Invest Like the Best with Patrick O'Shaughnessy
· Gokul Rajaram
[00:00:00] S1: The most important thing I look for is founder authenticity. Three of the four companies I've worked with – Google, Facebook, and DoorDash, all started in colleges. And they all started as a way to, just a toy problem almost, that the founders are curious about. And they started with an authentic curiosity. "Can this be built?" It got built and it started. And similarly, with Jack and Jim, they started solving a real problem. So my first question to every founder is, "Tell me your founding story. Why did you decide to start this company?" The founding story, in my opinion, expresses why they chose this problem and ideally should touch on what their superpower is and what compelled them to work on this problem. I've had many people work with me or for me, who have gone out to start companies with the only reason being, "Well, I have my buddy and we both want to start a company together." I really advise them not to do that because just going out and starting a company because you want to start a company with your friend is the wrong reason. So I want to understand, is there an authentic lived experience that they've had in their life that compels them to work on this problem? Dylan from Figma, if you talk to him, he's seeped in design. He thinks about the design of things. He thinks about how to make things more compelling. It was very clear that he had a vision for what this thing could be. A good example is a company called Faire. It's a B2B marketplace. Max Rhodes, the CEO, worked for me at Square. And Max, when he left Square, he actually tried many different ideas and turns out, and none of them were authentic to him and to Faire. Turns out the idea that it worked was Faire. When he was an undergrad student, he had an umbrella company that he created. And this umbrella company, he was trying to get distribution for it in local retail. It was extremely hard for a brand. How do you get local retail? And there's so many of them. How do you go in and pitch to them? So he realized that that problem is the one he wanted to focus on – other manufacturers who wanted to get access to local retail.
· Patrick O'Shaughnessy, Gokul Rajaram
[00:00:00] S0: Are there any other questions that you love to ask in a first meeting learning about a company other than tell me your origin story? [00:00:00] S1: The other one is idea maze. Tell me about how you navigated the idea maze. Yes, you want to tackle this problem. Because again, this is a classic product thing. You started the problem, but then there are many different solutions, many different ways to solve it. Why did you choose this way versus the other way you could have chosen? I will basically try to throw them off course or off kilter by asking them five, six other ways to solve the same problem. Understand if they are students of either history or the industry, to say why this problem could not be better tackled in this way. So I want to understand that they have studied alternate approaches, historical approaches to solve this problem. I think a good example is the Collisons, I think, bought a book on payments and they studied exactly why all the payments companies did what they did, and how they failed and how they succeeded. And I think the best founders are students of history in that industry. And they understand why all the prior companies took the decisions they did, and ideally stand on the shoulders of giants to be able to build this company.
· Gokul Rajaram, Patrick O'Shaughnessy
[00:00:00] S1: The other one is idea maze. Tell me about how you navigated the idea maze. Yes, you want to tackle this problem. Because again, this is a classic product thing. You started the problem, but then there are many different solutions, many different ways to solve it. Why did you choose this way versus the other way you could have chosen? I will basically try to throw them off course or off kilter by asking them five, six other ways to solve the same problem. Understand if they are students of either history or the industry, to say why this problem could not be better tackled in this way. So I want to understand that they have studied alternate approaches, historical approaches to solve this problem. I think a good example is the Collisons, I think, bought a book on payments and they studied exactly why all the payments companies did what they did, and how they failed and how they succeeded. And I think the best founders are students of history in that industry. And they understand why all the prior companies took the decisions they did, and ideally stand on the shoulders of giants to be able to build this company. [00:00:00] S0: The dimension we haven't talked about is the role that – not just the role, but the perspective that being on boards offers. You're on lots of interesting boards. The big ones are Coinbase, Pinterest, and The Trade Desk. Maybe from those three, what lessons have you gleaned from being a member of those boards, watching how boards operate, the role that they play, anything else that comes to mind from that unique experience?
