Pod Insights Invest Like the Best with Patrick O'Shaughnessy Sam Hinkie – Find Your People - [Invest Like the Best, EP.204] About this episode My guest today is Sam Hinkie. Sam worked for more than a decade in the NBA with the Houston Rockets and then as the President and GM of the Philadelphia 76ers. And now, after years of personal investing, he has launched his own venture capital firm, Eighty-Seven Capital. Every conversation I have with Sam is alive with insight, and this one is no different. We explore the idea of studying the "breadcrumbs" that someone leaves behind as a way to track their progress and trajectory, finding and attracting the right people into one’s orbit, and the lessons from the NBA that most shape his investing career. Sam has taught me the most about the topic of building trust, which we cover here as well. I am excited to share my conversation with Sam with all of you. Please enjoy!
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Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub.
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Show Notes
(3:48) – (First question) – Conducting a good interview
(5:58) – Drilling into topics to learn more about people
(7:49 – What percentage of people are actually worth spending time with for Sam
(9:29) – People who think in a strange way that intrigues him
(10:36) – Interest in digital breadcrumbs and how to follow them
(14:02) – Building context around founders vs analyzing their pitch decks
(17:20) – A real world example of the bread crumb strategy, Houston Rockets GM
(21:25) – How successful people evolve with the erosion of their pre-established edge
(23:07) – Shifting to a people-first focus
(24:50) – Creating an atmosphere that attracts the best talent
(26:50) – Tailoring things to someone else’s incentive structure
(28:24) – Most amazing thing someone did in early days of working with Sam
(30:18) – Lessons from sports that he carries with him
(32:31) – Exceptions to relationships being a key to success
(33:03) – Have people gone soft?
(34:58) – Knowing whether founders are on the right path
(36:07) – Avoiding transactional type people
(37:04) – Most effective lessons he brought to sports from the investing world
(40:01) – Ideas from the sports world he is bringing to the investing world
(44:11) – How the size of the team can impact the success of the team
(45:48) – Designing the game for himself
(50:33) – Lessons learned from watching them build trust
(52:26) – Market areas that have his attention
(54:13) – Fascination into API’s
(58:05) – Keeping your focus on your expertise
(59:45) – Strangest things he’s seen in early stage investing
(1:01:26) – Playing the long game
(1:04:29) – Calling it Eighty-Seven Capital.
(1:04:42) – Means of Ascent (The Years of Lyndon Johnson)
(1:05:49) – Increasing his chance at a GM job
(1:06:52) – What can Caro teach us about the long game
(1:08:26) – Lessons of power
(1:10:39) – Quality in leaders he respects most
(1:11:17) – The Passage of Power: The Years of Lyndon Johnson
(1:12:58) – The power of breadcrumbs and how people can start to lay them out
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Transcript 16,736 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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2:53 Patrick 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, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.
3:13 Speaker 01 Patrick O'Neal is 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 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 O'Neal Asset Management may maintain positions in the securities discussed in this podcast.
3:39 Patrick O'Shaughnessy? My guest today is Sam Hinkie. Sam worked for more than a decade in the NBA with the Houston Rockets and then as the president and GM of the Philadelphia 76ers. And now, after years of personal investing, he has launched his own venture capital firm, 87 Capital. Every conversation I have with Sam is alive with insight, and this one is no different. We explore the idea of studying the breadcrumbs that someone leaves behind as a way of tracking their progress and trajectory, finding and attracting the right people into one's orbit, and the lessons from the NBA that most shape his investing career. Sam has taught me the most about the topic of building trust, which we cover here as well. I'm excited to share my conversation with Sam with all of you. Please enjoy.
4:20 Patrick O'Shaughnessy? So Sam, I thought a place to begin this conversation would be with the art of interviewing and getting to know people really well. The episode that I have in mind specifically is a time that you helped me. So I've been hiring a lot recently and I hadn't done that a lot in my career to that point. And so I started calling people I know were sort of artists of this process, this interviewing and recruiting process. And then you actually helped me interview the final five or so candidates for a job that had started with 500 applicants. And when I asked each of the five after the fact, they each said that the conversation they had with you was the most unique interview that they had ever been a part of. We're sort of all awestruck by the experience. And so I would love to just know what is
5:02 Patrick O'Shaughnessy? behind that. What have you learned about conducting a good interview as you get to know somebody for the first time that let's say you're much better at today than than you were at the beginning of your career?
5:12 Speaker 02 That's kind of you to say. I'm this weird dichotomy on a whole bunch of areas, one of which is at some level, I don't really value interviewing all that much. And I don't really value the output you get out of interviews. Yet, at the same time, I do try to do it quite differently than others. I think in a bunch of ways, you get weird signal out of interviewing. And so you have to be careful. I'm mostly trying to understand how it is you learn, how it is you perceive the world, and where you sort of think the edges are. Oftentimes, I'm not particularly good, particularly on a first interview, at being hyperscripted. Oftentimes, I'll try to find something interesting to you, and let's go to the bottom. Let's go all the way to the bottom of what that thing is. And by the way, it's fun for me. I'll learn all sorts of stuff. It'll be something random that I know nothing about. And sometimes
5:55 Speaker 02 the bottom, honestly, is not very deep. And sometimes the bottom, you can never get there. You can just never get there. That dynamic, I like people who can zoom out and say, this is what I know, but I'm not even in the 70th percentile of this. I'm just like above average. I'm a 10th grader and you're a middle schooler on this topic. But let's not kid ourselves. I'm not a PhD on this topic. And so here's the things I understand and the things I very much overindex towards people who sort of understand the limits to their own knowledge and say, I know this cold, but there's a whole nother level out there that I'm not at and that I respect some people that I think are at.
6:30 Patrick O'Shaughnessy? One of the things that each of the people mentioned to me was that they would say something and then you would ask some clarifying question on that thing and then just, like you said, keep on drilling downwards. What are the most interesting things you've seen revealed when you've done that with people in the past? Is it just finding where the depth is or not finding it, which of course would sounds like it would be a good thing if you can't find the bottom? What else have you learned about that sort of probing process and why do you think more people don't do it? That's maybe the strangest part about all this is that it's so unique. It seems like something that would be obvious to do.
7:00 Speaker 02 I wish I could say this was like hyper thoughtful and I had designed some winning system. It's not clear to me at all. I'm actually just curious and I'm actually curious to learn and I usually take the approach, I can learn something from anyone. Whoever's sitting across the table from me is getting my utmost attention and I suspect I can learn something that they know about the world and I'm not just trying to evaluate them. I'm trying to learn at the same time. And so I'll sort of push in those areas. It seems obvious to me, you should try to find things that they want to talk about. I don't want any gotcha questions where I ask you something that I think I know the answer to and see if you'll fake knowing the answer. I'm not trying to trick anyone. I'm just trying to understand who you are. All interviewing should be a matchmaking game of who they are and how they see themselves and where they want
7:44 Speaker 02 to be and is this a fit? And if this isn't the best fit, isn't it in everyone's interest to get to that as soon as possible? Not six months after you're hired or six years down the line, you feel like you wasted a big chunk of your life doing this thing. But instead, you really want to see where it can go. I'm trying to understand how people think more than I am to understand what it is they actually know because they can, if you can get to that essence, if you can get to that, then it's much easier to predict sort of where they'll go. If you give them new infrastructure to stand on top of, or you give them a different set of colleagues, you're like, oh my gosh, they could get up this learning curve massively because that's how they think about how to learn in the real world.
8:21 Patrick O'Shaughnessy? You've obviously met a ton of people across domains and fields. What percentage of people? Do you think have the quality, I don't know what to call the quality, but the quality that makes you really interested in spending more time with them? And how has that changed over time? How rare is it for you to meet someone and just be sort of awed by them?
8:40 Speaker 02 Two things are true. I have a very high bar. People that actually get on my tribe over a long period of time that I feel like are amazing on one dimension or another, and we really resonate. That's a very rare combination. If you're lucky, you find one or two of those people a year that you sort of add to your groups that you go through life with. On the other hand, I'm so aggressive with my time and like how I spend it, that if I've chosen to spend time with you, it's no front. It's the thing that I thought was the single best use of my time for this 30 minutes or this hour. You're getting all of it. We may take it in some weird places. We may not talk about just your business. We may get down a whole bunch of what seem like rabbit holes to you, but you're getting all my attention.
9:21 Speaker 02 I'm like sort of filled with wonder about who you are and what you know and what you could teach me and what's interesting. And, and often, I mean, venture by nature, the nature of sort of how I look at things now is like, are you trying to see, call it 500 deals in a year and do five? So by definition, you're saying no. If people are asking for money, you're saying no, the overwhelming majority of the time. That doesn't mean I can't try to find things to store in my brain about what it is they're looking for, or what they would be amazing at, or who would be a perfect partner for them if in fact I'm not. And so I'm trying to like dig and dig and dig to understand what's deeply meaningful to them and see what they can sort of teach me along the way.
