. I'll give you an example. Chaitan Pudigunta, I talk about this all the time, but he gave me this notion of the design partnership model and enterprise SaaS, where you pick very carefully five early customers and you commit to them that you're going to build basically just for them. You're not going to take new customers beyond them for a really long period of time. So they're really going to shape the product and then you emerge with this amazing thing. And this little design partner playbook is counterintuitive, but feels very dark arty to me because it's so damn effective. I've done it myself. Is there some equivalent dark arty concept like that in partnerships that comes to mind?

• 27:16Speaker 02

  I love that. That's actually something that a lot of our companies have done and it's a great way to try to prove some product market fit early on. I think in partnerships, it's less formulaic. One of the things I really like about partnerships and typically what you find in partnerships are people who are business oriented, but don't like the rote movement of a sales job. Sales is an incredible job for people who are amazing at turning the crank. And there are people who are just cut out. That was the thing they were born in on this planet to do. If you're not interested in that, if you get bored by that, partnerships is great because it's super creative and open-ended. And there are ways to build repeatable movements and partnerships.

• 27:57Speaker 02

  And certainly, a lot of the partnerships at Facebook that we worked on were very scalable. If you think about media companies, we worked with millions of media companies and you have to build some motion into that. But when you think about big strategic partnerships, or when you think about those first early partnerships that you're going to use to build the larger platform behind, those tend to be very open-ended and you have to be very creative about how you approach them. And the people who do well in partnerships tend to be good at the business side, but also have real product intuition. A lot of the people in my organization at Facebook who worked in partnerships ended up graduating into the product org. They would work closely with their product counterparts on an area of the business for a while, and then the product team would say, hey, we think you actually would do

• 28:41Speaker 02

  really well over here in the product org. So you want to find people who are a hybrid of business and product and are super creative and love the open-ended nature of it.

• 28:51Patrick O'Shaughnessy?

  Why have I seen you say in a couple of different places that the best technology companies drive strategy through product?

• 28:58Speaker 02

  I really believe that. First of all, I worked for Jeff Bezos and Mark Zuckerberg, two of the greatest product visionaries of the last 50 years. And so I saw it up close. But I also believe if you look across the great technology companies that have been built in the last 50 years, most of them were led by people who really deeply cared about the product. The product in technology, the roadmap for the product drives the organization, it drives the alignment across all the people who work there. And you don't need to come up with a big strategy framework. All you have to do is describe where you're trying to take the product and it immediately aligns everybody behind what you're trying to do.

• 29:37Patrick O'Shaughnessy?

  Obviously, those are two phenomenal examples, but even beyond those two people, what unites the communication layer of that in these great leaders? What are the most effective ways that you've seen people create and disseminate a vision like that? Especially at a company like Amazon where you just said Kindle and AWS were being built at the same time. Like, those are drastically different products. And you can imagine the average person at Amazon being like, wait, what are we doing? These are very different. So what have you seen those great leaders do in terms of how they communicate the vision? And I'm interested in strategy and tactics here. Anything you have to say about it, because it just seems so important. If that's going to be the way you communicate and it's product-centric, you got to communicate unbelievably well. So what can we learn from those people that have done that best?

• 30:22Speaker 02

  Yeah, it gets back a little bit to what I was saying about credibility. You have to articulate why you're doing something in a way that really smart, thoughtful people are going to buy into. As an example, when Jeff got up in front of the company and explained why we were going to go do AWS, that was very non-consensus at the time. This is a retail company that a lot of people didn't even think of as a technology company. And we're going to go build this cloud technology platform that didn't exist in the world. What gave us the right to do that? But what he did is, and I actually still have the video of this all hands talk that he gave because it was so eye opening. He described all of the things that had to be in place for Amazon to exist. Then there needed to be a global fulfillment network. There needed to be a credit card system.

• 31:03Speaker 02

  There needed to be the internet, all these different foundation layer technologies that had to exist in order for Amazon to be built in the first place in 1994, when he started the company. And then he went through all the foundational layers that existed in 2004 that he believed made it possible for cloud to finally be built. And he made the analogy to the early days of electricity. He said, it used to be the case that in order to own a store, you had to have an electric grid built behind your store. And that's the equivalent today of launching a website. You have to build your own electric grid, which we call data centers in order to launch a website. And you can't imagine that being the case today, 100 years later. Because the electric grid exists, we're going to build the electric grid for compute.

• 31:47Speaker 02

  Everybody just opened their eyes to this idea that actually this does need to exist. And why not Amazon? Why not take this incredible infrastructure that we've built, our own data centers, and pivot them into something that can be a service to other companies? So you have to be able to articulate the vision and the strategy, and it has to resonate. And then the second thing that's really important is what I saw with Jeff and Mark and what I've heard about Steve Jobs and Bill Gates and so many other great founder product visionaries is the level of detail, the caring about the details really matters. And I saw that with Mark in that we would sit in product meetings with him. He spent five days a week sitting through product reviews. And he would ask questions about the tiniest little details.

• 32:31Speaker 02

  Why does this pixel over here belong there instead of over here? And challenge the team on those things. And to be a great product leader, you have to care about those details.

