Ben Horowitz and Brian Armstrong on Building and Overcoming the Hard Things

If you’ve been following the news, you’ve probably heard of the recent FTX scandal. While there’s much still unknown, in this episode we get the unique opportunity to hear from Brian Armstrong – co-founder and CEO of Coinbase – about what’s top of mind for the crypto industry. That includes the impact of this current event on future regulation, how this crypto winter might be different from previous ones, founder psychology during downturns, the transparency that comes with being public, and much more. Brian is interviewed by a16z cofounder and general partner Ben Horowitz, who has the unique perspective of having invested in, built, and been on the board of numerous companies during the ups and downs, leading him to his well-known book The Hard Thing About Hard Things.

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

• 0:01Steph Smith?

  Welcome back to the A16Z Podcast. This is your host, Steph Smith, and this week we have a very exciting crossover episode with our sister podcast, Web3 with A16Z.

• 0:13Steph Smith?

  If you've been following basically any news over the last few weeks, you've probably heard of the recent FTX scandal. And while there's still much unknown, in this episode, we get the unique opportunity to hear from Brian Armstrong, co-founder and CEO of Coinbase, about what's top of mind for the crypto industry. That includes the impact of this current event on future regulation, how this crypto winner might be different from previous ones, founder psychology during downturns, the transparency that comes with being public, and much more. Brian is interviewed here by A16Z co-founder and general partner, Ben Horowitz, who has the unique perspective of having invested in, built, and been on the board of numerous companies during the ups and the downs, also leading him to his well-known book, "The Hard Thing About Hard Things."

• 0:57Steph Smith?

  If you enjoy this conversation as much as I did, be sure to subscribe to Web3 with A16Z wherever you get your podcasts.

• 1:10Sonal?

  Welcome to Web3 with A6 and Z, a show about building the next generation of the internet from the team at A6 and Z Crypto. This show is for anyone, whether a company leader or other entrepreneur, developer, policymaker, and others, seeking to understand and go deeper on all things crypto and Web3. Today's all-new, guest-hosted episode is based on a fireside chat that took place just this week at our inaugural A6 and Z Crypto Founder Summit, and it's a conversation between A6 and Z co-founder Ben Horowitz, who authored the bestselling business books, "The Hard Thing About Hard Things" and "What You Do Is Who You Are: On How to Create Your Business Culture", interviewing our special guest, Brian Armstrong, CEO and co-founder of Coinbase. As a reminder, none of the following should be taken

• 1:55Sonal?

  as business, legal, tax, or investment advice. Please see a6andz.com/disclosures for more important information, including a link to a list of our investments. The conversation goes into management, company culture, and much more on building and overcoming the hard things, but begins with what's top of mind for so many in the crypto industry and beyond, and in the news right now.

• 2:22Ben Horowitz?

  So Brian, it's been a crazy couple of weeks with FTX. FTX collapses, SBF, for those of us who actually followed it, is emerging as like a super Bernie Madoff-type character. And you, unusually for you, because you're not a spotlight-type of guy, you're more of a behind-the-scenes-type of guy, has been on TV and taken a leadership role and trying to explain to the world what this means. So what does this mean for the crypto industry?

• 2:52Brian Armstrong?

  Yeah. Well, I think we were all pretty shocked to see the scope of the fraud that happened at FTX. And let's call it a fraud, we have to call it what it actually is. It's been pretty bizarre that mainstream media hasn't really come out and sort of said, "This guy's a criminal." Maybe they want to wait till he's actually indicted or something like that and in custody. But it seems very clear at this point that that's the case. And we have to kind of come to terms as an industry with the fact that, I think our industry is kind of attracting our disproportionate share of fraudsters and scammers. And that's really unfortunate. It doesn't mean that that's representative of the whole industry. There's a bunch of people here in the audience, as one example, and Coinbase is another example, of the hard work that's being done to legitimize this industry and build it.

• 3:37Brian Armstrong?

  We want to bring the potential of this technology to people all over the world. And we're not going to cut any corners, we're not here to make a quick buck, we're in it for bigger ideals, freedom and decentralization, and the power that bringing good financial infrastructure can be for everybody around the world. So that's been part of my job, is to kind of get out there. And I don't normally like doing TV very much, I like building cool stuff with the team. But in this moment, it's important for me to get out there and say, "Look, there's a whole industry that's very different than what was happening with FTX." Coinbase is based right here in the US, we're a public company, you can go read our financial statements, they're audited by a third party, you don't have to trust us, all the customer funds are segregated, we don't invest any customer funds without their explicit direction.

• 4:19Brian Armstrong?

  And we're not going to let one bad actor take down this whole industry, we're going to keep building for the future. So I think it's important for someone to go out there and say that message in this moment, and I'm trying to do my part to make that happen.

• 4:30Ben Horowitz?

  Yeah, and it must be really weird for you because he was kind of like right next to you. Um, while he was doing all this diabolical stuff. Did you ever suspect that he was like a criminal? Were you like, there's something wrong with this guy? Or did you just, were you shocked as, as everybody was?

• 4:47Brian Armstrong?

  You know, I was pretty shocked too. He, he, there was a weird thing that happened where, um, they kind of came out of nowhere. And then suddenly he was like at every conference that I was at, um, probably in a whole bunch of other ones.

• 4:58Ben Horowitz?

  Yeah.

• 4:58Brian Armstrong?

