The Exchanges

Q the conversation you had with Mike from Traba, and I think it was with Harry Stebbings a few months ago, and, you know, he talks about the Olympian mindset in their culture and working 12 to 12. But until you actually see him work in that way, how did you know that he would have that level of tenacity? And you could use him as an example or basically anyone.

A Sure. I'll be telling you about Mike. Mike is very tenacious. I described him more recently as the most persistent person I know, which is close cousin, but I think persistent is slightly more accurate. You know, the trait that came up in the first two weeks I knew him when he wasn't even a founder, he was just a PM at Uber. Was, he told me a story about how he considered to go to business school. I was like, thank God you didn't go to business school. But the second reaction was, he told me that he took the GMAT eight times. And I was, uh, I was a explorer. He was like, I didn't even think it was like humanly possible. I thought it was like an illegal sort of thing. Um, and so I don't know who the hell would ever do that. But his persistence of getting like the ideal score was like, if he was going to take the GMAT, if he was going to get the ideal score, and he would take it like The absolute maximum limit. That's humanly possible. So once you see that trait, you know that that's what he's going to apply to everything in his life. And in fact, he does like pretty much everything that way. He runs the company that way. He runs his own life that way. And it's all, you know, it's kind of everywhere you look.

AI assessment note: “he told me that he took the GMAT eight times.”

Q once in a year type of founder who is able to walk you through the intellectual maze with such clarity, what do you think makes them so good at it? Like, what do you think are the exercises they've done or the inputs they've had on the backend that by the time you're seeing it, you're like, holy shit, this is so refined the way they're presenting this to me.

A Usually there's two, um, formulas, sort of. One is they've had experience in that industry domain that's very, you know, special. So, they understand what's broken and why, and they also understand how to fix it because they actually suffered through it, and they're, you know, sort of good product thinkers. They combine the two, and they really do understand this opportunity. The second is they've studied history really well, and they've really studied, everybody who's taught anything in a, you know, a certain zone, um, And really decomposed why these other companies either didn't succeed and failed or why they didn't achieve their ambition. You know, why is the opportunity still there? And they really do understand and have mastered all the lessons and they have taken advantage of the lessons to probably that into a, you know, a roadmap that seems pretty vibrant. So you can kind of approach it either way.

AI assessment note: “Usually there's two, um, formulas, sort of. One is they've had experience”

Q Totally. Yeah. Just the standard of your reference point just keeps getting bigger and better. Why don't you really focus on domain expertise when you fund founders?

A Well, first of all, um, domain expertise comes usually with what doesn't work, not what could be possible. Um, you know, the node, uh, has a good expression of domains are expert in the fire world and what you're trying to do is create a new world. And most people with expertise typically have learned all the rules and quotes and And are somewhat blinded to how to break the rules, um, how to reinvent the rules. Secondly, you can learn mostly what you need to learn about a domain just by interviewing people who have domain expertise. So, like, you get up the learning curve really fast by being, um, thoughtful in your questions, and you can usually get in front of a lot of people, like, people are very friendly in talking to you as an investor or as a founder, and ask them various things. So I always, for example, as an investor, I always frame expertise Back to a domain expert. My usual question is, explain to me why this can't work. That's the only question I ever ask experts with domain expertise, and if they can't identify anything, then I'm perfectly fine, like investing in a company that's going to try to reinvent, you know, some industry. But once a while, they'll identify, sort of in a laws of physics sense, that there is this blocker that is very real, that unless the founder has an answer to, or an insight into fixing, they're going to fail. So it's, it's a very thought…

AI assessment note: “domain expertise comes usually with what doesn't work, not what could be possible.”

Q Yeah, I love that. Talk about what a barrel is, and are barrels the same thing as hiring great undiscovered talent? Does not all undiscovered talent that you hire turn into a barrel? Like, what is the profile of a barrel, and how many barrels can you expect to have in your company?