• 32:41Patrick O'Shaughnessy?

  It sounds obvious in one sense, but also quite counter narrative, especially around this idea of the best thing to do is hire great people and leave them alone, trust them to do a good job. But what you just described is micro-management of products. How do you resolve those two interesting but very different ideas?

• 33:00Speaker 02

  I think when it comes to product, the founder has to micromanage. Unless they are not a product founder, it's not a hard requirement. But I think if you are a product founder, you really have to micromanage the product. You have to care enough about it that you're going to get into the weeds. And I have this conversation with the founders that I advise and sit on the board all the time, because they're asking me, hey, you know, I hired a really good product leader and they're asking me to give them some space so they can run. And my feedback is always, yes, of course, you have to empower them. If you demoralize them, they're not going to stay. But you also have to explain to them that you're the CEO. The product is the strategy. And at the end of the day, this is something that you have to be hands-on with. That's your job. But at the same time, you can't do that and do everything else.

• 33:44Speaker 02

  You can't micromanage the whole company. And so you have to hire great people around you who are good at the things that you're not going to spend as much of your time on. Mark famously hired Cheryl and let her run with a big part of the business. And she was very good at it, and that was a great partnership for a long time. So I wouldn't say being a great CEO means being a great micromanager. I would just say it means knowing where to dig in on the things that you're especially capable of helping and actually matter the most to the company. Hopefully, those things are aligned. And being willing to empower people to do the other things and not waste your time on those things where other people are actually going to be able to do better at that than you are. And it frees you up to spend your time on the stuff that matters.

• 34:24Patrick O'Shaughnessy?

  So is the extractable principle just highest and best use? That is the advice for, even if it's not a product CEO, if it's something else. Be curious who pops to mind as a stunning non-product CEO. But is that the advice that would be more universal? Is just know and focus on your highest and best use?

• 34:41Speaker 02

  Yeah, I think that's a good way to put it. When I posted this concept on Twitter, one of the comments said, what about Marc Benioff? Marc's actually a good friend of mine, and I think the world of him. And I would argue that Marc is a product leader, but if you had to describe him, you'd probably describe him more as a sales and marketing genius. I mean, he took a product that was software product for salespeople and elevated it into a company that's so much more aspirational and the Dreamforce Conference and the Trailblazers and all the things that he's built around that. And that's just pure marketing genius. Highest and best use is a good way to put it. The founder, CEO, should focus on the things that they're the best in the world at and the most capable of doing. If it's a technology company, hopefully that's, if it's not product directly, it's tied

• 35:25Speaker 02

  very closely to product, and then empower the people around them to fill in the gaps. And it doesn't mean you don't hire incredible people under you to do the product stuff. Chris Cox, to me, is the platonic ideal of a chief product officer. And he and Marc have had an incredible partnership for now going on probably 15 years. It's not that Chris is not capable of going into the level of detail that Marc goes into on product. It's just that Chris understands that Marc's the CEO. Chris's job is to make sure that when they are reviewing product, that they're making the best use of Marc's time, which means he's not spending time on things that other people could be doing as well or better than him, and that the two of them are completely aligned and in lockstep. If Chris disagrees, he disagrees and commits ultimately if Marc decides to go in a different

• 36:10Speaker 02

  direction. So you want to hire incredible people under you, but you want to make sure that they understand your role and their role, and that there's no space between you.

• 36:18Patrick O'Shaughnessy?

  We've started, without me asking, to build our Frankenstein of ideal executives. Maybe starting with Chris Cox. Where would Javi Oliván fit in that Frankenstein?

• 36:26Speaker 02

  Yeah, so to me, Javi is the platonic ideal of someone to really lead growth. He, from the early days of Facebook, understood the data at a deeper level than anyone in the company and was able to really, in a very, very detailed way, push on the different levers that helped the company grow. And ultimately, for us, growth wasn't just about growth because that's a Good thing. Growth actually meant making the product better. The more people on Facebook, the better the product was for the existing users because they had more people to connect with. They had better content coming into their newsfeed, et cetera. So that was a really, really important part of making the product work well. And Havi was exceptional at it. And recently,

• 37:08Speaker 02

  he was promoted to COO when Cheryl stepped down, which I think is a reflection of how talented he is.

• 37:13Patrick O'Shaughnessy?

  What is it about growth that requires its own org, its own expertise? Everyone wants to grow, obviously. What are the underlying things that separate wheat from chaff in terms of the quality of growth people in a company?

• 37:27Speaker 02

  I think it's very, very detailed understanding of Havi not only ran the growth org, but he also ran the data science org. And growth fundamentally has to be data driven. And it's hard. Looking at a screen full of numbers, the best growth people are able to really hone in on the numbers that matter and focus on how to move those numbers in the right direction.

• 37:46Patrick O'Shaughnessy?

  And what about if we added Dave Schneider to our Frankenstein as a final component? You've got partnerships. We've got Chris on product. We've got Havi on growth. We need someone to sell everything.