  And there was a little part of me that was like, man, this guy's just like speedrunning the whole thing. And he's like, you know, getting all these intros and relationships that I, I thought I was trying to work to get to. And he seemed to have done it in two years. And so I was, I was like, oh, that's probably just my ego talking. So ignore all that shit and like, let's just get back to work. And, you know, I guess it turned out that he wasn't entirely being honest with people. And he was, you know, obviously like, there was a lot of money changing hands behind the scenes with, with a lot of these people. There was, I think it, the way I'm looking at it now is that basically there was reputation laundering happening. And kind of this virtue signaling with all of these ideals, which apparently he came out and acknowledged that was just fake. And he was making it up. So I don't know.

• 5:39Brian Armstrong?

  Uh, these people kind of come out of nowhere sometimes and these, we've seen this with other companies in crypto. If you look back, you know, uh, Bitfinex and Mt. Gox and, you know, other, Bitmex and others where they kind of, they incorporate somewhere in the world. They're trying to kind of avoid the rules. Um, they rocket up and then they.

• 5:57Ben Horowitz?

  That's always a tell, isn't it?

• 5:58Brian Armstrong?

  Yeah.

• 5:59Ben Horowitz?

  I'm going to incorporate in the Bahamas.

• 6:01Brian Armstrong?

  Yeah, it's.

• 6:02Ben Horowitz?

  For no reason other than I love the Bahamas.

• 6:04Brian Armstrong?

  Right. I mean, look, we want crypto to be an international movement. So there should be people building companies everywhere. But if you're, if you're jurisdiction hopping and trying to avoid the rules, the thing tends to rocket up and then blow up. Usually in spectacular fashion. And so we just, we can't take any shortcuts. We've got to build this industry for the long term.

• 6:22Ben Horowitz?

  And what do you think about the, because the rest of the ecosystem, because he did steal consumers' money and give it to other people. And interestingly, like, if you go back to Enron, um, you know, they took investors' money, not consumers' money, but investors' money. And, and clearly kind of had a bit of a Ponzi idea going, um, with their mark to market accounting. But all the politicians who received money from Enron gave it back because, you know, it felt like it was stolen money. Um, but in this case, not a lot of people are giving the money back. How do you think about that?

• 7:01Brian Armstrong?

  I think they should. I mean, it's customer money that was stolen at this point. You know, my hope is that as this becomes a little bit more clear, like frankly, it's baffling to me why he's not in custody already. You know, DOJ or somebody should be able to make, just based on his public statements, I think there's a very open and shut case for fraud. You know, I'm not an expert on this, but the people I talked to seem to agree with that. And so it's unclear to me why he's not already in custody. Let's give benefit of the doubt and assume they're trying to piece the case together. There's some extradition thing happening behind the scenes. But the minute he actually gets indicted or maybe convicted, I think that should be a moment where any sensible person who took this money should think about giving it back. Some of it may have been already deployed in various ways and, you know, there's a bankruptcy process for that.

• 7:46Brian Armstrong?

  But if he just recently made a donation and then the money's still there, like people should do the right thing and give it back.

• 7:52Ben Horowitz?

  Definitely agree. So we had a great panel last night on the kind of regulatory environment. And one of the things that they said, look, for sure, we're going to have to come out with some regulation now because this is too big a catalyst to ignore. And if we ignore it, then the regulators, and these were kind of policymakers, you know, congresspeople and senator, then the regulators are going to, you know, just kind of go outside of their scope and start regulating on, you know, existing laws or try and enforce things that shouldn't be enforced. So how do you think about, like, what will be the impact of FTX on regulation? You know, what should it be and what do you think it will be?

• 8:36Brian Armstrong?

  Yeah. Well, I think there's kind of like a level one, two, and three understanding that people have of this. So like the level one is just a very simple narrative. Something bad happened in crypto, regulators should crack down, right? And we've seen some people come out and make that very simple narrative. There's a level two understanding, which is more nuanced, which is that, you know, okay, well, you know, regulator, like the companies based in the US are already regulated kind of under financial services regulation. What we don't have is clarity about the crypto piece of the regulation. And there was a huge missed opportunity by the regulators to come in and create that clarity, like what's a security, what's not? And, you know, because that clarity wasn't there, a lot of the business moved offshore and now we're seeing some of those things blow up. So yes, we should have more clear regulation here in the US, but the regulators kind of

• 9:21Brian Armstrong?

  bear some of the responsibility for what happened. It's not a, you know, just on these crypto companies. And then I think the level three understanding is that, great, let's get regulatory clarity for the centralized pieces of crypto and in a crypto-specific regulation. But actually, the real solution here is DeFi and self-custodial wallets. And crypto has the opportunity to create something that's much better than the current system long-term. You know, it's a little bit like, you know, Uber had a star rating system instead of using the taxi medallions as your regulator, right? Like, you know, in DeFi, we can have transparency with smart contracts. We can have probably a decentralized reputation system baked into ENS. You know, with self-custodial wallets, you can trust yourself in math instead of, you know, some third party.

• 10:05Brian Armstrong?

  And so that's the future that we're really building to. And so I think the level one, two, and three narratives, just, most people are somewhere along that spectrum, and we need to help them get a little bit farther. So those are my high-level thoughts.

• 10:17Ben Horowitz?

  So here you are, running one of the biggest centralized exchanges in the world, arguing for decentralization. So tell me about how you reconcile, why you're doing that, how you reconcile that with the business that you're in?

