The Exchanges

Q company, regardless of industry has to think about, which is essentially what to proactively invest in and what to proactively opt out of, which killing things as we call it in the media, media business is a pretty hard thing to do. How do you think about that? And how do you tease apart the signal from the noise when you get a lot of inputs, both internally and externally?

A So we do currently in two levels. One is from an overall portfolio standpoint. Um, we've made the decision to really focus as a medicines company powered by advanced therapy platforms and data science. So in order to really make that happen, we transacted, uh, in 2018, uh, around fifty billion dollars of deals to really change the shape of the company. Uh, we took principle decisions to leave consumer healthcare cause we just didn't believe we would be a longterm leader in consumer healthcare. A decision to spin our Alcon business, which is to get out of medical devices and contact lenses. And alongside that, as we moved out of those other areas, we made significant investments of acquisitions in this next wave of therapy, cell therapy, gene therapy, in an area called radio drug conjugates, which is a nuclear medicine kind of, kind of area. So that was at one level, at the portfolio level, changing a Plus your trajectory to actually become a very diversified company. It really came out of a conviction in my mind that science is moving so fast. You have to focus your capital and really focus your energies. That's at the macro level. Now, when you, when you zoom into innovative medicines and we have to decide, okay, which therapeutic area do we stay in cardiovascular disease, or do we stay in ophthalmology? I mean, those are, those are pretty tough decisions because if you take d…

AI assessment note: “we took principle decisions to leave consumer healthcare cause we just didn't believe”

Q Can you give me just a concrete example of how that plays out with like a real disease?

A So there's a couple of really nice examples now with RNA interference. So one that, that, uh, our company is working on is RNA interference to impact a, a factor that's really a big part of heart disease. It's called LP little a. LP little a is, is actually, you know, thought to be one of the remaining risk factors for heart disease that have not been addressed. You know, cholesterol, everybody's of course addressed cholesterol extremely well, triglycerides. LP little a is another factor, but there's no, no, never been a medicine against it. And it turns out it's really hard to drug LP, LP little a. And so the only way to really target it turns out to be using RNA based therapies. These RNA based therapies, um, are, are able to block the production of, of the gene, uh, translation of the gene into, um, into the protein and then actually reduce the LP little a in the blood. And so this is one example of how we're trying to take this into an area where, where otherwise you wouldn't necessarily have a therapeutic against something that could have a big impact for patients with, With prior heart conditions.

AI assessment note: “our company is working on is RNA interference to impact a, a factor”

Q made this argument that it takes 10 years to build up a base, even longer, 2030 years, and yet you're also acquiring the expertise for the very new cutting edge things, which almost makes it seem like you don't seem like you don't have to even bother building up that base. Why not just acquire it? So how do you sort of navigate the build versus buy part of this?

A I think when you want to enter very new areas, um, sometimes it's prudent to ask yourself, does somebody, somebody have this much more figured out than you do? So if you take the example of gene therapy, we acquired a company called Avexis, though, really, I think the front leading edge gene therapy company. Now the scientists at Avexis, um, you know, they've been working at this actually in their academic labs for, for 25 years. I mean, they've been working on trying to hone How to use AAV vectors to get to the neuromuscular system of children to address, to address these issues. They had actually figured out the manufacturing. They built the manufacturing site. We were working on it on gene therapies ourselves in house. But when we looked at that, we said, this is an opportunity to really accelerate what we're doing. And so it made sense, I think, to, to, to go, um, to go external. There's always that balance. You know, we are a company that's very focused internally on research. We consistently invest at the high end on internal R and D simply because we believe that's the heart of the company. But what I'm trying to keep asking our people is if there's somebody out there who's got it better than us, let's just, let's just go get that and then we'll build off of it.

AI assessment note: “if there's somebody out there who's got it better than us, let's just, let's just go get that”

Q company, regardless of industry has to think about, which is essentially what to proactively invest in and what to proactively opt out of, which killing things as we call it in the media, media business is a pretty hard thing to do. How do you think about that? And how do you tease apart the signal from the noise when you get a lot of inputs, both internally and externally?

