Invest Like the Best with Patrick O'Shaughnessy
· Ric Elias
[00:00:00] S1: Look, I think we're more lucky than sprinkled luck. I've always believed that. And if I look back in our journey, Dan and I started this company in January 2000. Dan and I worked together before this at a company called Cendant/CUC. And we really started with two principles in mind. One was let's build a company we would want to work for. And Dan and I are not typical. We're very different in, hopefully, good ways. But we both are of the same opinion that life is to be lived with enjoyment, and that we will want to work at a place or build a place that we will want to go work every day so we never have to work. True definition of being an entrepreneur. And then the second one, and I think we said it at the time without really understanding it, which was a company that would outlast us. And even though we would want to do this for a long time, Dan retired about a year ago, a company that would -- outlived us. What I have come to realize is it will outlive us through the people that get trained in our platform, not as a company itself. And then many of the businesses hopefully are here for decades to be, but that really were our basic principles. So when you start with that, the business plan was completely flawed. We raised $2 million from our friends. This is the frenzy of January 2000. This is before the first Internet bubble implosion. Raised money on three PowerPoint charts on the dumbest of ideas. Basically, a paper-based search engine, where we were going to help online companies use off-line media. And by November, we had $117,000 left, no revenue. And this crazy thought of like I will never attend my reunions because all the capital came out of my business school friends, and I'm a proud guy. I'm like, I can't. So we literally just hunkered down, hustled, sold marketing programs, sold anything to anybody who'd hire us to do consulting things. And we knew a lot about direct marketing at the time, and for a couple of years, just muscled our way through it. In 2004, we had enough money to pay our investors back. And we said, "Look, we made a commitment to you, here's your money back times 10%, but we're done. If you keep your money in here, it's at your own risk. And I hopefully hope you take the money back," because that burden of taking someone's money was a lot.
· Ric Elias, Patrick O'Shaughnessy
And in '04, '05 was when Google was becoming the de facto aggregator of intent. They had this rule where you could not double serve as a brand. And we started thinking, wow, brands are going to need somebody to kind of help them defend themselves in this environment that's aggregating intent. And customer acquisition is the life-vein of all budgets. And it's actually a line that is not in the operating budget, it's in the revenue budget, so there's a lot more leverage. And we literally said, "Let's go try to figure that out." Over the first couple of years, build a core tech where we can map a couple of million toll-free numbers to an online experience and give you a phone experience that was quasi-personalized by how you navigated online. So we could go to any brand and say, "We can outconvert whatever you're doing in this notion of take your agency, take your call center, take your internal operations, we can outconvert them by 30%. If that's not true, don't pay us. But if it's true, give us a piece of the upside, don't pay us as an agency or a service provider." And that became kind of the first unlock in, call it, 2006 to 2010. And from there, there's a cemetery full of skeletons of bad ideas, and we went our way through it. And lo and behold, come from 2010 to now, and this is where we are. [00:00:00] S0: What was the first thing you ever bought? What business was the first business you ever just bought outright?
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: What was the first thing you ever bought? What business was the first business you ever just bought outright? [00:00:00] S1: First meaningful thing we bought where we literally broke the bank, we had a pristine balance sheet, was Bankrate. Bankrate at the time was $1.4 billion, and it wasn't worth that. Before we bought Bankrate, we bought an asset in financial services. That it was a tiny asset where we said, "Let's go and prove that we can actually use that asset in Google and paid search and SEO and really start doing what we did in telecommunications using someone else's brand, using our own brand in financial services." We did really well. And we're like, "Okay, let's put all our chips in the middle of the table." And Bankrate was our first big acquisition at the time. We owned CreditCards.com, The Points Guy, Bankrate and a bunch of other miscellaneous assets. And it was our first, okay, we're in the big leagues now, and we have a lot of debt. [00:00:00] S0: There's quite a lot of glossing over, going from $2 million, paying back your investors to $1.5 billion acquisition. [00:00:00] S1: Yes. This is a decade...
· Ric Elias, Patrick O'Shaughnessy
[00:00:00] S1: Yes. This is a decade... [00:00:00] S0: But I'd love to dig into some degree. What would you credit your early operating success with? Obviously, you got to that scale on an unusual way with not a lot of outside backing and control of your own destiny and permanent capital and all these things. So if you think back on that specific chapter, what was going on? What were the things you were doing or the way you were doing those things that made it possible? It's a strange story.
· Ric Elias, Patrick O'Shaughnessy
[00:00:00] S1: Survival, to some extent. When you spend the first four years, two little kids, both of us not taking any money home, humility, understanding that this could change easily. Early on, we would meet with our 80 employees, call it, 2007 and '08, and we were now making millions of dollars of profit. And I will say, "I'll enjoy this. These are the good old days. Someday, this will end." It was this constant belief that this was a moment in time, and if it didn't work as hard as we worked the last three years, this will end. So a lot of it was like we were relentless. And one of the things early on is for whatever reason, we have never competed against anybody. I never thought that our competition was somebody else. And we've really never competed, and maybe it's because of our near-death experience as a business so early, against the fear of something. We always thought, look, if we can compound our performance a little bit every month, and our business model gave us the fruits of that, it was all performance-based deals. We got addicted to this notion of incremental performance just becomes really virtuous for us. And that was our thing. Your strengths become a bit of your vulnerability. I think to this day, our DNA, thousands of people strong, is incredible operators, really good optimizers, maybe not as great people doing high-end product or experimentation and other things. Now we brought in a lot of people to help do that and all of that. That is probably our core DNA of Red Ventures. [00:00:00] S0: I'm going to zoom back and forth a lot here.
· Patrick O'Shaughnessy, Ric Elias
[00:00:00] S0: I'm going to zoom back and forth a lot here. [00:00:00] S1: Sure. Sure. [00:00:00] S0: I'll go all the way back to today. I show up today, and I've not seen anything like this. We're on a massive campus. There's thousands of people here. It feels like a self-contained world, and it is. Physically, literally, it's a self-contained world. And it has a very specific coherent vibe to it, which makes me wonder about culture. You said there's more than a dozen companies in all sorts of places, but it feels like this is one company and one team just walking around. Maybe say a bit about how you've designed and what it is. What am I feeling? How did that come to be? Because I think those are hard to establish.