• 10:34Brian Armstrong?

  Yeah, well, Coinbase is going to do both, right? So we have our centralized products, our exchange, custodian, et cetera. Those are going to be regulated. We're leaning into that. We're trying to help propel, you know, good regulation forward. But we also are building the self-custodial wallet, you know, Coinbase Wallet, I think is the most downloaded self-custodial wallet in the US now. We've gotten that product to be a lot better over the last year or so. People haven't tried it recently, tried again. And we're working on some decentralized protocols and, you know, sort of, some of our apps are more like Web 2.5, like our Coinbase NFT, but we're getting some that are more like, you know, really, truly Web 3. So I think we're going to do both. The way I think of it is, the centralized pieces need to help people get a bunch of fiat into crypto.

• 11:16Brian Armstrong?

  But once they have crypto, they should really be playing in the decentralized crypto-to-crypto world. That's where the really innovative stuff, the freedom-preserving stuff is going to be happening. And my hope is that, you know, in five years, actually... Most of our revenue, most of our users are using Coinbase Wallet and not just, you know, our brokerage exchange product that's the more centralized piece today. That would tell me that we're really on the right path to creating this decentralized, open financial system for the world.

• 11:42Ben Horowitz?

  Yeah, no, really interesting. Let's kind of take a step back and say, we're in a kind of rough time for crypto over the last year.

• 11:53Ben Horowitz?

  You know, it's been not easy for Coinbase either. You've had layoffs, the stock price has gone down a lot. But this isn't your first crypto winter, and in fact, it's not your first set of layoffs or your first kind of crisis. In fact, in some ways, it's easier in that you have a lot more money now than you had then. So how is this crypto winter the same or different than the prior ones?

• 12:19Brian Armstrong?

  Yeah, well, I think in terms of people's psychology, it's similar. You know, there's despair, there's some bad stuff happening, people get a little disillusioned. The people who are in it for a quick buck kind of get distracted and go somewhere else. The part that's different is this time the broader macro economy obviously went down along with it. And, you know, that's created an environment that just, it's not so much about is crypto going to be, still be a thing? That was like the question everybody asked me in prior crypto cycles. You know, I even had people come up to me at conferences and they'd say like, well, what are you going to do now that Bitcoin is dead? You know, I was like, well, that's clearly not the case. But no one's really asking me at this point.

• 12:54Ben Horowitz?

  Bitcoin's died a few times.

• 12:56Brian Armstrong?

  Yeah, it has. Nobody's, nobody is really asking that at this point. It's just the broader macro environment is down and, you know, FTX kind of put a black eye on the industry, but I don't think that it's going to change anything long term. So the same thing that we have to do in past cycles, we're doing in this cycle, which is be really rigorous about costs. You know, it's basically make sure you don't die is like the number one thing. If you're, if you're Lehman Brothers, you're dead. You don't get to play any of the next rounds of the game. You know, if you're Goldman or JP Morgan or whatever, you know, to use a 2008 financial crisis analogy, you know, manage your costs, you know, cut burn where you need to, be really responsible. And then if you survive through it, you're going to be one of the, you know, you're going to thrive. You're going to be one of the top companies because you made it through this down period.

• 13:40Brian Armstrong?

  Any company that makes it through that is going to come out a lot stronger. There, there may be some good deals for companies that preserve cash along that way too. Like if this lasts another one, two years, which, you know, we think it probably will. Till we see some real signs of life. I think there will be some of these, you know, private valuations that come down, or there'll be other opportunities to get really good talent. And so every company, I think, should be thinking about how this is not just, not just surviving, but how do you turn it into an opportunity to actually pull out even stronger?

• 14:08Ben Horowitz?

  And when you think about that, that kind of contrast is, you know, in your business between the, okay, like, let's be really, really careful with cash versus the opportunities. Because psychologically, it's tricky, right? And in the old world, everybody's psychology was, we have to get market share, we have to go faster, faster, faster. Money is free, let's just go. And now it's gone all the way to the opposite end. And I think in retrospect, people would have been like, oh, maybe we should have saved some of that cash. And then how do you kind of get yourself to make an investment in an environment like this at the same time that you're doing a layoff or kind of fattening down the hatches?

• 14:50Brian Armstrong?

  Yeah, well, so, I mean, I think Coinbase, we probably, I mean, we did, we overhired in 2021, right? This was an example where, you know, I was probably got caught up in it as well a little bit and was like, okay, we have a huge line of customers out the door, we can't even onboard them fast enough.

• 15:05Ben Horowitz?

  FTX is coming at you.

• 15:06Brian Armstrong?

  Yeah, yeah, there was, you know, a new competitor getting a billion dollar valuation like every week. It was like, okay, we just gotta, we gotta hire, hire, hire. But of course, anytime you do that, you know, a lot of efficiency just breaks down in the organization. You have too many layers of management, decision making gets broken, communication channels get broken, you have people who've barely been there hiring the next people. And so, you know, we ran into a lot of this where I'm now in a place where I'm like trying to get the company to operate like a startup again, right? And, okay, let's, if we, why do we have like four layers of management to get somebody who's actually writing the code, you know, like, we don't need that. Flatten the org and like, let's actually divide these into different, almost like startups and give them more autonomy and, you know, cordon them off to get rid of these coordination headwinds.

• 15:50Brian Armstrong?

