The Wisdom Wall

“And the key thing to make this strategy work is you actually want to over allocate on process and you want to weight outcome to almost zero because you're buying the outcomes that were in fact zero.”

“I very much believe this, and I think we all do as a firm, a blockchain without a cryptocurrency literally makes no sense, because there's no incentive for their participants to host the blockchain.”

“the battle between every startup and incumbent really comes down to this one thing, which is whether the incumbent gets innovation before the startup gets distribution.”

“I mean, Casper got to scale, but lots of CAC, lots of CAC, and that's why a lot of these business models, they tend to degrade over time, because all the economic value goes to Google and Facebook.”

“that's where the market just expands massively once you throw in labor, because it's like you have this tiny, tiny market for software, which by the way is not that tiny. It's like a trillion dollars. Um, concentrically around that, you have like, you know, big on financial transactions. That's even bigger. That's why…”

“So I kind of think the same rules apply, you know, the battle between every startup and incumbent comes down to whether the startup gets the distribution before the incumbent gets the innovation. But with many changes, one change is the incumbent can get the innovation much more quickly.”

“Category two is arguably the biggest, which is basically, it's not competing with the software market at all. Um, software is starting to eat labor. You're basically selling software that does the job of what people would do before. This is arguably a much, much bigger market.”

“the best companies have hostages, not customers.”

“What makes, it actually increases the peril for anybody who's built a software product that has an enormous margin pool. You know, your margin is my opportunity. Well, I can vibe code, I can vibe code against your opportunity. It has to be very, very sticky. It has to have some unique competitive advantage, and data is…”

“my view on, on everything that's happening in AI right now is it's one of these weird situations where it's very different than cloud, where Most on-prem software providers were like, cloud is stupid. Most potential customers were like, cloud is stupid. It's not safe. I don't trust it. I want to host things. Like you'd…”

“There is a strategy that we think is very interesting, which is instead of having a sales team, you buy one.”

“nobody can because it's so easy to actually produce software, and that's kind of the, that's the double-edged sword of AI, is that it's very, very easy to produce software. Um, everybody can go do something that is a very obvious idea, because it's obvious everybody's gonna go build it, But can you get to the type of…”

“And there are some companies that operate in this Goldilocks zone of irrelevance, like these janitorial services, where even if you have nine million competitors, Like, they're just not gonna go anywhere, which is why, like, a lot of the strategy that we talk about internally is Greenfield, right? It's like, those…”

“momentum has the highest chance of getting you to gravitational scale where you do have a moat. And if you don't do that, by contrast, you're just gonna get eaten alive.”

“the model company is the most cutthroat, because, like, unless you're, if you're state of the art minus, minus, minus, And you're trying to earn a living. It's just like that. That's just not going to work. So that game is super cutthroat.”

“there's the blockchain stuff that doesn't really make sense to me. Um, I'm a big, big fan of crypto, but it's like, crypto exists, like, if you're trading things that are purely in, uh, that are purely digital, works great. If you're, if you're saying, I'm going to represent something that's physical, where I need to…”

“there's some quantum, and I would call it 10%, where if you get 10% of all of the supply, You get 100% of the demand.”

“nothing has actually gotten that much more efficient, because the filing cabinets were read by humans, the digital records are read by humans, right?”

“And the reason why this is so important to understand is because the whole business model of software has to change. It has to change.”

“we're seeing a lot of companies doing this, they peruse Craigslist, they look for a job listing, and they're like, hey, Plazalane Optometry, I want to apply for the job. And, you know, the optometry's like, Okay, that sounds great. Tell me about your qualifications. Where did you work before? It's like, I know this…”

“it really is a unique industry where more customers is actually worse than less but more profitable customers because each incremental customer is like a coin flip of profit or loss.”

“So in many cases, it actually helps to have sub brands and divide this up, which is, is somewhat anathema to a lot of companies that want to say, how do we get as much efficiency and synergy as possible? We're going to have one overarching brand.”