A So we do currently in two levels. One is from an overall portfolio standpoint. Um, we've made the decision to really focus as a medicines company powered by advanced therapy platforms and data science. So in order to really make that happen, we transacted, uh, in 2018, uh, around fifty billion dollars of deals to really change the shape of the company. Uh, we took principle decisions to leave consumer healthcare cause we just didn't believe we would be a longterm leader in consumer healthcare. A decision to spin our Alcon business, which is to get out of medical devices and contact lenses. And alongside that, as we moved out of those other areas, we made significant investments of acquisitions in this next wave of therapy, cell therapy, gene therapy, in an area called radio drug conjugates, which is a nuclear medicine kind of, kind of area. So that was at one level, at the portfolio level, changing a Plus your trajectory to actually become a very diversified company. It really came out of a conviction in my mind that science is moving so fast. You have to focus your capital and really focus your energies. That's at the macro level. Now, when you, when you zoom into innovative medicines and we have to decide, okay, which therapeutic area do we stay in cardiovascular disease, or do we stay in ophthalmology? I mean, those are, those are pretty tough decisions because if you take d…

AI assessment note: “So we do currently in two levels. One is from an overall portfolio standpoint.”

Q On that note, I do find it ironic. A big part of your business is still generics. So, I mean, what is that but a me too drug? Like, how does that fit into this big picture? Yeah.

A So, uh, you know, if you look overall at Novartis generics, you know, from a sales standpoint and value standpoint, um, is, is a small portion of the company, but you look at a volume standpoint, it's the biggest part of access. And so really what, what a generics, uh, our generics business does is take when medicines go off patent, you know, we then produce them at scale. I mean, we were the largest producer, for example, of penicillins in the world. I mean, so we, we have a huge role to play in providing access to medicines around the world. I mean, right now Novartis reaches about a billion patients a year, um, through, through our work, and a lot of that is through our Sandoz generics unit.

AI assessment note: “from a sales standpoint... small portion... volume standpoint, it's the biggest part of access”

Q made this argument that it takes 10 years to build up a base, even longer, 2030 years, and yet you're also acquiring the expertise for the very new cutting edge things, which almost makes it seem like you don't seem like you don't have to even bother building up that base. Why not just acquire it? So how do you sort of navigate the build versus buy part of this?

A I think when you want to enter very new areas, um, sometimes it's prudent to ask yourself, does somebody, somebody have this much more figured out than you do? So if you take the example of gene therapy, we acquired a company called Avexis, though, really, I think the front leading edge gene therapy company. Now the scientists at Avexis, um, you know, they've been working at this actually in their academic labs for, for 25 years. I mean, they've been working on trying to hone How to use AAV vectors to get to the neuromuscular system of children to address, to address these issues. They had actually figured out the manufacturing. They built the manufacturing site. We were working on it on gene therapies ourselves in house. But when we looked at that, we said, this is an opportunity to really accelerate what we're doing. And so it made sense, I think, to, to, to go, um, to go external. There's always that balance. You know, we are a company that's very focused internally on research. We consistently invest at the high end on internal R and D simply because we believe that's the heart of the company. But what I'm trying to keep asking our people is if there's somebody out there who's got it better than us, let's just, let's just go get that and then we'll build off of it.

AI assessment note: “if there's somebody out there who's got it better than us, let's just, let's just go get that”

Q Can you give me just a concrete example of how that plays out with like a real disease?

A So there's a couple of really nice examples now with RNA interference. So one that, that, uh, our company is working on is RNA interference to impact a, a factor that's really a big part of heart disease. It's called LP little a. LP little a is, is actually, you know, thought to be one of the remaining risk factors for heart disease that have not been addressed. You know, cholesterol, everybody's of course addressed cholesterol extremely well, triglycerides. LP little a is another factor, but there's no, no, never been a medicine against it. And it turns out it's really hard to drug LP, LP little a. And so the only way to really target it turns out to be using RNA based therapies. These RNA based therapies, um, are, are able to block the production of, of the gene, uh, translation of the gene into, um, into the protein and then actually reduce the LP little a in the blood. And so this is one example of how we're trying to take this into an area where, where otherwise you wouldn't necessarily have a therapeutic against something that could have a big impact for patients with, With prior heart conditions.

AI assessment note: “RNA interference to impact a, a factor that's really a big part of heart disease.”