  So that, you know, I think everybody, every company can do that in its own way to sort of. Who, in any company, there's a power law distribution of employees who are adding the most value, right? And if you're gonna say, cut 30% of employees or something like that, you don't have to do 30% less stuff. You may actually, you know, you may only go to 5% less stuff, or you may even be 10% faster, because there's less coordination headwind, right?

• 16:13Ben Horowitz?

  Right.

• 16:14Brian Armstrong?

  This is not a pleasant thing to think about, but there are people adding disproportionately more value. And if you can, if you can go in there and do the talent assessments and figure out who's, who's building the stuff that's actually making the product better.

• 16:25Ben Horowitz?

  Yeah.

• 16:25Brian Armstrong?

  As opposed to, you know, making great internal presentations, or whatever, all the million other things that seem to somehow grow up in these companies. If you cut all of that out, you'll often have a better, healthier company that's moving faster. So, that's what I'm doing right now, and I think other companies in this down environment, they're using it as an opportunity to get healthier as a company.

• 16:44Ben Horowitz?

  And when you think about the process for that, because it's a really, you kind of face this Heisenberg uncertainty principle of management, right? Where as soon as you go and look for, okay, who's not adding value? Everything changes. People are aware that you're doing that.

• 17:01Brian Armstrong?

  Right.

• 17:02Ben Horowitz?

  So, how do you think about kind of overcoming the kind of, the politics, the gamesmanship, the kind of things that go on in a company? If you actually try and zoom in and go, okay, like, what do we really need to be doing? Who's really contributing?

• 17:18Brian Armstrong?

  Yeah. Well, I mean, I feel like I should ask you this question, too. You're the, you're the expert on this, but, you know, I actually, I don't think, we were talking about this backstage a little bit, I don't think I've ever found a perfect solution to this. There's kind of two schools of thought. So, one school of thought is, get data and instrument it, right? And, you know, obviously, we have this performance review process, but people, most employees will tend to rate each other really highly and for peer review, they don't really want to do the tough thing. Even a lot of managers, you know, you have to really push them over and over again. It's like, and they'll be like, I don't have anybody who's not great on my team, right? And it's like, well, there, no matter how great your team is, there's always somebody who's better than someone else, but you don't want to get into this stack ranking thing. So, I think there's an opportunity to actually build some HR software in this space that

• 17:59Brian Armstrong?

  does pull in data and does things like the keeper test, you know, from Netflix, which tends to pull out better signals. So, the one school of thought is, get more data.

• 18:07Ben Horowitz?

  Yeah.

• 18:07Brian Armstrong?

  The other school of thought is... There's no substitute, you have to do it with humans. And it's literally hand-to-hand combat, like go in with each of your managers, do a talent assessment, force them to do it. And almost, in most companies, until you get to be, you know, 5, 10,000 people, you can take a small team of people, like three or four folks that you really trust, and go in and almost just like meet with every single person for 10, 15 minutes, and really get an understanding, like what are you doing that's adding value to this company? And show me the work, like are you doing the actual work? Or are you somebody who's in the middle, you know, relaying messages or managing or whatever? So you can do it with people, you can do it with humans, whatever is your preference, but you've got to find a way to go in there and do it.

• 18:49Ben Horowitz?

  Yeah, no, it's interesting. Elon, one of the things Elon did at Twitter is he looked at the GitHub logs and he's like, "If you haven't checked him code in the last 30 days, that's a real problem."

• 18:58Brian Armstrong?

  Right.

• 18:58Ben Horowitz?

  So that may, that may target you, speaking of data. So one of the kind of fallouts of the big boom period was like companies, employees decided that like the work wasn't necessarily the thing that they should be about. They should be about the larger society and these political issues and so forth. And you kind of now famously took a stand and said, "Well, not here. We're not going to do politics. We've got a mission and that's the mission. And if your mission is, you know, anything from whatever Roe v. Wade to the environment or what have you, you're just not going to do that here."

• 19:41Ben Horowitz?

  So now it's been, it's been a year. And how has it gone? Are you happy with how the culture has come out? Were there things that you would do differently? What would you, what would you recommend for the kind of founders here?

• 19:58Brian Armstrong?

  Yeah, so I think it was, turned out to be one of the most important and positive things that I ever did in the company. But obviously, it really sucked to go through because at that time, you know, I think everybody was trying to create these kind of activist cultures inside companies. There was actually a handful of employees, a number of employees, I think, especially in certain areas like the Bay Area and Brooklyn. It was really only in certain geographies where they were essentially trying to get hired at these companies, not with the intention of really working towards the mission, but actually to go in there and hold the company to account for some other broader societal issue that they were working on. And so I didn't really have any concept of what, why anybody would do that. And it was this very odd thing. And I noticed this starting to happen inside the org. And we were starting to get like demands from the employee resource groups and people

• 20:42Brian Armstrong?

  kind of holding us hostage at the Q and A like, you know, grandstanding with the mic, like putting us on the spot as the exec team was trying to answer questions. And it wasn't questions about the product or the business or, you know, competitors or whatever. It was like about these totally unrelated issues. And so we eventually, it felt so wrong to me and we eventually had this walkout which kind of catalyzed the whole thing. And I was like, okay, we got, I gotta do something here. So I reluctantly put this out. I knew it was going to be super controversial.

• 21:07Ben Horowitz?

  Yeah, the New York Times hated it.