· Gokul Rajaram
[00:00:00] S1: One of the most interesting things about being on boards is that it gives you a much better perspective of what it means to an executive, by being on a board. Once a company gets a certain size, I think the CEO needs to try to see if they can join a board, because I think it helps them figure out how to deal with their board by being on the other side. A good board is composed of people who can help the company in the things where the company needs the most help on an ongoing basis. For example, every company needs somebody with – maybe one or two people now, increasing – with product and engineering experience. In fact, every tech company cares. 10 or 15 years ago, you would probably see zero product or tech people on boards. Now, every good board has one or two product or tech people. Second, you need a voice of the customer on the board. You need somebody who represents customers. So at Square, we got the CEO of Shake Shack, Randy Garutti, on the board. And he was amazing because he was the voice of the customer. The other thing, I always recommend to CEOs is, a board role is like a marriage. Once you get into it, so never, ever, ever invite anyone to join your board before spending at least a year with them. Have them join an advisory board. Have them meet with everybody on the management team. Spend time with them. Have them come to a few board meetings. Have them meet with the other board members. Have three or four people on your advisory board and then make one of them a board member if you like them, if you feel they're adding value, if your team feels they're adding value, et cetera. The other thing I've seen with boards over the last 15 years is the management team getting involved. 15 years ago, it would just be the CEO, the co-founder maybe, and the board. We'd meet for four or five hours, discuss topics. Maybe we'd bring in the management team person for one slice, the CFO, and then they would leave. Now, most companies, they have the management team attend the entire board meeting. And I think that is awesome, because I think the management team and board get to meet each other. As part of a board, you want to understand who's on the management team, who could be successor to the CEO. What are the capabilities of different parts of the management team?
· Gokul Rajaram, Patrick O'Shaughnessy
And then as the management team, you want the management team to be able to leverage the board for help. I think one of the best practices I've seen and done – I've now tried to push other companies to do it, is the notion of a board buddy. So everyone on the board should become a buddy to a management team member. And they would then meet with that management team member multiple times between board meetings. So once a month, or even text with them. And anything, they're almost like a sounding board for anything the management team member has. You can see that the different board personas I described, they map nicely. So I generally am the buddy for the head of product or the head of engineering. Somebody else is a buddy to the CFO. Someone else is a buddy to the CRO. I think the meetings in between the board meetings are actually just as important as a board meeting themselves, because there's a lot of things going on. [00:00:00] S0: It’s formal, yeah. [00:00:00] S1: That's the other thing I realized. It's not the board meeting that truly matters. It's all the things between the board meetings that are the real thing when things get done. [00:00:00] S0: I think the only thing we haven't talked about in this grand art of company building and product creation is the job of acquiring the customer, positioning the product, marketing the way it presents itself to the outside world. What's the dispatch from the cutting edge that you're seeing of how people do this?
· Gokul Rajaram
[00:00:00] S1: One of the most interesting things now, it's different between enterprise focus and consumer focus. For consumer focus companies, the big thing is how to scale influencers. They become much more powerful in how people, especially younger people, consume products and even choose products. Somebody said that TikTok is the best local search engine. And I think that's right. My kids have discovered, when they go traveling, crazy restaurants on TikTok that Google Maps would not really show or Yelp doesn't show it. So how do you reach influencers on TikTok? And there's a set of companies that's coming out that's essentially making it easy. The problem is influencers on TikTok, obviously there's head influencers, but there's a long tail that go viral for different reasons. And you want to capitalize on those viral waves if possible. So there is a set of companies that is building products to see if they can help brands connect with these influencers in scalable ways. On the enterprise side, the most interesting thing I'm seeing, it's not really an acquisition channel as much as it is an onboarding channel. It is basically presenting an outcome to a customer and saying, "Let's collaborate on outcomes." Palantir does that very well. Palantir goes to customers and says, "What's your most important business problem? Oh, here it is. Okay, great. Give us six months to solve it, engage with us. If we can't solve it, fire us, don't pay us anything. If we solve it, pay us a lot of money." So it's truly taking ownership. And I think this goes to outcome-based pricing, how your product is priced and your confidence in your ability to deliver that outcome. So I think outcome-based selling is one of the most interesting ways of changing. And in fact, one of the top pieces of advice I have for founders reaching out to companies is, you cannot lead with what your product does anymore. You've got to lead with what is the outcome you can deliver, or ideally already have delivered. I'll never forget this example. What is crazy is that companies always look to other companies in the vertical. This will never change. So for example, if you get JP Morgan to use your product, I promise you every single bank will then evaluate your product. But if you get Procter & Gamble, JP Morgan doesn't care if Procter & Gamble uses your product.