Q to any investor or potential investor and may not be used to evaluate or make any investment. CNK is not seeking investors. For more details, please also see asynccrypto.com slash disclosures. Thank you guys. So I think the burning question that we're all left with here is what can we do with crypto right now from your vantage point, like today? Can people walk out and do something with this?

A So it's important to note that I think still 90% of what people are doing with crypto is investment or speculation, and that's great as an initial way to get people's interest into crypto, but it's more interesting to think about, you know, the utility phase, which is this 10%, and A few examples that I like to talk about, one of them, which is Augur, right, this global prediction marketplace where people are trying to get the wisdom of the crowds to come together and tell you what's going to happen with weather or elections, and that's a really cool thing that wasn't possible before. The second one is these emerging markets where people in Venezuela, where they can't buy goods or have a stable currency, or they want to leave the country, and the guards at the border are confiscating their wealth.

AI assessment note: “utility phase, which is this 10%, and A few examples that I like to talk about”

Q And there's a lot of people that have come out of Coinbase doing really interesting things. And every classic company has a way. There's the Intel way that Andy Grove wrote about. There's the Toyota way. What is the Coinbase way? How does your container of tribalism, or whatever you're working towards, organize to build something that people can actually use?

A Well, in addition to just being really mission focused, which I mentioned already, And also being a fintech company, meaning, you know, we're about 37% engineers, we have a strong legal and compliance component, you kind of have to marry those things. I would say there's four things which really define the Coinbase way and the Coinbase culture. So, the first one is clear communications. We look for people who are concise, candid, kind, good listeners, just convey information really effectively to help us get work done. The second thing we look for is positive energy, and that's our way of saying, Optimism about the future, determination to get there, intrinsic motivation, and, you know, there's gonna be a lot of setbacks on the way to creating an open financial system for the world. I mean, you're basically trying to reinvent the economy of the entire world, and so it takes a lot of, every setback is an opportunity to, like, come back with optimism. The third one is continuous learning, and this is something I've been really passionate about is, you know, I've had an executive coach throughout being a CEO. We have lots of opportunities for people to learn. We put them in stretch roles. We're really big on two-way feedback, I try to create these environments of really high trust where a team can not be afraid to surface what they're really thinking, and, you know, we'll go aroun…

AI assessment note: “I would say there's four things which really define the Coinbase way”

Q volatility is actually one of the big topics that comes up in the headlines all the time, and most recently, I think it was, like, an 80% price drop or something very significant, and the headlines are screaming, crypto is dead. You know, and of course we've all seen headlines of the web is dead, email is dead, et cetera, before, but how do we get around this volatility issue?

A So it's funny, volatility is actually a feature if you want to be an investor, but it's a bug if you want to just have a medium of exchange. So crypto kind of now has the best of both worlds. There are some coins that are still going to be quite volatile, but there's this new category of coins coming out called stable coins. You heard about one of them earlier today, DAI, which I think is a really important innovation. There's others that are a little bit, you know, we call it tech light audit heavy, which is a simple idea that you just keep a dollar in a bank account, and you make a one-to-one representation of it. So Coinbase recently became a member of a consortium of companies in the crypto space that have a stablecoin project. But there's a number of stablecoins out there, and I do think that's an important part to not only solve the volatility issue with crypto, but it's also this programmable dollar that can be a part of these smart contracts, like One thing that's important in all contracts is that you need the settlement amount to be in something relatively stable, so now that can be built into the Ethereum world computer.

AI assessment note: “there's this new category of coins coming out called stable coins.”

Q shift now into talking about not just where we are today, but how to get where we want to go. And besides volatility, which you guys mentioned, need for education, community building, you know, more Education around misconceptions, et cetera. What are some other key missing pieces of infrastructure or features that really need to be built out to make crypto a reality in the vision we're describing here today?