• 37:55Speaker 02

  Dave Schneider is my partner at Kotu, who joined us a couple of years ago. He was the president and chief revenue officer at ServiceNow for 10 years and before that at Data Domain. To me, Dave is the ideal sales leader. He just understands how to go to market, how to bring a product to a customer, how to serve that customer after you sell them the product, how to close that loop. And our founders who are running products that need to be sold, and by the way, even companies that start out more product-led, eventually figure out that they have to sell too. Dave just has them eating from his hand when he starts talking about how to build a sales organization and how to build sales DNA into your company. And it's hard because again, in technology companies,

• 38:38Speaker 02

  usually the product org is the driver. The product org drives the strategy. The CEO tends to be more product-driven. Sometimes enterprise sales companies, it can be more driven by sales. You think about a guy like John Chambers at Cisco, but for the most part, the sales org oftentimes feel like second-class citizens. And so you need to have a sales leader like Dave or David Fisher at Facebook did this really well, Cheryl and David together, that really understands how to empower the sales team and make them feel like their jobs are important while also recognizing that they may not be driving the bus, that sometimes the company is going to go in a direction that makes their job harder, but that's okay. That might be the right decision for the company and the sales team needs to figure out how to support it.

• 39:18Patrick O'Shaughnessy?

  If you think back on the time at Facebook, what's the story of the most stressful period of time for you at Facebook?

• 39:26Speaker 02

  Oh, wow. Well, we went through a lot of those. I was actually fortunate to have gone through that period at Amazon when the company almost went bankrupt. I think that experience really served me well because when I got to Facebook, we experienced a number of existential moments. In fact, I joined the company in the summer of 2006. When I got there, I found out that we had plans to ship two new products in the coming months that were going to potentially transform the company. One, we were going to open it up to anyone, not just people with college email addresses. And two, we were going to launch a newsfeed. And at the time, in order to see what was going on in your friends, you had to click around to their profiles. And so these two products were on the roadmap and were scheduled to be released

• 40:10Speaker 02

  a week apart sometime in October. I'd been there a couple of months. I had just moved my family from Seattle to Palo Alto. I had three young kids at the time. I went to work for this 21-year-old kid. I was in my mid-30s. And we shipped newsfeed and famously, or infamously now, our community revolts. They hated it. They felt like it was a privacy violation. A lot of the people at Facebook at the time were trying to convince Mark that we should turn it off. We have to roll this back. We're going to kill the company over this. And he was, again, just resolute. This is the right thing. We may not have launched it the right way, but it's the right thing long term. We need to hold our ground. We can tweak it and make it better and explain it better to people, but we can't give up on it.

• 40:53Speaker 02

  And sure enough, within a few days, the storm quieted down. People started to get a little more comfortable with it. We did make changes to make it better. But more importantly, it was completely clear from the data that people loved it. Because all of a sudden, instead of coming back to Facebook two or three times a day, people were coming back to Facebook 10 or 15 or 20 times a day. Never in my career seen a switch flipped that quickly on a product where it just went from one thing to something completely different the next day and everybody was fully engaged with it. The challenge was, we were now scheduled a couple of days later to ship what we called "open registration," which was to open the service up beyond college. And we knew that that was also going to be controversial, because for the first time, your mom was going to be able to get on Facebook. And if she asked you to be friends with her and

• 41:37Speaker 02

  you accepted, she's going to be able to see all the stuff you were posting. And so I went to Mark and I said, "Hey, I really respect you for having the courage to see this newsfeed thing through, and I really supported you through that. And I believe that that was the right decision, and I'm glad we held our ground. But I have to tell you, I think it's a mistake to ship open registration in two days, because we just got through this. We need to give our community a chance to absorb and get comfortable before we do the next big shock to the system." And he goes, "No, you're totally right. I was thinking about this too, and I'm really glad you said something. And yeah, we're going to wait until next week to ship open registration."

• 42:12Speaker 02

  And so sure enough, we did. And it turns out, our community loved it. There wasn't a lot of pushback. And in fact, all of a sudden, as I was saying earlier, the more people on a social network, the better the product, because the more people you can connect with. When I joined that company, we had 7,000 new users a day, and we had 30,000 people a day who were trying to sign up for Facebook, who were being told that they couldn't use the service. Have you ever heard of a business that's turning away four or five times as many people as they're accepting in the door as customers? And the day we flipped the switch on open registration, all of a sudden, we had 37,000 new users a day. But very quickly, within a month, we had 70,000 new users a day because of those network effects. And within six months, we had hundreds of thousands of new users

• 42:55Speaker 02

  a day. And it just continued to grow like that exponentially. It was definitely better for the product, and the people on the service loved it.

• 43:03Patrick O'Shaughnessy?

  I had a really interesting conversation with Miles Grimshaw from Benchmark the other day, and we were joking about the different business models in tech. And he said, "If you're really cynical about it, you might just say you kind of only want to back database companies and network effects companies. Those are the two things that really are enduring and indelible." What do you think about that? When you think about the business models behind the companies you've been involved with, Facebook's is so obvious, it's almost boring to talk about. Everyone gets the network effect now. Amazon's is definitely different and more nuanced. But in general, how do you think about, with all your operating experience, great versus good, I guess versus bad, business models in tech?