A Great question. So a barrel, the basic definition of a barrel is someone within an organization who can take an idea, a concept, an initiative, and make it happen. From beginning to end, they, they will just do whatever it takes, enlarge for whatever resources they need, and persuade and constantize, whoever they need to persuade and constantize, to get you across the finish line. So they'll charge up, they'll identify a hill, or you may have had a hill, they will charge up that hill, they will go into that hill, period. And they're extremely difficult to define. Um, in organization, um, a typical ratio, let's say, um, Um, an organization like PayPal, maybe we had between, um, 10 to 15 barrels of PayPal out of, like, 254 people. That's a pretty fine ratio, actually. An organization, I asked, um, a board member of Lattice on stage about a year ago, you know, how many barrels Lattice has. And she ran the company. And his answer was, like, two to three. That's much more typical, by the way, for a successful company. And the reason why parallels matter is you can only accomplish the, the number of things you have simultaneously in parallel that are, that are defined by the number of barrels you have. So having more headcount does not allow you to accomplish more. This, all the ways that I kind of come to this conclusion and stitch this all together is founders are incredible. Found…

AI assessment note: “a barrel is someone within an organization who can take an idea, a concept, an initiative”

Q Right. But, but so how did you scale that? How, how are you able to scale it if you're not just going to basically try to internally recruit everyone?

A Yeah. So I, I think then you start saying, well, what was I actually noticing about these people that led to the conclusion that was accurate internally? And then how could I have ascertained that from strangers that I was meeting for the first time in an interview, you know, at some events, et cetera. And that helped calibrate. Second was one of the advantages of people you work with or in the building was Is you have shared context, and you have more data points. So one of the other advantages to say, hey, look, it is really hard to identify undiscovered talent in a 30 minute interview. You may need more data points. Like, that may just be true. Like, you know, you have one data .1 interview. You can draw an infinite geometry, infinite number of lines through one data point. Get five data points. The lines should be pretty easy to draw. So, usually you have to make a decision with less than five data points, but maybe you can get two or three and find ways to do that. And so, what I have had some success with, or, you know, real success with, is people that I had more exposure to Even if they weren't, like, literally working for me, or literally working in the same organization, but I had many more data points, and soon, with your identity, accurate, and that proved to be true, then you try to develop formulas for random interactions with people. When people you meet for the …

AI assessment note: “how could I have ascertained that from strangers that I was meeting for the first time”

Q Well, I, well, I think that brings up a really good point, which is something you've talked about, um, is kind of with any employee, you just keep trying to expand their scope as much as possible until it basically breaks. Why do you believe that's an important thing to do in a company?

A Well, basically, this is how you, uh, totally just undiscover a talent pool, this critical density of talent that Peter has identified, um, into a functional organization, is you want to challenge people to the limits of their ability. So this is a lesson I've actually learned from David Sachs initially. He had this philosophy, very explicitly as such, in early 2001, and articulated it to me, is like, take everybody on your team, I'll keep pushing along. The envelope of what they can do until you see where they're struggling. And then everybody will have a natural limit, but keep pushing until you find it. And then you're going to get people to achieve things and achieve things for the company and succeed in ways that you never would have got. So it's like constantly like push, push, push, push, push, push, and monitor, and then keep, keep pushing envelope until you find like a natural limiter. So I borrowed both, I kind of borrowed both of these philosophies, combined them from Peter and David.

AI assessment note: “you're going to get people to achieve things and achieve things for the company”

Q and I've talked to my co-founder about it and other founders is like, they try to under, we try to understand like, are we good at hiring? And, and there's different levels. Like, are we good at hiring executives? Are we good at hiring kind of non-executives? What do you think, like, the rough batting average should be for founders in thinking about, are they good at hiring or not?

A So, there's two characteristics, right? There's a lot of hiring, you want to say, and then there's, you know, is this person a barrel or, like, a Tinex engineer or whatever, you know, because basically when you're hiring, it's smart enough, and so you've achieved, like, Let's say success, whatever it defined is. Um, real positive momentum with accumulating advantage is kicking in. You need people who create value. Yep. And value creation is very different than optimization and value protection. And so, to some extent, that's the definition of success changes over time. Like, there are people who can do the job very well, but that doesn't mean they're really gonna take you from A feed startup to a two billion dollar company. Like, those people are rarer, so I don't think you can, you know, I don't think he'd grade every hire and say, is this one of those people? That ratio is going to be low. But on the other hand, you also don't want masses, like constant masses, and so you have to monitor, like, are you, what are you aiming for? I think a ratio of barrels of 10% of an organization would be phenomenally high. Five percent would be pretty damn good. Now that said, I, I think you want, like, an 80%, at least, success rate of hiring, where the question would be, if you can make the hire all over again, what would you do it? Like, that's the easiest way, simple, there's lots of fan…

AI assessment note: “I think you want, like, an 80%, at least, success rate of hiring”

Q of the key ways that you have always talked about trying to identify talent is by finding at least one thing that the talent spikes on. And so I want you to talk about what that means specifically, but then share a few examples of your favorite founders that you've invested in and what were the things they spiked on and how did you know that they spiked on it?