• 21:09Brian Armstrong?

  Yeah, it didn't align with their worldview and their politics and I, it did, it showed me that, you know, there are media organizations out there who are totally willing to publish like lies about a company if it doesn't, if to attack them without, if it doesn't fit their worldview. But I guess I kind of realized at a certain point, you know, there's worse things in life than getting negative articles written about you. Or if you have an activist employee and, you know, people are, a lot of CEOs at that time, they were just so afraid to fire any employee who was causing trouble inside the organization because they're like, oh, they're going to write this tell all blog post or, you know, they're going to claim that we were discriminating or whatever and like we'll have to pay some settlement to them. It turns out there's worse things than getting a negative news article or a blog post written about you and someone leaves. The worst thing is to have a company you've just lost control of that's not actually

• 21:52Brian Armstrong?

  moving towards the mission that you created the company for.

• 21:55Ben Horowitz?

  A company that you created that you don't even want to work at.

• 21:59Brian Armstrong?

  Right. Yeah. And I, it really almost got to a place where I was like, is this like the job of being a CEO in a tech company now where I just have, I have to like squirm on stage of like these awkward big societal questions? Like, I don't know, I had, I don't know the answers to these things. So I think a lot of that movement, you know, it started with some good premises and it got, it got taken way too far. I mean, the good parts of it are basically, you know, let's not discriminate against people in the hiring process. Like, let's treat everybody with respect and there should actually be, you know, merit in the organization. I think this word meritocracy kind of got, it became a bad word somehow during that that whole time.

• 22:34Ben Horowitz?

  Yeah, yeah. Well, they forgot that the meritocracy like replaced the crazy weird hierarchy where executives had special parking spots and giant offices and limos to take them to work and all.

• 22:47Brian Armstrong?

  Right. Yeah, so I mean, like, nobody wants to be hired because of or in spite of, you know, their race and their gender and all these things like that's not, first of all, it's illegal to hire somebody based on their race and gender and all these things. But it's also just unethical and you're not doing a favor to that person. Like, you're kind of undermining them the minute they come into organization. So, you know, there was all these things people were like, well, we should have quotas around this. Well, okay, we don't do quotas, but we're gonna have hiring targets, sourcing targets. Those aren't quotas. And I'm like, that sounds like a quota to me, right? And so, look, I think all that stuff is like, treat people fairly with respect. Hire the people who are most qualified for the job. Get rid of bias in your hiring process. And then get rid of all that other stuff. Like, you shouldn't be hiring people with targets of diversity and things.

• 23:31Brian Armstrong?

  Hire the people who are most qualified for the job, that want to come in and do great work, support their colleagues to advance the mission. And if they have really strong opinions about other stuff in society, that's great. They just don't be distracting people in the workplace with it. So, I accidentally became sort of like this representative of that thing, which I didn't really want to be, but I'm glad that it had somewhat of an impact. And I took a few arrows so that other people could then go do it.

• 23:59Ben Horowitz?

  Yeah, more than a few. And was there, is there anything that you would have done differently? Kind of in retrospect and how you made the change or how it came? I mean, obviously, you like the company better now than you did before. And the culture is better and people like work there more, so that all came out well. But was there anything kind of procedurally that you would have gone, wow, maybe I want to make the blog post or this or that?

• 24:22Brian Armstrong?

  I mean, the thing, I think the thing that I messed up in hindsight was that I was not clear up front. So, I was sort of walking on eggshells because I had never encountered this before. So, whenever somebody brought up something like this to me, I was like, mm, okay. You know, I just didn't know what to say. And so, what it did was it allowed a schism to develop inside the organization by just my lack of leadership and lack of clarity. So, I think if I were to do it again, I would just be more clear up front with people that... You know, we're not gonna do like a, we're not gonna have a political company. We're gonna just focus on this mission. And so try to put that in the hiring letters, you know, put it on the values of the company. Even today with Coinbase, you know, when people join, we have them sign an offer letter. It describes all of the values, including this kind of mission first thing in there. So nobody can say, oh, I didn't know when I joined.

• 25:06Ben Horowitz?

  Right.

• 25:06Brian Armstrong?

  So I would have just done it upfront and then there wouldn't have been this big drama when, when I later tried to clarify it that we're all gonna go in this direction.

• 25:13Ben Horowitz?

  Yeah, it's interesting because that also does like highlight though, an important thing that you did, which a lot of leaders are afraid to do, which is, look, it's better to be right than consistent. And you know, you had to be inconsistent because you didn't say it upfront, but having the courage to do that actually got you to where you needed to be, which is, you know, a great tribute to, to your leadership.

• 25:38Ben Horowitz?

  Kind of moving right along. One of the things, so one of the things that you and I discussed, I think it was two crypto winners ago, but you know, we were kind of going through, well, like the ecosystem isn't there yet. And you're like, who's gonna build storage and who's gonna build naming and who's gonna build this and so forth? And one of the things we talked about a lot was, well, you're Coinbase. You're gonna have to fill in some of these gaps to move the whole industry forward as the leader of the industry. As the leader of the industry, what are you thinking about building next? What does Coinbase have to do next to move all of crypto forward?

• 26:19Brian Armstrong?