10:01 Patrick O'Shaughnessy? You said in the beginning, when you're meeting somebody, you're trying to get a sense for how they think. Who stands out in memory as an example of someone that thinks in a very strange or different way that interests you?
10:12 Speaker 02 I'm drawn to a bunch of people who sort of footnote as they go, and you can't help but hear it because they talk about it. So they'll summarize a book in two phrases. That's not that good. If you haven't read that, you should maybe read this. You get a sense there's real evidence behind that. I think a lot of the people in sort of public discourse these days, that's obvious when you talk to them that they think about it differently. I think both of the Collison brothers are sort of similar to that. I think Marc Andreessen is similar to that. I think. Naval Ravikant is similar to that in that it's quite clear the number of sort of primitives underneath something is quite high, that they've thought about many topics and many topics relatively deeply as they go. I'm often looking at each of those, that's a vein,
10:57 Speaker 02 trying to figure out which of those I want to explore. But on occasion, you'll come across people that are truly differentiated in how much of their own thinking they do, but then the kind of latticework they can bring with everyone else's on top of it.
11:08 Patrick O'Shaughnessy? One of the coolest things that you and I have discussed often about the modern world is that many times we can run this process of feeling your way to the bottom of someone's experience or thinking without actually having to talk to them. You're able to follow breadcrumbs, digital breadcrumbs, we'll call them, whether they intended to leave it behind, or it was sort of a natural course of their behavior. Can you talk about what your interest is in digital breadcrumbs and how you use them?
11:31 Speaker 02 If I can't find breadcrumbs sort of in the wider world, I'll often ask them for them. I'll often ask people like, send me an awesome book, or send me something cool to read, or send me something really influential to you, or send me something you've written. So I end up reading lots of senior theses from college, or old things they wrote, or old posts, or one of the recent investments I made is in a company I'm really excited about, obviously, it just happened a few months ago, called scoutapp.ai. And I got deep into the founders there, deep. I'm watching videos of their parents talk about their life journey. I'm reading the Medium posts of one of the founders over the last several years and reading all of his Medium highlights. And it's not hard to say, like, in this case, his name is Shrey. If Shrey's thinking about this topic at
12:15 Speaker 02 this age, and this topic at this age, and is deeply curious about this, and sort of gave the clap on Medium for this, that this was interesting, and his GitHub repository looks like this, that's all super interesting. Likewise, one of the other founders, he had been producing these YouTube videos for the last seven or eight years, going through one thing after another, showing how he's doing his own thinking. And so you could see him at a very early age, he's quite young, you could see him at a very early age criticizing the larger system and thinking about what his expectations were and how that matched. I often think of it the other way. If you wanted to understand me better, I'm 42. If you went back, call it for the last 30 years until I was 12 and just
12:56 Speaker 02 found one person per year and talked to them about me and asked them a set of questions, that's all me. The middle of that distribution is me. You'd find a hater, you should discount that. You'd probably find my mom, you should discount that. She'd be too nice. Everybody else would be like, oh, Sam is awesome at this and sucks at this and is frustrating at this and is amazing at this and we love him for this. True, true, true. That's roughly true. And I've changed plenty, but the sum total of all that is useful. And so to the extent people have written blogs or posted things on Twitter or created some artifact that I think of they've sort of buried in time that I can go find, that's often amazing because you get a chance to see people over a long period of time. Doesn't mean you agree
13:40 Speaker 02 with all their ideas. No one would have agreed with all my ideas when I was 25 or 35. We all change a lot, but you see sort of where they are and you can kind of watch them grow throughout it. My favorite version by far is when you find someone on Twitter or something you like, and then you realize they have a blog and you'll find the blog and you're like, oh my God, it's like a diamond mine, the whole thing. This is the first time I went and found Patrick McKenzie's blog. I was like, what? I have to read all of these. I've known him enough on Twitter to know I respect the way he thinks. I love the way he writes. And so I have to read all of these. Then I have a new problem. How do I read all these? What order should I read them in? Where should I start? Who knows more about his essays than I do? I felt the same way when I found sort of Paul Graham's stuff. I need to get into the good stuff as fast as possible and I will probably read it all.
14:25 Speaker 02 But in case I don't, I want to make sure I've read all the good stuff, even if I only read two thirds or three quarters. I want to make sure I got 95% of the value, even if I did only did 80% of the work.
14:35 Patrick O'Shaughnessy? It makes me think that the phrase, I can't remember who said it, that you should invest in arrows or lines, not dots. Never invest in something static. A PowerPoint deck by its definition is sort of this weird point in time thing and somehow is the way through which we start to have these conversations about backing young companies. But it sounds from all these descriptions like instead, is that like the thing you care least about? And instead you care more about building as much context around the person and the founding team as possible and trying to find the right arrow to hop on the ride along with
15:06 Speaker 02 For sure. That's how I think about it. I heard this somewhere and it's stuck in my brain for years now that expertise is a predictive model about the future that works. I don't care how you got there. It might be instincts, might be actual data, might be something, but you can make a prediction and it became true over time. Experiences, how many times you've done this, that's totally different. That's totally different. Doesn't mean people without experience don't have expertise, but they're wildly different things. Getting down the learning curve for some set of people is often very, very quick and you might not care at all that they're bringing sort of a beginner's mind to a new industry. In fact, that might be preferential. You might want them to attack an industry in which the incumbents are sleepy or the incumbents have long held the belief that technology can't help or that software will never disrupt their business or that
15:51 Speaker 02 their advantages will always remain. You often want someone from the outside to say, there's so much I don't know and I'm so worried about what I don't know about this industry. I gotta get down that learning curve. I gotta surround myself with people that can help me on that. But I have this idea that I'm coming into this new ecosystem where I don't think people have fully valued that. Personally, I'm often looking for people who are quite pointy in one way or another, who are really unusual at one item here or there and are cognizant of their weaknesses. And then the ones I really like are often open about their weaknesses and are keeping them their weaknesses because they think it's an infinite game that you don't quite understand yet. They say, yes, you're right. We haven't thought much about go to market, but that's not really a problem until years
16:35 Speaker 02 two to six. Yes, I think it's solvable and yes, I don't know much about it. I don't quite have a plan of how to solve it yet, but I think we're going to be able to, whether it's via people we bring on or advisors or investors along the way. But what we need to focus on right now is the compounding advantage. That's the thing to focus on for the first 12 months. And by the way, if we don't have a compounding advantage, thing isn't even venture scalable anyway. So we shouldn't even raise a series A. We should just be done. I love that answer. That's a great answer to say, you're right. I do suck at this go to market thing and I might get some of these other things, but those things are steps three or five or seven. And if we don't get one and two right, there's no platform to build on anyway. So this thing is a sort of a waste of time to spend much time on that. Now, I don't think it's like raw intellect. It can be, it can be grit. It can be EQ. It can be
17:20 Speaker 02 your ability to sell. It can be your ability to inspire a set of people, to inspire people smarter than you in a bunch of ways, to join up, to drop what they're doing and sort of be your acolyte on your path that you're trying to go down. It doesn't mean you have to be the smartest person in the group at all. Maybe not even the most talented, but you have to have a way in which you can bring all these people together. I do think you're going to need some really, really, really pointy skill that you can lean into. And even better, if that skill will be rewarded in this game. If it's not, maybe you should play a different game.
17:53 Patrick O'Shaughnessy? There's an example you've told me before that I'd love you to recount here of how you first came across the person who I believe now is the assistant GM still at the Rockets back in your sports days, because I think it's a great example of this breadcrumb concept. And I'm kind of harping on this because I just think it's like a strategy that's mispriced. I don't really know many people that do enough of this. It's typically not the way that people or deals or investments are approached. I think the world is making it more and more valuable to do this. So could you tell us that story?
18:21 Speaker 02 The assistant GM of the Rockets right now is Eli Whiters, who I got to know in must have been 2008. At the time, he had just started a blog, but prior to that, there had been a sort of a message board, an open forum where people would post all sorts of interesting analysis. Back then it was called APBR metrics. It was the way in which people communicated, sort of think of it like Hacker News or something today, in this space at the time. And there was a prolific poster who was quite good under a pen name. And after a while, it became clear that that person sort of doxed themselves. Think of it like someone like Slate Star Codex or something, where Eli said, you know what, I'll go ahead and say that was me. That was me that's been doing it all this time. It was like, oh, that's interesting because there's this trove of information. It's him. And then at the same time, he started this blog and the first blog post for
19:04 Speaker 02 years, I've told people, I tell people now, if you see something awesome, send it to me. I'd love to read it. He has his first blog post and by the end of the first day, four or five people sent it to me and it's amazing work. And I'm like, oh, that's wild. And I'd heard a little bit about him from another friend of mine. And I was like, oh, that's super interesting. A week or two passes and there's another blog post and by noon, four or five people have sent it to me. And I'm like, oh my gosh, this is massively good. And the primitives you would have to understand to do this kind of work, not to mention alone, are massive. Another week or two passes and here comes another blog post. And by now I've got it like hooked into an RSS feeder back then. I read it quickly and I just printed it out and walked down to Daryl Morey's office. And I said, I'm about to hire this guy. I haven't met him yet, but I'm about to hire him today. And he said, why?
