The Playbook: Lessons from 200+ Company Stories

all right

two episodes in a row from a hotel room

let's do it

let's do it

who got the truth

is it you is it you is it you who got

the truth now

is it you is it you is it you sit me

down say it straight another story on

the way who got the truth

welcome to this special episode of

acquired the podcast about great

technology companies and the stories and

playbooks behind them i'm ben gilbert

and i'm the co-founder and managing

director of seattle-based pioneer square

labs and our venture fund psl ventures

and i'm david rosenthal and i am an

angel investor based in san francisco

and we are your hosts

this episode is something that david and

i have been thinking about for a long

time years in fact it is called the

acquired playbook

and it is basically what we've learned

from doing acquired like people often

ask us the question okay cool you guys

have analyzed like 200 companies and

spent an ungodly amount of hours doing

that like what are the takeaways

this episode

is the takeaways

it was back in like 2018 i want to say

that we had a major book publisher come

to us and be like hey would you want to

do a book out acquired this was the idea

we had and then we were just like maybe

at some point let's just keep doing

episodes instead but maybe at some point

so consider this the first draft we

don't know if this talk was good yet we

are in our hotel rooms at capital camp

and we are about to go on stage and give

it so this is sort of fun this is the

first time we've ever recorded one of

these before doing the episode itself

and

before we jump in for one final time

this season a huge thank you to our

presenting sponsor of all of our special

episodes the solana foundation and

solana as you all definitely know by now

is a global state machine and the

world's most performant blockchain and

when we say performant that means that

developers can build web3 applications

on top of it with super low transaction

fees compared to other infrastructure

platforms out there you may know of and

the reason that you can do that is that

the solana blockchain is literally

a feat of engineering genius if only we

could talk to people involved in the

engineering genius behind solana you

know where i'm going with this because

it's the last special episode of the

season i am talking to the co-founders

of solana itself

anatoly yaakoventko and raj

gokul

we are pumped to close out the season

here with you guys there's a quick

refresher can you tell us what the

solana network was built to accomplish

it's a public blockchain so it was

billed as a faster

version of ethereum and that's kind of

very very high level way to talk about

it but our initial vision like the slide

deck and everything in those super early

days said that it's blockchain and

nasdaq speed and

the big dream idea is imagine you have a

global computer

that doesn't matter where you're at

but this computer

perfectly synchronizes all information

on it as close to the speed of light as

possible so when news travels around the

world you know so does the information

through this thing because if you can

get to that speed of light update speed

you are as fast as news you're as fast

as the fastest markets it doesn't really

matter if you know nasdaq has like sub

nanosecond whatever trading because that

doesn't trade on news it's just trading

a statistical noise the other thing

about solana is it's very very energy

efficient so single solano transaction

is about like two or three google

searches

so if you think of it as using a web

service this is a network that

you know takes as much energy as a

regular web service in comparison to the

proof of work chains this is like a

million times more energy efficient to

me entourage this was really important

that that was true

that's amazing and we got all into in

our

episode with y'all a year ago into your

background as a systems engineer at

qualcomm and leading into

the proof of history and how the network

is architected what's happened with

solana since

oh man a lot of ups some downs we've had

crazy amount of traction i think by a

number of active accounts

we've passed

all the other chains yeah right now

we're at two million daily uh six

million weeklies and then 18 million

monthlies which is the highest of any

blockchain and passed all the other ones

about

60 days ago and last time

we spoke we're basically close to zero

in the midst of all this incredible

growth the markets and in particular the

crypto markets have changed quite a bit

since we spoke last as well you started

solana in the middle of the last crypto

winter what advice would you have for

founders out there

so bear markets are hard for like

mid-stage companies because

they see their like revenues and

everything else shrink but i think

they're actually great for seed level

companies that are

just

small teams of engineers with you know

running in ramen

that have a bright idea and a lot of

energy to go execute on it your

competitors that are bigger are forced

to prioritize and forced to take less

risk four people that are just really

hungry to build the next big thing don't

need a lot of funding and that was our

story we actually had a lot of

competitors that raised

100 million rounds like with on a white

paper right before we got like a little

bit of seed funding the first deed was a

little over 3 million

and that was more or less enough the

next round was like 13 but a ton of it

got wiped out because most of it came in

and heath

and before we found a custodian and were

able to sell any of it a lot of that

value got wiped out unfortunately it

says altogether like less than 10

million i think to mainnet

wow for teams out there that are working

on applications

what's the best way to get in touch with

y'all and how can solana help

so we have a discord we have a really

strong community there if you're a

builder you should definitely join that

one also like anchor there's a lot of

groups outside of just our main one

one kind of more

fun way to do it would be to join any of

the hacker houses just show up and start

building with a bunch of people face to

face and like really feel the energy of

you know working on something together

and like exchanging ideas and seeing

things fail

awesome thank you so much it's an

amazing feat be the largest blockchain

out there super cool our hat is off to

you

now as always this is not financial

advice please do your own research dave

and i do lots of research but you may

come to different conclusions and we may

have financial interests in the things

that are discussed on this show indeed

and speaking of

different conclusions

this would be a fantastic episode to

discuss in the acquired slack we want to

hear what your favorite lessons are from

all of these like hundreds and hundreds

of hours that we've done at this point

this would be awesome so acquired.fm

slack if you're not already a member we

hang out in there it's a great great

great community as you will hear us talk

about in this talk all right join the

slack and then uh this is 12 of our

favorite playbook themes but there are

certainly more so i'd love to hear from

you all right on to the talk

so we thought we would be really clever

here with our first one both because

this genuinely is one of our favorite

themes and we thought hell this will be

counter-positioned everybody's going to

talk about you know it's may 2022

there's doom and gloom it's gonna be

good and then of course

great friend of the show hanu harharan

came up earlier tonight and

already beat the optimism drum but

we will highlight it once again so our

first

lesson

from all the stories we've told is that

optimism always wins so um

uh for folks here in the auditorium

raise your hand if you know who the

people are who are on this slide

wow this is awesome we're getting almost

no hands raised

for folks at home bear with us i don't

know that we have a single hand up wow

this is awesome okay so

the person on the left is akio morita

and the person on the right is masaru

ibuka and they were the co-founders of

the sony corporation

and uh we told this story in about three