  Yeah, well, I mean, I, I go back and forth on this. I don't think it's like our responsibility to build everything. There's, there's hundreds of companies in crypto now and frankly, we can't even keep up with, you know, a tiny fraction of all the cool things being built. And so, you know, I, in some ways, we're already a little bit like, we, we have a number of different products where we build for consumers, institutions, developers. And so I would hate to sort of say that we need to make all the content as well, but...

• 26:46Brian Armstrong?

  Long way of saying that I think within our products, there's the core things we want to focus on, right? You know, building our retail app and building more functionality in there around things like decentralized socializing is a really cool topic that's coming up. I know there's people, various people working on it here, right? Farcaster and other protocols out there. I think that's an interesting one. I think, you know, DeFi Gaming is an interesting one. I think DAOs are going to have another resurgence, like new forms of governance and voting. We would ideally, all that stuff should be built natively right into Coinbase's apps to make it easy for people to participate in this on-chain governance type situations. And I think there's a lot of just, you know, there's sort of things that are non-financial service related with social and gaming and all that.

• 27:30Brian Armstrong?

  But there's even just a lot to be done with the financial services piece, which is, why don't we just make DeFi easier to use for the average person? They don't know how to transfer their funds to a Chrome extension and, you know, bridge their assets to another chain and like, all that stuff is just way too complicated. And so we've got to get that just, if you want to, if you want to use something, you can just click a button and somehow the coins and the assets all move and they work for you behind the scenes. So that's where I think Coinbase can probably add the most value. With our venture bets, you know, we're going to have a couple of things that we try to make like some of the next killer apps, but I hope the community builds a lot of that stuff and we can basically be people's primary financial account to access all of that stuff.

• 28:08Ben Horowitz?

  Right, right. And then really enhance the ease of use and the safety aspects and these kinds of things. Right, right. So trusted later. Okay, final question before we go to Q and A. So crypto is all about transparency. You took the kind of step of becoming a public company, which in some ways is the ultimate in transparency. How has that gone? Would you recommend it for others? You know, how do you feel about that? There's a lot of lore, you know, particularly among private company CEOs about, oh, if we go public, that's the end of us, you know, no more control of our destiny. How do you feel? How's it gone?

• 28:46Brian Armstrong?

  Yeah, so, you know, it's funny, actually, when I was initially in the early stages of the company, I, you know, I hoped one day we might have the chance to do this, but I always thought, ah, being a public company, that's where you lose control. And, you know, I was basically pretty skeptical of it. And so as we got to be bigger, I started to do some research. I went and talked to a bunch of CEOs who had decided to stay private or they'd brought in a professional CEO to take it public or some that had actually gone public, right? And look, there's pros and cons to being public, right? The pros are, there's a handful of things. One, it's a lot easier to raise money. Like, actually, in 2021, Coinbase raised $3 billion of debt in, you know, with very favorable terms. I didn't do a single meeting. Our CFO did it. It took a week. And the money was in our account. So somehow, as a public company, you just have access.

• 29:29Ben Horowitz?

  Yeah, you can't do that as a private company, just FYI.

• 29:32Brian Armstrong?

  Yeah. I mean, imagine, the CEOs here in the room probably laugh. Imagine doing a $3 billion fundraiser, you didn't do a single meeting, right? That's pretty cool.

• 29:40Brian Armstrong?

  But, you know, what else? I mean, it was also, it legitimized us as a company. It was kind of a great marketing thing. And then also, other Fortune 500 companies suddenly started to take us seriously, right? So we, we closed these deals with BlackRock, like, the biggest asset manager in the world, and like Meta and Google. And so all these people are now kind of integrating with Coinbase that, you know, we're a public company. We somehow, we're in that league with them. They want to work with us.

• 30:01Ben Horowitz?

  You're blessed by the rabbi.

• 30:02Brian Armstrong?

  Yeah, yeah.

• 30:05Brian Armstrong?

  And then, you know, there's some, there's some serious drawbacks too, right? I mean, one is that, of course, you get mark to market every day in, in, in there. And so, as a private company, you know, you can definitely raise money, and you kind of go through cycles, but you're not, it doesn't feel like you're getting marked down every day. And so, you know, everybody can see our revenue multiples and stuff, and it were, you know, it's, it's not great. Like, our stock is, is down quite a lot. With any, any kind of high-growth tech stock in this environment is down quite a lot. I was worried about this idea of, you know, I was gonna have to spend like 20, 30, 40% of my time speaking with public market investors. That turned out to not really be the case. I think, I basically, you know, I do the earnings calls. We have a couple of times a year in each, each quarter, where I go spend time with public market investors. I've started to build good relationships with them.

• 30:49Brian Armstrong?

  But it hasn't been a huge time sink for me, and I actually don't really mind it. I think, you know, we, just like anything, don't overdo it, and leverage the people on your team who are even better at it, like, you know, our CFO and our, and our CLO. And I, and I basically kind of had to focus on the five or 10 key relationships, like our, our largest shareholders. The last thing I'll say is that dual-class stock is, is something people should go learn about. And everyone has their own opinion on that of, you know... Basically, you can have a different class of shares that allow you to still maintain control, so you're not dealing with activist investors constantly, which for me was a good factor that allowed me to focus on the stuff I'm good at. But that's a complex topic, and I think one piece of advice someone gave me as I was thinking about that was,

• 31:33Brian Armstrong?

  pigs get fat, hogs get slaughtered. So don't go too crazy with the dual-class stock and do something reasonable, but don't go crazy with it.

• 31:42Ben Horowitz?

