Invest Like the Best with Patrick O'Shaughnessy
00:54:11 · Dara Khosrowshahi
[00:54:11] S2: He's incredible. He's been my business mentor and in many ways a personal mentor as well. I'd say that the thing that I learned from Barry is the value of getting the truth from the source material. The way that I first met Barry, I was a analyst at Allen and Company working on the LBO model for Paramount. There was a hostile tender offer, Viacom and Paramount. I was building out the LBO sure. Right? Yeah. Exactly. And Barry didn't want to talk to the MD or the VP or the associate. He's like, who built the model? I'm gonna talk to that guy because if I'm gonna raise billions of dollars in debt, I wanna know I'm good for it. And I just remember I was like sweating. I was so nervous. I'm trying to print out this model, and I took him through it. And he wanted to hear straight from the source. And every time I've witnessed them and I worked for him for twenty plus years, It's the filtering that gets the edge out of the story or out of the situation. And it's often the edge that gives you an edge, not the average. Everyone is going to have the same reaction to the average. It's what's that 20%? What's that P95 situation? Barry always insisted on going to the source, getting unfiltered data. It was sometimes unpleasant. It took more time. But getting to the ground truth would help his decision making and would allow him to give them an edge to kind of go against the grain. And I've taken that with me. I've seen in larger companies, most people who run companies, they're smart, they're capable, they're driven. And the failure modes that I see with most companies is that the higher up your organization, often you get a very thin layer That's of good what's going on. Yeah. And everything has been processed for you. Like my schedule today, it's determined by a bunch of well meaning people who want to give me the best information and have me use my time in the best way, but it's processed. And so it's very important for you to cut through that process sometimes and get to that ground truth. You've got to create some randomness in your interactions and your information flow. And Barry, often painfully, drove to that source. And it's always for me been very, very important part of how I manage, which is the best way to get to the truth is first of all, as a leader, tell the truth. I'm brutally frank with my team. What's going on?
00:56:33 · Dara Khosrowshahi, Patrick O'Shaughnessy
What's a good, what's a bad, what's Okay? Where do I not know the answers? And that helps me then get that truth back from them. Sometimes requires me to dig and that can be unpleasant both for me and the team. But getting to the ground truth, think is something that I learned for Barry and it's always stuck with me. [00:56:52] S0: What did you learn from the Allens, both the second and the third? [00:56:56] S2: Herbert Allen, very, very early on, he always told me that he makes bets on people, not companies. And you see that with the Allens. Like they're so loyal, they build friendships, then they stay with those friendships. And Herbert always told me companies can do well during periods or companies can do poorly during periods, but great people always stay great. And I'm gonna make a bet on people. And I'm like 20. I'm like, yes, sir, mister Allen. It's a great learning that has kinda soaked into me thirty years too late. Regardless of the circumstance, I made a bet on Barry. I was going to stay at our own company for all my life, but he was the one guy that I told myself, if I have an opportunity to work with that one person, and it was enough. My salary was gone. I went through this completely entrepreneurial new entity that he was building, but I'd bet on a person. And in my life, my bets on people, and those personal bets are probably the best ones I've made.
00:56:56 · Dara Khosrowshahi, Patrick O'Shaughnessy
[00:56:56] S2: Herbert Allen, very, very early on, he always told me that he makes bets on people, not companies. And you see that with the Allens. Like they're so loyal, they build friendships, then they stay with those friendships. And Herbert always told me companies can do well during periods or companies can do poorly during periods, but great people always stay great. And I'm gonna make a bet on people. And I'm like 20. I'm like, yes, sir, mister Allen. It's a great learning that has kinda soaked into me thirty years too late. Regardless of the circumstance, I made a bet on Barry. I was going to stay at our own company for all my life, but he was the one guy that I told myself, if I have an opportunity to work with that one person, and it was enough. My salary was gone. I went through this completely entrepreneurial new entity that he was building, but I'd bet on a person. And in my life, my bets on people, and those personal bets are probably the best ones I've made. [00:57:49] S0: Daniel Eck has this thing that he's famous for, which is that he would go shadow, I think he might still do it, go shadow CEOs of companies for long periods of time and watch how they operate and work. So if I were to go ask the same question I'm asking you about Barry and the Allens, but ask the question about you, what do you think if I were to shadow you for a couple weeks, I would take away from how you prosecute your life? What do you think the ingredients that I could take away for my own recipe? What do you think I'd write down?
00:58:15 · Dara Khosrowshahi
[00:58:15] S2: I think number one is the transparency that I talked about. I want the truth from everybody, and I tell the truth. I'm very, very open to the company, whatever level that I talk to. I have a lot of fun working with our product leads and engineers. That is the best part of my job. The last thing I say is you see a lot of random interactions. The don't want to have too structured a day. I don't want to meet with just my direct reports. I build out random interactions within the company so that I get that information as well. It's a saying that I say, I look for the troublemakers in the company. As companies get larger, there's always this incentive for people to get along. You have a single culture. Everyone is true to the culture of the company. There are processes that get built. There are certain ways of interacting. And certainly the troublemakers often get chased away. I want to find those troublemakers and I want to bring them in because every company is like an organism. Organisms evolve by mutating. And companies that don't mutate, that just sit and with a single process, with a single information flow, those are the companies that die. So I'm looking for those mutations, I'm looking for those troublemakers constantly, and that requires random interactions that are less efficient than the structured processes that have been put in front of me. But it's those random interactions that often give me the best signal that sometimes I may not act on it, I'll take it in. At some point, if the signal becomes strong enough, I'll move.
00:59:43 · Patrick O'Shaughnessy, Dara Khosrowshahi
[00:59:43] S0: That's a cool idea that the troublemakers are the mutations. [00:59:46] S2: Companies need to change. And by the way, with AI now, the rate of change inside companies in terms of how information flows, in terms of how we work every single day, the rate of change has accelerated by 5x. And it's the companies that are comfortable with that change that are going to adapt to this new reality. And the companies that are like, hey, we do things a certain way, they're going have
01:00:09 · Patrick O'Shaughnessy
[01:00:09] S0: a hard time. One of my favorite charts from this era of business has been the time series of CapEx of the big technology companies, where it all looks like this except for Apple that just looks like this. They basically haven't changed. They've decided not to play this specific game. And the debate around Uber early on was like, these guys ever make any money? They're losing money on all these rides, blah, blah, blah. Now you've got $10,000,000,000 plus free cash So you're a capital allocator and you have to make a decision of what to do with this money in this high rate of change environment. How do you prosecute that decision? You've done big buybacks. You've authorized really big buybacks before, which traditionally have done really good things for shareholder value and things like this through business history. But now you have all of these opportunities to spend money, to expand demand, to get new supply, to use these new technologies. How do you weigh the trade off between old school stuff like buybacks and free cash flow generation and share reduction, things like that with just, wow, this is the most interesting investing? I guess I'm asking, are you Amazon or are you Apple?