19:47 Speaker 02 And I printed off what he had done and he said, I get it. Let me know how it goes. The truth is, we did real interviewing and we spent a bunch of time with him over many, many weeks to try to understand him better. We did hire him based on that. I like processes where you hire people, where you run a tournament, where there's an actual tournament, but he was the number one seed in the tournament. To be clear, based on his prior record and that that was massively influential for how we would think about him. So because of the amazing amount of work he had done, it was clear to us that we needed a couple of things to happen. One, we needed him to join forces with us. And two, we needed him to stop leaking this stuff out to the internet. He was bleeding away, small amounts of competitive edge for us. That was a half percent here, 1% there. It wasn't huge, but I didn't have great confidence that he wouldn't leak out 10% of it in one big post.
20:33 Speaker 02 That might only be 10 more days away. He's been now, what is it? 2020, he's been at the Rockets now 12 years and he's done amazing work there. But much of that was on the backs of his early writing where he could show what he knew. He didn't have to say, oh, I learned fast. It was obvious he learned fast. He didn't have to say, oh, I'm hyper passionate about this. It was obvious he was.
20:52 Patrick O'Shaughnessy? You've told me this story before, but I've never actually then asked, what was he writing about? That post one, two, three, whichever one really stood out in memory. What was he writing about and what was so impressive about it?
21:03 Speaker 02 Things that were mispriced in basketball at the time. How to think about shot location data? How to think about defense at large? These were the kinds of things that even back then that were wildly misunderstood. One obvious example is if you get an open three on the wing and no one's within 10 feet of you and you make it, well, fine, we should give you some credit, but it's not that hard a shot. You're pretty open. We should probably give the passer and the coach and the screener a bunch of credit. We should probably dock the defender. If you've hit an amazing shot, call it Kyrie Irving at the end of game six or game seven, I guess, an amazing shot that's quite difficult, you should get an amazing amount of credit for that. There's some luck in that, but there's a ton of skill in that, too. Those were the kinds of things that he was adjusting.
21:45 Speaker 02 But to do that, you had to have an underlying set of data that was quite robust at the time. And then the skills and abilities and sort of at that time, industry know-how to be able to build on top of them.
21:57 Patrick O'Shaughnessy? What's in common between people that continue to evolve on that same trajectory? So you said, "used to be mispriced." It tends to be that things like that in basketball or in markets that are competitive, advantages erode over time as more people become aware of them. What have you learned about people that can evolve with the erosion of pre-existing edge to find new edge?
22:19 Speaker 02 Humility about what they don't know. Always worried there's someone else out there looking harder. Somebody smarter, somebody hungrier, someone trying to find an edge while you rest on your laurels. My favorite kinds of hires back then, often these people are wildly data oriented. We'd give them a bunch of standardized tests as part of it. These tests are more like, "here's your abilities with HTML," or "here's your understanding of SQL database structures at large." And the kinds of people we often hired, and Eli would have been one of these, we'd say, "How do you think you did on that test?" "Oh, I got crushed. I got crushed." It is hard. Don't worry about it. Where do you think you would score on that across the world?
23:04 Speaker 02 And they're like, "I'm pretty good, so 60th percentile or something, not 75th." "Okay, how about the other one? Oh, the other topic I'm much better at, so maybe that one I'm like 80th percentile, but no way I'm 95th." And then the scores would come back. And instead of being 60th and 85th, they would be 98 and 99.9. You're among the very best in the world and can't believe it. You're worried someone else out there is better, and you're underplaying your skills, not overplaying them, and you're constantly looking for new edges because you presume there just must be someone out there that's even better.
23:39 Patrick O'Shaughnessy? I think one of the things we agree on is that you keep digging on anything and you ultimately come back to people. That people drive just about everything. And I know at the Rockets, you told me before that if you weren't spending your time on finding a great player or finding a great personnel or staff member to join you in the center office, you're kind of annoyed. So talk about how back then you shaped your life so that it was always as focused on people as humanly possible.
24:06 Speaker 02 I'm a deep believer that people are a power law too. Whether you're running a small company or whether you're running a big company, like your ability to attract the best in the world, I think, is so incredible. Even right now, like one of the things I sort of watch the most closely, sort of deal in politics at all, but what I watch the most closely is how welcoming are we to the best in the world to come here and do the thing as a country? I think that's terribly important is to be that place where it's obvious to people around the world that your bat signal, if you think you're amazing, like this is the place, the old sort of Stephen Covey line to get the highest platform to see how good you are. I very much want that to be here. So I think that's terribly important, not
24:49 Speaker 02 the least of which is the downstream impacts of all this. Awesome people bring you more awesome people. They compound over time. They sharpen your own thinking and they materially add to what it is you're trying to do. I've yet to find advantages that overwhelm that. I'll give you one example. Sometimes I say this and it gets me in trouble, but I believe it. I think I care about the value of recruiting more than almost anyone I know. I think getting in amazing people at the start, in the middle, at the end, all the way through, having an ever raising bar that someone has to clear. It's not quite everything, but often it's close.
25:23 Patrick O'Shaughnessy? I'd love to pick that apart and break it into the push and the pull. There's an aspect of this, which is the creation of the platform that is just the default. If someone is the most talented, they want to go to Harvard, they want to go to Stanford or something like this. There's a institutional platform and gravity that I think you can build that does some of this, but I'm sure some of it too is outbound salesmanship. So in the various places that you've worked and tried to create that beacon, the bat signal, the gravity, whatever you want to call it, what have you found most effective in those two categories to attract and win the most talented people?
25:56 Speaker 02 I think a lot of times you're trying to disclose a lot. You're trying to be really be open about who you are and what you're after. I think amazing people are often drawn to be around other amazing people who have lots of intellectual humility about what they don't yet know, can sort of have a sense of wonder about what's knowable out there. You're trying to be hyper open for what kind of environment you An old story that sort of comes to mind. I think lots of good organizations, like a great way to onboard someone, particularly someone high potential and hopefully almost all the people you're hiring are very high potential, is to write down a lot of what you do, write down a lot of your process, be true for Invest Like the Best. It's like, hey, here's how we have guests and here's how we think about questions and here's how we think about reach and here's how we think about follow-up after the podcast.
26:40 Speaker 02 And it's all written down and we say, you just got here today. We're so excited you're here. Plop, make it better. You got a month. Make it better. I need a report. I need a meeting. I need something where you criticize what we're doing because we think it's the best we have right now and we're not at all convinced it's even an A. Please make it better. That kind of notion. So I think if you can send those signals out to people as you're trying to understand where they are, which is this weird balance between what could be and then a whole bunch of honesty about which is what is is exciting and what is is an amazing platform, but what could be is an order of magnitude more than what it is now. And we're only going to get there with unique ideas from people like you and the other people you will bring us.
27:22 Patrick O'Shaughnessy? So there's kind of two pieces there. One is obviously people are attracted to other talented people. If you can keep the quality bar high, the gravity stays strong. But it sounds also like there's a couple of other things like the difficulty or interestingness of the problem being tackled. And maybe like a why now and what the incentives are for that person. How do you think about aligning those two things? Their incentives, maybe they care about money or power or fame or Charlie Song, her sole framework. What did you learn in those regards of like tailoring things to someone's unique motivations?
27:55 Speaker 02 You might be confident you're in a deep snow environment. You might not be confident in how long the hill is. So it's that. One of the things I want to do is compound trust with a relatively small set of people over a long period of time. If that's what I want, then sort of my staying power in that lane, which I've sort of defined is much longer. Where if what you want is to be at company A for two years and then company B for three years and a new title and company C and a new title, that might be fine too. Just make sure that's a match for what it is you're looking for. You may be far more interested in something that where the value accrues in duration. Because do you think these things actually compound over a long period of time? And trying to understand that coming in and understand everyone's deeper motivations coming in,
28:36 Speaker 02 I think determines the area under the curve, how long this thing is going to be interesting. Obviously someone amazing will create real value for you on day one. Should create incredible value for you in the first month. But if they only stay for 24 or 36 months, you just learned a lot about how much sort of value is under the curve.
28:56 Patrick O'Shaughnessy? What's the most amazing thing that stands out in memory that you've seen somebody do in the first couple of months of either working with them or having invested with them?