A Yeah, I mean, so I, I usually break it down into, there's this investment phase of crypto, then the utility phase, and, and we'll get to an open financial system, which I kind of define as, there's a billion people using the open financial system on a daily basis, and, you know, I think that could be done in five years, like, without a lot of hard work, it could be 10 years, 20 years. But, you know, in the investment phase, we've started, but there's still a long way to go, and the investment phase, to me, is just making it easy for people all over the world to get fiat currency into crypto, being that bridge, if you will, So we're in 33 countries today, and we need to be in about a hundred countries, and get the long tail of payment methods set up, and all over the world where people can just easily get fiat into crypto. That's like retail people. Then institutions are starting to come into this space in a big way, and you know, 90% of the capital out there is actually in institutions, so there's a whole bunch of work that needs to go into making that happen. You know, we launched a qualified custodian under the SEC rules, There's, you know, derivatives, there's SEC-licensed exchanges that need to happen, there's broker-dealer stuff, and a lot of that is just US-focused, but of course, there's a whole broad world out there. So a lot of that you could think of as the investment…

AI assessment note: “making it easy for people all over the world to get fiat currency into crypto”

Q I mean, your whole book is about leadership lessons. What was, like, the biggest leadership lesson in that moment?

A Well, for me, it was, if you have a crisis and you've got to take a tough step, do it quickly, get it over with, and move through. Reset the clock so you can Then charge ahead. And that turned out when the financial crisis hit, you know, Stanford lost billions of dollars of its endowment. About 28% of the endowment vaporized in a six-month period. So there was no way we could continue to spend money the way we were. We were gonna have to go through that process again. I realized, you know, that's gonna lead to five or 10 years worth of small budget cuts that are gonna not be very efficient, and we're gonna not be able to do anything new. So we sat down and said we need to do this quick.

AI assessment note: “if you have a crisis and you've got to take a tough step, do it quickly”

Q scale. So this has been great. We've been talking about decision-making and how it plays out, you know, in crypto and creative innovation, and also then even in personal lives like Darwin or even novels and literature like Middlemarch. But what are some concrete takeaways or advice, not just for how to think about decision-making and being farsighted, but for what both people and companies, big or small, could do?

A So for instance, one of my favorite kind of tricks in the, in the book is this thing that, um, Gary Klein came up with, which is a technique also to deal with kind of the dangers of groupthink and making a, you know, let's say a work decision where you've got your team and you've decided we are going to launch this project, this product, and we're all really excited about it, and so he created this kind of technique which he calls a pre-mortem, and I love this idea. So post-mortem, obviously, the patient is dead. You're trying to figure out what caused the patient's death. A pre-mortem is this idea Is going to die a spectacularly horrible death in the future. Tell the story of how that death happened, right? In five years, this will turn out to have been a bad decision. Tell us why. And that exercise, again, it's like scenario planning. It's a kind of negative scenario planning. Even if it ends up not being true, the exercise of forcing your brain to come up with a story.

AI assessment note: “one of my favorite kind of tricks in the, in the book”

Q So what are some of the things that people can then do to move those users up that ladder of engagement?

A Step one is It's really segmenting your users into this kind of engagement map. Oftentimes you'll see this visualized as a kind of state machine where you have folks that are new, you have folks that are casual, and you want to track how much they're moving up or down in each one of these steps. And then once you have that, then the question is, okay, well, great. How do you actually get them to move from one place to the other? First, there's like content and education. They need to know kind of like in context that they can actually do something. So for example, if you can get your users to set their home and work, For transportation product, then you can maybe, like, figure out, you know, okay, should I prompt them in the morning to try their ride based on what the ETAs are, right?

AI assessment note: “First, there's like content and education. They need to know kind of like in context”

Q Right. It's like counting impressions and being able to sell that to advertisers, right?

A Exactly. Their products have historically been 60% plus daily actives over monthly actives, and that's very high. You know, you're using it, um, more than half the days in a month. On the flip side, what I was talking about in my essay about this is that DaoMao can tell you if something's really high frequency and if it's It's working. But a lot of times products are actually lower down now for very good reason, because they're sort of just a natural cadence, you know, to the product. Like you're not going to get somebody who is using a travel product to use it more than a couple times per year. And yet there are many valuable travel companies, obviously.

AI assessment note: “Exactly. Their products have historically been 60% plus daily actives over monthly actives”

Q to get different Do you take your existing users? One of the things that we covered very early on is that with SAS, you always want to try to take existing users and upsell them because it's way more expensive to acquire a new customer in that context. I mean, of course you want to grow your customers. How does this play out in this context? Like what happens next?