“if you take nine weeks to make a decision and like, you know, we'll decide within a day or Sequoia or Benchmark or some other great venture capital firm, we'll decide within a day, like you're not going to get good deals if you take nine weeks.”

“You're never going to build a massive business if you go channel, kind of white label channel, because nobody knows who you are.”

“It's the battle between startup and incumbent is whether the startup gets the distribution before the incumbent gets the innovation.”

“battle between startup and incumbent comes down to whether the startup gets the distribution before the incumbent gets the innovation.”

“Well, the interesting thing there is that it's kind of a double moat that protects them, because not only do they have a network effect, but they also have this bizarre incentive where if a 2.5% fee is being charged to the merchant, well, the consumer is being bribed with maybe 1.5% of that. So actually higher fees…”

“the battle between every startup and incumbent is whether the startup gets the distribution before the incumbent gets the innovation. And normally the incumbent wins.”

“And in fact, the value of the number two person goes to zero. Because they actually have a demonstrably poor product, which is why there aren't really any competitors to eBay.”

“if you are an algorithm company, It's very, very hard to build any kind of value because somebody else comes up with a marginally better algorithm. So you need to pair the algorithm with the data.”

“if you can really show that you're charging 20, 30, 40% more than the competition, that's a, and they're actually willing to pay for it, and they're switching from a lower priced product, either they're totally irrational, they say, hey, I want to lose more money this year and increase my cost, which by the way, almost…”

“the battle between the incumbent and the startup comes down to whether the incumbent gets innovation before the startup gets distribution, and it's very, very hard.”

“It turns out the people that raise their hands that say, I want to get out of debt, and I want to do the right thing, I want to be honest, they're actually very, very reliable people. The signal there is actually quite good, because what you want to find is you want to find groups of consumers that, ah, at least at…”

“the buy side agent should be in charge of getting you, the buyer, a lower price. But the way that it works right now is the more money that you, the buyer, pay, the more money your agent gets compensated.”

“the people that were the least likely to be a channel partner were people that were growing quickly, which kind of makes sense because if you're growing a hundred percent year over year, why would you bother kind of like making a little bit of incremental revenue here and there? The key guys to go after ended up being…”

“you cannot change people's minds with data. It just doesn't work. You can change people's minds with data and time.”

“What a token can do, Is that when the network utility, or rather the application utility is low, um, so there are no hard drives to go store things on, on Filecoin, so why would I want to use Filecoin instead of Amazon S III? Well, I now see that Filecoin is worth a lot of money. I'm gonna go to Fry's Electronics. I'm…”

“generally speaking, um, even though we're in the business of backing startups and we want them to win, generally speaking, the victor tends to be the incumbent.”

“You don't want to get people that have a proclivity to die very quickly or get in car accidents very quickly, and those are the people that are most likely to want to get the brand new startup insurance product.”

“there are a lot of categories where there never was an incumbent software company because the only job to be done was, like, actual human labor. And that's really exciting because now you don't have to worry about, like, oh, shoot, these guys are gonna come in and eat my lunch.”

“So basically, every single filing cabinet became a database, and there were benefits to that, but it didn't actually make the world that much more efficient, because whereas before you would have a human go fetch you the HR file, For Eric. Like, oh, go to the HR filing cabinet. Get me that file. Now it's in Workday.…”

“And it basically means humans are kind of capable and willing to pay for incompetence. Like, it's like, a lot of pricing is about fairness. Like, it feels fair that I give that guy more money, even though he's completely incompetent, than his counterpart, who's super competent, where I'm so pissed that he overcharged…”

“when you look at Greenfield opportunities, you need two things to be true. You need the entrepreneur to be very, very patient and say, I'm not going to try to sell to everybody who's, if I'm, if I'm starting a net new payroll company, I'm not going to try to sell to GE because I recognize that they are, they are…”

“these companies, if they get their act together, they will marshal a lot of resources to go compete with you. It might take them five years, but they will 100% do it. You have to backfill your feature with a product, and you have to have a moat for that product as opposed to like, oh, yeah, like the big company will…”

“Now you're going to start hiring AI in all of these different areas that you just would never bother hiring a human for, because it's just like, you can't train the human, you can't find the human, and the human's too expensive.”