29:04 Speaker 02 So maybe this is a strange story, but it's one that comes to mind. When I was in Houston at the Rockets, we traded for James Harden and he was 22, almost maybe he's 23 years old. And we traded for him three days before the regular season. He came in, our team had sort of been somewhat gutted to get him at the time. And so he came in and I went to the very first practice and he was sort of lacing his shoes up and so were the other guys and he had met everyone. He'd met them hours before. The coach like blows the whistle and is like, hey, you know, it's time to get going. Everyone come down here. All the players get together and coach gives his little thing for a minute. Here's what we're going to do. Here's the first station we're going to, et cetera. And everybody goes to put their hands in and James says, tuck your shirts in and tucks his in.
29:49 Speaker 02 And 14 players tucked their shirt in. And from that moment forward, it was like the new alpha is here in a whole bunch of ways. And at the time you're thinking, I hope he can back it up and I hope this goes well and I hope he's going to be amazing. And you're not sure. There was a little bit of uncertainty. Think of it like a sort of a power vacuum, a little bit of uncertainty that lasted for about 45 seconds. And at the end of that, it was like a signal sent that there's a new way to do things and I have ideas about what those would look like. Quite forcefully said, do it. Maybe that's where he's cute in hindsight because James has turned out to be an amazing player, but that combined with, he balled out his first game and the next night he went for like 45. That combined with amazing performance out of the gate was not hard to imagine.
30:34 Speaker 02 You were on a new trajectory.
30:37 Patrick O'Shaughnessy? It reminds me of the episode in that incredible Jordan documentary when they play the Olympic pickup game and he sort of bests Magic's team. And there's this incredible tension and Magic relieves it in the bus, basically handing the alpha crown over to Jordan. What are the different brands of leadership that you saw and learned from in sports at either the executive, central office level, coaching level, or player level that you still carry with you?
31:03 Speaker 02 The way I think about coaching is very much how I think about parenting. And I think translates in lots of other places, that your ability to drive change is about the quality of your relationship, not your hierarchy. We used to talk about this with our kids. When your kids are two years old, you're like, don't do this, do this. You're hopefully a benevolent dictator, but there's a bunch of rules. Don't touch the stove. Don't put that in your mouth. They have to listen. If they don't, there are draconian consequences. Now, draw some line out in the future. They're 25. How much authority do you have over them? Not that much. You can guilt them into some things. Maybe if you're still supporting them in one way or another, there's some ramifications for their behavior.
31:46 Speaker 02 But most of your ability to influence them, which isn't that what we all want, is to be able to influence the people we care about, particularly for their own good, is about the quality of the relationship you've built up over time. I think about it that you're sort of pouring yourselves into people you care about so that they will call down the line when they don't have to do what you say at all, when they're their own people, but they still respect your opinion and think, he might be able to help. Coach might be able to help me in this situation. Dad might be able to help me in this situation. I think that notion is critical. I tell founders this all the time. Sorry, you might be working for the CTO. The CTO might be the most valuable person here. She might be. And if you don't know that, better to get your head around it quick because she leaves, this all falls apart.
32:31 Speaker 02 Yes, you're the CEO. Yes, you're out talking to the venture folks. Yes, you're in the papers more. Let's be real careful about what this might mean for the company if your seven-person engineering team, if the leader of that quits. Your ability to influence her, influence is the right word. You can't make her do anything. Your ability to sort of influence her and influence her towards the kind of vectors you want the company to go towards is going to be everything. So start investing in the quality of that relationship right now. It's never too late, but you better get going.
33:03 Patrick O'Shaughnessy? Were there exceptions to that emphasis on relationships as sort of the fuel to great durable leadership that you saw at any point from players or coaches or staff? I don't know what the right term for this is like a hard ass or something. I don't know.
33:17 Speaker 02 I increasingly don't think those kind of authoritarian sort of versions work very much in most environments and some of course they do and in some those are truly necessary to be so aggressive, but I think for wildly high performers, I think there's often sort of a better way to go about it.
33:35 Patrick O'Shaughnessy? Do you think that there's anything that's changed about, I'll use an intentionally pejorative term, which is like that we've gone soft? I'm now the old guy that is saying this about younger generations. Like I said, I would never would, but I'm curious how you react to that idea that perhaps everyone's gone a little soft.
33:53 Speaker 02 I think having very high standards is fine and appropriate. And I think holding people accountable to those is fine, but to the extent they're not aligned with the person's individual incentives, I think it's quite difficult. It is really difficult. It's possible that someone could really truly believe in your mission and be in a full on command and control, but often I think you're going to need to find a way to tie it to what's good for them. One of the best things I think you can do as a manager is be good for the careers of the people who report to you. And I think the best way to convince them you're good for their careers is to actually be good for their careers and to actually help them in a bunch of ways and say, what does he really want to do? Well, it's a canonical example, snowflake. If that's snowflake and it's like, what I really want to do is make huge coin, post
34:38 Speaker 02 the IPO and that's okay, fine. Pull an O R right here and we can do that. We've got a method to do that and that this will line up. But if what you really want to do is go start your own thing or grow in these other areas or be known for excellence in this way, I have to find opportunities for you to take steps toward that because I can either fight against your nature. It's a sort of long hill version. Again, I can fight against your nature and get you to hold your breath and suck it up and do anything, but the moment you get freedom. The moment you make money, the moment you have better job alternatives, I think of it the same way with teenagers. The moment they get out of your house, it's gotta be like this. Yep. And then they went to college. Now what? They got out of college and they've got their own money. Now what? Now what are you gonna do? Turns out they're gonna reject a bunch of
35:21 Speaker 02 that and sort of plop back into their original shape and do the kinds of things that bring them meaning. Get on that train or not, because the leverage just switched in a whole bunch of ways.
35:30 Patrick O'Shaughnessy? How do you suss out that alignment when dealing with founders specifically that you're meeting and getting to know to make sure that the thing that they really want to do is this thing that they're building in this company?
35:42 Speaker 02 Bread crumbs in the past help a lot. The way they've talked about people in the past, who they've looked up to, how that's changed, how that hasn't changed, who they admire, the kinds of leaders they admire, the kinds of leaders they detest. Do they want to be Steve Jobs and Elon and the like? Okay, that's a certain style. Do they want to be John Malone and Warren Buffett? Okay, that's a different style. From who people admire, you learn about some of the things that they value and who it is that they look up to and what trade offs they think are totally worth it. I mean, you mentioned The Last Dance. In some ways, this paragon of excellence and amazing. In other ways, it's like, ooh, the cost of making that happen is like, real, real. If that's what you admire the most,
36:23 Speaker 02 and if that ring chasing is the most important, which is totally admirable in its own way, then fine. I should anticipate you're likely to cut many, many corners and fight guerrilla warfare in many ways that others would find untoward, and I need to be comfortable with that.
36:39 Patrick O'Shaughnessy? What are the best ways that you've learned to avoid transactional type people?
36:44 Speaker 02 Slow down, slow down, in a whole bunch of ways. Drives transactional people nuts. Fine with me. I'm trying to learn that. I'm trying to learn that. So you read a book, I'll read a book. You don't want to read a book? Cool. You read a book, I'll read a book. We don't have time to read a book? You gotta know by Friday? No problem. I'm out. I'm out.
36:59 Patrick O'Shaughnessy? You did this to me.
37:01 Speaker 02 Yeah, yeah, for sure. I'm accused of being on occasion, you know, heartless or a data wonk or ruthless. And to be clear, I can be in a bunch of ways. I am super big hearted for the people in my tribe. It matters a lot to me, but shouldn't there be a high bar for who you trust? If you trust them, shouldn't you be trying to play a more infinite game where everyone trusts each other more and more? And you're trying to compound that trust over time. The very notion of that, a lot of people are uninterested in. No problem. That's totally fine with me. But yeah, I would say slowing down is a common technique.
37:36 Patrick O'Shaughnessy? We've talked a lot about people and their characteristics, and I'm going to come back to more of those questions. Cause as I said before, I think ultimately people are the most interesting topic. But you're very famous for having brought a lot of the ideas, best practices, thinking from the investing and business world to sports. And now you're going the other direction. And so I'd love to map that journey to and from by first asking what you think the most effective things that you brought from the investing and business learnings that you had done into the NBA. And then I'll ask what you're taking out of that experience and bringing back to the business world.
38:12 Speaker 02 I don't think it's anything really about me or how I thought about the world. It's just a different perspective, what things that I think maybe move the needle for me or people like me in sports where the ability to zoom out and have perspective. If I'm good at anything, it's perspective in a whole bunch of ways. Sometimes that gets me in trouble. It makes me not so good at day to day, sometimes week to week things, but makes me quite good on a multi-year kind of thing. So zoom out and have perspective. Understand how to have intellectual humility about what you know and what's unknowable and what your confidence intervals on all these things. You want to predict who's going to be a good free throw shooter next year? You don't have a fairly tight confidence interval and data can help you a lot, even simple data. Look up last year's, look up their career numbers. It's pretty straightforward. People make plenty of jumps.