  Don't attach it to your grandchildren's grandchildren.

• 31:46Brian Armstrong?

  Yeah, yeah.

• 31:47Ben Horowitz?

  Great.

• 31:48Brian Armstrong?

  Unless you're at New York Times.

• 31:50Ben Horowitz?

  Unless you're at the New York Times. True story. Okay, we'll take questions on that note from anybody who has anything they want to know about anything.

• 32:05Brian Armstrong?

  Yes, sir.

• 32:06Speaker 04

  You talked about DeFi and self-custody as sort of like your next recommendations. So how are you messaging to retail customers what self-custody means, like long-term, specifically around security?

• 32:22Brian Armstrong?

  Yeah. Well, so I think everyone is a little divided right now. They're thinking, okay, I can't trust the centralized exchanges, so let me do self-custody. But people have lost a lot of money with self-custody, too, right? It doesn't happen in a big blow-up all at once, but every week, there's somebody losing some money out there that doesn't make headlines, but as a percentage, it may be similar. I actually don't know. I've never run the data on it. So I think we, as an industry, and this is something Coinbase is trying to help with, we can try to make self-custody, the UX around it and the security architecture around it, essentially make it harder and harder for people to do something accidentally to lose funds, right? So MPC or multi-party computation is a big piece of this. We've invested a lot in that at Coinbase, and we're trying to bring elements

• 33:06Brian Armstrong?

  of that in where you can essentially have a quorum of keys, right? So if you lose one of those or two of those, depending on how you architect it, maybe you lose your phone, or maybe you forget your password. But there's a quorum of it that you can reassemble from various pieces. You can do that with social recovery. Vitalik is kind of hot on that idea. I think the UX around that is An opportunity for innovation. And then the question is, once you've created that really great architecture underneath, how do you then market it to the average person to help them understand that it's actually better? And I think Apple is actually an interesting example here. You know, I'm not super happy with Apple for other reasons, just they've been blocking a bunch of features in the App Store. But put that aside for a minute, what they did with Face ID, I think that was a good example of taking a really hard computer science problem.

• 33:50Brian Armstrong?

  You know, it used like LIDAR and all these liveliness detection. Like there was a lot of complicated tech that went into that. But it has a simple name, you know, Face ID. I kind of intuitively know what that is just from it, just from what I hearing it as an average person. And it was simple to use where I just looked at it and it was, I was in. And so I think there's an opportunity to do something like that. Multi-party computation is not the right marketing term for, you know, what the average person might use. And so I don't have a specific suggestion here. I want to share like for the whole industry, but I think that's the direction we need to go.

• 34:24Ben Horowitz?

  Yes.

• 34:25Speaker 05

  Looking back at the other crypto winters that you've been in, very uncertain times, not really sure where the industry is going to be heading. Are there times or particular decisions you felt were like really good for Coinbase? Or were there any sort of traps or temptations you might think founders are easy to fall into at times like this?

• 34:42Brian Armstrong?

  In crypto winters?

• 34:43Speaker 05

  Yes.

• 34:44Brian Armstrong?

  By the way, it's great to see Coinbase alumni here. Actually, there's a nice handful of Coinbase alumni in the audience. So hopefully Coinbase mafia going strong. That was, that's awesome to see. So traps that we've, companies fall into in crypto cycles. Yeah, I mean, I think, I don't know, the most common one I see is that, you know, we're just going to, basically they don't cut, they don't cut costs soon enough. Right? And it's harder if you wait, you have to cut more. And if you, if you do it upfront, you can basically capture some of the savings, you know, earlier on. And so I think everybody should just be thinking very closely about burn rate and runway

• 35:26Brian Armstrong?

  and assume that, you know, base case is maybe this thing lasts like.

• 35:32Brian Armstrong?

  2023 is probably, you know, gonna probably be a down year. 2024, maybe we'll see signs of life by the end of it. That's kind of what I'm hoping. It could be sooner than that. It could be much worse than that. It could, it could actually go through 2026 or something, right? We, we could see a lost, a lost decade or something, right? But that's our base case, so make sure that you're not in a really bad situation one or two years from now. That's, that's probably the most common one. And then the other trick is basically flip your mentality from, you know, pessimism and fear and scarcity to how is this actually an opportunity? Right? And there actually always is an opportunity in every down market. And that's the next mindset to get.

• 36:15Brian Armstrong?

  And so, yeah, I mean, there's like these books like Shackleton's Way about, in Ernest Shackleton and like, you know, there's this despair and like one setback after another. And like basically the leadership lesson is don't allow pessimism to like creep into your organization and, and people to kind of recruit each other into this, you know, very negative mentality. Like the, the history is very clear on this, which is great companies have often gotten built in down markets. And so we're all gonna look back on this in three to five years and say, gosh, that was the best time to actually build this company because there was no distraction. It was like we had nowhere to go. We couldn't go too much lower, so we had to all build back up from there.

• 36:58Brian Armstrong?

  And don't die and you're gonna crush it coming out of this, this down cycle. So they have to retain the optimism.

• 37:06Ben Horowitz?

  Yeah, when we were in the great dot com crash, Andreessen used to always say to me, Ben, don't worry. One day we'll look back at this, chuckle nervously and change the subject.

• 37:18Ben Horowitz?

  Yes, sir. Over there.