“sometimes it's very, very hard to sell products to people that eliminate their jobs.”

“I like to say, especially in financial services, with that high bar to having a relationship, uh, you should probably just buy Google stock or Facebook stock versus investing in most companies because, like, that's where all the money goes. It's like you, like, you raise an A round or a seed round. You're like, oh,…”

“And a big mistake that entrepreneurs often make is like, I have a business that is a sine curve. Let's kill it. I don't like that business. No, no, no, no. It's actually a great, like, most businesses are in some way, shape, or form cyclical, even if you don't think of it that way. Like, just add another sine curve,…”

“All the financial services companies, all the, the incumbent financial services companies, they have hostages. They don't have customers.”

“the only way to really violently change this is to have your own marketplace.”

“And we're seeing this happen at so many companies, and these companies are scaling so quickly because they really are selling into clients or, you know, end users and saying, hey, we'll do this job for you. We're not giving you software. We're gonna do a job for you.”

“the software spend, Small for these people, the effective labor spend much, much higher, and this is what's massively growing the market for a lot of these obscure industries.”

“Also, I think it's gonna be very hard for AI to, for, for lack of a better term, inculcate demand.”

“you can't turn shill junk into honest analysis.”

“What's exciting about AI is that it's taking this filing cabinet and now allowing actions on the filing cabinet. And that's what I think is really revolutionary, because you can actually ask the software filing cabinet application, like Workday, hey, I want to add a dependent, and now Workday will do all the work…”

“It's very, very new, but a lot of the hyper growth that we're seeing in this category of company is because they are really moving into the labor market and less the software market, and that nurse example is kind of a prime example of that.”

“that's a lot of money, or a lot of interest on an APR basis, but it's the wrong metric, because effectively it's like trying to figure out what your marathon time is based on your hundred meter dash.”

“So yes, I mean, like, when you don't understand the why, and then when, especially if the future is going to be different than the past, that's definitely a cause for a blow-up.”

“So this was kind of the takeaway for me building trial pay is that if you build the boring layer, and I mean boring in the best way possible, then you have almost unlimited optionality because you're the operating system.”

“the only way that you reduce interest rates for people is you either discriminate based on outcome-based payments, which often requires More machine learning, more data, or you're able to charge higher interest rates over time. So if you have, like, a massive pool and 50% of people don't pay you back, and you can't…”

“And my, my view of regulation is that it should enforce transparency. Like the reason why payday loans are bad is because the fine print isn't even like nine point font. It's not even eight point font. It's like two point font. You can't see it. And then if you are the even scummier payday lending company that makes it…”

“It doesn't matter who's right or who's wrong. It matters who cares more. I mean, if anything, that's the heuristic for figuring out who's going to win an election.”

“Like if there are five people that aren't carrying their weight, like it's probably better and easier to kind of message that in one fell swoop, as opposed to the, you know, Desaparacidos problem.”

“I tend to like the companies that they're not reliant on playing Peacemaker with 10, but there are thousands, and then eventually, you can build up with thousands, and then sure, those 10 have no choice but to use your information.”

“I often advise companies where they say, oh, you know, we're going to hire these five data scientists, but they don't have any data yet. And what they don't really realize is that if these are, if they're data scientists who are, who are happy to take out the trash and, you know, clean the toilets and do all the other…”

“The training wheels are often the smaller channel partners. So if you, again, go back to Serial, if you have Serial, you might want to try selling that somewhere else before you get Safeway to do a 2000 store test. Because if it doesn't perform well on that test, you're not going to have a second shot.”

“the battle between every startup and incumbent comes down to whether the startup gets the distribution before the incumbent gets the innovation.”

“Most people that are talking about blockchain, they're really looking for a database.”

“Along have come many, many startups, and what the startups have done is, one by one, they've picked off a particular category. They've taken this broad horizontal marketplace, kind of like Craigslist, and category by category, they've attacked these different areas of this broad horizontal marketplace, in this case of…”

“student loan refinance is, it's a temporary arbitrage opportunity, but it's actually probably not a long-term sustainable business.”