A A lot of companies, it's a progression. So almost all the early activity in a company is, okay, how do I get the users? As you get users, you get more and more leverage from efforts at activation and retention and engagement. Use Pinterest as an example again. A very high percentage of women in America have downloaded Pinterest. Then the leverage quickly goes into, okay, how do I keep them engaged, reactivates the one who disappears, and you know, their acquisition efforts in the U.S. get de-emphasized, and all the leverage is there, except as they're going international, they're still in that acquisition part of the curve. And so I think the leverage changes over time based on the situation of the company. Facebook Hasn't had any users in the U.S. forever because they have them all.

AI assessment note: “A lot of companies, it's a progression. So almost all the early activity in a company”

Q You guys have talked a lot about organic. It makes it sound to me as a lay person that you don't want paid marketing. What's your views on this? Like, is it a bad thing? Is it a good thing? I don't mean to moralize it, but help me unpack more. Where it's helpful and where it's not. Are there any rules of thumb to use there?

A I mean, there have been a lot of great businesses that have leveraged paid marketing. I mean, the OTA sites, the online travel agency, Priceline and Expedia just spends, you know, they spend the GDP of many large countries in the acquisition. And then it's often a tactic in some good businesses, but if it's your primary engine, a couple of things happen. One is the acquisition economics tended to grade over time for the reasons we're saying, and it leaves you wide open to competition. If you need to buy users, I mean, if you're selling, you know, the new breed of mattress, and you need to buy users, and early on, you're the only person competing for that word. Flash forward a year or two, they're like six new age mash manufacturers with virtually identical products competing for the same consumer. The economics are not going to persist over time. And so, you know, one of the key questions in businesses driven by heavy user acquisition is, kind of, how does the play end? You know, it usually looks pretty good at the beginning of the play, but in the middle, it starts getting a little complex and then there's tragedies at the end.

AI assessment note: “if it's your primary engine, a couple of things happen. One is the acquisition economics”

Q You guys have talked a lot about organic. It makes it sound to me as a lay person that you don't want paid marketing. What's your views on this? Like, is it a bad thing? Is it a good thing? I don't mean to moralize it, but help me unpack more. Where it's helpful and where it's not. Are there any rules of thumb to use there?

A I mean, there have been a lot of great businesses that have leveraged paid marketing. I mean, the OTA sites, the online travel agency, Priceline and Expedia just spends, you know, they spend the GDP of many large countries in the acquisition. And then it's often a tactic in some good businesses, but if it's your primary engine, a couple of things happen. One is the acquisition economics tended to grade over time for the reasons we're saying, and it leaves you wide open to competition. If you need to buy users, I mean, if you're selling, you know, the new breed of mattress, and you need to buy users, and early on, you're the only person competing for that word. Flash forward a year or two, they're like six new age mash manufacturers with virtually identical products competing for the same consumer. The economics are not going to persist over time. And so, you know, one of the key questions in businesses driven by heavy user acquisition is, kind of, how does the play end? You know, it usually looks pretty good at the beginning of the play, but in the middle, it starts getting a little complex and then there's tragedies at the end.

AI assessment note: “it's often a tactic in some good businesses, but if it's your primary engine”

Q To be fair, and this is another definition we should tease apart really quickly before we move on to more metrics, that also had the quality of network effects, which we've talked a lot about in terms of these things growing more valuable the more people that use it. Is that growth? What's the difference there?

A Well, the business grew into the network effect. The key tactic to build the network effect was that free acquisition of consumers, that the more restaurants we had, the more attractive it was to consumers, the more consumers who The more attractive it was to restaurants. So there is a wicked network effect. If you're not spending anything on paid acquisition of consumers, how do you start it? And the placements that open table got in the restaurant, both physically in the restaurant, but particularly on the restaurant's website was the key engine that got the network effect started. You had to manually sell some restaurants, come for the tools, stay for the network. But then once the consumers got Enough of a selection and started to use it. It was game over.

AI assessment note: “Well, the business grew into the network effect.”

Q the very minimum share with us the taxonomy for what we're looking at here? Because I hear this list of names and I'm just like, it's like alphabet soup, you know, it's, I don't know what's going on. So like, how would you break it down at a super high level? What's the big thing to know for where each of these are at and how they might be involved?