• 43:38Speaker 02

  Obviously, network effects are super powerful. And if you have one, it can create a huge moat. And it's probably the best moat you can build around any business. Interestingly, in the early days of Amazon, eBay had a much better flywheel than Amazon. Amazon was more of a straight up traditional retail business. eBay had this two-sided marketplace, and that's its own version of a network effect. The more buyers you get on the platform, the more sellers want to be there. And the more sellers there are, the more buyers want to be there. That was the reason why, actually eBay started after Amazon. But in the early 2000s, when Amazon was really struggling, eBay's market cap was five or six times Amazon's market cap. And so then you have to ask yourself the question, well, how is Amazon able to come back from that and ultimately prevail?

• 44:21Speaker 02

  And I think that that comes down to a second thing that's undervalued or underestimated in startups, which is just perseverance and execution. And Jeff navigated this very narrow path to being able to out-execute eBay and then ultimately made the right set of decisions that allowed Amazon to start to incorporate that two-sided marketplace into the business, even at the risk of potentially harming the core business, again, Kindle-esque in that way, by putting third-party listings on the same page as first-party listings, very, very controversial decision at the time, especially among the retail team. And I was on that retail team when that happened, and it was hard. You're telling a buyer, hey, by the way, buy this inventory and forecast how much you're

• 45:03Speaker 02

  going to need based on what price you're going to sell it at and how you're going to discount it and market it. But also, by the way, if someone else comes along with a better price than you, they're going to get the buy button, and it's going to completely blow up your inventory plan. But don't miss your inventory plan. Your job is to get it right and figure it out, and we're going to hold you to a higher standard, even though it's totally unrealistic. So I think execution matters. I think network effects help a lot. And then the third thing is, I just go back to this idea that ultimately in technology, great products win. And so even if you don't have a perfect network effect, if you build a great product and people love what you're offering them, and you continue to innovate and you continue to focus on the little details, you can build a great company.

• 45:48Patrick O'Shaughnessy?

  If you had the two of those guys in a room for a whole day, Jeff and Mark, on what topics do you think they would most disagree?

• 45:55Speaker 02

  Well, they're very different and I think they're similar in the ways that I've described, but they're very, very different personalities. I don't know what they would disagree about, but I can describe the differences to you. Jeff was extraordinarily short-tempered and had a sense that he was always frustrated. He just wanted to go faster and he wanted it to happen sooner and he wanted it to be better. And if he didn't get what he wanted, he would be really upset. And he also came from a background where he was at a hedge fund before starting Amazon. He had technology experience and computer science experience, but he also much more business oriented. He had this brilliant business mind that he brought to the discussion.

• 46:39Speaker 02

  And a lot of the conversation started with, well, what's the ultimate business here? How do we make money from this? Mark is much more patient, not to say that he suffers fools, but he'll end a meeting early if he doesn't think it's productive, but he'll do it in the nicest possible way. And he's willing to sit and work through stuff, even if he's not super happy with it, and just keep grinding on it until he feels like we get to a good outcome. And he's definitely less business oriented in the sense that he just wants to build great products and he believes deeply that if we do that over time, we'll figure out how to make money from it. And you see WhatsApp today, 10 years later from the acquisition, still hasn't figured out how to make money. But believe me, I'm certain that they're in meetings all the time with Mark grinding on that question. And he knows in his mind, that's going to eventually be a huge revenue driver. He just needs to figure out the right way to do it.

• 47:25Patrick O'Shaughnessy?

  Having worked with great investors like Yuri Milner and others, and now having switched teams, so to speak, and spending your time on the investing side, what do you think is the right way for investors to interact with these kinds of companies? We talked earlier about the platonic ideal of a great product person or a great this or a great that. What is the platonic ideal in your view of a great investor?

• 47:47Speaker 02

  Well, I think there's three personas here. One is I happen to work for one of the great investors of all time, Philippe LeFond, who started COTU in 1999, is a brilliant, very, very big-picture visionary type of investor. And I will say, running a hedge fund, which is what COTU was for the first 10 years, is very different from venture investing. Every day, you are winning or losing based on what your performance is. And I think the best managers are really, really big thinkers. They really understand both the broad macro as well as they're able to dive in at the detailed model level to an individual company and unpack it and really try to get at what's the core of what drives this business. What happened in the early 2010s

• 48:30Speaker 02

  is that a lot of these private companies like Facebook were staying private for so long that they actually looked more like a public company, even though they were not listed. And Philippe and his brother Thomas, who's the co-founder of COTU with him, realized that it was important, if you're going to be investing in technology companies, it was important to also be participating in the private market as well. And so Thomas moved to California from New York, opened up the COTU West Coast office. That's when companies like Facebook and Snap and others were starting to really mature in the private markets. And so I think you can apply a lot of those public market insights as an investor into late-stage growth investing, because a lot of the same drivers are what move these companies. You look at a Stripe today, it's 13 years old,

• 49:15Speaker 02

  and it's still a private company. But the best people to really evaluate what Stripe is worth are people who invest in the public markets. And so I really believe that that's an important skill to have in order to do late-stage growth investing. Then I think you have the second persona, which is career venture investors. And these are people who, all they want to do in life is invest in startups. They're smart enough and lucky enough to be able to do that pretty early in their career. And they develop an incredible muscle around just that understanding of what drives success for startups and how do you pattern match against founders and business model? And how do you build out the analytical capabilities to really help companies? Companies succeed because they do need that even at the earliest stages.