hours uh earlier this year on acquired

it is it is amazing but we thought it

would be the perfect story to kick off

the night because it's it's just so

perfect for this moment so

as we said there's not a lot of reasons

looking out at the landscape but the

markets right now to be an optimist

but the sony story reminds us that

things were much

much much worse than they are today in

the recent past so

sony was founded in

1946 in japan and uh just think about

that time in 1946 in japan

you think 2022 in america might be a bad

time to start a company or a tough time

to start a company i don't know that in

recent history there has been a worse

time and place

to

try and live your life and do any sort

of business let alone start a brand new

innovative technology firm right so

these two men decided to start a company

which is crazy in and of itself in japan

in 1946

even crazier they decided to start a

consumer electronics company

crazy for two reasons one

after the war there was no technology

left in japan so like what were they

gonna what were they gonna make their

first product was a wooden rice cooker

there wasn't uh a market either because

every other technology firm that was

making radios and stuff had pivoted to

make stuff for the military which was no

longer a customer yes no longer existed

the second reason why this was a

completely

completely crazy idea

was

they were going to make

consumer electronic electronic consumer

products the gdp per capita in japan in

1946 was 17

not 17 000 it was 17

so there was no market there was no

technology and i think after the war

48 of tokyo was homeless

like half the population's homes had

been destroyed yeah

unbelievable and so and yet despite all

that despite

i can't even imagine bigger headwinds

against them they built one of the most

iconic companies in the world

it's not an understatement to say that

these two men and sony changed the

course of japanese history changed the

course of world history and

again we talked about this on the

episode but uh steve jobs was mentioned

earlier tonight

akio marita was the inspiration for

steve jobs uh and he actually did this

great great talk at um one of uh it was

uh not a wwdc uh an apple

after maria passed away where he did a

tribute to him and i think uh you know

no morita no sony no iphone um and so

the lesson that we take away from this

is like you know

even if things are at their bleakest

it's rational to be an optimist because

if you're not an optimist it's it's the

optimists who drive the world forward

and then if you're an investor investing

in optimism is the only way that you're

actually going to make outsized returns

and build great companies so it is

genuinely the rational thing to do

all right so point one here lesson one

uh

touchy-feely kind of feel good

but let's back it up a little bit

so

we all know moore's law

this next lesson

you know we wanted to basically

visualize and talk about this trend in a

little bit of a different way than than

it's normally talked about so the the

number of transistors on a chip we all

know this tends to double every 18 to 24

months and with some quick compounding

math that means you get a 10x

every seven years or so and as you can

see on this graph that we made here uh

the x-axis is time the y-axis is the

number of transistors on a leading

consumer processor uh notice that it's

in log scale you can see every seven

years or so 10x improvement and

processing power and i figured we'd take

the sort of greatest hits examples uh

intel's 386 486 pentium 4 core 2 duo

which was in my first macbook pro the a7

in the iphone in 2013 and of course the

recent apple m1

uh of course if you look at it in linear

and not log scale it looks like this

it's way too difficult to actually

observe any progress and it seems like

basically nothing happened and then

everything happened and this is the

craziest thing about moore's law and

exponential scales the graph always

looks like this right in 10 years the m1

is going to look like nothing happened

between and in 2000 with pentium 4 it

would have looked like this too yeah it

totally every single step along the way

felt like this which is wild and because

of how exponential growth works you

basically feel like you're always at

this crazy top and all this progress

just happened

but normally we don't look at charts

like this when we're looking at at

processing power or at least like

processing generations

we're used to looking at it for

high-growth durable technology companies

when we're looking at stuff like their

market cap so we aggregated that too

um the first thing to note is that

there's been a drawdown i don't know if

anyone noticed since we made these

slides a few months ago

but the point still holds this is the

market cap of all global technology

companies over that same time period

starting in 1975

even if you normalize this for the tech

bubble and today you'll see that the

outcomes of venture-backed technology

companies keep getting larger generation

by generation

uh it's also worth observing the exact

same phenomenon that basically it seems

like nothing happened say for the tech

bubble

and then suddenly everything happened at

once and

the insight is that this

graph and the moore's law chart with the

processors are actually the same thing

this is actually moore's law at work and

so we call this lesson the mike moritz

corollary to moore's law because we

didn't make it up there's a great story

that goes with it around the time that

mike moritz and doug leone took over

running sequoyah capital from don

valentine mike looked back on the

performance of the past couple of

sequoia funds that had cisco oracle

apple these unbelievable venture returns

never before seen venture returns

and they were asking themselves going

you know my god what if i got myself

into how are we ever going to top this

which would be a reasonable and rational

way to respond looking at the greatest

returns in history in an asset class and

thinking

okay where do we go from here

but he realized as long as moore's law

continues to hold and computing power

continues to get exponentially cheaper

the markets that technology can attack

should keep getting bigger and bigger so

to put some more numbers behind this in

1990 a pc with that 486 processor cost 2

000

and only about 42 of america that's just

of america used a computer at all which

is that's

wild right that recently uh so today a

smartphone with you know literally a

million times of the computing power

cost two hundred dollars which is one

tenth the cost and over six billion

people have one so of course this trend

led sequoia to go on to invest in google

whatsapp airbnb meitwan bite dance

global markets

but i think this is like

this insight that that mike had

originally of like oh as long as moore's

law holds yeah there'll be ups and downs

in the market like we've observed in the

past year but

technology should always be able to

access bigger and bigger and bigger

markets if the cost of compute keeps

declining and it's played out and for

those of you in the room who want to get

like really pedantic you have to sort of

slightly adjust moore's law in order to

say that it still holds you change the

definition a little bit but when you

look at like what nvidia's been doing

with gpus it is totally fair to say that

this

10x improvement in computing every five

six seven years that is absolutely still

happening and so therefore the lessons

you should take from it on the macro

technology scale are to stay an optimist

indeed indeed

all right so number three we talk about

sequoia a lot on acquired they've been

involved in so many great winners

they've built such a great great

franchise but lest you think that they

are just

pure geniuses they can do no wrong

the lesson number three which is cue the

all-in theme song here let your winners

ride

uh this comes from sequoia's biggest

mistake in history which their biggest

mistake in history in one of the most

successful companies if not the most

successful company in history yes and uh

i think this is probably the single

biggest mistake period in investing in

history yeah i don't see i don't think