A Well, so just taking treasury, I mean, FinCEN, the Financial Crimes Enforcement Network, They're trying to assure the integrity of the financial system against nefarious actors. That's their broadly stated mission. So monitoring the financial systems like banks and all other kind of financial services companies for suspicious activity. OFAC, the Office of Foreign Assets Control, you know, the United States maintains a list of people and countries or nation states that is sanctioned, and so OFAC makes sure that transactions aren't going on in the financial services realm with those countries or individuals I'm sure you all unfortunately know what the IRS is, but yet very important of what the IRS is going to do with cryptocurrency. I mean, really, it's quite hard for people who have cryptocurrency gains to figure out what is the right thing? What are they supposed to do? The OCC, Robin just alluded to the fact that you need 50 different money transmission licenses to do business as a cryptocurrency exchange in those states. OCC is trying to come up with a federal fintech charter. So that only one license would be needed. So far, that hasn't gone anywhere. Do you want to cover any others?

AI assessment note: “just taking treasury, I mean, FinCEN... OFAC... IRS... The OCC”

Q I'm an entrepreneur and I hear that, I think it's great because I'm like, great, they're thinking about it, they're really exploring it, but I'm kind of impatient to build something. What would your advice be for someone trying to come into the space who wants to build something? Should they wait where there's a gray area? How should they kind of approach it? What's your big takeaway on that?

A Well, I don't think they should wait, but I think they should have common sense and good judgment, and one of the red flags I see sometimes is, you know, and they'll publicly state, oh, we're moving offshore so that we don't have to comply with these laws that we can't figure out, but then they're going to serve U.S. customers anyway, and you know, the kind of problem with that approach is that extraterritorial jurisdiction, most countries have it, not just the U.S., so if you're servicing Hundreds of thousands of U.S. consumers. The fact that you relocate is not going to save you from having to comply with these laws. At the same time, I think that, you know, there is a real question of there is gray area. Look, I think you have to use your best efforts to be informed about what laws might apply to you and how they might apply to you, and be able to demonstrate how you used your best efforts to comply with those laws. If, you know, for example, you find out that the Bank Secrecy Act requires you to have a compliance program, Do your best to create your best compliance program you can. It doesn't have to be perfect, but you can't just say, well, I didn't know what that would look like, so we didn't do one at all. Just try, and I think that those cases where people are demonstrating best efforts are not going to be the vehicles that the government regulators are going to want to…

AI assessment note: “Well, I don't think they should wait, but I think they should have common sense”

Q I'm an entrepreneur and I hear that, I think it's great because I'm like, great, they're thinking about it, they're really exploring it, but I'm kind of impatient to build something. What would your advice be for someone trying to come into the space who wants to build something? Should they wait where there's a gray area? How should they kind of approach it? What's your big takeaway on that?

A Well, I don't think they should wait, but I think they should have common sense and good judgment, and one of the red flags I see sometimes is, you know, and they'll publicly state, oh, we're moving offshore so that we don't have to comply with these laws that we can't figure out, but then they're going to serve U.S. customers anyway, and you know, the kind of problem with that approach is that extraterritorial jurisdiction, most countries have it, not just the U.S., so if you're servicing Hundreds of thousands of U.S. consumers. The fact that you relocate is not going to save you from having to comply with these laws. At the same time, I think that, you know, there is a real question of there is gray area. Look, I think you have to use your best efforts to be informed about what laws might apply to you and how they might apply to you, and be able to demonstrate how you used your best efforts to comply with those laws. If, you know, for example, you find out that the Bank Secrecy Act requires you to have a compliance program, Do your best to create your best compliance program you can. It doesn't have to be perfect, but you can't just say, well, I didn't know what that would look like, so we didn't do one at all. Just try, and I think that those cases where people are demonstrating best efforts are not going to be the vehicles that the government regulators are going to want to…

AI assessment note: “Well, I don't think they should wait, but I think they should have common sense”

Q Let me just pause on that for a minute. Why is that dangerous?