• 50:00Speaker 02

  But you see a lot of those people in Silicon Valley who are just incredibly successful and have done it their whole lives. And we have some of those folks at COTU like Michael Gilroy and Lucas Swisher, who are just professional investors and are really capable at identifying and helping startups. And then the third, which is my persona, is lifelong career operator turned investor, who brings to the table their experience with working at great companies and learning from great founders and running these different functional areas like partnerships or sales. We mentioned Dave Schneider, who's another operator turned investor at COTU. We have Sri Viswanath, who was the CTO of Atlassian. Karen Maruni, who ran global communications with me at Facebook and started Outcast before that,

• 50:42Speaker 02

  one of the top agencies in the Valley, and she works with a lot of our PLG startups and open source. And so I think if you can bring those three pieces together, I think you can really stitch together this full lifecycle strategy, which is what we've done.

• 50:55Patrick O'Shaughnessy?

  There's an investor named Charlie Songhurst, who used to run strategy for Microsoft and has this wonderful way of talking about the East Coast versus West Coast mentality and style of investing. As you go from east to west, the quantitative bleeds into the qualitative. And it's interesting to have watched in the last couple of years, the relative power of those two. One, the style of investing, but also the style of success. Where a couple of years ago, I think for sure you would have said qualitative is in a clear lead. Investors are backing anything that's a big idea. There's not a lot of napkin math going on. There's ideas and capital is flowing freely. We're now in a very different environment where I would say probably the pendulum has swung back towards Wall Street and the East Coast.

• 51:39Patrick O'Shaughnessy?

  Much sharper pencils, much more talk of capital allocation versus product. The battle continues here. Against that backdrop, how would you describe the environment that we're in? You've seen a lot. You've existed in both sides of the pendulum. If you're talking to a group of 100 founders or something in an audience, what would you describe to them that is really important for them to know about this environment and how it changes or should change their behavior?

• 52:04Speaker 02

  Well, certainly, things have changed in last year, obviously, and I think founders have really come around to this. It's a different environment. I think it's a healthier environment, frankly, because everything's slowing down a little bit. We have time to process and really work with our companies and help them build sustainable businesses. And I think there's a little more pressure on people to focus on that now and understand that, at the end of the day, what we're trying to do here is build for the long term, not the short term. But I will say this about qualitative versus quantitative. There's no question at COTU, we have brought a lot of that DNA, that quantitative analytical DNA, into early-stage investing. When I joined the firm, which was four years ago, Thomas Lefon had, just for the first time, said, hey, we're going to start doing seed and

• 52:49Speaker 02

  Series A investing here. And he and I talked a lot about what the strategy was and how we were going to differentiate, because that's a very crowded market. So how do you differentiate in that market? One of the ideas was to bring in people like me, and now we've brought in multiple people who have differentiated experience, put them together with these professional investors. But two was, we said, look, we have this incredible data science platform. How do we apply that to early-stage investing? And what we realized is, you might be able to use that data science to give you an edge in identifying founders who are starting companies that might be high probability of success, or companies that are starting to inflect at the early stage. But actually, the best thing you can do is hand that data off to your founders and let them use it to run their business. And so we flipped the

• 53:32Speaker 02

  screen around, and we said, hey, why don't you guys take this data and figure out what you can do with it? And it's been hugely helpful to our company. So I think that sometimes it's a little bit of a myth that, like, early-stage is all about the art of investing, and the public company is all about the science of investing. I actually think our strategy is to blend both. And I will tell you, in conversations that I have with our public company team, those conversations are every bit as much about how good is the founder? How big of a trend are we in? How high of a quality is this business model? The same kinds of conversations we have at the Series A. Obviously, there's a lot more data to analyze in a public company, so you're combining that with the analytical side as well.

• 54:13Patrick O'Shaughnessy?

  Obviously, I'm a person that loves questions. I love collecting them. I love having iPhone notes stored with them just as conversation starters. I've seen you cite a question that I think is just totally fascinating. I think it was one of Bezos' early favorite, which is to ask people whether or not they were a lucky person. I'd love you to talk a little bit about that question, but more generally, I'd love to hear other questions that you love most, that you love asking people most in different contexts.

• 54:36Speaker 02

  I always thought that was just such a great interview question because it tells you so much about people. I didn't interview Jeff. I wasn't senior enough to be hired into a role that he would interview for, but I heard from other people that that was something that he would ask. And there's no question that that reveals a lot about people. And I think we make our own luck. If you believe you're a lucky person, then you're more likely to end up being successful. And he was looking for people who really believed in themselves. And frankly, it takes a lot of luck to go from being a startup to a successful company. You gotta catch some breaks. You have to be at the right place at the right time. And so if you want to increase your chances of catching those breaks, hire a bunch of people who are really lucky. And I think he was able to do that by asking that question to people.