38:54 Speaker 02 Those catch our eyes because they're anomalies because they're unusual. If you shot 85 last year, you might shoot 80 this year. You might shoot 88, you won't shoot 95, you're not going to shoot 65. That's on something easy like free throw shooting. There's a bunch of other things in which it's not easy. And can you say it out loud? We're trying to sort of shoot fish in a barrel here and the barrel is huge. And we're kidding ourselves. And if you're not sure, here's the meeting notes from the last five times we made this decision. We went one for five. And by the way, it's not because we suck. I'm not trying to get anyone fired. Everybody sucks. This thing is hard and we don't have much signal into this. And it's wildly sort of contextually oriented.
39:32 Patrick O'Shaughnessy? Is there an example of that?
39:34 Speaker 02 Oh, all the time, just like causality. There's a common one in sports. This guy would be a great culture guy. Often a great culture guy is something you name after the fact, based on someone whose incentives were aligned with it. I think Jared Dudley was probably a great culture guy for the Lakers this year. And he played just a few minutes in the finals and very little in the playoffs and waved towel and was an adult and was useful and was encouraging in a bunch of ways. He's also quite near the end of his career. I think Jared Dudley at 25 might not have been quite as happy to have not played at any of those. This might be a byproduct of success versus something that's coming in. I think your confidence interval on predicting how someone will behave when it's against their own
40:19 Speaker 02 personal interest may be very, very different. Someone in a contract year might react wildly differently if their sort of numbers are being suppressed than someone who just got paid and who's doing amazingly well and doesn't have to worry about that kind of security.
40:33 Patrick O'Shaughnessy? So now going back the other direction, leaving sports and now devoting yourself and your time and all these hours studying breadcrumbs and people into the investing world. What ideas are you bringing with you that you think are distinct or different than the median venture capital investor would be applying as a part of their process to find great teams and founders?
40:56 Speaker 02 People are really a power law and the best ones. Can change everything. Betting on people who have these incredibly high ceilings and a reasonably high likelihood of getting there, I think is much of where the game should be even more than most. So the example I often use is I'll say, I like the field you're in. I like that you're in DevTools. I like that you're in software infrastructure. I like that you're in an API-driven business. Those are deeply interesting to me. Call it left field. You're going to run it left field. I have no idea if it's going to end up dead center left field, or left field foul pole, or maybe even center left. That's your job. And I'm backing you to do that. And by the way, when you're struggling, I hope you'll call. And when you're unsure, I hope you'll call. And when
41:41 Speaker 02 you want someone to bounce an idea off and play shadow boxer, I got you. Call me. But you're going to actually tack and find that. And what I'm betting on is that the area in which you're going is interesting. And there can be several winners in that space. And then I'm betting that you are wildly likely to make your way through that maze. With a little bit of help and with a whole bunch of guidance from people around you and with some amazing people that you can find, that is the thing you're betting on. And you're going to have to change so much. That's one of the things that I feel like maybe I feel is different. Call it coming from a world where you invest in talent in a different way, which is you're often picking someone in sports who doesn't have to double their
42:22 Speaker 02 skill level, but quadruple it, or 10x it. They have to get so much better at so many things. And to their credit, they're often 19 or 20. Most of those things aren't even on their radar. What? I'm going to have to manage my diet. I'm going to have to worry about how I sleep. I'm going to have to manage my time way better. I'm going to have to manage teammates that are 10 years older than me, and then someday 10 years younger than me. And I'm going to have to work my way through that. I think that's wildly similar to being a startup founder. It's not about your ability to get this product shipped, the very first one, and have this amazing idea. Over time, you're going to have to get better at go to market. You're going to have to get better at fundraising, at recruiting, at raising capital, at closing partnerships, and at evaluating people that you
43:05 Speaker 02 feel like currently you have no expertise in. I don't know how to hire a CFO. That all the time. I don't know how to hire CFO. Okay, great. There's a bunch of things you don't know. Let's design some plan by which you can get better at that. So that five years from now, you don't say that anymore. You're like, oh, we need a new CFO. It's time for that. We need a new CFO to get us ready for the IPO. Fine. Let's have that be something that is far more in your toolbox than it was in the past. And you're going to need to be able to identify those things on your own, or even better. If people around you do it, to be able to believe them to say, I'm going to have to get good at this. I've never liked that part of the job. I've never thought of myself as an expert in that part. But me getting relatively expert and the company getting truly expert in it
43:49 Speaker 02 is a actual risk factor that I need to mitigate. Can you get down that learning curve? And can you sort of navigate your way through that maze? Because the things that got you here won't get you where you're going. If your goal is to build an enduring company that compounds over decades, you're going to have to evolve yourself many, many, many times to get there. If your goal is to flip this to Google in 18 months and do that, that's fine. But you should align your capital strategy with that. And you should align your partners with that, which is, I'm going to try to get the cash flow positive here. We're not going to get above 50 employees. We're going to try to get to there. We think there's many multiples that are far short of a unicorn that get interesting. And that's the game we're playing. You need to sort of align incentives with all the people on the journey. Your early employees with your investors and with your partners along the way.
44:33 Speaker 02 Because to the extent you've sold a different dream that is sort of more of the norm that you're trying to go to the moon, and then that's what you do. You're going to leave a lot of people with a sort of bad taste in their mouth about how that went.
44:44 Patrick O'Shaughnessy? How portable do you think that concept is? Certainly in the NBA, it seems like, or I guess in sports in general, the smaller the team, the more that power law thing exists where if you have LeBron, I don't know how many straight years his team, if he hasn't been injured, has been to the finals now. I think it's like 10. No kidding. People are power laws. Like if you have the best guy, you're just always in the mix. Maybe that's less true in football or soccer or something like this. And I think of startups where certainly early on, it's a small team, but it gets very, very big. Do you think that because of the team size and just the amount of randomness in a big, more complicated system than a five on five game, that that power law thing is less true than it is in sports? And if as a result, things like the market you're entering matter as much or more as the founders?
45:29 Speaker 02 For sure, I think the market you're entering and the sort of business you're going after really matters. But even for scaling companies, I think many of your people propagate over time. And so they can propagate with increasingly high trajectories or with increasingly poor trajectories, where if you're constantly hiring brother-in-laws all the way down, then it's like, yeah, this thing is going to be a mess quickly. If instead you're saying, we have an ever higher bar of recruiting where we're trying to narrow our confidence interval on these people over and over and over, and spend an increasing amount of our time on who gets in the boat with us, I think it's relative to sort of the market you're in. I think it's relatively unlimited. I do think it'd propagate over a long period of
46:12 Speaker 02 time and end up compounding. You better be careful about the kinds of people you let in early because they will influence your hiring processes heavily from then on.
46:21 Patrick O'Shaughnessy? How have you thought about shaping, I'll call it the game? You're in a new game now, and I think your interest is in spending as much time as humanly possible with the sort of exceptional people that we've outlined in a number of different ways. But that's hard work. Like, there's a lot of people out there, gotta kiss a lot of frogs typically in a process like this. You mentioned 500 deals down to maybe five investments, something like this. How do you think about designing the game itself into which you are now placing yourself for the next big chapter of your career? What are you optimizing for? What are the rules of that game that you're trying to make different than the normal way things are done that you observed in the venture ecosystem when you stepped into it?
47:00 Speaker 02 For sure, the way I thought about it was, could you design a world where you could spend nearly all your time with amazing people? That's one. And where you could get leverage on seeing around the bend a little bit, that mattered to me. And where patience and temperament are rewarded. All three of those things mattered, but they matter because I believe those are areas to spend time in. And they're areas I enjoy spending time in, that I sort of take energy from. So I love being around incredible people. That ought to be obvious. I'm a sucker for the old sort of Netflix parlance of stunning colleagues. I thought about, could you design something where 70 or 80 or 90% of your time were just those people? By the way, at 87 Capital, I can very much do that. In that, anyone I hire into the firm is a part of that. And any entrepreneur I choose to spend time with
47:45 Speaker 02 is a part of that. And any entrepreneur that I pledge to spend bukus of time with, I chose. So if I chose them poorly, shame on me. I get to decide if they're stunning colleagues that take up my Tuesday or not. Secondly, I think in decades by nature, like where's this thing going? What aren't people thinking about? What are the second and third order effects to this shift that we're seeing here? And I want there to be leverage on that kind of thinking, not momentum trading for this week versus next, but leverage on trying to see around the bend. And then lastly, some of this is a, we call a personality quirk, I think, which is I'm super steady, sometimes annoyingly so. I'm hard to fire up. I don't mind being alone, in my opinion, for a very long time. Can you get to a place where that kind of steady temperament is rewarded?
