Invest Like the Best with Patrick O'Shaughnessy
· Daniel Schwartz, Patrick O'Shaughnessy, Alex Behring
[00:00:00] S2: I had the benefit that I was with Alex, so I got all three. And then one of the things that Alex brought to me in this was – when you get to the company having this massive sense of urgency. Because companies have a tendency of moving slowly and don't operate as quickly as things operate on the investment side. But if you're going to do something, just do it this quarter. If you're going to do it this quarter, do it this month. If you're going to do it this month, why can't you do it now? And that sense of urgency, getting stuff done fast, really, really matters. Because companies, I think, are 5-10% strategy and 90-95% execution. And execution is getting stuff done quickly, right? [00:00:00] S0: How do you inject that? Very tactically, how do you constantly inject a sense of urgency into a company? [00:00:00] S2: I think it comes down to two things. One, hiring the right people who want to get everything done yesterday. [00:00:00] S1: People that are wired that way already.
· Alex Behring, Daniel Schwartz, Patrick O'Shaughnessy
[00:00:00] S1: People that are wired that way already. [00:00:00] S2: People who you have to hold back and not push forward. You yourself as the leader constantly keeping this expectation of wanting to move quickly, never showing any level of complacency whatsoever, wanting to get stuff done very, very quickly. My guess is you see that, you Patrick, see that in the tech startups that you invest in. They're building new products that are disrupting new categories that every minute, hour, day count. And they need to move quickly to either get to the next round or get to the next customer. And you try to bring that same sense of urgency that exists if you're a tech startup with finite amount of cash to a mature business that's highly cash flow generative. [00:00:00] S0: If I were to ask everyone that worked directly for you how you did this, would it round to clear strategic communication and constant check-in? Is that the operating system of this method?
· Patrick O'Shaughnessy, Daniel Schwartz
[00:00:00] S0: If I were to ask everyone that worked directly for you how you did this, would it round to clear strategic communication and constant check-in? Is that the operating system of this method? [00:00:00] S2: Coupled with extreme levels of transparency, which I also learned from Alex and the guys. You set these big, hairy, ambitious goals for the company, and you're constantly letting everyone know how you as senior leaders and the company as a whole, is tracking. Because if you're not giving people visibility into this, they might not understand why you're asking for it and acting with such a sense of urgency. The other piece that's crucial to this is making sure everyone's incentives are aligned. And that matters a lot. So as leaders in the company, one level down and two levels down and three levels down – everybody having stock or stock options, knowing that the way that we're going to create value here – the value creation will cascade itself down throughout the organization. And having everyone's incentives and goals and systems aligned. [00:00:00] S0: What do people screw up about that incentive piece? What have either you yourself done wrong or seen others do wrong that don't unleash that power?
· Patrick O'Shaughnessy, Alex Behring
[00:00:00] S0: What do people screw up about that incentive piece? What have either you yourself done wrong or seen others do wrong that don't unleash that power? [00:00:00] S1: It becomes a lot more tenure-based than achievement-based. That's when you have issues. It's not simple, but if you want to have very talented people, somebody you hired from the outside, a lot that groove in the system, they need to have clarity, first of all, in terms of what is it you're trying to achieve. And then they need to have freedom to act to achieve that in their respective way. Teams should have that independence to basically decide the how. And then everybody's tied into the fortunes of the shareholders, all together. I think that's the system in a nutshell. And if you have all those components in place, you tend to do well. But of course, I mean, Patrick, this is the degree of difficulty of doing this increases with company size. Like to do this in an investment firm with 20 people that we have here, much easier than in a $5 billion company, a little harder. $10 billion, $30 billion, $50 billion, it just gets harder.
· Daniel Schwartz, Alex Behring
[00:00:00] S2: I think it goes awry when, to Alex's point, just doling out stock awards to everybody, and it becomes an expectation. It also goes awry when you try to be "fair." And this concept of "fair" is really tricky. Because if you want to operate as a meritocracy, definitionally, a lot of people aren't going to think you're being fair. They're going to think that they're being underpaid, and other people are getting overpaid. And I learned this from the folks here at 3G, that I felt I was being fair. I think I was doing what was right by the people, but I did not allocate stock equally to people. I gave certain people multiples of what other people got, based on our thoughts of people's existing and potential future contribution. And not everyone does that. Even as CEOs, there's a lot of pressure to – and if you give equal amount, it's political. [00:00:00] S1: It gets political at times. [00:00:00] S2: I always tried to learn from these guys, just never be political. If you genuinely think certain people can contribute more, give them outsized grants or outsized equity awards. [00:00:00] S1: One of the things you learn from this compensation arena that's tough, but it's true – is whatever it is that you ultimately do on compensation, you're not going to make everyone happy. So you shouldn't try to do that because it's quasi-impossible. You should try to do what you think is fair from a meritocratic standpoint. And explain it as well as you can.
· Alex Behring, Daniel Schwartz, Patrick O'Shaughnessy
[00:00:00] S1: One of the things you learn from this compensation arena that's tough, but it's true – is whatever it is that you ultimately do on compensation, you're not going to make everyone happy. So you shouldn't try to do that because it's quasi-impossible. You should try to do what you think is fair from a meritocratic standpoint. And explain it as well as you can. [00:00:00] S2: I think it's a common mistake a lot of CEOs make. And I think because we don't do that, I think that allows us to get some of the best people, especially in the early days, that allowed me to attract some of the best, best people. Because I was willing to pay people outside of the normal, whatever preset pay curve and preset systems that we had. If there was a superstar, I would make an exception. I reserve that right as CEO to do that. [00:00:00] S0: Can you talk about the very top of that talent funnel and the things that you have done and still do that are the most effective at finding people when they're very young? I'm interested down to the granular level of what questions are you asking them when you first meet them? What is that very top of funnel for the early mid-20-something talent?