• 55:20Speaker 02

  I think that you learn a lot about people by asking them who influenced them the most. You get those kinds of answers that you're getting from me about the people that I worked with and the things that they taught me and what I took from that and how I apply that to my life or to my business. So I spent a lot of time on that question.

• 55:36Patrick O'Shaughnessy?

  Speaking of the question, one of the things that has always frustrated me is there's so much in the lore about Zuckerberg and about Bezos and very little about Sheryl Sandberg, who obviously drove a huge chunk of a massive business's success. Obviously, she wrote a book and that was instructive and you can read that. But there's much less in the lore out there about what made her so effective. So it's a great excuse to ask you, since you worked so closely with her for a long time. What is it about her style, her method, I'm sure she influenced you, that made her so effective?

• 56:08Speaker 02

  Well, I'll just tell a quick story because it's actually, for me, it's the canonical story of my entire career. This was the most important moment in my career and the make or break moment in my career, which was right when Cheryl joined Facebook. I had already been at the company for a year and a half and before that I had spent six years at Amazon. And in that entire time, that was the totality of my professional career, working for big companies. I had never really had a performance review. Amazon had sort of a version of it, but it wasn't that organized. The company was just trying to survive and certainly in the early days of Facebook, we didn't have that. And Cheryl was there for about a month and she brought me in. She said, I've now met everyone at the company. There were 400 people when she joined and all the senior team. And I really think you're super talented and I want to give you more responsibility,

• 56:49Speaker 02

  which was to me, that was the thing I had been waiting my whole career to hear from somebody that they really believed in me and that they wanted to promote me. And so I was so excited and she said, before I do that, I want to make sure that I'm seeing the same thing that everyone else is seeing, so I'm going to do a 360 performance review. And I thought, wow, that's great. I'm excited because I'm awesome and I can't wait to hear about other people telling me how awesome I am. So she sends out requests to everyone who worked for me and all the people that I worked with as peers at the time, the senior leadership team of the company. And she brought me into her office a week later and she said, Dan, we have a huge problem here. This is not only a bad review, this is one of the worst reviews I've ever seen in my career. And it literally felt like somebody had kicked me in the gut.

• 57:34Speaker 02

  I mean, I was almost out of wind, out of breath when I heard her say that. And what she said was, look, what I'm seeing is that people really believe in and respect your ability as a negotiator, as a business development person. You're extremely highly skilled in that area, but they don't trust you. And they think you're political and they think that you are primarily focused on yourself and not on others. And that's a real problem. And she said, not only can I not promote you, but if you don't fix this, I can't have you at Facebook. I can't have somebody in a senior leadership at Facebook with this kind of reputation. And so it was obviously devastating. I spent a couple of days going deep into how do I rectify this?

• 58:14Speaker 02

  And ultimately, I realized that the thing I need to do is go sit down with everybody and ask them to give me that feedback directly and to help me not just in that meeting, but in the moment when I was doing those things, point them out to me so that I could start to change the behavior. And it did two things. It showed some vulnerability with them that I was willing to acknowledge this and that I wanted to change. But also, more importantly, it actually got people to start to give me the feedback, which allowed me to see the bad behavior that I was doing. But the reason I tell that story is because think about what it took for Cheryl to do that. How many leaders would do that? Both identify my capability and give me a chance, but also then give me the really hard feedback, as uncomfortable as it is, even just to ask for the feedback in the first place and then to give it to me.

• 58:59Speaker 02

  And then, of course, she gave me the space. She helped me get a coach. She herself coached me through it. Over the next couple of years, I was able to fix a lot of those things. And frankly, I would have never gone on to have the career that I had at Facebook over the next 10 years if it hadn't been for that feedback. That's the thing that makes her so exceptional is that she is the single best people manager I've ever worked with in my career. She just cares so much. And caring doesn't just mean being a cheerleader. Caring means also giving the hard feedback when it's necessary so that people can grow and change. And she was exceptional at that.

• 59:32Patrick O'Shaughnessy?

  How did that manifest after that initial episode? So I get how difficult that was, but assuming she continued to have a positive impact on you and shape you and get the most out of you, what were the other things that she did once she had established that baseline, which sounds brutal, but I'm sure there was more. So what else happened that you think highlights that key point about her managing talent?

• 59:53Speaker 02

  She was religious about her weekly one-on-ones with every single person on her team. In the midst of all the chaos and how fast we were moving and how busy everyone was, she never missed a one-on-one with any single person on her team. And if she was in town, we were sitting down in her office every single week for a half hour to talk about things, which allowed us to stay completely synced up. She did the same with Mark. She was always getting synced up with him. And so she just... Through her exceptional people management skills, she kept the company organized, which is to say she just kept everyone aligned. She was the bridge between the product and the business organization. She was the bridge between Mark and the rest of the company. She was the

• 1:00:34Speaker 02

  bridge between the senior leadership vision and direction and the actual operational execution of that. And she did that by building relationships and being disciplined about how to manage those relationships in a scalable way. She, by the way, went on after that experience with me to implement a 360 review process for the entire company, which they still do to this day. And every single employee has the opportunity to get that feedback and to grow from that.