“if you ever do a Google search and you see 10,000 results and every result ends up with a call this one 800 number and it has really bad clip art on it, that is an opportunity for a new marketplace to emerge.”

“many startups consequently in the financial services space, I think it's an interesting lesson, they give up on being consumer players because they realize that this distribution path is too hard. Instead, they are actually very content to be arms merchants to the banks.”

“Affirm, our, our insight, uh, was We'll use merchants to get distribution. So our cost, cost of customer acquisition is zero because we partner with merchants”

“Amazon, they built the Fire Phone. Which ended up being a flop, but it was a very, very smart move for Amazon to do because they realize if I'm Amazon and I want to go sell a book to somebody, I'm not allowed to do that through Apple or through Google unless I give up 30%, which is greater than my entire gross margin.”

“If you make that all automated, the most powerful position, the router, if you will, on top of the key router of the mobile wallet is, uh, is the PFM.”

“But if you go on Google and you say, like, I'm out of money, need money, need money, credit, credit, credit, like you're probably a bad credit risk. So kind of going back to the general store concept, People that aren't looking for credit, that might not have their wallet with them, kind of make it like the 1800 and…”

“But one of the things that makes a small business somewhat defensible is actually it is an accumulation of people that are required to deliver the end product.”

“Because the, the, the filing cabinet couldn't think for itself. Um, and now this is, like, the cool thing about everything that's happening, uh, in, in AI land is that, you know, the filing cabinet can do work. Like, QuickBooks can actually accomplish a task by itself versus just relying on a human to retrieve the file…”

“Carta keeps track of cap tables for a lot of companies. How often do you access your cap table? Not very often, but it's super valuable. You can't F that up. Right? Like, it's, I'd probably rather use Carta for that than like, and they only, they don't charge me that much money. Like, sure, I'll use Carta.”

“Workday has the, it's predictability in both directions, right? It's predictability for the spender of the money, which is the customer. But it's also the predictability for the management team, knowing that you should spend your time trying to sign up GE, and not sign up a ten-person company, because GE is bigger than…”

“I have this, this, uh, prevailing view of human behavior, which is everybody wants two things. They want to be richer and lazier. So they want to do less work and get more economic value, and this is really what Gen AI unlocks, and it's really starting to happen right now”

“I need to build some kind of system of record for you, some kind of vertical operating system for you so that you can't just go switch out for the cheaper player.”

“a very inexpensive deal that has been hanging around the hoop for six months, that's probably bad. We don't want to meet with them. We want to meet with the best company.”

“I would almost argue that a lot of AI's problem right now, in terms of diffusing into the workplace, it's almost a product marketing problem.”

“if you know that you're going to buy your rental, you'll probably take better care of it. If you take better care of it, Well, the landlord doesn't have to worry about as many things, and then the cost goes down.”

“in most of like startup land, when we talk about LTV, we talk about lifetime value and the majority of lifetime value for a consumer Even an eighteen-year-old is going to happen probably 15 years later in the future when they buy a house.”

“The purchase intent tends to be low. So you have people like, it's kind of like, there's some search engines that are very, very tightly coupled to transaction. And real estate is not always that way for two reasons. Number one is that there is this entertainment value to it. Um, and then number two, there's just a lot…”

“if you look at the progression of AI, there is the AIMI, the American Invitational Math Examination, where you, the answers are all just like three, it's just integers. It's like zero to 999 is the answer. And then, of course, you can keep trying different things, and then you either get the right answer or you don't,…”

“consumer fintech products are so hard because like all of the, I mean, right now, just all of the, the economic rent goes to Google or wherever you find it from.”

“It's not just about cost. Um, cost, like, this is where people are getting this wrong. It's not like, oh, AI's gonna take all the jobs because humans are too expensive and AI is cheaper. AI does a bunch of things, like, intermittent demand is a big one.”