48:29 Speaker 02 And build an ecosystem with that kind of trust? Where people say, yes, we too believe in this kind of approach. And that we can first slowly and over time with more and more leverage, turn this wheel that generates the things that you're interested in. And then for me personally, it's quite easy to sort of design a vehicle like this, because the things I'm actually after, I'm trying to compound wisdom and trust. I'm trying to figure out life better and try to figure out business because I'm deeply curious about it. And to try to understand how to compound trust with a very small set of people, very small, meaning hundreds, not thousands. And how to sort of compound trust with them over a very long period of time?
49:11 Speaker 02 Because I think that builds a snowball that is amazing. And one that's, to be clear, deeply fun for me. One quick story I'll tell you on that. Mark Andreessen has this line that I love, that sometimes he says, he's like looking at his phone and people are annoyed. And he's like, of course I'm looking at my phone. The best of 7 billion people on the planet, this is the best they can muster. So yeah, it's interesting. I'm looking at it. I would say I'm kind of like that, but different. I told you, you know, we sit in a meeting like I'm into you, fully into you. I'm not looking at my phone at all, for sure. My phone is filled with people in my life that I've invested in over a long period of time. And invested in with a lowercase i. These are my friends and people that I care about. Some of these people I've spent 15 years with, some of them 15 months with. And they're sending me awesome stuff.
49:55 Speaker 02 They found a read, they're telling me incredible insights they've come across. It's a freaking treasure trove. When I wake up in the morning, I'm so excited to look at my texts, which is maybe not super healthy, but I am because. For someone like me that likes being dependable for those folks in your tribe, it's intoxicating. Here is said person that I love, that I chose, that I very much led into my life eight years ago or eight weeks ago. And here they are with a real question. They're not asking me piddly stuff. They call me with big stuff and say, I'm thinking about this. What do you think? This just happened. What should I do? Here's my approach. Please beat it up. I'd love that. That only came from the way I've tried to live my life for several
50:38 Speaker 02 decades now, which is to really pour into a, again, a relatively small set of people. I often sort of think about is like fewer, deeper relationships. I very much want that. I don't have any need to run an organization with tens of thousands of employees because I very much think about it in my mind's eye, the 10 or 20 or 50 that I spend the most time with and that I sort of get the most energy from and that, that honestly are the most rewarding personally for me.
51:05 Patrick O'Shaughnessy? You've mentioned the word trust a lot. It seems like prima facie, just something that is a universal good, building trust is good. And you and I have talked about this a lot and you've done this funny thing, which I absolutely love, which is you've even literally pointed out to me when I do something that builds trust with you, which I just think, I've told my friends about this. It's almost like a Pavlovian thing where every single time I think of you, I'm like, oh, I better make sure I'm being thoughtful about this because I want to build that trust. What have you learned? And you could abstract this away from yourself if you want. What have you learned watching other people build trust with each other or with you or you with them that are key sort of strategies for doing that through time?
51:44 Speaker 02 Try to do things that's in someone else's best interest. Tell people things that aren't in your own interest. It doesn't mean that you can't benefit from it, but I'm a big softie for some of this, admittedly. Like I'm a softie for unconditional love and showing people that you care unconditionally. And I'm a believer that over a long enough time period, most of the unconditionality goes away. People reciprocate and people flourish in that kind of environment and the harvest from those kinds of things are Super meaningful, but most of the people I look up to mentors of mine or people I've read about or people I sort of admire or aspire to be are just like that. They have someone else in their life that they view as more important than them. They're quick
52:26 Speaker 02 to self-deprecate about who they are and they'll tell you the hard true thing versus the short, maybe transactional thing that is wildly in their interest. I'll give you an example on the other side. I struggle with realtors. Struggle, struggle. Individually, we've gotten along fine. And one of them in particular, we had, I had a very close personal relationship with, but the dynamics, the game they're playing is wildly transactional. And I very much struggle with that of like how we should interface best, given how sort of transactional you are.
52:59 Patrick O'Shaughnessy? What areas have you found yourself most in love with? Maybe taking one step away from people that are driving these areas and more just the areas themselves. You mentioned a few simple examples earlier, such as an API first company or a company building tools for other developers. What are the market areas? I know you're going to be a generalist, but what are the market areas that really have your attention where you've done the same version of trying to reach the bottom of one of them that you might with a person?
53:28 Speaker 02 No code movement. I'm a big fan of that. I think anyone tackling the bottleneck for developers is huge. I was at the no code conference in 2019 in person. There was 200 of us, 400 of us, not that much. And late 2019, as you're sort of looking at what is happening there, obviously, like some of the big players from Notion or Airtable or the like you see, but then you see someone with real distribution like Microsoft employ many of these tools and employ them overnight in a way that should make many of these startups quite nervous. But that notion of building tools, I'm a big believer in the output of science is a machine. Once you build that machine, that's where it gets interesting.
54:08 Speaker 02 What no code tools largely do is democratize that for far more people over time. I think by some measure, there's 25 million developers on the planet and a billion spreadsheet users. And a spreadsheet, while occasionally annoying, is like a wondrous tool. Fifty years ago, people wouldn't have believed you could do that. You could replace literally all of these people with this thing and it would free up these people to do all these other topics. That kind of notion, I'm big in. That's one example of one I've gotten pretty deep in for sure. APIs, I could drone on forever about APIs. I'm such a big fan. Those are examples of kind of rabbit holes that I've gone way, way down.
54:45 Patrick O'Shaughnessy? Maybe to peel back then, one more layer on APIs. What is something in that field that you think surprised you or made you take a special note? You've got an interesting note taking system that I am fascinated by. And I'm always interested when you pull out those small pieces of paper to take a note on. Like, what's something in the world of APIs that's led you to take a special note?
55:04 Speaker 02 I increasingly have this view that it's going to be APIs all the way down. And that over and over, you're going to outsource more and more of your business to some maybe micro targeted, very narrow piece of software. Only in COVID do people make bread for fun at mass. We've outsourced bread making to someone quite good at it. I just think that's going to keep happening. With APIs, you've stopped building software for people. You're now you're building it for software and connecting those two together. I think it's likely to be really, really huge. And I think over time, sometimes I think about it more like science, that it's like speciation, that you'll get more and more ever nichey things that will emerge and that will be dominant,
55:49 Speaker 02 will just be absolutely dominant. There's no world in which you should try to like fight this thing yourself because it doesn't make any sense. Patrick McKenzie, I mentioned him earlier. I love the way he writes about this, which is like someone, somewhere built some tool and they care about that tool as much as you care about anything, anything. If it matters, and it might not, maybe it's something small, let them do it. I started my career at Bain and Company. I was there a couple of years and I had this guy that I worked with that I loved. He's an awesome guy. One of our young people at Bain, they would undergrad out of MIT or something. You'd come back on a Monday morning and they'd been there all weekend and they're like, "I've got a new trade. Five-year treasuries combined with this. It's going to be huge. Put $800 in it this weekend." And my friend, he was from
56:32 Speaker 02 Virginia. He was like, "You ever been to New York?" He's like, "Yeah." He's like, "See all those buildings?" He says, "Yeah." "What do you think they're doing in all those buildings? All those people?" He's like, "Well, working on all sorts of stuff." He's like, "Same crap you're working on. You gave it 18 hours. What are you thinking?" There is no world. Imagine if you're a startup today and you've got a 10-person engineering team that's wildly bottlenecked. Here comes your pencil-pushing boss and says, "Hey, I think we're going to need to build a payments infrastructure. I think we're going to need to build that because we're struggling with this to accept payments in all these ways." And so, what is it going to take? Two weeks? Two months? Something like, "You guys go away, put a little SWAT team together and like, build payments infrastructure." Your developers should logically revolt and be like, "What are
57:17 Speaker 02 you talking about? Have you been to Townsend Avenue? Have you seen Stripe's headquarters? Do you know what they're doing? They're building this kind of infrastructure that will go all around the globe and they're great at it and they have an advantage and they have a head start. They've thought more about payments infrastructure than we ever will. And it's not like we have 150 engineers just standing around with nothing to do. We have so many things to do. Let's focus on the thing we're amazing at and spend all of our time, or as much as our time as we can, on the thing that we're wildly good at and trade our money for time."
57:48 Patrick O'Shaughnessy? Does that follow then that you think kind of the future will have even a higher return to, what did you call it, spikiness or pointiness of focus?
57:56 Speaker 02 For sure. Very much so. Very much so. You will outsource more and more of your business process to something else. What was the average number of vendors of a Rockefeller company? And what's the average number of vendors of Microsoft?
58:13 Speaker 02 Come on, it's massive. That trend's not going to slow down. I think it will increase. I think of it very much like you think of trade. You're trading off these specialties in ways that make the most sense for all parties. For all parties, you can make this wonderfully cheaply at scale. You can make this wonderfully cheaply at scale. We should trade and do that. As a sort of a life principle, trading money for time, yes, yes, yes, yes. As much as you possibly can.