• 1:01:03Patrick O'Shaughnessy?

  We've obviously talked about extremely famous companies so far in our conversation, but you began your career at a company called Life Mastery, which was a company that sold seminars on, you can imagine, personal growth. What is the story there? Why did you go there? What did it teach you about business and storytelling and I guess, personal growth? It just seems like after so many big tech companies, I thought I'd throw a little wrench in the works here with a discussion of Life Mastery.

• 1:01:29Speaker 02

  I love it. I love talking about Life Mastery. So you can imagine this as like a Tony Robbins-esque type of company. What happened was I was at Harvard as an undergrad and I was very successful on the outside, but like many of us, I had a lot of anxiety and my parents could see that. And they offered to send me to one of these seminars. They happened to know the guy who taught the seminars because he had run a business prior to that that they were a client of. And my dad came to me and said, hey, if you want to go do this, I don't want to do it because it sounds scary to me, but I'll send you and you can go check it out for us. So I went and did this week long seminar and it really opened my eyes to a lot of things around what drove me and the group therapy type of environment. Well, anyway, I got really into it. I love the ideas

• 1:02:13Speaker 02

  behind it. The guy who led it was very much a student of Carl Jung and Joseph Campbell. And I was studying sociology at the time, so I started reading up on them. And a lot of those ideas really started to resonate for me. So after four years of college, I was on a track probably in college to go to law school and become a lawyer. That seemed like the straight and narrow path for me, but. Largely because of the inspiration of this seminar that I had experienced, I decided to not do that, but I didn't know what I wanted to do. And so I called the guy who ran the seminars and I said, hey, can I just come work for you? And I'll do it for a meager salary and I don't know what I can do to help you, but I'll come help you. I thought that that would be like a graduate school experience in life and philosophy and spirituality. And what I found was after six months, I was actually much more interested in the business.

• 1:02:58Speaker 02

  It was a small business. There were like eight employees, but I really liked how you sell the product and generate revenue and then what your costs are and how you generate profit from that. And that's what put me on the path to going into business. I ultimately went to business school and then I was lucky enough to get an internship at Amazon where I stayed on and built a career from that. But those lessons that I learned early on, both as a student, but then also working for the company and getting to help teach these seminars or be an assistant at the seminars, those lessons have stayed with me my entire career. And the lessons are we're all human. We all have our own issues that we deal with every day. And how we communicate and how we engage with each other are driven by a lot of that, even if it's not obvious and on the surface, they're there behind it.

• 1:03:41Speaker 02

  And if you can break that down a little bit and get a little bit closer to who the other person is, you can build a bond and a relationship that can really go much deeper and can allow you to do things together that you wouldn't have been able to do. So at Facebook, I actually started a training program called Flow. And we would take our senior team in my organization through two days. This was a business setting, so we're not doing hardcore therapy, but we would take them through uncomfortable exercises where they were vulnerable with each other and show them what was possible when you were able to really connect with somebody on a deeper level, much deeper than the surface level day to day that we experience at work. And it was very impactful.

• 1:04:19Patrick O'Shaughnessy?

  What's an example of an exercise like that that was effective?

• 1:04:22Speaker 02

  Well, we would start off each of these two day sessions with me being interviewed by the group that was training us. And she would sit there in front of 10 or 15 people in my organization. These were senior people, manager level people in my organization. And she would ask me questions like, can you share with us something right now that's going on in your life that's really upsetting for you? These are not the kinds of things that we often talk about at work. But at the time, my mom had Parkinson's and was obviously not doing well. And I was worried about her health and how long she was going to live. Or my sister was going through a divorce and talk about that experience because the person she married would happen to have been one of my closest friends. My son had some anxiety issues and I talked about that. When you start talking about these things with people who you work with every day

• 1:05:07Speaker 02

  and who, by the way, look at you oftentimes as being on a pedestal. I'm the guy who stands up on stage and tells the team, hey, this is the hill we're going to go take. And this is the strategy that we have. But to realize that, yeah, I have those issues too. And by the way, everybody in that room has them. And then to be able to connect at that level really builds a bond. And I had people come to me after those sessions and say, I was actually on my way to resigning from the company. But after this experience, I decided to stay because I just don't think I'll be able to have this culture anywhere else. I've had lots of people after the fact, since I left Facebook, reach out to me and say, hey, that training you did, or that talk you gave was one of the most impactful of my life. So it's been really rewarding for me. And it's something I really care a lot about. And that

• 1:05:47Speaker 02

  story I told about the feedback from Cheryl, subconsciously, my response to that was definitely inspired by my experience in those seminars, because what I knew was that the only way for me to break through with people who now don't trust me anymore, is to just be vulnerable with them and to share with them that this is really hard for me to hear. This is not who I believe I am in my core, but obviously my behavior is telling them something different. Those conversations completely turned around that situation for me.

• 1:06:16Patrick O'Shaughnessy?

