Invest Like the Best with Patrick O'Shaughnessy
· Brian Chesky
[00:00:00] S1: This comes back to the most important piece of advice I ever got. The first day at Y Combinator, Paul Graham said, "It's better to have 100 people love you than a million people sort of like you." That came from Paul Buchheit. Paul Buchheit was a partner at Y Combinator. He created Gmail. The old famous story was he created Gmail, and it took him two years. They said, you can't ship it until 100 people inside of Google love it. It actually took two years to get 100 people to actually like the product. But once 100 people like something, 100 million people like it. It's like, the sample size is enough. The problem is when you try to make something a million people like – you can't talk to a million people. So you end up with this shallow swimming pool. It's like you're trying to heat up an ocean. The ocean just – it takes too long to heat up and you can't tell. Instead of heating up an ocean, heat up a bathtub. Make the problem as small as possible. And you're close to the customer. In fact, if you only are focused on one city or even a subset of city, you can talk to every person. You can put all of these resources on a tiny problem. I guarantee if you take a ton of resources and you put them on a tiny problem, the smaller the problem, the more you'll change the numbers, the trajectory. That will teach you lessons. And they're to do things that don't scale, then you scale. The scaling is industrialization. But product-market fit is a distinct problem from industrialization. You want to basically make the problem as small as possible, understand the user, put yourself in their shoes, blow their mind, do things you've never thought before, do them by hand, make them unscalable, don't worry how much it costs. Just prove the model. It's like R&D. That is a lot like industrial design. It's what we call prototyping. Before you manufacture something, you prototype, and you make prototype after prototype after prototype. Until you make something that you love for yourself or someone loves. So yes, the smaller the problem, the more there's fewer abstraction layers. You're actually on the ground. You're talking to people. That's how you prove it. Hawaii to these pilots, it's all the same thing. By the way, same thing with AI. You're removing abstraction layers, you're making the problem as small as possible, and you're going directly to the source.
· Brian Chesky, Patrick O'Shaughnessy
I think that's a principle that all these things have in common. [00:00:00] S0: It's like we're playing this game of telephone if we don't do it that way, and you just lose information. [00:00:00] S1: This is why founders don't like running large companies. They end up in a game of telephone. They say something and then it goes down like five layers and then it goes back up five layers, and then there are these meetings, and the meetings become like system reviews. Literally, the lowest point for me when I was having meetings about meetings. [00:00:00] S0: You've gotten into this new mode. It's called founder mode. It's not called CEO mode. Do you think you're now a good CEO?
· Brian Chesky
[00:00:00] S1: I think I am. I think I was naturally a good founder, although I would say I also got really lucky, because I had two great co-founders, and damn, did that I luck out on that. I think I was a very good early stage CEO, and I think the moment I had to have an executive team, I really struggled to make the shift from a founder to CEO. I really struggled. And I think in the 2010s, I do not think I was a great CEO. I think we paid the price for my learning curve. And I think the pandemic was a rude awakening for me. I think I was conflict averse. By the way, somebody once said a pitcher never takes himself off the mound. As a manager, you've got to go take them off the mound. And I was always helping people. I didn't want to hurt people's feelings. I didn't want to take them to take them off the mound. And the longer you leave a pitcher on the mound, the more home runs they give up, the more upset they're getting, and they're still going to be angry at you no matter when you take off the mound. So I don't think I was naturally a good CEO. And I remember up to the pandemic, at one point I wondered if I'm just not meant to be a CEO. Maybe I'm not meant to do it. And then the pandemic happened. We had a near death experience. And I said, well screw all the rumination. It's do or die. And I feel like I learned how to do the job. There's really a few phases of CEO. Have an idea, get to product-market fit, product market fit to hyper growth, hyper growth scale to become a real company – real company as in profitable and public, like, and then the last stage, and I did all that, you know, we have like 40% free cash flow margin. We're very profitable. We do a hundred billion dollars in sales, customer sales. The last phase of a CEO is reinventing the company – product extension. And the reason our stock has been flat is because we only do one thing. And we have started to saturate a little bit of the core idea. So we've had to reinvent ourselves. We've had to do product extension. So I've still got to prove myself. And then there's another proof point. Can I navigate this transformation of AI? I think founder mode is going to be the only way to operate in the age of AI. If you're a giant professional CEO, I think you can operate in a founder mode.
· Brian Chesky, Patrick O'Shaughnessy
But if you're risk averse, you want to be incremental, those types of people are not going to survive the age of AI. So I think there was an old Albert Einstein quote, he said, the best way to keep your balance on a bicycle is to keep moving. You're going to have to keep moving. Founders are going to be really well primed or really well set up for this age of AI, because we kind of have to redesign our whole company from scratch again. [00:00:00] S0: Was there anything else that Hiroki taught you? Because Steve was perhaps the literal ultimate example of everything you just said. Focused on the details, in the weeds forever, reinvention of the company.
· Brian Chesky
[00:00:00] S1: Before I say, just to say who Hiroki is, everyone knows Jony Ive – Hiroki is a bit of an unsung hero. I always heard about him, he's like this legendary mythical figure that was elusive. There's almost no photos of him online, there's no videos of him. He was never out in front. But he was Steve Jobs' creative director. It was a function under marketing. He did the ads, he did the graphic design. He was really responsible for, you know that black type with a gray font, and the product in front of white. That was really his aesthetic. He taught me two principles of Apple that I brought. One was simplicity. I think startups are like – when you start a company, because you have no money and you're so constrained, you're naturally simple. Lack of abundance creates natural constraints. And so simplicity is thrust upon you. And that is good for you. And then once you raise a bunch of money and hire a bunch of people, you go in a lot of directions, then you lose your sense of focus. How many startups can we think of today who have struggled from lack of focus? Can probably name a few. So you start to lose your muscle for simplicity. Hiroki taught me simplicity. And he taught me that simplicity is not removing things. Simplicity is distilling something so fundamentally that you understand its essence. I know Steve used to say, design is the fundamental soul of a man-made creation that reveals itself through subsequent layers. In other words, great design is about distilling something to its essence. It's kind of what Elon does with SpaceX where he talks about first principles. And first principles is kind of a physics term, but it's also a design term. It's about understanding, if I'm going to reinvent this product, I have to understand the properties of glass. I have to understand everything about it, to distill it to its essence. So I got obsessed with simplicity, simplicity of our products, simplicity of our organization, simplicity of everything. The other one was a sense of craft and details. How you do anything is how you do everything. And I said, everything must be perfect. It comes from – there's a book that a lot of people in Silicon Valley recommend, The Score Takes Care of Itself. Bill Walsh, the coach of the San Francisco 49ers. John Wooden, winningest coach in college basketball history, UCLA. Same principle.
· Brian Chesky, Patrick O'Shaughnessy
First day at UCLA, so John Wooden won 10 NCAA champions over 12 years. First day, first hour with his team, he spends an hour teaching how to put your socks on. One hour, and he said, put your socks on this way. [00:00:00] S0: Very Mr. Miyagi.