58:38 Patrick O'Shaughnessy? It makes me think of two other things. One is one of my favorite posts I've read in years by the Intercom software team called Run Less Software, which basically says you should run as little software as possible. And you should just focus on letting everyone else run the stuff that they're better at. You focus on your little tiny thing and that's it. Stop trying to reinvent the wheel.
58:56 Speaker 02 How aggressive can you be about where you have edge? Do you have edge in one place? You don't have edge in 10 places. No way. If you only have edge in one or two or maybe three places, why are you not resourcing enormous chunks of your mind share and your best people's mind share? And you're hiring and your capital towards that, letting someone else commoditize everything else and handle everything else for you. And if they hose you on margins, hope the system will make it right. If they hose you on margins, someone else will undercut them. You can switch to them if that's the case. But in what world is this a good use of your time to try to do something, particularly for these things that have network effects? If something else has network effects and they got started early, good luck.
59:37 Speaker 02 Good luck beating them at that. That's also why I like sort of APIs even internally. You make all these things sort of generalizable and externalizable out to the outside world. You thought you had this amazing tool internally and you might, odds are you don't, but you might. If you do, see if you can sell it. If you can sell it, you just took a cost center to be a revenue line. That's super interesting. And if you didn't, maybe we'll be like, okay, maybe we should stop resourcing that thing. We had 10 person SWAT team building that internal tool. Maybe you guys should just use Twilio and maybe you should just do this because we don't think it's actually that good. And it's not that much more expensive because as they do have scale, they can often push the cost down. They can often do it cheaper than you could even think about doing it, not to mention better.
1:00:17 Patrick O'Shaughnessy? What are the strangest things that you've seen thus far in your time really focused on early-stage investing? Extra points for things which just persist, but seem crazy to you on the investor or founder's side.
1:00:31 Speaker 02 Of course, I believe the way I'm going about this has some inherent edge, even if small, that has some inherent edge in it, which is why I'm doing it, that I think I see the world in a certain way that will persist and will compound over time. I say that, that's my like intro, to say, the notion that in seven or eight minutes, you'd say with a founder, "That's it. I'm done. I got you. I want to do this," I find very strange. By the way, I might in those first seven or eight minutes say, "This is amazing. I really like her. She is wicked smart. I'd like to learn more." I don't say, "I'm done." And that race, I find a little strange, that others think about it that way. Now, maybe to the extent,
1:01:13 Speaker 02 maybe if something comes along that's very much in my wheelhouse, that I've looked at not two companies, but 50 companies, and I'm looking for it to be a certain way, maybe I'll be that aggressive too, on something, when I meet someone with a unique approach that I've been looking for. But I think it will be rare. And I much prefer the sort of getting to know someone, doesn't have to be months and months, although that's ideal, years and years is even more ideal. But the notion that 10 minutes in, you turn your brain off, I think people do that in interviewing, I think is a huge mistake, huge mistake, that you ask a set of open-ended questions and make a set of unconscious judgments two minutes in, and call it a day. That's how we end up with some of the silliness that we do sometimes in hiring, where a bunch of unconscious biases creep in.
1:01:58 Patrick O'Shaughnessy? Have you met anybody that seems to be playing an even longer game than you?
1:02:02 Speaker 02 I'll tell you a story that embarrassed me once, that's on this frame. I don't get outgunned there very often, because I do really think quite long. We lived in Houston, and we had our first child, and we moved into this house my wife and I loved. We picked it on purpose, and we looked at it forever. Of course, for us, she's as picky as I am. It was literally a seven iron away from the best elementary school in all of Houston, on purpose. Then we started doing a bunch of research, and he was a- A summer birthday in July. And so then I'm doing all this research on like, are we going to send him to school when he's five? Are we going to wait until he's six? And at the time in Texas, everyone's like sending their kids, particularly their boys later to school. Largely, I think they're playing some weirdo football game or something. They wanted to be a 19 year old strapping linebacker someday in high school.
1:02:46 Speaker 02 That is not going to be our kids. No offense to my genes. So we're doing all this research and of course, the sort of trope is like, if your kid is bright, then they'll be bored and they'll cut up in school and they'll struggle in all these ways. But of course, there are some on the other side. And so we do a bunch of research and we finally get to the notion, my wife and I both, we're going to hold them out until he's six and send him to kindergarten as he's six. But then I like read the Texas statutes. It's clear the schools hate this because it screws up their classes. They have a bunch of five year olds and a bunch of six year olds. And they're all in the same class and everybody's really at different levels. Makes it hard to teach understandably. It's clear they're going to try to make you sign a bunch of waivers and they're not going to let your kid go. And they're going to like, try to say, no, you're going to screw your kid up if you don't do this.
1:03:28 Speaker 02 And so I called the principal and I'm like, hey, here's the situation. I've read this. Here's where we are. Here's our dynamic. What I really want to know is the answer to this question. If we show up at age six, is there any way in which you can force him into the first grade? And so he's just come from pre K, but you can make him skip kindergarten. And the guy, very patient, God bless him. I've given my three minute preamble to it. He says, no, we can't. You've read the statute, right? We will try to make you sign a waiver. We will probably send your kid to like a school psychologist kind of thing. We will tell you the downsides of this. We will tell you, we prefer not to do this, but if you're adamant and we'll sign the papers, your six year old can go to kindergarten and there's no way in which at our school district, we can force you to first grade. I said, great, cool. He said, can I ask you a couple more questions before we hang out?
1:04:12 Speaker 02 I said, sure. He said, you live in our school district? I said, yes. And he said, you picked it because you thought it was the best school district in Houston? I said, yes. He said, you and your wife have been thinking about this for a while. I said, yes. And he said, your son lives with you and your wife in the same house in our district, a few blocks from our school. I said, yes. He said, your son's two. And I said, yes. He said, sir, your son's gonna be fine. And I said, touche, touche. I'll take that. It's not every day someone like out perspectives me, but touche. Yes, you're right. We're probably quite fortunate in a whole bunch of ways, which is we care about education and we care about school and we care about the sort of downstream effects of our decisions now. And yes, he's two and we're worrying about how we're going to feel when he's 18 or 19.
1:04:56 Speaker 02 Yeah, I would say in a moment like that, I was embarrassed at my relative lack of perspective.
1:05:01 Patrick O'Shaughnessy? Why did you decide to call the firm 87 Capital?
1:05:05 Speaker 02 I'm a sucker for this one author for Robert Caro. He's written a bunch of amazing books that I'm often pushing people. In particular, one of the books, his second book in a series is called Means of Ascent. And in that book, which may be a little timely as of now, in that book, one candidate wins a little tiny election, seems tiny in retrospect to 1948, he wins by 87 votes and launches himself to the presidency. The other candidate loses by 87 votes, but effectively wins back his life's work that he had been compounding over a long period of time and his family. And a lot of what I try to talk to founders about is that we're looking for winners. And that's not just who won. So much of it depends on what you're counting. That notion, I very much want to be part of the ethos of the firm I'm building, which
1:05:48 Speaker 02 feels very entrepreneurial to me. To be fair, it's quite small and I'm a solo GP. And these days, it's a $50 million fund, this first one. And I suspect might be quite small for quite a long period of time, because I prefer it that way. There's a particular way that I want to do it. And there's a particular set of axioms that I'm leaning into that I'm wildly confident, by the way, will be successful. And I'm confident will be the kind of thing that I want to spend decades on. Because it's uniquely me in a bunch of ways and uniquely my experiences, it makes me super excited to be doing it.
1:06:21 Patrick O'Shaughnessy? What was the thing that you did along the path ultimately to a GM job? That increased your odds of ultimately getting one of those jobs the most? Where did you pick up the most probability points on that journey?
1:06:33 Speaker 02 Thought hard about what other people are trying to accomplish. And I tried to shape my language in a way they could hear it. That's half of what I talked to founders about. It's just that, how to build the API of the other person's brain. Doesn't matter what you say, it matters what they hear and it matters how they feel. That's not a way to manipulate someone. It's a way to deeply understand their set of problems. And to the extent you have edge, and you won't always, to the extent you have edge, define it clearly in a way that aligns their incentives with that solution. That's mostly it. All of the people that I talked to along the way that gave me more and more scope,
1:07:16 Speaker 02 more and more leash to be me and to lean into the kinds of things I want to do. Almost all of those conversations started just that way.
1:07:24 Patrick O'Shaughnessy? Going back to Carol for a second, I love that answer. What can he teach us about playing a truly long-term game? And I guess for those that don't know Carol, you need to describe the insane game that he's been playing for decades.
1:07:38 Speaker 02 He just turned 85 a couple of weeks ago. He's basically written five books in 50 years and he's not done. And he's trying to finish another one that will maybe be a sixth or a seventh, really on two subjects, both of which were, you sort of would round out to power is the thing he's writing about. He starts with an end in mind in a bunch of ways where he knows the last sentence of the book before he starts writing it. He knows the outline of the book before he knows the details. So he knows a set of outline of like where this thing is going to go and what the big chunks of it are going to be. And he can zoom out and see a systems view of how the whole thing works and explain it to someone that's a novice. Some of what he's written about is government. I'm not without care, but politics is not top of my list at all for things that I care about.