A I'll give you an example. There's a company called Yodaly. It's been around for about 20 years. It's a, it's a key part of the ecosystem for every fintech company that goes and gets data from banks. So if you ever go to E-Trade and it says, hey, log into your whatever Bank of America account to transfer funds, that's going through Yodely. If you ever signed up for Mint, uh, when Mint came out, that was going through Yodely. Now it turns out they, they get all of that information in aggregate, and they have a different business model, which is they sell anonymized aggregated information that they're collecting from everybody that is all of the businesses that are working with Yodely If they do that too aggressively, it puts them at odds with their main core business, if that makes sense. So you have to be careful when we looked at this as trial pay. The first time that we tried this, we're like, I know we're going to email a million people that went through trial pay yesterday and say, here's another product that you might be interested in, but that other product might've been at odds with WinZip. So we didn't have free reign over those consumers without being not parasitic because we wanted to be a symbiote with our, our middle B. And you can go from being a symbiote to a, to a parasite or even a, an antagonist. If you start doing things that are competitive with what they're d…

AI assessment note: “You can go from being a symbiote to a, to a parasite or even a, an antagonist.”

Q to find product market fit. Maybe you've already found product market fit. You need optionality, don't you? How do you then find it? Cause the tension it sounds like is that some startups are taking this approach where they have essentially not just two products, but two different classes of products that have associated different classes of sales organizations and structures internally for selling them. So what are the trade-offs?

A Yeah, well, I think it's highly inadvisable to have multiple products in a startup because in my experience, having now run organizations with multiple products, you basically have two companies. If you end up selling to two different people, if you're selling to the same person, same type of budget in the organization, yes, you can have multiple products. That's pretty common. But if you end up having two products that have two different constituencies, you have to have two product marketing teams. Um, You tend to have different sales cycles. You have different support models. You have, um, different PS professional services models, and then often the feature requirements are different. So you basically have two independent companies. Um, and so that's highly inadvisable. I, I, I think that the right model, at least in the enterprise, you iterate on one product, product director fit, and you can pivot and you can add features and so forth until you get that one right. And once you have access to the customer, then you introduce another one, you know, when you want to grow the biggest Jump in operational complexity. A startup will ever do is when it goes from one product to two products. So if you do introduce a second product, which of course you will, if you can align it with the same constituency, the same buyer, that's the best. I'd be very thoughtful before doing that. A n…

AI assessment note: “I think it's highly inadvisable to have multiple products in a startup”

Q So speaking of it being a different game, you know, we have a lot of entrepreneurs that listen to our podcast. How does it change the game? Because people always use the phrase game changing very freely.

A Well, first of all, entrepreneurs in Silicon Valley are really smart. And they didn't exactly get all these ideas from me. I'm not being modest, I'm just being realistic. When I brought out this theory, it kind of corroborated their intuition. So, what I'd say is if you are thinking in standard terms, go back to brewing beer or a company like General Foods, if you want to make profits, you're thinking of getting production, Up and running properly, getting your costs down, making sure everything's terribly efficient. The game was different in tech. The whole game was to try to, early on, grab as much advantage as you could, and I remember that I wrote a paper on this, the Harvard Business Review, in 1996, and as that paper got circulated very widely in Silicon Valley, I remember hearing one story that Sun Microsystems had developed Java, and naturally that cost a huge amount of money, so the guys with the green shades, the accountants, were saying, naturally enough, we should charge a huge amount of money for anybody who buys this, and the other people who had read this theory said, no, no, no, no, no, give it away, give it away, give it away for free, and there was a tremendous Hullabaloo over this, and finally somebody took my article and just slammed it in Scott McNeely's desk, and it was game over. He got the point immediately that what you do in an increasing returns marke…

AI assessment note: “what you do in an increasing returns market is you try to build up your user base”

Q I mean, I would agree, but is that the big transformation now, that we have the modern tech equivalent of the printing press?

A What's gone external now is not information, what's gone external is intelligence. I may be driving in a convoy of 50 driverless cars, And the whole idea of the car adjusting, the car is talking to roadside sensors and servers, it's talking to other cars, it's talking to the highway patrol servers and so on, and it's basically farming out its intelligence into this other economy, and then getting back intelligent actions in return. So it's a bit like phone a friend, Only the friend is incredibly smart, and the friend consists of, again, these hundreds of thousands of servers talking to each other and then adjusting what you do. So suddenly intelligence doesn't just exist on human beings. Suddenly intelligence exists in the cloud or in this autonomous economy, and we can format not just getting information, But getting smart moves back, and this is making all the difference.