there's any way that it can't be

definitionally uh so let's go on to the

next slide

now to be fair to sequoia they're

playing on the stage where they could

make

a mistake that was the single biggest in

history so they're doing something right

but

uh so the story goes one day in the late

1970s i think it was 1977

nolan bushnell

called up uh who was the ceo of atari

called up don valentine his main venture

investor and atari was actually the very

first sequoia capital investment after

don started the firm and he said hey

i've got this young kid that's been

working for me here at atari his name's

steve jobs and he started a company and

i think you should meet him i think you

should take a look at him and

don talks about this in the way that

only only don can says that steve came

in and he quote looked like ho chi minh

and i think this was during the phase

where he wasn't showering so like he

smelled really bad

but uh they funded him anyway

uh don invested 150 000

in apple computer in 1977 and then

18 months later they had an opportunity

to realize one of the greatest venture

returns of all time they made a 40x

on that investment they sold their

shares for six

million dollars before the ipo and they

completely cleared out their position

in apple

and of course we all know what happens

since and uh we uh the next slide we uh

we just for fun we we said we put on

where our friends ted and todd over at

uh at berkshire uh with warren's

approval started buying and uh you have

the hair beating the uh are you the

tortoise certainly beating the hair on

the tortoise beating the hair indeed and

uh

yeah i think they did better than than

quite did on this one

so no you know because we use one

gigantic global most successful

technology company of all time to

illustrate this we figured we'd pick

another example too just to show it's

not an isolated incident so uh amazon

ipod at eight dollars per share and just

for fun i want to point out that

subsequent run up there in the dot com

bubble to 120 a share then of course

that crash from the dot-com bubble so

2001 to 2003 there

looks like a pretty amazing buying

opportunity but actually that's a

ludicrous statement because every year

for the next two decades was a great

buying opportunity in this company and

so

what are we illustrating here

if you had held that amazon ipo share

for 13 years you would have a nice 10x

from the beginning of this graph to the

end of this graph

but you really should have continued to

hold if you zoom out here so you can see

that the little crosshairs there

illustrate uh where the previous graph

ended

basically any growth of the stock before

2012 just looks cute

and uh you know at that point in 2012 i

think we all would have described amazon

as a mature company

uh it was almost 20 years old if you had

just held for another 10 years then

instead of that 10x in 13 years you

could have had a

170x and of course the difference

between those two on an absolute dollar

basis you know whatever you invested at

ipo is incredibly meaningful incredibly

meaningful and and the so the key

insight this and letting your winners

ride and you know when to let your

winners ride and when not

it's not your growth rate in any given

year that matters frankly that doesn't

matter at all uh what matters is how

many years of growth do you have left

like that is the ultimate question and

in the case of amazon in the case of

apple

if you have

decades of growth left

again that's all that matters

it leaves you in this interesting place

where you're thinking well okay do i

always continue to hold

and this is why venture capitalists tend

to be totally obsessed with market size

because it's this idea that like you

basically need to be able to run forever

or decades and decades and decades and

continue to grow and those markets

continue to be this globally addressable

absolutely massive opportunity because

the compounding the funny thing about it

is all of the value tends to show up in

the out years and the trick is figuring

out like okay when am i in the out years

yep and so there's this great uh like

everything in uh in startups there's a

great paul graham quote to go along with

it of course he remarked in december

2020 that an astonishing 99.98 of

amazon's growth had happened since ipo

and uh

i just love this because i i actually

printed it out and i have it at home it

reminded me like how much

yeah

just how much running room amazon had

ahead of it after it's ipo

all right number four

one of our very favorites i love this

picture of jensen huang showing off his

nvidia logo tattoo that he has on his

shoulder i think it's from the tegra 2

processor line like name a more badass

tech ceo than jensen huang i think he

might be more badass than

elon i i mean they both wear leather

jackets so

our number four lesson is nothing can

stop a will to survive and the reason

that we put jensen on this slide

one is because his will to survive is

unparalleled uh we'll tell the story in

a minute um but two we actually started

our two-part series on nvidia with this

great quote from him which is that my

will to survive exceeds everybody else's

will to kill me

so

one of the key things that we realized

looking back on all the stories that

we've told um

we kind of have a formula at acquired it

just happens to be like the best formula

of all time and it's joseph campbell and

it's the hero's journey and all the

great companies whether it's apple or

amazon or nvidia or tsmc they're all the

hero's journey

and

the thing about the hero's journey is

you face adversity along the way you're

fighting a dragon it looks like you're

gonna die

and uh the thing about company building

is that unlike fighting dragons

game over only happens when you decide

to quit as a founder like you can't get

eaten by the dragon like the market can

turn against you but the market can't

actually eat you there is always

always a way to survive it's just a

question of do you have the will to do

that and uh the nvidia story just

illustrates that better than anybody so

when they were funded sequoia funded

them uh shocking shocking right uh

it was uh jensen uh and a couple of his

buddies from sun jensen was at lsi logic

and uh his two co-founders were from sun

this amazing technical team

this new market graphics accelerating

and gaming on pcs

giant wave led by doom and home adoption

of pcs this was like a you know great

team to pursue it can't miss investment

no-brainer venture bet no brainer why

the venture capitalists bet on everyone

over and over and over and over which is

the problem with no-brainer venture bets

everybody thinks they're no-brainer

venture bets and tons of competition

80 separate companies making graphics

cards got funded yeah it was 70 or 80

separate companies making graphics cards

all got funded which sounds quaint today

but that was a lot back then and then it

gets even worse

intel came after the graphics card

industry and decided that they were

going to integrate graphics into the

motherboard which they had done with you

know sound chips and networking chips

and everything else like how many people

have a dedicated networking card in

their pcs these days you know nobody

so put yourself in jensen and nvidia's

shoes here you just got funded it's not

a lot of capital a zillion other people

just got funded with the exact same

amount of capital that you have uh

we don't have this in our sort of

discussion here so i'm i'm freewheeling

but um it's worth knowing that nvidia's

original approach to how they wanted to

render graphics on cards was actually

basically wrong it was novel but it was

like not the way that everyone else

decided to go and so it was difficult to

program for

quadrilaterals as polygons instead of

triangles as polygons yes which is

not as efficient as a three-sided shape

anyway uh i had had a lot of merits so

not only are you

not on the same footing as everyone else

who you're competing against for a pure

commodity on a thing that takes 18 to 24

months to ship

you are a step behind because you've

burned a bunch of capital chasing the

wrong approach first

totally so what did they do uh jensen

laid off 70 of the company