1:08:22 Speaker 02 But he can write it in a way that makes it accessible. If you can read and you like good storytelling, then he can write it in a way that makes it accessible. And the truth is what he's done is compress a decade of research into 500 pages. Isn't there so much to learn from that? And isn't that the whole idea, which is you're trying to sort of find people that have done all that work and can compress it down in some way that you don't have to do it? Wouldn't life suck if he went out and learned all those lessons? And then for the next person that came along and wanted to learn those lessons, had to pay the same price he did. But instead, he's got this machine called a book that can send it to the rest of us in a way that they can really hope.
1:08:58 Patrick O'Shaughnessy? Having studied him and read his stuff, what have you learned about the pros and cons of power?
1:09:04 Speaker 02 His kind of big thesis is for a long time, people would say power corrupts and he often says power reveals. When you get to a certain level of power, you might say, you know, in sort of a capitalist terms, you get to sort of FU money, that it reveals who you really are, can kind of do the things unconstrained that you've always wanted to do. But I think about it much more from a sort of a systems perspective that it shows you how the system works and how I think of it like a little kid's Play-Doh maker. You put raw Play-Doh in the back and you get this shape out the front and what that looks like. And it's wildly different than people anticipate. I think of it sometimes like, I guess, the Pacific salmon that sort of spend their whole life making this one journey back upstream to spawn in this one spot.
1:09:48 Speaker 02 And as soon as they do, they die. That's largely what he shows you is an effort like that, which is to be successful in this place, you couldn't hold anything back to win a tournament that was that big, no matter what your seeding was. The two men he profiles, their seeding in life was not high. They were not a number one seed at all. They were quite low, quite without many advantages. And to get all the way to the top, you probably had to sacrifice everything to the effort. There could be nothing left behind. I think the meta lesson from there is if you zoom out, then you should say, if you're not willing to pay that price, presume someone else will. And if you're trying to win a tournament that's that popular and try to chase something
1:10:31 Speaker 02 as shiny as, call it the, God forbid, the US presidency, you should presume there will be someone out there that will and that will devote their whole life, their whole life and all their time, of course, all their money. That's relatively inconsequential to people driven this way. All of their relationships, most of their sense of ethics, everything in sacrifice of that one goal. And of course, that person, given a high enough starting point, given a high enough set of natural abilities, of course, that person would win that race.
1:11:02 Patrick O'Shaughnessy? Moses and LBJ are complicated, interesting characters, for sure.
1:11:06 Speaker 02 Disgusting in a whole bunch of ways. To see how it's made is like, oh, just like turn your stomach inside out.
1:11:11 Patrick O'Shaughnessy? What quality in both those men is most redeeming, in your opinion? What quality in both those men do you respect the most, having studied them?
1:11:19 Speaker 02 I want to be super clear. I very much don't like Carol's books because of those men or because of what they represent. In fact, it's the opposite. But to your point, there's admirable characteristics within there. They could build a system that compounded over time, over decades, and they could see how, if you could get on that trajectory and turn the wheel like this, that it would ever increasingly turn faster and faster and end up at that place, which I think is amazing. There's an amazing scene in Passage of Power where JFK gets shot and they're in Parkland Hospital in Dallas and LBJ's behind a curtain in a room and Secret Service is surrounding him. His wife's in the room with him. Secret Service is surrounding him because they think a coup is
1:12:03 Speaker 02 on and maybe he's the next target. JFK's on the operating table next door and he describes a scene where for a long period of time, call it 90 minutes or something, LBJ sits perfectly silently and thinks. Can you imagine what you would do in that situation? Pray or be worried or be overcome with anxiety or be, God forbid, excited and then be embarrassed that you're excited because you're maybe about to be the president, but that's only because our president's just assassinated. It's like, and then someone comes in with tear-filled eyes and says, "The president's dead." And from that moment forward, he lets out a set of instructions for what should happen that effectively governed the next 50 days
1:12:45 Speaker 02 that he all planned, presumably, in those 90 minutes. I mean, can you imagine a situation more stressful than being the vice president? When the president has just gotten shot, the country's in a mess and you're likely to be tasked with something incredible that you may or may not be up to. And instead, he sets out a set of principles, really like a checklist, that seems, as best we can tell, to be hundreds and hundreds of items long, sequenced in exactly the right order, knowing which messes to step around, which ones are the critical ones, and how to influence all the people he's going to need to influence to achieve his actual dream. And his actual dream, sadly, is to get re-elected.
1:13:30 Patrick O'Shaughnessy? I want to finish the conversation, basically where we started, which is with this idea of breadcrumbs. One of the reasons that I love doing this podcast, especially with friends like you, is that these are breadcrumbs, right? We're putting something out for hopefully founders out there to listen to and be attracted to a certain set of attributes, which are different and distinct and unique, and that's a very cool thing. I think what you've highlighted for us today is how powerful those things can be planned or unplanned to create the right kind of serendipity in someone's trajectory. How would you suggest people listening to this that want to throw out some of their own breadcrumbs begin to think about doing that?
1:14:08 Speaker 02 Write, write and put your thoughts out, particularly if you're proud of them, particularly if you want to make them better. This is something I really only come to understand, I think in the last several years, last couple of years, which is the returns to writing well and the returns to getting better and better at writing. I love the way, I'm a Stripe fan in a whole bunch of ways and their business and their founders and all of that. I love the way Patrick talks about that they're in some ways kind of writing to the unborn employees at Stripe. You can have a meeting and you can have an all hands meeting and Stripe must have 2,500 employees, maybe 3,000 employees these days. They could do an all hands Zoom meeting and it would capture all those. What do you do about the 3,001st employee? What do you do about the 6,000th employee? What do you do about the 30,000th employee?
1:14:53 Speaker 02 And one of the ways to do that is to write, is to write down what you were thinking at the time, to write down where you thought the thing should go, to write down why you made the decision you did, so that someone that starts on the job next week or next decade could learn from it in a way that is useful. I'm a, most of the writing I do is sort of among my friend group and I share things I've written and documents and things with a small set of friends around me. I don't do a whole lot of that publicly to date. I just think it's terribly critical as a way to sort of put your mark in the sand about what it is that you believe. And by the way, people may not agree with you, you may get criticized massively about it, but over time it ends up being a chilling point where many people will sort of come your way if they resonate with it in one way or another.
1:15:36 Patrick O'Shaughnessy? You just made me connect two dots, which is so interesting. A friend of mine and the CEO of a company called Bottomless, in which I'm an investor, has this idea that the internet is the space of infinite possible actions. And that a lot of what's so magical about technology and software is making stuff that was not readable to software, legible to software. Basically, what you're describing is a human making themselves legible to the internet. When you do that, weird, cool stuff just starts to happen.
1:16:05 Speaker 02 Your people find you. I'm smitten by all these examples. Imagine being Charlie Munger and meeting Warren Buffett over dinner. And it's like, yeah, of course they were rude to everybody for 90 minutes. Of course, they ignored everyone. Of course, they got deeper and deeper into a private conversation in the middle of a large dinner. I don't want to overdo it. Soulmates or something, but close intellectual sparring partners that in some crazy world, both worked for whatever Warren's grandfather or vice versa, however it works. You come across this person and you can't find the bottom. And you're like, oh, my gosh. I don't know if either one of them went home that night and said, I want to call this person every day for the rest of my life. But it's believable that they would.
1:16:49 Speaker 02 And it's believable that they would say, finally, there's someone else out there that I can shadow box with and pressure test my thinking with. It's surely been an amazing feeling in my life when I've come across those people. And of course, there are not hundreds of them, but dozens of them or more. It's an awesome feeling.
1:17:05 Patrick O'Shaughnessy? I think it's such a wonderful place to close this awesome conversation. I sometimes think about what will I title these things as I'm having the conversation? And this one might be called Find Your People. Everything you've done, the way you've architected the conversation and your activity has been to find the right people and develop incredible relationships with them. So I think it's a wonderful place to close. Sam, as always, thank you so much for the time and a great conversation.
1:17:27 Speaker 02 Thanks, Patrick.
1:17:30 Patrick O'Shaughnessy? If you enjoyed this episode, you can sign up for a new email newsletter sent out each week called Inside the Episode. Each week, I condense that week's episode to my favorite big ideas, quotations, and more. I've been recommending books to members of this email list for years, and will keep doing so in this weekly email. You can sign up at investorfieldguide.com/bookclub.
Previous Michelle Zatlyn – Protecting the Internet – [Founder’s Field Guide, EP.11] Next Bob Pittman - Lessons from Building Media Empires – [Founder’s Field Guide, EP.12] Page updated October 26, 2026 · transcript and summary are machine-generated