  If we take all the lessons we talked about today and apply them to today, now, the kinds of people you're trying to back it, go to and work with and support, what do you think will define the next generation of these kinds of leaders, like a Zuckerberg, like a Bezos, like a Sandberg, like all these people we've talked about? Is it anything different than what defined that generation? Is it just the same principles over and over again? Or do you think there's something more nuanced to consider?

• 1:06:42Speaker 02

  I personally think it's a lot of the same principles and that's why I love what I do because my job is to find those people and then coach them and try to help them along the way. And I tell these stories that I'm sharing with you today all the time in my one-on-ones with CEOs where I'm on the board or where we have investments. I think of my job as trying to grow them into these next generation leaders. The fun part is there's so many more companies being started now. There's so much more opportunity. The scale of the market is so much bigger and the inspirations are all there. People grow up now wanting to become the next Mark Zuckerberg or Jeff Bezos. And so it's really fun for me. I think of myself as having gone from playing a position, I was a position player, right?

• 1:07:25Speaker 02

  I was, I think of like a Steve Kerr who was a position player at the highest level and now is a coach at the highest level. And that's my aspiration. I want to be a coach at the highest level. And the fun thing for me is I get to coach our founders, but I also get to coach our team at COTU. And that was part of explicitly the arrangement that Thomas and I had when I joined was, hey, I love building things. And most investment firms don't think of themselves necessarily as companies. It's an assemblage of humans that are all individually working on things. That's why it's called a firm. I thought, and Thomas and Philippe were really aligned with this, that actually there is an opportunity here to build something that is more of an institution. You can't just say, oh, well, let's do all the things that we did in our corporate environment here because that wouldn't

• 1:08:10Speaker 02

  work and it would smother a lot of the things that make firms like COTU great. But there are a lot of building blocks that we put in place since I joined and you can just see how COTU itself has grown over the last four or five years and the success that we're having now as a result. So it's really fun for me to be able to do that, both inside of COTU and outside.

• 1:08:28Patrick O'Shaughnessy?

  If you could build one product inside of an investment firm, COTU or otherwise, that to your knowledge doesn't currently exist, what product would you build?

• 1:08:37Speaker 02

  That's an interesting question. I mean, I think we kind of did this a little bit with our data science platform at COTU, like I talked about earlier. The other thing I think we did that's very interesting and is now very much a trend, but it wasn't at the time was, we said, why can't we do everything from seed through public company investing? And by the way, if founders need help with other parts of their business, we should be open minded to that, too. We recently started doing structured equity, which is becoming really important in this environment, especially. Why can't we just think of ourselves as business builders rather than just investors and add new products and add new solutions, all in the name of supporting founders and building great companies and serving our LPs? I guess one way to answer your question is to say, I don't know, but I do know that

• 1:09:20Speaker 02

  if there's a product out there that should exist, I think there's a good chance that we will find it and go build it.

• 1:09:28Patrick O'Shaughnessy?

  Good place to wind down the conversation. I have to turn to my traditional closing question. What is the kindest thing that anyone's ever done for you?

• 1:09:35Speaker 02

  Well, when I was ready to move on from Facebook and start doing investing, I was really unsure about what and how to do that. And I considered a lot of different possibilities and talked to a lot of different people. Thomas LaFonte was one of my friends at the time. We were close, not as close as we are today, but he talked me out of going down a path that I think would have been a mistake. I was very seriously considering doing something on my own. And he reminded me that I'm a people person. I get energy from people. I love being on teams. I love bouncing ideas and winning together and losing together. And I also really love scale. I had worked for two of the most consequential companies

• 1:10:17Speaker 02

  in the world. And I love the opportunity to work at scale. And he, over the course of a six month period, convinced me to join him and to join COTU. And I really am grateful for that because he was 100% right. It's a total blast. We're operating at tremendous scale and I love that part of the job. And we have an incredible team and I get to work with brilliant people every day. It's very hard to go from working with the smartest and the best people at companies like Amazon and Facebook to anything less than that. You're just used to operating in an environment where everybody is smarter than you and everybody is debating at the highest level with intellectual honesty, the hardest questions and the hardest problems.

• 1:11:01Speaker 02

  And that's what we've been able to create at Kotu. I think it's very unique in that way. I think we have built something really special and it's been a total blast.

• 1:11:09Patrick O'Shaughnessy?

  I'm reminded in our conversation of Grayden Carter, who used to run Vanity Fair, had these rules for great content. And there were things like narrative and conflict. But the one that stands out was proprietary information, some data or stories or information that no one else had that you had. As I think of our conversation, you've had one of the most interesting collections of experiences at these two companies and elsewhere of anyone I've talked to. So I really appreciate you taking the time today to talk to us about some of those stories. There's just so much, even the Kindle thing that we started with, there's so much contained in this set of experiences that I just think makes for great learning. So thank you for your time and for all the lessons.

• 1:11:44Speaker 02

  Thanks, Patrick. It was a blast being with you. I love telling my stories. I appreciate all the great questions and I'm a big admirer of you and love the podcast. So thanks for having me on.

• 1:11:53Patrick O'Shaughnessy?

  If you enjoyed this episode, check out joincolossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.