and they did two completely crazy things

that if you're not just focused on

survival like you wouldn't do these

things

one he decided that the only way they

were gonna

win and survive was in this brutal

commodity industry was by shipping six

months ahead shipping new technology six

months ahead of their competitors and

the way they did that

was they decided they were just gonna

yolo it so they designed all of their

chips in software emulation as opposed

to what everybody else did which was

they'd work with their foundry partners

and they'd get some prototype chips made

and they'd send them over from asia and

they test them out they make sure they

worked

nvidia said no we don't have time for

that they literally only ever

ran the chip in software and then once

that passed send it to the production

run

and then the other thing that they did

which we didn't talk about this as much

on the episode is uh

of course you're gonna have a lot of

errors and defects by doing this so like

a large percentage of those chips

like the chips worked sort of in

aggregate but like a lot of functions

that you would want to call as a game

developer just didn't work

so they were like ah it's a feature not

a bug we're gonna go simplify your life

as game developers so they would ship

them broken and they would just disable

that they would make it so that you

couldn't access that in software and

then they would go around all the

developers and say

yeah you just actually don't want to use

that blend mode

trust us trust us like i feel like

instead of all 24 blend modes those

eight

are just going to be really good so you

should figure out how to write your your

games using just those eight blend modes

and like

i can't imagine unless you are actually

forced with your back up against the

wall to decide sure i'm going to only

ever

emulate my chips before running a

production run and sure i'm going to

ship them broken and then tell the

market to deal with it like

these are

i mean i guess it goes back to the

necessity as the mother of invention

there was a lot of necessity yes a lot

of necessity uh so jensen and nvidia are

just the og goat story at this

but there's another uh great example

that we had to include because we

literally just talked to this ceo a week

ago

and that's eric yuan from zoom this is

from our interview with him a week ago

and after i started the company i

realized wow it's so hard to raise

capital right

and by the way with the money that you

see they give to you don't think about

that's money

you know that's a trust you know every

dollar matters right that's why every

day

i was thinking about how to survive how

to survive how to survive even today

seriously i still think about my workout

tonight you know how to saw it so

the interesting thing about that comment

is

i asked eric the question

did you try to create a gigantic

multi-billion dollar

world-beating company with zoom or were

you just thinking about sort of um how

can i make a great product and he like

didn't even really answer my question he

was just obsessed with this notion of

survival and that when he started the

company all the way even through to

today what he's thinking about is how do

we you know ship great product and

survive

yep

it's such a it's a mindset of so many

great founders

yes

number five

strength leads to strength

so there's a chance that we picked this

one mostly just so we could show mark

andreessen on this very very large

screen

on the cover of time magazine at the

height of the dot-com mania on a throne

barefoot

uh

simpler times i feel like there needs to

be some sort of uh

similar image for 2021 yeah oh yeah i

have to think about what that is yeah a

little contest later yeah

uh so long time acquired listeners will

know this one well this really starts

with the idea of reflexivity

so if you go acquire new resources your

company

you know if you go get more capital or

that next most important customer

or a great key hire you bring in the

right executive to your team you are now

by definition more valuable than you

were before you acquired that resource

and so the question becomes well how do

you leverage

your now more valuable asset into

getting the next resource and becoming

even more powerful even more successful

and an extreme example that uh i always

think of about this comes from a

conversation that i had right here at

capital camp last year with michael

mobison which was if you looked at

tesla's

market cap in

2020 you would say that there's no way

they're worth that and that would be a

very reasonable thing to say

but what they definitely did do is use

that share price to sell new shares uh

at very little dilution and raise over

10 billion dollars of cash to the

balance sheet that year so whatever you

thought they were worth they're

definitely worth more now because they

have a fresh 10 billion dollars in cash

and they know how to use it so it really

comes down to sort of the ability to

uniquely marshal resources

and to bring it back to mark andreessen

in 2009 when a16z raised their fund 1

they came out swinging for folks who

were sort of observing the tech industry

at this point they raised 300 million

dollars for fund one in 2009 in 2009

so mark and ben knew this principle very

well

they realized what we made this huge

splash we've got this big brand people

already think we're like a top venture

firm just because we did this crazy

thing out of the gate how do we solidify

that position so

the very next year they raised a 650

billion dollar fund

million billion

sorry i forgot what decade it was

we're not in 2022 yet no but i mean as

you can tell like they've basically kept

going with this mindset of just

yesterday they raised another four and a

half billion crypto fund and they're

somewhere between 30 and 40 billion

under management now

in in what 13 years since founding

they basically never

uh took

their resources and took that as like a

static notion of like oh good now we can

you know do some interesting things with

this they basically always

looked at everything they had and say

okay we're in a strong position how do

we get stronger how do we do more faster

and and compound what we have

so

i think there's really something to just

always thinking okay i just got more

valuable

and that puts me in a position to get

even more valuable again and always just

be really thoughtful and super

aggressive about seizing that next

opportunity the other example that we

have to mention on this one from uh the

acquired canon is literally the

o.g.o.g.o.g

american capitalist business which is

standard oil did this ran this playbook

to a t it's like john rockefeller you

say oh gee like he's like actually a

gangster jesse he made actually a bit of

gangster uh

you know he was never satisfied no

matter how big standard oil got it was

never big enough no matter what

competitor he would acquire into the

fold uh

by whatever means necessary or no matter

what railroad uh he just did a

deal a deal with

um he would always use that to say okay

tomorrow morning i wake up and we figure

out how to use my new more valuable

company

all right for our next sponsor we have

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mystery has really like

come out of in some ways and grown out

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so on thursday july 7th

2022

we are going to do

an acquired mystery event

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tri-mystery.com acquired and in true

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really really really awesome at this

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your main job nobody wanted to do it

mystery takes over 100 of that it is

their full-time job their best in the

world before mystery companies would

spend all this money on team events

employee engagement and it was just like

going into a black hole you didn't know

if it was

helping your team be more engaged and

happy or even hurting god forbid or had

no impact you had no idea with mystery

they actually use software and surveys

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imagine that on your team imagine that