“An AI nurse, an AI collections agent, an AI negotiator, like, all of these things can be done in dozens of different languages instantly, and you just wouldn't hire a human for that because you can't get somebody in Iowa that speaks Serbian, um, on demand, intermittently, with a demoralizing job, and so on and so…”

“And with impulse buys, like, almost tautologically, you're not going to use AI to tell you to buy something.”

“Now the internet, you can go to any store, so if there are, like, 5000 stores that don't make their own products, and they all send, they all sell the exact same shoe from Nike, that doesn't make sense. You should either go to Nike directly, or you should go to, like, the one store that has the fast, fastest shipping,…”

“I think it's actually the exact same metric. It's not like, oh, it's AI, so therefore future profits don't matter. It's like, it's the present value of future profits. And that really comes down to like, how many customers do you have? Do you retain those customers? And then how much gross profit do you make per…”

“I, I think the vast majority of things that we're seeing right now just monetize via subscription. So it's actually very clear how they make money. And the DAU thing is actually just as useful today as it was before, but it's like the, the money part is almost automatic.”

“behind every credit score, if you think about how that works, it's willingness and ability to repay. And the psychological trait of the willingness is, in many cases, as important as the financial constraint of the ability.”

“if you can actually try to nurture better behavior, you actually see better, you do see better behavior, and then the profitability goes up.”

“if you are kind of held accountable by your peers, that is so much more powerful than getting a collections call from Citibank.”

“We could build a portal where they come back, but no, we couldn't because they didn't really know who we were. Like they knew, they knew Geico, they knew WinZip, and that's one of the other reasons why at least where the C at the end of the B to B to C Is a consumer. This often doesn't work.”

“if the biggest in the world has a channel strategy, it's probably a mistake as the smallest in the world not to have a channel strategy. But the flip of that is to only rely on a channel strategy.”

“if you really try just focusing on scaffolding before product, you're going to run out of money.”

“I would argue that the set of principles that people use around investing has to be much more internal-focused than external-focused because you don't, on a short-term time horizon, have the external outputs in terms of the stimuli.”

“if you look at lending algorithms that newfangled banks are using, it's effectively linear algebra. You have every consumer here, you have every possible measurable attribute over here, and it's not three things. It's a combination of everything, so it's a little bit hard to disentangle cause and effect.”

“the people at a company that bring down costs are not nearly as heroic as those at the company that help bring up revenue.”

“If you're convinced your house will go up 10 X in value in the next year, you should go take out debt. Equity is more appropriate for certain situations, bonds are more appropriate for certain situations, and it's just, it's another option.”

“The problem is actually waiting in line to pay. That's the problem. And, and literally, it can take half an hour, and the way, the reason why you abandon is not because you don't have your payment instrument, it's right in your pocket. It's completely different than the pajama problem. The reason why you don't pay is…”

“The big problem with credit, not payments, but credit, is you can't get a credit score unless you have been granted credit. You can't get granted credit unless you have a credit score”

“you're never going to get to a network effect if it's a, if there are 25 companies doing exactly what you do, and they're all about the same size, and nobody gets the big, that nobody has like a just demonstrably better system, then the data is actually, it looks more like the algorithm. Remember how we talked about…”

“We were just joking about this, that it seems like a contrived term, because if you were to ask any of the existing incumbent companies what they do, they would, they would not say FinTech. They would say, we loan money, we're a bank, or, uh, we do finance, we do microfinance. They have very, very well-defined terms,…”

“the larger the company and the less product-driven it is, the more the innovation is around, like, how do we charge more?”

“Oh, I think more so true today than, than ever before, because there's so many different types of intangible goods. You're kind of hit, like, if you were to pay full price for every iPhone app that you ever touched, it's like, you'd be paying five dollars every day for something, and paying for coffee, that makes…”

“But if you were going to develop a bank from scratch today, chances are very, very high, you wouldn't say, my first order of business is to go sign 9000 leases at different, ah, commercial banking centers across the country. You'd say, I'm gonna have a mobile app, and that will do it for me.”