A Sure. And well, I basically get this question all the time. I'm the founder driven investor. I've been a founder driven investor all my career. I don't really try to overthink things. I don't really try to think about markets or technology. Just want to back the right people. So the next question always get asked is, well, how do you identify superbly talented founders or high potential founders? What's the traits you're looking for? So after many years, I tried to distill what are, what are the common themes? What are the common characteristics that resonated with me that predicted or predicted the probabilities at least would be high of success and And as far as I can tell, the only thing in common among successful founders that I've worked with, funded, uh, interacted with is they have one comparative advantage with the rest of the world where they're in the top one percent or top 10 basis points or sometimes even top one basis points on one trait. There's one trait where you can say this person is the smartest person I've ever met in my life versus the most tenacious person I've ever met in my life versus the best sales person I've ever met in my life. This person is more strategic, and we can talk about what that means, than anybody else I've ever met in my life. And unless you find that trait, it's a very bad idea, typically, to invest in that startup. The reason why is, …

AI assessment note: “they have one comparative advantage with the rest of the world where they're in”

Q future, but to break down the steps in such component parts. Can you, I don't know if, as you were talking through that, you were referring to Mike from Traba or another recent Founder, but I'd be super interested, like, what does that actually look like in practice? Like, what does it look like for you to hear from a founder, them having such incredible clarity on the idea maze?

A I wouldn't say Mike in trouble. Mike would be mostly category one, which is top one basis point, top 10 basis points on some traits. Examples of the intellectual maze, I think, uh, Saudi at Avon had the intellectual maze of what he's building, uh, Pretty nailed. And so, it was so good. The compelling pitch in the, the, in, in financial services was so good that the only question I had is, why the hell had I missed this for 20 years of my life? Like, it was that clear. It was like, oh my god, this is so obviously great that there's something I'm missing because, like, I should have followed this for the last 20 years. Um, that Sonny has some other traits too. Actually, it was the combination. He had an intellectual maze. Perfect. And so other traits, but fundamentally that one was, you know, so starkly obvious. It's just like, oh my God.

AI assessment note: “Examples of the intellectual maze, I think, uh, Saudi at Avon had the intellectual maze”

Q Got it. So let's talk about within OpenStore. Think about a hire that you absolutely nailed within OpenStore, who was, you would describe in this bucket of undiscovered talent. Just paint a picture of, like, what did the process look like for them, and what did you see in them that, like, you got that hire so right?

A Yeah, great question. Um, so actually, one of the things that has developed and changed since my early days at PayPal is I did develop a formula for once you're running an organization, a larger organization, um, it's a lot of spot people have potentially undiscovered talent that already somehow or another got higher. I have techniques for once people are in the building, and you're like a senior executive of how to find them. That, that I've got really proficient at. So this is more what I've done in an open store, um, to the people that immediately occur to me is like sort of undiscovered talent that are You know, outstanding. Actually, I didn't hire either of them initially, but once they were working at OpenShore, I was very, very able to identify, you know, the potential. So I don't claim any credit for hiring. Other people deserve the credit for hiring. All I did is identify that they had, you know, highly unbounded potential, um, that wasn't obvious from like their LinkedIn profile.

AI assessment note: “Actually, I didn't hire either of them initially, but once they were working”

Q How do you find undiscovered talent as an entrepreneur? Like what are either specific questions that you ask or what are you looking for?

A Yeah. So, I mean, the first, first basic premise that Peter taught me in, uh, November of 2000 is that to build a successful startup depends upon critical density of talent. The team you build as a company you build is kind of a way of, you know, I'm going to reframe it later in my life, but how do you assemble Marshall critical density of talent? The truth is, if you go after people who already discovered as a startup, you're going to not have an unfair advantage or including them. In fact, you're going to be a disadvantage typically. Those people can be expensive. They know their net worth. They know their value, their market value, and the last thing you want to do as a startup is compete on the basis of like cash compensation or something like that. So you've got to go find people who haven't yet proven what they can do that these large organizations think meta, Think Google, think Apple, think Amazon, think Microsoft, or even these days open AI. They don't know how to assess these people. And then if you can assess them correctly, you can assemble a team with incredible talent and ambition to achieve their life's work. Then you've got a shock. So that next opens the next, that opens the door to the next question, which is how do you assess people with undiscovered talent? You know, that you can have the theory right, but if you can't actually in practice do it, it doesn't …

AI assessment note: “that opens the door to the next question, which is how do you assess”