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acquired

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sign up we'll have a blast

and this will be a great way to close

out the season

thank you mystery

all right number six this is another one

that is uh near and dear to my heart

it's never too late uh and there are

actually two

meanings uh to this lesson one

is also another great mark andreessen

piece of wisdom so there's a great uh

famous quote of his from uh interview i

think this was in 2014 that he did um

where he said i came out here in 1994

to silicon valley and the valley was in

hibernation my big feeling was i just

missed it i missed the whole thing it

had happened in the 80s and i got here

too late and silicon valley was over and

obviously that was completely not true

and um what's cool about this is that

like

silicon valley and technology moves in

waves it's related to moore's law every

time there's a 10x in computing there's

a new market there's a new paradigm

there's a new technology that gets

created and so yes mark was right he

missed the pc wave it was too late for

that but he was right on time for the

internet wave and as long as moore's law

holds

if you work in technology if you invest

in technology if you build

technology-enabled products it's never

too late you are always right on the

cusp of the next generation that's

coming the other meaning of it's never

too late uh folks who are viewing the

video and here here in the auditorium

will notice we have not mark andreessen

on this slide but dr morris chang the

founder of tsmc

and so this is i think the other lesson

that um that i've really taken from

acquired which is that uh

on the in this bane which is that morris

chang was 56 years old when he founded

tsmc and tsmc is today i believe the

11th most valuable company in the world

yep and it's so easy you know the flip

side of the coin of there's always

another generation there's always

another way we should tell you that it

may be the thing

keeping

geopoli political tensions at rest like

it may be the force that nobody wants to

destabilize and therefore we have peace

like

it's not just a company but it's easy to

think you know if you listen to

to mark or that there's always another

way that's for young people like it's

it's steve jobs it's mark zuckerberg

it's vitalik buterin it's these young

kids who get these new waves of

technology and the reality is that's

just not true it's just a mindset like

you have to be willing to dive in and do

it and you can do it at 56 years old and

still build the 11th most most valuable

company in the world when we were doing

this um you know putting this together i

was arguing with david that like this

isn't novel you know this is only novel

recently like if you think back to what

venture capital was in the the 60s and

70s it was funding

veterans of the cisco's of the world

and and you know the the fairchilds of

the world

who had designed you know five chips

before to go start a new company and

build the sixth ship of their life you

know in their 50s yeah and it's only the

advent of the internet with cloud

computing with you know super low cost

to start a company that there has been

this wave of

uh very young founders creating these

consumer internet companies but

that's actually a blip in history

it's funny that now the pendulum has

swung so far to the lore being oh these

young hot shot founders that we have to

even make this crazy point of wow a 56

year old can start an important

world-changing company job yeah the

trader s eight were you know not in

their 20s

yes

all right

this is a familiar face that many of you

will recognize

uh

point number seven is don't mistake

options for cash flow this is from our

episode with michael mobison who we

mentioned we met here last year at camp

so what do we mean by don't mistake

buying options for investigating cash

flow well there's this word investing

it's come up a lot this week

it is used for multiple purposes this is

sort of an overloaded word and

classically defined investing in the ben

graham sense is that you are looking at

a series of cash flows

that a business generates from today

into the future you apply some discount

rate you value those you know cash flows

uh at what they're worth in this present

day and you look at things like

characteristics of the business like

potential margin expansion or their

growth rate and you make all sorts of

assumptions uh based on again the cash

flows that you know to exist today and

you try and come up with some price that

that business is worth and you try and

put some money in and invest at that

price but then that doesn't sound at all

like what we do

no david and i are professional seed

stage venture capitalists and people

call what i do investing but while it's

the same word it doesn't involve

literally any of the things that i just

mentioned you know in that that previous

comment

it is

funny to me that that it is is called

investing like it is it's

typically just a founder and an idea on

a napkin so how can you make any

assumptions about the cash flows

and then we're like well

that founder and that idea is worth 20

million oh it's so funny to me that

people think it's complete voodoo math

how uh how venture capital has come up

with with valuations this is where i

think that the sort of michael's comment

and his his his thoughts on this uh make

a lot of sense because once you admit

that there is no dcf and you stop trying

to say in what world is that worth 20

million dollars or 10 million dollars or

70 million dollars at an idea stage

which we've seen recently

well

then if you're willing to let that go

and you meditate and take your deep

breath and say okay well how do we price

this thing then if it's not based on you

know classic investing dcfs

really

venture capital in the early stage

is not at all cash flow based investing

it's actually options investing and

as you sort of think about it that way

the world starts to make more sense

because how do you value an option well

you look at the range of potential

outcomes and the probabilistic

likelihood of that option and the entire

range of outcomes which is actually what

venture capitalists are doing whether

they're cognitively thinking about it

that way or not you're basically saying

what's the chance that this is a billion

dollar company or a hundred billion

dollar company or a zero and of course

this leads to the idea that you need

diverse portfolios rather than just

investing in single large companies

because this range of potential outcomes

is so wide that you need to find ways to

sort of smooth that risk while still

benefiting from the potential of an

asymmetric return it also completely

explains why venture capitalists are so

obsessed with tam it was one of the

things when i first got into the

industry i was like why does everybody

care so much about the tam like aren't

there other aspects that you should care

about well that's what's most sensitive

to the valuation of the option it is the

the magnitude of the outcomes that uh

that are possible like you can you can

then debate the probable weighting of it

but

the higher the magnitude of the outcomes

the more valuable the option is going to

be right if i think there's some x

percent chance that this thing becomes

the next apple what should i pay for it

now that is actually the question you

are asking rather than