“A lot of people have this, this mental image of they don't want to see their bank account balance drop below a certain amount, and maybe it's irrational, maybe it's not, because they can always borrow money, or maybe they can't, but Uh, they'll say, okay, I always want to have 5000 dollars in my checking account. I…”

“Walmart wants to sell more stuff. They would sell more stuff. They can't sell more stuff because people are hesitant to buy it because they don't know what going into debt for this particular item has or what, what, what that means for them.”

“And how do you underwrite credit for somebody that has no file or a thin file? And the answer is you can't using kind of traditional FICO scores.”

“That's a lot harder to do, um, if rates go up more. You have less room for somebody to come in and start refinancing debt.”

“And for most Americans, ah, that own homes, they only have debt. And when they have too much debt, bad things happen to the economy.”

“a real estate agent, going back to the refrain, Could do this theoretically, but it's very, very hard for them to do because it requires so much capital, so much perfection of pricing, ah, you know, actually having to hold on to lots and lots of homes, warehousing homes, something that most agents cannot do, but this…”

“whether you're Facebook or a, or a brand new company, it always helps to focus on a tight vertical.”

“If you're able to build a large and diverse set of channels, you typically are displacing other people, and you're able to build up a little bit more of a barrier around a key thing, which is customer acquisition.”

“from the perspective of the manufacturer, channels should not compete with each other on price.”

“The way to look at these, from my perspective, is really from the, the, the three lenses of defensibility. Like, does this help you build defensibility? Does it help you build distribution? And then how profitable is it? Because we often had things where it didn't actually help us with distribution that much. It helped…”

“Third point I would make is a complementary, and this is complementary with an E and not an I, the things that are complementary to your good or product or service or offering are the key poaching grounds for especially newer concepts.”

“So it's really the way that I think about channel partnerships is it's not this opportunistic, oh, those guys already have all the clients. I'm going to go work with them. I'm going to let them sell it. That almost never works well for the company.”

“you don't really change what, you're not pivoting the company, you're kind of pivoting into a different market where the durability of the company is higher.”

“whenever we want a consensus on facts, we use a ledger.”

“blockchain is not meant to be cloud. It's meant to be, ah, a series of, of not intermediaries, but a series of effectively untrusted intermediaries on the internet that you don't know, and you don't have to know them, and it's not stored in one place.”

“the really interesting thing about Bitcoin is that it is, it's rules without rulers.”

“The way to think about a Cryptocurrency is it's a new asset class that enables a decentralized application.”

“And if you tokenize this, if you actually provide them with some value for surrendering, not their hard drive space, but in this case, surrendering their network connection, you can jumpstart this network.”

“It actually provides an interesting way of beating this distribution versus innovation challenge, because if you're not competing with the bank, if you're going after a new area of financial services that banks don't want to be in, in many cases, in many cases, the startup actually has a chance.”

“Mortgages are a little bit trickier because they often have an implicit or explicit government backing, so it's hard for a private company to kind of make a, a non-jumbo mortgage market.”

“One of the key learnings is if you go very boring and build infrastructure, you can later layer on your own innovation.”

“Because payments are, they're the most important one because they have the frequency of use. You might pay for things three times a day. Whereas, you know, how often do you pull out your frequent flyer card, or how often do you pull out your insurance card very infrequently? It helps that those are in your digital…”

“The problem is not, I pay with plastic, and by the way, plastic has unlimited battery life and a lot of other very, very positive attributes vis-a-vis an iPhone or a Samsung phone.”

“what's surprising about payment, uh, area under the curve, if you will, is that, like, the bigger the dollar is, like, the smaller the rake, which I guess makes sense, because you're not gonna get two percent of that 40 trillion dollar payment”

“it's an order of magnitude more time to refute bullshit than to produce it.”

“you can't run a business if you're making only 500 dollars per year, and you have to pay a salesperson a 100,000 dollars a year, and the salesperson can only sign up 10 clients per year.”

“That would have to go through self-service in order for it to be cost effective.”

“Think about the whole chronological stack leading up to the discovery of your product or service.”