AI assessment note: “What's gone external now is not information, what's gone external is intelligence.”

Q So if you can't measure lines of code, what can you measure? Because I really want an answer, like how do you measure productivity?

A So velocity is the other classic example. Agile, there's this concept of velocity, which is the number of story points a team manages to complete In an iteration. So before the start of an iteration, in many Agile, particularly Scrum-based processes, you've got all this work to do. You're like, we need to build these five features. How long will this feature take? And the developers fight over it, and they're like, oh, it's five points. And then this one's going to take three points, this one's going to take two points. And so you have a list of all these features, and you don't get through all of them, but at the end of the iteration, the customer signs off, well, I'm accepting this one, this one's fine, this one's fine, this one's a hot mess, go back and do it again, whatever. The number of points you complete in the iteration is the velocity.

AI assessment note: “velocity is the other classic example. Agile, there's this concept of velocity”

Q So if you can't measure lines of code, what can you measure? Because I really want an answer, like how do you measure productivity?

A So velocity is the other classic example. Agile, there's this concept of velocity, which is the number of story points a team manages to complete In an iteration. So before the start of an iteration, in many Agile, particularly Scrum-based processes, you've got all this work to do. You're like, we need to build these five features. How long will this feature take? And the developers fight over it, and they're like, oh, it's five points. And then this one's going to take three points, this one's going to take two points. And so you have a list of all these features, and you don't get through all of them, but at the end of the iteration, the customer signs off, well, I'm accepting this one, this one's fine, this one's fine, this one's a hot mess, go back and do it again, whatever. The number of points you complete in the iteration is the velocity.

AI assessment note: “velocity is the other classic example. Agile, there's this concept of velocity”

Q immigration, and other topics in this episode, but first we begin by quickly touching on his background and where he began since Arthur will be passing on the baton next summer at AEI after a decade leading it. How does one go from being a professional horn player to going to Rand, to getting the PhD in economics, to getting to the AEI? I'm sorry, in case university to AEI.

A Most people that are listening to us have some weird background. They've tried a bunch of different things, and that's the new America. When I was 19, I dropped out of college, you know, dropped out, kicked out, splitting hairs. And, uh, and I went on the road playing music. I played chamber music for a long time. I played a couple of years with a jazz guitar player named Charlie Bird, and I wound up in the Barcelona Symphony. When I was in Barcelona, I got completely interested in math, in statistics, in political science, and especially in economics, and so I started taking a lot of economics classes, and I found it was kind of like a crystal ball. I could describe so much of behavior. I mean, it's not perfect, but I found that it was sort of changing the way that I saw the world, and so I decided that's what I wanted to do, and I stopped being a musician, went back to school, finished my bachelor's and my master's and PhD, and Found when I was in academia that I could even go back to the think tank world and have a lot of impact in public policy, and that's why I wound up at AEI.

AI assessment note: “and that's why I wound up at AEI.”

Q as being visionaries. They might be the only one. So then how do you deal with that? Because you might have one internal champion, two, hell, you can even have 10. But how do they then get like everyone else on board, especially with enterprise software where there's integrations involved and multiple stakeholders? Tell me how you convert those other people or arm them to make the case for you.

A Well, that's where product marketing is just like the lifeblood of an enterprise software company. What is the box you're drawing for the customer to buy? How do you define the box? What's in the box? What's outside the box? That's product marketing. In doing that, you define your entire competitive landscape. And like deconstructing your secret sauce, how do you teach one, 10, a hundred salespeople how to sell what's unique about you? That's the sales enablement side of product marketing. So, you know, we're a little early at Usermind for this, but at Aptio, we, we took our first 20 customers, we got them into a customer advisory council, And we brought prospects into those meetings, and we had them all talk about what they were doing. And there's nothing more credible than big enterprises talking about in detail their use cases, their value, because now it's not you selling them, it's the customer selling them. So to me, you know, whether it's building a community, or it's case studies that you arm the field with, or it's reference calls, or it's, you know, business ROI calculators, your job is to basically take all that proof that comes out of your first 20 customers and turn it into materials and tools that you can teach the other sales reps how to use. Like you're not going to be able to scale your early success or scale how to sell or scale which persona to target without…

AI assessment note: “turn it into materials and tools that you can teach the other sales reps”