dcf in your way to something there but

of course it's it's sterile uh and kind

of terrible to talk about people's

life's work as buying an option so

there's an important corollary to this

yes and this is from

our friends over at altos ventures and

in particular honom

and he makes this great point he

actually just remade it on twitter the

other day which is

yeah okay like you probably should think

about valuations and venture capital

investing more like options than you do

thinking about investing in public

companies on a cash flow basis but don't

mistake startups for lottery tickets

these may be options to you from an

investing standpoint but these founders

are real people with families and lives

and bank accounts and employees

and the other

the other thing that is

fundamentally different about venture

capital investing versus say public

market investing is it's a multi-turn

game not a single turn game and so how

you behave and how you treat these

founders even if it's clear that your

option is going to expire worthless you

don't know what those founders are going

to go do next you don't know who their

friends are you don't know who they're

going to talk to you don't know what the

other investors around the table might

think about the way you behaved or

didn't behave during that period of time

so it's this

interesting i think these two dynamics

really explain the culture in silicon

valley a lot which is

you're doing options based investing but

it's a multi-turn game

yeah and in practice nobody's actually

just doing one or the other everyone's

style of investing is somewhere on the

spectrum here because

other than the pure play value investors

who are you know looking at the the book

value of a company or the seed stage

investors or the precede like me

who are looking at a napkin sketch and a

founder with an idea or sometimes even

no idea most people are actually in the

middle so most people have to blend some

notion of what are the chances this

could be big and how big with the idea

that hey they're actually generating

revenue and sometimes even you know cash

flow as a startup and i actually can

apply some uh multiple to that and

obviously the multiple can can change

rapidly on you and then you have to

adapt but um everybody's doing a little

bit of one and a little bit of the other

all right

for our next lesson focus on what makes

your beer taste better so we brought up

uh this little vignette on a whole bunch

of episodes unacquired but this is an

image of jeff bezos at the 2008 y

combinator startup school which was a

which is a um which is a moment in

history a very important moment in

history so why see at least used to i

don't know if they they still do it's

probably virtual now yeah we put on

these physical events in silicon valley

i went to one in the bill graham civic

auditorium that's right i went to one

too um

and they would bring founders and you

know luminaries to come and talk and

inspire the next generation of founders

and basically to inspire applications to

yc

and so in 2008 bezos came and this was

right after aws had launched and he used

it as a marketing opportunity to market

to all of these startups and future

startups about why

they should build on aws instead of

rolling their own infrastructure which

we should say this strategy worked

ludicrously well like aws got probably a

five-year lead on cloud by piling people

on the plane from seattle going down to

the bay area evangelizing like crazy to

all these stars all these tiny startups

who in that very room at the 2008 yc

startup school a startup that had not

even been built yet

was airbnb the three airbnb founders

were at that yc startup school and

that's why they decided to apply to yc

that year and the rest is history worked

for bezos and it worked for yc too

indeed but

if you go watch the talk which i highly

recommend it's really great um

jeff uses this sort of uh odd analogy

for aws where he talks about european

beer distillery beer breweries around

the turn of the 20th century and you're

like all right jeff where are you going

with this and uh the point the analogy

he makes is electricity had just been

invented and this was this massive boon

enabling technology for

consumer you know products cpg like like

beer

they could now brew vastly more

quantities of beer than you could before

using electricity but the first

breweries to adopt it they built their

own power generators they made their own

power

and

that worked fine for a few years but it

was super capital intensive required all

this operational labor to run the power

generators and then the utilities

companies came along and the next

generation of breweries

they didn't make their own power they

just rented it from the utility

companies and they you know ran

roughshod over the first generation of

breweries to use power because

guess what whoever makes your

electricity has no impact on how your

beer tastes literally making it yourself

does not make your beer taste better but

it does raise your cost structure it

does raise your cost structure and so

jeff's argument to all of these startups

was you know focus on what makes your

beer taste better so there's two lessons

here

one is what he's arguing that

as a startup you should focus solely not

just startup any company you should

focus solely on the attributes of your

product that your customers are going to

care about

everything else your infrastructure

doesn't matter outsource

the second perhaps more important

takeaway from this

if you look at what bezos did not what

he said is that being a utility company

is an exceedingly exceedingly great

business

and particularly being an unregulated

utility company yes and uh i mean that's

the reason that amazon became a

profitable business it absolutely is and

and not just amazon if you think about

you know

it's a profitable company you know where

they piled up too much cash to reinvest

all their cash flows but if you think

about this model of like what is an

unregulated utility company in

technology

it can be so defensible and powerful

like that's what square is that's what

shopify is that's what i think

two-thirds of our sponsors on acquired

are you know that's what vanta is modern

treasury vouch uh even mystery all of

you know if you can provide a critical

mission critical piece of infrastructure

that other companies can use

that they need but doesn't make their

actual beer taste better

it's a great place to source it i was

thinking about this um

just to go off script again because it's

fun up here

i think the

this is actually the same thing as like

the economic theory of specialization of

labor but applied to businesses where

it's basically well understood at this

point that

gdp tends to go up when people get

really good at a thing focus their time

on doing that thing and then turn to

their neighbor who's good at a different

thing to provide that service back to

them rather than everybody doing

everything for themselves and their

lives

and

this is just that on a business scale

totally

all right

the next one is one that is uh near and

dear to my heart and i had a lot of fun

illustrating this so bear with me on

some of these visuals so this one is

scale up or niche down and i want to

start first by talking about niching

down

so

this photo is

ripped with love from brooks running's

website

it's a great berkshire company we had