• 37:23Speaker 06

  Alright, so as somebody who's built a very large company and probably gone through all the people issues you can possibly have and scaling and all of that, like, how do you go through the phase of, alright, you get to 50 people and you have these like early execs who you built out the team with, and then now you need to hire for a new function, and you need to bring in new senior leaders, etc. And like, how do you balance needing that function and to do that thing better and like getting it right? Because we've had some of this where, you know, where it took us six months to hire, because we want to make sure like this is something that was like very important to get right in the culture and just like still be in that pretty early phase. But also, we've spent six months like not doing it. Thankfully, we've resolved that one, but I'm curious for like future, just how you think about that problem as you scale

• 38:07Speaker 06

  from, you know, 50 to 5,000?

• 38:09Brian Armstrong?

  Yeah. So this is always a tough call, because when you're a smaller company, you're just getting started, it's actually much harder to recruit, right? And I mean, we couldn't, we couldn't get good people to come in in the early days, oftentimes that were more senior, right? We couldn't find like a CFO or head of finance, like our, you know, our early stuff was, was kind of messy and we couldn't find anyone to come in and clean it up. They were, they were too risk averse, right? Or even like a really senior head of security or something like that. So we had to kind of start with the junior people we had. And as you start to find product market fit, you're increasingly thinking, okay, these people are over, they're over their skis. I need to bring in more management or more people with more experience. So I think the heart of your question is basically, do we wait? Do we let the fires burn and hold out for someone that we're really excited about?

• 38:54Brian Armstrong?

  Or do we kind of compromise just to get someone in the role? And I guess I would say, hold out and just wait.

• 39:01Brian Armstrong?

  That's what we did. I mean, we basically let the fires burn and we tried to fill in the gaps where we could, and we waited till we could find someone who we were really excited about. Now, even with that, you know, the failure rate of hiring executives is pretty staggering. I think, you know, I remember Jeff Stump and the whole team like kind of came in to talk to us about this at one point when Coinbase was growing. And I think, you know, he said, the failure rate is like, if you count success as the executive is still there 18 months later, something like 50% of executive hires fail. And that was like roughly true in my experience as well. And so even if you wait and you think, okay, this is the right person, I'm gonna, I'm gonna held out, I'm gonna find them, you know, 18 months later, something, it may not work out, and that's fine. Just, everyone's gonna freak out, you know, you need to part ways,

• 39:46Brian Armstrong?

  and they're gonna wonder what's happening and... Some of the Coinbase alumni who are here, they can tell you the war stories of it was chaos, right? At certain times and people got battlefield promotions to things that they were probably totally, you know, out of their, out of their expertise. So that's just startup life. That's, that's, that's what it looks like. So wait to find the right person, even with that 50% of them won't work out 18, within 18 months, part ways and do it again. And, you know, some of our executive hires took 18 months or something like that, where I was hoping they were going to take three months. But that's just what it looks like to build a company.

• 40:21Ben Horowitz?

  Yeah. And that's so true because look, you don't know what you're doing when you're hiring executives. You know, you, you've not been CFO. You've not been, you know, head of HR. You don't know what that job should be. So what I've seen is if you find yourself at a much better percentage than 50% failure, you're probably not even firing people at the right rate. You've probably got people who are destroying your company and you're not recognizing it. So it just is what it is. Yes.

• 40:50Speaker 07

  In the last few months, Coinbase has been a lot more active with protocol contributions and development, a lot more active in the process. I think the last week Vitalik gave you guys a shout out for helping with the 4844 development. Do you guys have any particular, you know, aspirations or goals with that effort? I know it's a newer effort for you. I'd love to hear more about it.

• 41:09Brian Armstrong?

  Yeah, well, just generally, I would say that we want to start building more protocols at Coinbase. I mean, it's pretty clear that that's an important way that Web 3 is going to get developed. And there's a handful of areas where I think it's always our culture and are still, the majority of our revenue is still coming from relatively centralized things. And so it's been a big effort for me internally to kind of go create these groups that can really be crypto native, focus on decentralized apps and sort of free them up to kind of not have a bunch of lawyers like around them too much that are, you know, shutting, shutting down every idea in its, in its infancy, right? We need, we need the good feedback from, from lawyers like in key moments, but we don't want it to destroy like the innovation potential. And so thanks for noticing. And I guess we're

• 41:53Brian Armstrong?

  going to keep trying to do more and more of that as like truly a crypto forward company. And I don't know, some people probably think of Coinbase as somewhat trad-fi because we do have centralized products that we're sort of known for, but I think we also have a ton of really great crypto forward talent and many of them are very entrepreneurial. Some of them are here in the room and some of that's going to get built inside Coinbase, some of it's going to go outside of Coinbase. We're happy to do both of those and just help grow the whole ecosystem, hopefully.

• 42:21Ben Horowitz?

  All right, well, we are out of time, so I'd like to thank Brian for joining us and sharing his vision.

• 42:33Sonal?

  Thank you for listening to Web3 with A6nC. You can find show notes with links to resources, books, or papers discussed, transcripts, and more at a6nccrypto.com. This episode was produced and edited by Sonal Toxie, that's me. This episode was technically edited by our audio editor, Seven Morris. Credit also to Moonshot Design for the art, and all thanks to support from A6nC Crypto. To follow more of our work and get updates, resources from us, and from others, be sure to subscribe to our Web3 weekly newsletter. You can find it on our website at a6nccrypto.com. Thank you for listening and for subscribing. Let's go.