jim weber the ceo on stage with us for

our arena show a couple weeks back in

seattle

so for folks who don't know uh brooks is

a pretty special company

back in 2002

when jim came in

uh they weren't frankly um they were

everything to everyone they didn't just

make running shoes they made everything

shoes including twenty 20 shoes that you

would wear at a family barbecue

and

they made all sorts of apparel for all

sorts of sports

the company was losing money i think 5

million a year in the red they were

doing about 60 million in revenue but

obviously not able to capture a lot of

value out of that and so when jim came

in to turn the company around the first

thing he did was decide we are going to

be a running company and we are going to

be a running company for performance

runners for people who care

about their running and so immediately

went to a bunch of their distributors

big box stores slashed entire product

lines so they went from 60 million in

revenue down to 30 or something like

that they got rid of all their

unprofitable uh product lines they got

rid of anything that wasn't performance

running

they blew up their whole distribution

channel and they started

caring only about these performance

running shoes focusing on r d and really

investing in building brand with runners

well i'll save you the whole story and

just flash forward 20 years it worked

they grew slowly at first but then over

time

it really started to pay off and they

really started to be known as one of the

best running shoe companies in the world

in fact they're one of the top couple at

any big marathon that you'll see when

they take the high speed cameras brooks

brooks brooks brooks and of course some

asics and some um some newer brands too

and of course the the new crazy nike

shoes but they just realize we are

not going to beat nike like we are not

going to beat nike at the everything

game so we have to niche down and play a

different game so i mentioned that 60

million to 30-ish million in revenue

last year they did close to 1.2 billion

and had a great year last year through

the pandemic and are continuing to ride

this wave of running becoming one of the

the largest and fastest growing um

athletic apparel opportunities in the

world it's such an amazing compounding

story and berkshire story they've been

growing at 30 to 40 a year for like the

last 20 years it's amazing duration the

reason

so

it also works to scale up so a quick

case study we did an episode on the new

york times a couple years ago and while

every mid-sized newspaper in the u.s was

going bankrupt thanks to disruption

brought by the internet the new york

times became gigantic and a healthier

business than ever

and

the time saw the idea to be sort of the

one national brand and one of a few

trusted global brands in the space the

internet as we know can be brutal to

people caught in the middle because it

enabled everyone in the world to access

any reporting

basically for free pretty easily and so

then whoever has the best reporting in

the world on global or national stories

of course sort of gets all of the

traffic and everyone in the middle is

stuck so this obviously has an enormous

cost associated with it you know you

need to

basically hire all the best reporters

you need to have the most reporters you

need to build out

i mean massive technology investments

the new york times is truly a technology

company at this point so super high

fixed costs so you got to believe that

you're actually going to be able to

operate at that global scale to

justify all of these fixed costs

so

the point here is sure you can niche

down sure you can scale up but you

really don't want to get caught in the

middle now on the media side

it's kind of funny you've got these tiny

little businesses like acquired strategy

our good friends at colossus

the internet while being extremely

punishing to the middle

also enables these deep niches to form

it's sort of this interesting barbell

effect where if you keep your cross

structure low and you're super super

focused on a niche you can aggregate all

the people who are weird on the internet

about your niche in the entire world and

basically aggregate them together and

create community of people who like

three hour business technology podcasts

and i think like

it's important to realize that this may

not happen overnight for acquired it's

taken seven years for us to get to

quarter million subscribers but if

you're just like repeatedly

loud and specific about the value

proposition that you can bring to people

by following your media publication

people find their way you know time and

enough distribution and enough content

kind of does its thing so i i always

sort of focus back on

i'm glad that we didn't decide to be

you know a mid-scale media company that

it's really like all right

it's it's you and i and some microphones

and the new york times can have that

market

so a couple other points here i don't

think this is unique to media i think

media was the first to experience this

sort of squishing in the middle but it's

gonna happen to everything

the internet

is still rippling out in all of its

effects i mean you can see it in venture

capital for sure you've got big funds

like sequoia and andreessen that get

massive and then niche funds especially

for the early stage emerge and there's

great opportunities for small funds who

are very focused those caught in the

middle are in a tough spot and they're

super undifferentiated and you can

imagine this happening with universities

harvard and stanford brands are going to

be just fine like those will continue to

probably grow in value as they're able

to address more and more people using

the internet obviously that happens

slowly cause no one wants to devalue

their brand but as that becomes more and

more widely accepted i think those

brands will just continue to get more

powerful

you could imagine this happening in a

bunch of other industries too besides

just

media capital education

so as a final little illustration at

this point uh i just want to pull up a

couple of uh of market cap slides so in

1997 there were three companies in the

uh uh top 10 in the world that were

technology companies today it's eight of

the top ten what happened between then

and now well the internet penetrated the

whole world and

obviously the returns to scale got

massively concentrated here where you

can see that uh

the the most value companies in the

world not only are they technology

internet companies they're much more

valuable than they were before so

there's this sort of counterintuitive

thing that the internet was a

decentralized network it started as

servers at universities and then somehow

it massively concentrated the returns to

scale for the platforms that underlie

everything that we do all day every day

and on the flip side it also enabled the

viability of the long tail it's not you

know that we have 30 mid-size retailers

in the us anymore the way that we used

to not at all there's amazon and then

there's how many merchants are there on

shopify now we've got something like 2

million shopify merchants and over 30

million amazon sellers

the platformification that the the

internet sort of brought really enabled

viability of the long tail at the same

time

all right and for our final sponsor of

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all right coming down the home stretch

staying on the media theme so we did

this episode on oprah uh two years ago

now and uh in harpo studios and it was

so great and um

what uh our big takeaway from that was a

line that was said to oprah right as she

was starting her own show and made a

momentous business decision which was

don't be talent own the business

and uh the sort of way that i like to

think about this is if you want to be a

millionaire in the media business

you should work really really hard you

should own your craft you should become

must-see content

totally unique the opposite of a

commodity you should be steph curry

leonardo dicaprio you know what have you

if you want to be a billionaire in the

media business you should do all of

those things and you should never ever

ever ever give away the rights to your

content

or sell the rights to your content uh

and that's that's what oprah did we also

told the taylor swift story earlier this

year you know taylor started as just

another country music artist and then

just another pop artist

and and then in the past few years she's

completely changed the whole structure

of the industry by

figuring out ways to get back the rights

to her original music which is an

incredible story

and this is fairly unique

for media right like for content it's

this is easier to do than if you were

say a basketball player yes yeah it's

it's hard for athletes to do this at

least in their sports like athletes can

own their personal brand and they can

leverage that into building something on

the side but the thing that they do

they're playing within someone else's

game the interesting thing about content

is you can always just make it your own

game because the internet enables this

one

that's the last you know cool thing

about this which is that thanks to sub

stack podcasting youtube tick tock

instagram it's never been easier you

don't need nbc you don't need universal

music group in fact they might hold you

back

anybody can publish anything on the

internet

all right this one is reasonably

self-explanatory but it's another bezos

ism and so i want to bring up in the

very first shareholder letter in 1997

he wrote

because of our emphasis on the long term

and people probably might know how to

recite this by heart at this point

we may make decisions and weigh

trade-offs differently than some

companies we will focus on growth with

an emphasis on long-term profitability

and capital management at this stage we

choose to prioritize growth because we

believe that scale is central to

achieving the potential of our business

model

this is absolutely bezos's way of

basically saying if you're not on my bus

get off because this is what we're doing

they stayed true to their word for 20

years without turning a profit as we

talked about earlier you could argue

they still wouldn't be profitable today

if it weren't for aws

they've reinvested every dollar of the

retail business for two decades there is

zero chance that they would have been

able to execute the strategy that they

did if it weren't for their ability to

be loud and proud about their intentions

and as we sort of drift toward the the

close here uh i'll be a little bit

less bashful about acquired specific

examples i've wanted to highlight other

businesses but this one's sort of too

close to home

we're obsessed with this idea of

treating our audience like they're smart

and this wasn't the fastest path to

growth because i think we could have

listened to what everyone told us

podcast episodes need to be a half hour

podcast episodes you know need to drop

every single week so you keep this

content cadence but we wanted to be

weird on the internet about something

and we wanted to basically be unabashed

about it and so i'd say that the people

that we get to interact with now and in

the community and all the folks that we

met here who mentioned oh i've listened

to the show

we ended up with exactly the listeners

that we wanted and the people that we

want to spend time with because

is a long game to play if you're saying

if you don't want to be on the bus with

us that is fine please get off as soon

as possible

indeed which is the perfect lead-in to

our final

lesson from seven years i've acquired uh

speaking of getting on the bus we all

need to do that to go to

the party uh

and what are we gonna do at the party

we're gonna have fun and that is what

this is all about if you can find

something that you can do with your

business with your life where you have

genuinely have fun doing it and for

other people who do the same thing it's

work you are going to run farther and

longer and faster and better than

everybody else and there's actually

another takeaway to this so we put the

uh an image of us and our our friends

packy mccormick and mario gabrielli at

her at our arena show the other week up

here uh it was just such a blast this

whole thing this whole journey it's been

so fun um but one you're gonna work

harder than people for whom this is work

uh and bill gurley makes this great

point in his running down the dream talk

which we've talked about on acquired

everybody should go watch that on

youtube but the other point is that

it's so much easier to evangelize and

grow and market and have people

attracted to whatever it is you're doing

if you genuinely have joy in doing it

and

joy is not something you can really fake

so

that's our biggest lesson we we have had

such a blast during these past seven

years we've gotten to meet amazing folks

like patrick and brent whole capital

camp team and

we're just so thankful

all right listeners hope you enjoyed our

talk from capital camp please let us

know your feedback acquired.fm

slack would love to hang out with you in

there and here are some of your favorite

themes from all the playbooks over

200-ish episodes i actually didn't count

exactly but it's a lot i didn't either i

think it's well over 200 when you

include all the lp episodes yeah it's

250 with those ah wow so we definitely

skipped a lot i had 18 and david maybe

trim it down to 12. so i'm curious if

some of the ones that we didn't talk

about are ones that uh that you want to

bring up i originally wanted 10 and ben

was

fought too hard that i gave him two

extras yes well thank you so much for

being with us uh this season and on

these special episodes it's been an

awesome six months we're super pumped

for the next six months we have some

great stuff planned with that our thank

you to the solana foundation

to mystery and to modern treasury and

we'll see you next time

see you next time who got the truth

is it you is it you is it you who got

the truth now huh

[Music]

you